Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Ask HN: How do we know Bitcoin is not in a bubble?

news.ycombinator.com

Post reply on HN
Print view View original

31–40 of 55 posts

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#31

Post by captainmuon »

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as widespread, and as desired, as USD. Now think about how many USD are in circulation compared to BTC.

I know it is not really that simple, and dollars have some special properties compared to bitcoin: you have to pay your US taxes in USD, for example. Also, it is easy to talk about "valuation" (in e.g. USD, EUR) if you view bitcoin as a commodity - but if it becomes a dominant currency it is not so simple. You can still reason about exchange rates, and my point is, the asymptotic exchange rate USD:BTC (assuming no dollar inflation) is not of the order of 10000:1, but much higher, maybe 1000000:1.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#32

Post by captainmuon »

Avalaxy wrote: post #6

It very obviously is. Nothing can grow at such an insane rate and be a stable, long-lasting thing. No one knows how high it will go, but that it will collapse hard soon is 100% sure.

> Nothing can grow at such an insane rate and be a stable, long-lasting thing.

That sounds like common sense, but common sense is not neccessarily right.

Imagine a German in the 1920s looking at the price of US dollars in Reichsmark. That can't be true, $1 for 1000 RM? Now 10000 RM? Nothing can grow at such an insane rate. Surely there is a dollar bubble, and it is going to crash.

What our German friend didn't realize was that his own currency was (hyper-)inflatory. USD were not overvaluated, they were stable. The current situation is similar, except instead of our currency being inflatory, the other one is being deflatory - this has the same effect on the exchange rate. It does not neccessarily mean there is tulip fever going on (although, to be honest, I can't disprove that).

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#33

Post by buckthundaz »

soneca wrote: post #9
Rmilb wrote: post #7

Earlier quoted context omitted.

If you are certain it will collapse you can make a lot of money shorting it. If you are 100% sure, there is no downside.

What financial mechanisms exist to short Bitcoin?

Possibly at bitmex: https://www.bitmex.com/

CBOE and CME to offer the next couple weeks.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#35

Post by simple10 »

eabrams wrote: post #4

As a fiat currency, it is almost by definition a bubble. It's fundamental value is essentially nil, yet it's "price" is positive. In the current equilibrium, people seem to agree that Bitcoin is a good store of value (because it is perhaps limited in supply and ownership is verifiable). Fortunately/unfortunately, other cryptocurrencies are just as useful in this regard. As such, Bitcoin's value is something of a suns…

Bitcoin is technically not a fiat currency. Fiat currencies are established by governments and are inflationary in nature since the governments can print more money whenever they feel like it. Bitcoin is deflationary and more like digital gold since the supply is limited.

Bitcoin could end up a popped bubble if Tether[1] loses adoption.

[1] http://fortune.com/2017/12/05/bitcoin-btc-price-usd-tether-l...

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#36

Post by akhatri_aus »

captainmuon wrote: post #32
Avalaxy wrote: post #6

It very obviously is. Nothing can grow at such an insane rate and be a stable, long-lasting thing. No one knows how high it will go, but that it will collapse hard soon is 100% sure.

> Nothing can grow at such an insane rate and be a stable, long-lasting thing. That sounds like common sense, but common sense is not neccessarily right. Imagine a German in the 1920s looking at the price of US dollars in Reichsmark. That can't be true, $1 for 1000 RM? Now 10000 RM? Nothing can grow at such an insane rate. Surely there is a dollar bubble, and it is going to crash. What our German friend didn't realiz…

Why aren't scarce resources like gold and oil going up the same way? I think gold made a low this week. Your theory doesn't align with what happened in Germany.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#37

Post by rmah »

captainmuon wrote: post #31

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as wi…

Bitcoin cannot become "widely used money". It is technically impossible. It is transaction rate limited to 6 txn/sec. Worldwide. Even band-aids such as increasing the block size won't help enough.

I'm not saying bitcoin prices will crash anytime soon. Simply that the dream of bitcoin replacing fiat currencies in daily commerce is just that: a dream.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#38

Post by saalweachter »

captainmuon wrote: post #31

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as wi…

So the US money supply is about $3.5 trillion. If you had 21 million BTC worth the same, your exchange rate would be about $170,000 / BTC.

Now I'll admit that I never expected BTC to break 5 figures, but even if your argument is "BTC should be worth as much as USD", 7 figures is still absurd.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#39

Post by [deleted] »

captainmuon wrote: post #31

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as wi…

[deleted]

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#40

Post by dsacco »

captainmuon wrote: post #31

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as wi…

> You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as widespread, and as desired, as USD. Now think about how many USD are in circulation compared to BTC.

This doesn't make sense. More precisely, your argument for why its value could grow more doesn't make sense. You're comparing incongruent units when you should be comparing per-unit value.

1 BTC is not an indivisible unit, it's just the most widely used unit. Similarly, we have $100 bills, $50 bills, etc despite $1 being the most widely used. We could also use pennies or nickels if the value of a single dollar far outstripped its ordinary utility for commerce.

The feedback loop you're suggesting would not occur because as the value of Bitcoin grew, each atomic slice of a Bitcoin would simply increase in utility as the new benchmark unit. With 100M satoshi per 1 Bitcoin, we're not in any danger of Bitcoin's valuation increasing just because there is a limited supply.

Post reply on HN