Bitcoin hits $200

I'm not a substantial bitcoin investor, but I follow bitcointalk.org fairly actively, and there has been a fairly noticeable increase in posts about ASIC (Application Specific Integrated Circuit) solutions being a profitible means to mine Bitcoins. I don't know whether this is a driving factor, but it certainly relates to the expanding market in general.

The wide perception of Butterfly Lab's ASIC solution as being a scam has resulted in wide interest in alternatives, which are legitimized by seemingly functional and deliverable ASIC solutions by companies like Avalon. At over 6,000 Mh/S per module, they exceed the best GPU/FPGA solutions for mining almost by a almost a hundred fold (after factoring power consumption), which has produced a tangible market of bitcoin hardware.

Regardless of whether specialized Bitcoin ASIC hardware is cost effective, the production serves to legitimize the currency/producing market as a whole (as well as reinforcing the hype/gold rush mentality for miners and speculators).

I'm still not sure how/whether the currency will eventually settle, but it is very interesting to follow.

It's fascinating to watch this, largely because Bitcoin has no "natural" value. The only utility it has is as a transfer of value from one place to another, and it can do that equally well with a bitcoin being worth $1 or $200.

But it's really interesting to watch the value ratchet up, and easy to see how you can do this - if people will only ever sell a bitcoin for (say) 1% more than they bought it for, and people buying things with bitcoins don't care if the things they're buying with it are priced 1% higher than they might, theoretically have been, then the price of bitcoins can keep increasing indefinitely.

Until, that is, some people decide that they want to get rid of a lot of bitcoins, and thus are willing to accept less than that, to shift them quickly. Then the price drops. And then more people might also decide to sell, so as to convert the bitcoins they have at the value they're now worth.

It's classic sentiment pricing - but without any of the value "stickiness" that you get when there's some utility to be gained from the objects you're trading.

(I'm not trying to talk Bitcoin down here, I find the whole thing fascinating. Just thinking out loud.)

So how much was that first pizza worth now?

It's hard to say. There are many who justify prices far higher based on future adoption. Adoption is picking up at a remarkable rate.

The USD money supply is around $3T or $10T, depending on whether you are counting money multiplied by leverage. The US GDP is $15T. If we presume that a currency then should be on the same order of magnitude of money supply as the GDP or transaction volume, it's not hard to project a $100B+ supply of bitcoin. With the supply currently at $2B, there is a lot of room to grow. I have no idea if this analysis is reasonable, but I suspect it is close to the "story" behind the bubble.

Of course all of this presumes that bitcoin will prevail as the leading crypto-currency, regulatory hurdles will be surmounted, and the currency remains secure. Those are not implausible ifs. In fact, I'm a big believer in the future of bitcoin, even if it is getting a little ahead of itself.

I anticipate a significant collapse at some point, regardless of the success of bitcoin. That crash may very well be from $1000 to $200 though.

It's very common for markets to peak out at psychologically important levels for a variety of reasons. In fact, I would not call this unusual at all.

Anyway, it is trading over $200 now, so it's a moot point.

I'd be more inclined to suspect bandwagon speculation than manipulation.