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Bitcoin falls from $266

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Re: Bitcoin falls from $266

#291

Post by jessriedel »

nhaehnle wrote: post #263
jessriedel wrote: post #111

Earlier quoted context omitted.

My Econ 101 understanding is that the value of USD is not primarily due to taxes, i.e. if the government stopped collecting taxes (or started forcing people to pay taxes in gold or Euros) the value of the dollar would not tank. Instead, we're in a Nash equilibrium where we're all accepting dollars as a means of exchange and it would be costly and have little benefit for individuals to defect. The intrinsic value of t…

You are talking about slightly different things. A lot of the reason why fiat money has value is obviously circular logic: You can use it to buy money at the store, because the store needs to pay its suppliers in the same currency, who needs to pay its employees in the same currency, who are happy (more or less) to work for the same currency because they can use it to buy the things that they need. The vast volume of…

OK, I kind of agree. I think "circular logic" is a very bad term here, because it suggests a mistake in logical reasoning, when in fact you just mean that the Nash equilibrium is only meta stable. Similarly, "induction base case" is bad because it again suggests reasoning, but I think here you recognize that and put it in quotes to show that it's just an analogy (and a neat one at that).

But I disagree that you need taxation as a bootstrap to get you to the equilibrium. Indeed, in the actual history of the US it was the backing by gold that established the dollar; initial taxation was minimal. Now that backing has been removed, and the dollar still functions. Then, I infer, you would argue that taxation has replaced gold-backing as the stabilizer.

Your penultimate paragraph is an interesting suggestion, but I'm not convinced. Could you point me toward some place where it was fleshed out? I can easily imagine a world where people keep writing new contracts denominated in dollars, whose street value is set by the process that I described. Where is the motivation for people to defect? One answer is that a new currency (like Bitcoin) comes along that has special properties that make it useful enough for people to absorb transaction costs and to start exchanging alongside the original fiat currency. Then things could unravel. And indeed, taxation could suppress this by providing additional friction like I mentioned in my original comment. But in the absence of such a new currency I don't expect the dollar to spontaneously start to unravel on its own simply because there are no taxes. People would continue to need a medium of exchange and the dollar is very good.

Re: Bitcoin falls from $266

#292

Post by encoderer »

jessriedel wrote: post #284
encoderer wrote: post #245

Earlier quoted context omitted.

Not true. The fact that you're somewhat informed on these matters is working against you here. If the US Gov't stopped collecting taxes -- or had some other substantial liquidity crisis -- the very real issue is debt service. Since the USD is the global reserve currency, we are in the rather unique situation of having our debt denominated in our own currency under control of our own central bank. This is where the "f…

First, I think the interesting question is just about fiat currencies, not the US in particular. The global reserve currency aspect is a secondary effect. Let's concentrate on a generic fiat currency issued by a government. So you're saying that "full faith and credit" just means "The gov't promises not to crazily inflate the money by printing lots of it". Fine. (That doesn't explain what process determines the stree…

No, you don't have to have debt to have good credit.

Re: Bitcoin falls from $266

#293

Post by unreal37 »

dia80 wrote: post #169
cs702 wrote: post #135

Evidently, many hoarders/speculators decided to cash out at once -- much like the audience in a movie theater would try to go through the exit door at the same time if someone were to yell "fire!" The naive souls who recently bought bitcoins to make a 'quick buck' are in for a rude surprise. In the short run, no one knows how Bitcoin's price will fluctuate. In the long run, however, if Bitcoin continues to work as in…

On the contrary this is just the most pronounced in a series of recent coordinated DDOS / aggressive selling attacks designed to (successfully) inspire panic. The attackers unload their bitcoin before the price gets smashed and presumably buy it all back again from frightened speculators. If anything it might be a positive sign for bitcoin that the attackers are keen to acquire it! On another note, mtgox.com the main…

Did you see Nasdaq's performance on Facebook's IPO day? I don't think there's an exchange in the world that can handle a serious amount of crushing volume (many times above normal) without some failure somewhere.

Re: Bitcoin falls from $266

#294

Post by RockyMcNuts »

dia80 wrote: post #169
cs702 wrote: post #135

Evidently, many hoarders/speculators decided to cash out at once -- much like the audience in a movie theater would try to go through the exit door at the same time if someone were to yell "fire!" The naive souls who recently bought bitcoins to make a 'quick buck' are in for a rude surprise. In the short run, no one knows how Bitcoin's price will fluctuate. In the long run, however, if Bitcoin continues to work as in…

On the contrary this is just the most pronounced in a series of recent coordinated DDOS / aggressive selling attacks designed to (successfully) inspire panic. The attackers unload their bitcoin before the price gets smashed and presumably buy it all back again from frightened speculators. If anything it might be a positive sign for bitcoin that the attackers are keen to acquire it! On another note, mtgox.com the main…

In the days before computers, believe it or not, price reporting often ran behind. In the 68 'paperwork crisis' the NYSE went to a four-day trading week for a while to give back offices time to catch up. Capitalism survived.

Re: Bitcoin falls from $266

#295

Post by baddox »

icebraining wrote: post #267
sliverstorm wrote: post #59

Earlier quoted context omitted.

The ability to sell an item for x USD is not one of the "things" you can do with it that contribute to intrinsic value. Let's put it a different way; if the market value for a bitcoin was $0, what could you do with it? Compare that to an apple. If the market value for an apple was $0, you could eat it. Thus (unless someone has a clever use for bitcoins outside of currency) an apple has greater intrinsic value than a…

I'd say that's use-value. Intrinsic implies it's not relative to each person, which clearly isn't true in that case (e.g., I could be allergic to apples, then the value would be nil to me).

...which illustrates the inherent absurdity of the word "intrinsic." If allergies make some quality extrinsic, then doesn't the very existence of humans also make all qualities extrinsic? If humans are extinct, the apple can't even be eaten by any humans, so it must have no intrinsic value.

Re: Bitcoin falls from $266

#296

Post by jessriedel »

mcherm wrote: post #277
crapshoot101 wrote: post #171

Earlier quoted context omitted.

correct in a sense- the US dollar is backed by the full faith and credit of the US Government, nothing more. Would I still have that faith in the US $ if the government did not collect taxes / did not seem like a stable entity? Probably not, but your point is still valid

Um, no. The US dollar is backed by US law guaranteeing that it must be accepted as payment for all debts and by US law requiring taxes to be paid in USD. All of which, as the parent post points out, is dwarfed by the backing provided by all the merchants, banks, and consumers in the world who are using USD today. The corner grocery store in Pottsville, PA backs the USD by accepting it as payment for frozen pizza and…

> The US dollar is backed by US law guaranteeing that it must be accepted as payment for all debts

I believe this doesn't stop people from creating special obligations through contracts that are denominated in other currencies. It more means that if I run over your mailbox and a judge orders me to compensate you, I can use dollars.

Re: Bitcoin falls from $266

#297

Post by jvm »

crgt wrote: post #156
jvm wrote: post #128

Earlier quoted context omitted.

> However, BTC China is still trading at above $275 Spreads for fungible commodities are generally not good. They mean that either a) somebody is getting massively screwed by paying a price that's way off the mark, or b) nobody's actually trading, which means the asset is illiquid. That is, unless there is some real reason why a BTC should be worth double in China what it is in the US.

Perhaps a pseudoanonymous currency's value is correlated with the oppressiveness of the local govt? I can imagine circumstances where someone might be willing to pay a premium for BTC solely based on their desire for the privacy of their transactions.

But even if they are willing to pay a premium, at a $100 spread there should be a lot of traders willing to jump into the market which would close the gap, unless they are prevented from doing so. If there are capital controls they are surely on USD not BTC, so if anything USD should be more valuable within China.

Re: Bitcoin falls from $266

#298

Post by alexchamberlain »

dsrguru wrote: post #271
dia80 wrote: post #169

Earlier quoted context omitted.

On the contrary this is just the most pronounced in a series of recent coordinated DDOS / aggressive selling attacks designed to (successfully) inspire panic. The attackers unload their bitcoin before the price gets smashed and presumably buy it all back again from frightened speculators. If anything it might be a positive sign for bitcoin that the attackers are keen to acquire it! On another note, mtgox.com the main…

> If real markets could get 1 hour behind in transaction processing because of a spike in volume it would be the end of capitalism as we know it. The Facebook IPO was pretty damn similar and didn't end capitalism as we know it :)

That was not a spike in volume, rather a rocket.

Re: Bitcoin falls from $266

#299

Post by r00fus »

guard-of-terra wrote: post #160

If it doesn't recover today I'm buying another bitcoin tomorrow! UPD: Actually it did and now is traded >200$

It's now at $159. It was at $164 one minute ago, and $142 a minute before that. This volatility is making some people really really rich, I imagine.

It's also making it very dangerous to use BTC as a way to shuttle money.

Re: Bitcoin falls from $266

#300

Post by erikpukinskis »

coldtea wrote: post #211
cs702 wrote: post #135

Evidently, many hoarders/speculators decided to cash out at once -- much like the audience in a movie theater would try to go through the exit door at the same time if someone were to yell "fire!" The naive souls who recently bought bitcoins to make a 'quick buck' are in for a rude surprise. In the short run, no one knows how Bitcoin's price will fluctuate. In the long run, however, if Bitcoin continues to work as in…

It's until one-two major governments decides to make it illegal to deal in bit-coins that it's price will drop to zero. It doesn't matter if they can't enforce it 100% (or even 1%). What matters is that it will kill almost all opportunities to use it as regular money for legitimate purchases by major companies etc in the future. And that it could also land your ass in jail (with ISP monitoring and such being what it…

If you're trying to do something that's already illegal (sending money to your grandmother in Iran) then you won't care if bitcoins are illegal.

The market for making politically sensitive transactions is huge. There's no need for Bitcoin to be the currency of choice for buying a Big Mac in New York.

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