Bitcoin Price Pressure

ding ding ding. that's all i'm doing. i've had a bunch for a while. i don't need the liquidity, so i figure i might as well hang on to them. i think a lot of us are in the same boat.

if a group of 100,000 'crazy' and 'irrational' people all decided to put $100 USD a month into bitcoin, you'd create upward pressure on BTC, with a price floor of $43 usd [1] at current reward rates, rising as the reward rate drops. The rising floor would case the price of BTC to rise, even if the _only_ volume was 'crazy bitcoin believers putting $100 a month into it'. the fixed supply of coins and large supply of 'crazy people who think they'll make money because the price keeps going up' and make the 'crazy' belief that bitcoin will be worth more in the future become a self-fullfilling prophecy.

the REAL thing that would cause it to flop is if these 'crazy' people all decided they wanted dollars instead of bitcoins. that would tank the price. but if they 'maintain the insanity' of holding onto a thing with a dollar price that flucauates wildly, their insanity becomes our reality. since most of these people think the dollar is a fucked up currency, they probably see the _dollar_ as being the thing that fluctuates wildly. anything looks crooked if you use a crazy straw as a ruler.

possible objections:

Q: how is this worth anything if it's just crazy people convinced that this thing will be worth something'

A: 'it's because there is value in trust.' people that hold onto something they can't eat, live in or use because they think it's valuable will be right - IF they have their eating, living and other needs taken care of. that's it. that's all you need to understand. if you think a group of people who 1) have their basic needs met and 2) choose to hold onto something that could let them buy big houses, cars, fame, parties, drugs, sex, and elections because they think this other thing is' worth more, i'd suggest you're wrong to call them crazy.

Q: there aren't 100,000 people in the world stupid enough to do this.

A: in 2011 there were over 100k bitcoin addresses holding a balance [2]. i don't have stats on how many of them still do, but i'd suggest that these people would be 'stupid enough' to qualify.

Q: those stupid people would all have to have $100 bucks extra a month, and not cash out any BTCs'

A: $100 a month isn't that much, and if the 'stupid people' haven't cashed out at BTC being 100 or 1000 times what they paid for it, my guess is they don't really need the money.

Q: if all they're doing is buying it, and they never sell, that makes no sense - why are they buying something they don't plan to use?

A: because it makes them feel safe. all money is - all the financial markets and stock markets - all they are is a measure of how much people trust the world and think things will be ok. the use of numbers is also becuase people find that comfortable. a subjective measure of well being would never be taken seriously by the world as a 'measure of value' and yet that's essentially what the market is - only it's weighted by people who have lots of money. having lots of money is hard to do, so we put more stock in the sense of those people. combine that with "it's hard to have lots of money if your sense of well being is shit and you try to fix that by buying things" and it starts to make sense.

one guy with an outlandish prediction is crazy. a hundred thousand people with the exact same outlandish prediction are either a cult - believing in something impossible - or a corporation - believing in something unlikely but doable with enough effort. a computer on every desk? impossible, unless you have enough people trusting that this will happen because they've seen the numbers and the math checks out.

[1] current reward rate is ~ 7200 coins per day. if 100,000 people put 100/month into the coins, that gets you a price of 46.29 per newly created coin.

[2] http://bitcoin.stackexchange.com/questions/2828/how-many-bit...

http://www.google.com/trends/explore#q=bitcoin&date=today%20...

And it will keep going down until the search volume stops going down, at which point it will stabilize, and then start to go up once again. Of course, this says nothing about whether the recovery will be $7 to $30 or $450 to $4000, but it's a pattern that has been quite consistently highly correlated with Bitcoin price movements in the past and I see no reason why it should not continue to be in the future.

Edit: the turnaround may be quite soon. We can already see that the price has actually moved by pretty much exactly 0% in total over the past 30 days: http://bitcoinity.org/markets/bitstamp/usd

He says that bitcoin isn't failing, but I don't see how it can succeed. It doesn't make short-term economic sense for individuals to either mine or buy bitcoins, so it seems like the only people buying bitcoin will be those who are either speculating or who simply want it to succeed. That doesn't seem sustainable. Can anyone explain why he is still optimistic about bitcoin?

Actually, no. Bubbles have very clear and consistent price patterns which (so far) has not characterized any of the elevations in bitcoin price. One not mentioned in this chart is that for bubbles, the post-mania drop tends to be 2x faster than the rise, which has never been true for any of the bitcoin corrections.

http://www.theeestory.com/files/price_bubble_chart.jpg

It is certainly possible that bitcoin will at some point exhibit the characteristics of a bubble, which may even destroy bitcoin, but it has not so far.

Every trade has both a buyer and a seller—for someone to have sold bitcoins, someone else has to have bought them.