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Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

nytimes.com

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Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#41

Post by deepblueocean »

AndrewDucker wrote: post #7

I'd love to get an economist studying why the value of bitcoins goes up. After all, they're infinitely reusable, totally fungible, and incredibly low friction. The only reason for their value to rise (rather than them just being passed around at the same price indefinitely) is if people expect them to rise, or if there's a shortage (forcing people to use fractions of a bitcoin to represent the same number of dollars…

I'm pretty sure the exchange price of Bitcoins is driven by the marginal supply and demand. So I think it's got to be what you call "investors" almost entirely (note that not all people buying in have to be speculators: if lots of people suddenly decided they'd rather have some Bitcoins because they want to use them, that would suffice).

So the question is how are the marginal supply and demand determined? The marginal demand is subject to spikes in interest, media coverage, the Cyprus crisis (I really doubt the latter is meaningful but perhaps it makes people everywhere think they want to move out of bank deposits. People certainly attribute things to it). The marginal supply is based on (1) mining, which happens at a fixed rate and (2) people who wish to exit Bitcoin, which is subject to lots of whims.

Lots of evidence shows that most Bitcoins are hoarded, so it's possible that what we see is just a supply crunch - nobody wants to sell their Bitcoins and some people want to buy. I suppose the natural way to answer that is to go look at historical exchange volume across all the exchanges (or, as a first-cut proxy, just Mt. Gox).

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#42

Post by lftl »

throwawayG9 wrote: post #21
tudorizer wrote: post #6

Earlier quoted context omitted.

Quite a long time to go, but that's ok. How quick did such a mother adopt credit-cards?

Bitcoin needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in BTC, and they get stolen. What's she gonna do then?

Credit card transactions only appear to be reversible to the end user. If someone nicks your credit card and buys some gas, it may appear to you that the money just came back but someone in the chain (usually the gas station) is eating that cost.

So the only functional difference between bitcoin and a credit card in this respect is that there's someone big (the bank) sitting in between you and the transaction that has enough clout to force the loss off you and onto someone else. If a bank decided to build a bitcoin payment system, and signed merchants to a contract similar to the one they do on credit cards, there would be no functional difference from the consumer's standpoint.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#43

Post by eric_bullington »

deepblueocean wrote: post #41
AndrewDucker wrote: post #7

I'd love to get an economist studying why the value of bitcoins goes up. After all, they're infinitely reusable, totally fungible, and incredibly low friction. The only reason for their value to rise (rather than them just being passed around at the same price indefinitely) is if people expect them to rise, or if there's a shortage (forcing people to use fractions of a bitcoin to represent the same number of dollars…

I'm pretty sure the exchange price of Bitcoins is driven by the marginal supply and demand. So I think it's got to be what you call "investors" almost entirely (note that not all people buying in have to be speculators: if lots of people suddenly decided they'd rather have some Bitcoins because they want to use them, that would suffice). So the question is how are the marginal supply and demand determined? The margin…

Can you please show me the evidence you mention that shows that most Bitcoins are hoarded? I'm genuinely curious -- the main metric I'm aware of is Bitcoin Days Destroyed, and that metric seems to show that hoarding is actually steadily decreasing over time.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#44

Post by throwawayG9 »

rlpb wrote: post #35
throwawayG9 wrote: post #21

Earlier quoted context omitted.

Bitcoin needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in BTC, and they get stolen. What's she gonna do then?

Cash needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in cash, and they get stolen. What's she gonna do then? Answer: let a bank deal with it. Banks can be insured.

Correct me if I'm wrong, but BTC banks can be attacked just like normal banks by the very central authorities we are trying to be safe from. Eg: "Oh noes, our economy is doing terrible, so much public debt. Let's just steal from the people.". Sure, they can't use inflation, but that's not the only way.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#45

Post by throwawayG9 »

lftl wrote: post #42
throwawayG9 wrote: post #21

Earlier quoted context omitted.

Bitcoin needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in BTC, and they get stolen. What's she gonna do then?

Credit card transactions only appear to be reversible to the end user. If someone nicks your credit card and buys some gas, it may appear to you that the money just came back but someone in the chain (usually the gas station) is eating that cost. So the only functional difference between bitcoin and a credit card in this respect is that there's someone big (the bank) sitting in between you and the transaction that ha…

I replied here: https://news.ycombinator.com/item?id=5511715

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#46

Post by brazzy »

davidjohnstone wrote: post #32
brazzy wrote: post #29

Earlier quoted context omitted.

Except it is not a counterargument to that at all. If anything it reinforces that argument by treating Bitcoin as an asset rather than a currency.

I'm no economist, but isn't this blurring the lines between what an asset is and what a currency is? Isn't a currency fundamentally a perfectly liquid asset? As for previous commenters, the fact that the value of a Bitcoin might be worth ten times more (or less) what it is now in a few weeks has more to do with its volatility than its depreciative nature. Why would you ever risk money by lending it when you could jus…

> Isn't a currency fundamentally a perfectly liquid asset?

I'd say the defining property of a currency is that it's in wide use as a medium of exchange.

> its deflationary nature is good for the uptake of the currency, because, provided more people start using it

Except that the deflationary nature makes people hoard it, not use it.

For Bitcoin to succeed in the long run, the most important influence has to come from normal businesses accepting it as payment, not from speculators attracted by its skyrocketing market price.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#47

Post by endersshadow »

davidjohnstone wrote: post #32
brazzy wrote: post #29

Earlier quoted context omitted.

Except it is not a counterargument to that at all. If anything it reinforces that argument by treating Bitcoin as an asset rather than a currency.

I'm no economist, but isn't this blurring the lines between what an asset is and what a currency is? Isn't a currency fundamentally a perfectly liquid asset? As for previous commenters, the fact that the value of a Bitcoin might be worth ten times more (or less) what it is now in a few weeks has more to do with its volatility than its depreciative nature. Why would you ever risk money by lending it when you could jus…

To answer your question, no, a currency is not fundamentally a perfectly liquid asset. "Currency" is a really, really big word, but at its heart, currency is any medium of exchange. There are myriad microcurrencies that are out on the market now, of which Bitcoin is just one.

However, the difference is that Bitcoin has been primarily commoditized. People aren't using Bitcoin as a medium of exchange, by and large. They're trading dollars for Bitcoins in a hope to get more dollars back in the future. That's an investment in an asset, not a currency trade.

Now, to confuse things further, there is a FOREX market which allows you to (if you so chose) speculate on currency. By and large, these currencies fluctuate within the FOREX based on their respective purchasing power at that time (there's a lot that goes into this--I'm simplifying). The thing that makes the FOREX unique is that you can trade any currency with any currency in it. It's not a commodity market, wherein you need to sell your commodity to trade for another one.

Bitcoin wants to be a currency, but is a commodity. Until it becomes a viable (viable in the sense of macro-level use and acceptance) medium of exchange, it will only be a commodity. In one transaction, anything can look like a currency, and anything can look like an asset. But when you throw those words around, realize that at a mirco level, they're nigh meaningless.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#48

Post by kruhft »

AndrewDucker wrote: post #7

I'd love to get an economist studying why the value of bitcoins goes up. After all, they're infinitely reusable, totally fungible, and incredibly low friction. The only reason for their value to rise (rather than them just being passed around at the same price indefinitely) is if people expect them to rise, or if there's a shortage (forcing people to use fractions of a bitcoin to represent the same number of dollars…

The value of bitcoins goes up because the entire system is a store of value. When bitcions are bought, people are transfering "real" value (USD or any other government backed currency) into the Bitcoin system where the value is being held. When they sell Bitcoins they are removing value from the system. Due to supply (limited) and demand (increasing), the amount real currency needed to purchase a unit of Bitcoin is going up. This transfer of value can be due to hopes of appreciation (speculative investment, possibly causing a bubble) or lack of faith in a base currency (hedging wealth, as is happening in Europe).

Since our monetary systems are now based on little more than unbacked faith and look to be failing in various ways, people are looking to put their wealth into something they feel they can trust and that might have more of a future than current fiat systems. Given the decentralized lack of control of Bitcoin and the rise in the current lack of trust in the offical financial systems, the rise of Bitcoin makes as much sense as the present rise in the value of gold, a traditional hedge of value and original currency backer. Now that people are now used to storing value in non-backed, faith based monetary systems, Bitcoin is the first fiat monetary system that has no ruler, and people are transfering their government backed faith based store of value into it. It can be thought of a democratic store of value, and as more people believe in it the more value it will have.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#49

Post by tudorizer »

throwawayG9 wrote: post #21
tudorizer wrote: post #6

Earlier quoted context omitted.

Quite a long time to go, but that's ok. How quick did such a mother adopt credit-cards?

Bitcoin needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in BTC, and they get stolen. What's she gonna do then?

That's a valid point. People are missing the fact that Bitcoin is just the underlaying currency. Exactly like cash. Cash can be stolen if stored in your house. That's why banks exist. In Bitcoin-land banks will not look and behave like banks do in the current world.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#50

Post by tptacek »

kruhft wrote: post #48
AndrewDucker wrote: post #7

I'd love to get an economist studying why the value of bitcoins goes up. After all, they're infinitely reusable, totally fungible, and incredibly low friction. The only reason for their value to rise (rather than them just being passed around at the same price indefinitely) is if people expect them to rise, or if there's a shortage (forcing people to use fractions of a bitcoin to represent the same number of dollars…

The value of bitcoins goes up because the entire system is a store of value. When bitcions are bought, people are transfering "real" value (USD or any other government backed currency) into the Bitcoin system where the value is being held. When they sell Bitcoins they are removing value from the system. Due to supply (limited) and demand (increasing), the amount real currency needed to purchase a unit of Bitcoin is g…

Yes. Bitcoin is the first fiat monetary system that has no ruler. Also, it has repealed the law of parsimony (haven't you heard, on the Internet, there are no laws).

So it's totally not the case that Bitcoin is going up because Bitcoin is going up, and people are bidding up its price on the expectation that the peak is nowhere in sight, and they'll make a tidy profit off later speculators.

Because the Internet has upended all the normal ways of doing things, just like it did for Sealand (remember those message board threads?), it doesn't matter that economists look at the price chart for Bitcoin and say "uh, that is a bubble", and then "also, bubble or not, that is not productive behavior for a currency". Nor does it matter that Bitcoin mostly buys you donations to extremely independent bands, tips for blog tip jars, "Avalanche Spa Powder Not For Human Consumption", and highly marginal web hosting. No, the price makes perfect sense: people can't trust the US dollar, which reliably purchases cars, air travel, thai food, houses, Macbooks, chest freezers, pork chops, chlorinated trisphosphate, tuition at Stanford, roofing shingles, dirt, methamphetamine, hookers, and guns. Not just here, but pretty much everywhere in the world.

It's definitely not because if the current price for Bitcoin makes no sense, it's not going to matter whether your online wallet gets hacked and all the Bitcoin stolen, because you've already lost 80-90% of your investment anyways.

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