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BTC bubbles

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Re: BTC bubbles

#41

Post by jpadkins »

gnaritas wrote: post #17
leoedin wrote: post #12

Earlier quoted context omitted.

But bitcoins do have a use. There's at least a few million dollars a month of value moving through Silk Road. However, it's not in the interest of users of BTC to use a wildly unstable currency. My prediction is that bitcoin will be replaced at some point by another crypto currency which fixes some of its major flaws - particularly its deflationary nature.

> particularly its deflationary nature Which IMHO is what will kill it; it's just a terrible feature for a currency.

why?

Re: BTC bubbles

#42

Post by rdouble »

pc86 wrote: post #38
omellet wrote: post #28

Earlier quoted context omitted.

Other commodities are volatile for different reasons. Natural gas is volatile because it's literally volatile, so storing and shipping it is expensive. Grains are volatile because of variable growing seasons. Onions are volatile because US Congress banned futures markets for onions. Even so, none of these are nearly as volatile as BTC has been.

Do you know why Congress banned onion futures? That seems... random.

http://en.wikipedia.org/wiki/Onion_Futures_Act

Re: BTC bubbles

#43

Post by mikeash »

rrrrtttt wrote: post #33
vrotaru wrote: post #29

Earlier quoted context omitted.

> That's not the inherent value. Show me your inherent-value-meter, or shut up. Simple, eh?

People here are saying over and over again that there is no such thing as "real value". That's bullshit. Economists have great ways to measure real value. For example, for financial assets real value is net present value of future cash flows. For currencies, real value is parity purchasing power. (Bitcoin is not a currency in this sense.) Things have real value.

Why would you measure "real value" with future cash flows when cash itself clearly has no "real value" at all beyond toilet paper?

Re: BTC bubbles

#44

Post by dragontamer »

rrrrtttt wrote: post #27
dragontamer wrote: post #18

Earlier quoted context omitted.

Indeed. But with a futures market, they will be able to speculate in both directions. Futhermore, businessmen who rely on the BTC USD price will be able to buy futures, and be able to settle down on a future spot price on BTC. IE: A business expects to get say 10 BTC in 30 days... but wants the money in USD. So he wants to buy a contract to sell 10 BTC 30 days from now. It can even be in the form of call / put option…

Could you say a bit more about how a futures market can reduce volatility in the underlying asset? This is an honest question, not being cynical. To me it seems that assets that have futures markets can be very volatile (say gold or oil), but I guess causation goes the other way?

Sure. The "futures market" is primarily composed of call / put options. I'll focus on a call option.

A call option is a contract, allowing you to buy the asset at a specific price at a specific time. I'll put parenthesis to make it easier to understand... IE: I'll sell you a (contract to buy 10 BTC for $30 each on April 30, 2013) for $300.

So today, you can buy the contract from me. In April 30, if BTC remains high in price, you can execute the contract and buy 10 BTC @ $30. If BTC crashes in price, the contract is worthless, and you can instead buy BTC from the market. You make a profit if on April 30, the price of BTC is $60 or higher.

The opposite is true for put options. You buy put options to sell BTC on the market at a particular price at a particular time.

Here's the kicker: options are bought and sold on the open market. IE: The futures market. So the spot price of $300 for this contract will go up / down based on what speculators believe the price of BTC will be in 30 days. (The terms of the contract don't change. Only the cost of the contract changes)

For businessmen who primarily work in USD, getting a spot price of BTC way off in the future will help solidify his business.

The underlying asset may be volatile, but futures allow the businessman to guarantee a price on the BTC USD exchange.

Re: BTC bubbles

#45

Post by jvm »

omellet wrote: post #28
jvm wrote: post #26

Earlier quoted context omitted.

> When a worthwhile Futures market hits, then BTC will really stabilize. I agree that a futures market would be a stabilizing force, but other volatile commodities are still highly volatile even with futures markets. The reason most currencies aren't volatile is that they have a central bank behind them actively manipulating their supply to make sure they are stable relative to some other asset or basket of goods. In…

Other commodities are volatile for different reasons. Natural gas is volatile because it's literally volatile, so storing and shipping it is expensive. Grains are volatile because of variable growing seasons. Onions are volatile because US Congress banned futures markets for onions. Even so, none of these are nearly as volatile as BTC has been.

Right, my point is just that futures markets will of course reduce BTC volatility, but they're not going to make it nearly as stable as TIPS or something. Parent was saying it was going to "really stabilize."

Speculating, I think an optimistic outcome is that it will end up with volatility similar to an equity index (which themselves effectively have futures markets).

Re: BTC bubbles

#46

Post by arpp »

Technical Analysis is the Homeopathy of the financial world, just an "advanced" kind of scam using some basic maths...

https://en.wikipedia.org/wiki/Random_walk_hypothesis

https://en.wikipedia.org/wiki/Nash_equilibrium

https://en.wikipedia.org/wiki/Efficient-market_hypothesis

I though you guys were more smart than this.

Re: BTC bubbles

#48

Post by dragontamer »

jhaywood wrote: post #36
rrrrtttt wrote: post #27

Earlier quoted context omitted.

Could you say a bit more about how a futures market can reduce volatility in the underlying asset? This is an honest question, not being cynical. To me it seems that assets that have futures markets can be very volatile (say gold or oil), but I guess causation goes the other way?

I wouldn't say that futures markets make the price of a commodity less volatile. They do however let you lock into contracts at certain price levels to let you manage your risk in a volatile market. Which makes all the difference

It will somewhat stabilize. With Call / Put options, you can start to create a straddle for instance, and make money if the market moves in either direction.

http://commodities.about.com/od/futuresoptions/a/futures-opt...

I'd expect the first strategy people will do when a futures market opens is to start making a lot of straddles. Therefore, these people make money if the market moves in ANY direction, up or down. (the more the market moves, the more they make money). Thanks to the magic of options.

A ton of people buying straddles will slow down the movement of the market. Then the straddlers make less money when the market fails to move.

Every time someone profits off of straddling, the market volatility decreases, leading to an overall more stable BTC market.

Re: BTC bubbles

#49

Post by dragontamer »

jvm wrote: post #26
dragontamer wrote: post #4

When a worthwhile Futures market hits, then BTC will really stabilize. He's right. Without shorting, options, and future contracts... it becomes impossible for BTC to stabilize in the wake of media exposure. Add on to the fact that the majority of BTC users seem to be idiots (ie: they look at the price as some sort of indicator of BTC penetration, as opposed to more useful statistics), and you've definitely got a sit…

> When a worthwhile Futures market hits, then BTC will really stabilize. I agree that a futures market would be a stabilizing force, but other volatile commodities are still highly volatile even with futures markets. The reason most currencies aren't volatile is that they have a central bank behind them actively manipulating their supply to make sure they are stable relative to some other asset or basket of goods. In…

Fair point. But if BTC "stabilizes" to a "VIX" of ~15% (where Gold and Oil is right now), that is a hell of a lot better than its current volatility of something like 80%+.

Its all comparative. :-p It will still be more volatile than currencies, but a hell-of-a-lot better than it is right now.

Re: BTC bubbles

#50

Post by Nursie »

mikeash wrote: post #43
rrrrtttt wrote: post #33

Earlier quoted context omitted.

People here are saying over and over again that there is no such thing as "real value". That's bullshit. Economists have great ways to measure real value. For example, for financial assets real value is net present value of future cash flows. For currencies, real value is parity purchasing power. (Bitcoin is not a currency in this sense.) Things have real value.

Why would you measure "real value" with future cash flows when cash itself clearly has no "real value" at all beyond toilet paper?

Kindling, also emergency clothing if you have a lot of the cotton-paper type and maybe a stapler or something...
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