Bitcoin Price Hits Fresh Record High Above $2,200 (cnbc.com)

An anonymous reader writes: Monday marks the seven-year anniversary of Bitcoin Pizza Day -- the moment a programmer named Laszlo Hanyecz spent 10,000 bitcoin on two Papa John's pizzas. More important than the episode being widely recognized as the first transaction using the cryptocurrency is what it tells us about the bitcoin rally that saw it break through the $2,100 mark on Monday. Bitcoin was trading as high as $2,185.89 in the early hours of Monday morning, hitting a fresh record high, after first powering through the $2,000 barrier over the weekend, according to CoinDesk data. Throughout the weekend, the value of cryptocurrency was looming around $2,000.

Comments

Re:Bitcoin is doomed to fail

[Notabadguy]

Anyone still on the bitcoin bandwagon are the ones who either have free electricity or criminals. As a currency it's just doomed to fail due to the ever changing "value" people attribute to it. It's simply too volatile. One day it can be worth $2k and the next it could be worth $500. The fact it becomes rarer after a while, only the ones who invested heavily in bitcoin in the early days actually made a decent profit, today if you join, you basically get peanuts.

That's the nature of every system, including Wall Street, education, investments, government, and sex.

The ones who get in early reap the benefits.

Re:Bitcoin is doomed to fail

[Anonymous Coward]

So, you were whining 5 years ago; had you invested 5k, you could retire today.

Instead, you're still whining today.

Exchange rate risk and fixed money supplies

[sjbe]

Bit coin is slowly limiting the supply of new bit coin (by design), which drives up the price of bitcoin.

Correct. This is because the makers of bitcoin were under the (incorrect) belief that having no ability to adjust the money supply quickly (ala the gold standard) is beneficial and failed to understand why such a system failed. Those who don't learn from history are doomed to repeat it.

So every time you go to buy a good or service you spend less bitcoin because its value has increased.

Not necessarily true. Just because the supply of bitcoins is (roughly) fixed it doesn't mean the demand for them is fixed. The price can and does go both up and down with great regularity.

I see a problem emerging when someone says they want to get paid in a fixed amount of bitcoin per hour.

That would be no different than saying you want to be paid a fixed number of dollars per hour. Inflation/deflation are real things with real consequences. Doesn't matter if you are talking about bitcoins or dollars. The difference of course is that you can buy most things with dollars but very few things with bitcoins so you are experiencing exchange rate risk in addition to simple inflation/deflation.

Re:Exchange rate risk and fixed money supplies

[bluefoxlucid]

When central banks manage a fiat currency, their supposed goal is to avoid flation of either kind by continually adjusting the money supply to match the aggregate value of everything that is exchangeable for it.

The explicit goal of the Federal Treasury is a 2% inflation rate in the U.S.. They estimate inflation based on a core set of goods, and ignore everything else, which is why inflation seems so off. Inflation the way most people think about it isn't really a thing: money doesn't have blanket buying power in terms of goods.

Think of it like this: we have a range of wages, with a median income. Those wages are dollars per labor hour. If we double them all, immediately, and just print up twice the money, we get 100% inflation and no change in the relative cost of goods; all the prices must go up to match (get to that next). That's what people think of when you talk about inflation: everything is priced higher, we adjust the number of dollars upward.

The thing is that's not how it works. Money isn't that kind of magic. You've seen hard drives get cheaper (from thousands of dollars for any unit--at a few megabytes--to today's pennies-per-gigabyte and $80 full units), displays get cheaper (again: thousands of dollars to $100 or so, and the screens are bigger), phones get cheaper ($4,000 for a cell phone in 1983; $350 for a OnePlus 3t in 2016), and so forth. Food, clothing, housing, medical care, these things rise in price or even in proportion of spending; yet people eat out more (food + servants), spend a smaller percentage of their income on these things (food and clothing), or spend a bigger percentage of their income while buying more than the difference (e.g. 4% of median income spending today would buy more and better healthcare than 4% of the median income bought in 1950, and instead people spend 6% of their income and buy even more).

It's not just that some things price up and others price down anyway; it's that they price up and down at different rates. Food and clothing prices both grow more-slowly than wages, and so the inflation rate of food is different than the inflation rate of clothing. Even then, different foods and different clothes change differently.

So what actually happens?

Well, the minimum viable cost of a product has a hard-bound at the wages to supply it. Imagine all wages involved in making a shirt are $10/hr, including the cotton farming, the dying, the shipping, the retail, business management to get all this organized, and everything else. If it takes a total of 14 labor hours to get that shirt into your hands, then either that shirt costs no less than $140 or somebody doesn't get paid. Get that cut down to 3 labor-hours per shirt and the shirt has to cost more than $30--at a 40% profit, it would cost $42!

That's why prices come down: the costs come down. Each business in the supply chain has some profit, which bumps those prices above the wage-labor cost; lower the wage-labor costs and the price coming out of that business is still lower with the same profit margins. The profit margins are as high as the market will bear, and reducing the minimum price possible allows another manufacturer to target consumers who can't afford your product at its current price; because existing buyers would rather spend $50 than $100, you lose business to the new guy unless you cut your prices, so the broader market forces a narrowing of profit margins by increasing the pressure from competition (either actual competitors or potential competitors by way of making it less-risky for someone to try to break into your market). Without that particular beating stick, prices would just stay high.

Importantly, people still have the same labor to trade.

Recall above I said that prices must go up if you double the amount of wages and money? Here's why.

Population can expand until it reaches carry capacity. Carry capacity happens when you hit scarcity. Th

Don't forget the BTC transaction fees

[timholman]

The flip side (which BTC proponents don't want to talk about) is that fees are currently running around $2 USD per transaction if you don't want your transaction to sit around unconfirmed for hours if not days. The Chinese mining pools are loving it.

You want to buy a $20 item with BTC? Someone has to pay that ~10% transaction fee on top of sales tax. Credit card fees are a bargain by comparison. So what has happened is that Bitcoin has become useless for what its supporters intended it to be - as money (unless the transaction is large enough to make the transaction fee negligible). Bitcoin has devolved almost exclusively into an instrument for speculation, blackmail, and transactions in illegal goods.

Even the big names in BTC processing (e.g. BitPay) are calling for an increase in the block size, which of course is being ignored by the mining pools. Why would they change a system that is funneling money into their pockets with each transaction? The alternative is a hard fork in the blockchain, but that may result in a crash in BTC prices.

The next few months will be interesting for Bitcoin.