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The Bitcoin Bubble (economist.com)
A reader shares an Economist article: More people will trade in Bitcoin and that means more demand, and thus the price should go up. But what is the appeal of Bitcoin? There are really three strands; the limited nature of supply; fears about the long-term value of fiat currencies in an era of quantitative easing; and the appeal of anonymity. The last factor makes Bitcoin appealing to criminals creating this ingenious valuation method for the currency of around $570. These three factors explain why there is some demand for Bitcoin but not the recent surge. The supply details have if anything deteriorated (rival cryptocurrencies are emerging); the criminal community hasn't suddenly risen in size; and there is no sign of general inflation. A possible explanation is the belief that blockchain, the technology that underlines Bitcoin, will be used across the finance industry. But you can create blockchains without having anything to do with Bitcoin; the success of the two aren't inextricably linked. A much more plausible reason for the demand for Bitcoin is that the price is going up rapidly. People are not buying Bitcoin because they intend to use it in their daily lives (Editor's note: the link could be paywalled; alternative source). People are buying Bitcoin because they expect other people to buy it from them at a higher price; the definition of the greater fool theory.
I was hoping there would be one of the many many "this bubble will go forever because it's totally not a bubble!" folk in here. Thank you for not disappointing. :)
That said, I'll bet all my 0btc that btc will break 10k before it crashes, and if it ever stabilizes to behave like a currency it'll trade really favorably against the dollar.
It's not easy to short obvious bubbles, like the subprime mortgage market.
Once somebody figures out how to, that's probably the end of the upward spiral.
Not sure why people think Bitcoin is anonymous, but the blockchain is necessarily completely public and it's not that hard connecting transactions with real people and organizations.
It's not that you can't short a bubble, it's that you need huge reserves to do it. You'll constantly be making a loss until the bubble bursts and having to increase your investment to continue to both recover your previous investment and earn a profit. In a bubble markets are irrational so that can be a very long time. It'll eventually pay off (if it really was a bubble), but you'll go bankrupt first. On the other hand if you can spot the bubble really is about to burst and it actually does you can potentially profit from a much smaller investment (so 'obvious' bubbles are actually easier to short), but just because there's a Bitcoin bubble doesn't mean it's going to burst yet.
It's actually pretty easy when you ponder for a moment.
We're currently in a situation not unlike that of the late 1920s. There is an enormous amount of money pooled on the investment side that is sorely lacking anything to invest in, pretty much for the same reasons: WAY more supply than demand. With a lack of demand, there is nothing "normal" you can sensibly invest your money in, it is simply not very lucrative to open a business or to finance one if said business cannot make any business for a lack of demand.
Investors back then simply parked their money in shares which drove the price for shares up. That in turn caused the middle class to turn their head. Their motivation to invest was a vastly different one. They were usually not the ones to invest in shares, their form of wealth accumulation was traditionally more one of savings and maybe bonds, but with those pretty much being destroyed by a low interest policy (and back then also the fallout with war bonds that suddenly turned out to be worthless and thus destroying faith in that form of investment), they were now looking for an alternative too, and found one in shares that looked like it wasn't that risky because, hey, they keep rising and rising! And at worst, I'll lose what I put in, and I don't get any money for savings anyway.
This is basically where bitcoins are now. My hope now is that the third act isn't repeated. Because back then people thought "Hey. Interest rates are at an all time low, share revenue is between five and ten times the loan interest, the more I take out, the higher my profit!"
We know the rest.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Were you able to read the entire article? I was. I can sympathize with the editor. If he or she had posted the standard economist article, they would receive flak for linking to a paywalled website. They found a clever -- and seemingly ethical -- way to get past the paywall, and yet the whining from people. Pocket is owned by Mozilla, so people here who are worried about some company seeing their request -- give me a break.
One difference between gold and bitcoin (and there are many) is that gold is the currency of last resort for all superpower governments. Why do central banks still bother with gold in the age of fiat currency? Because they understand fiat currency better than us, and ultimately they don't fully trust it. Hence the backup. (It doesn't matter how much gold they own relative to fiat currency -- what matters is how much gold they own relative to other governments' gold supply. In a worst-case scenario, that's the bottom line.)
Both gold and bitcoin are independent of any central authority, and both are resistant to having their value diluted by a central authority. That would seem to make bitcoin a substitute for gold in some cases, but ultimately, the showstopper for central banks is that digital things can go "poof".
Pretty much. Nobody is buying bitcoin right now to make purchases, you simply don't buy something that's experiencing value increaases like this to use to buy a hamburger tomorrow.
Tons of people are buying into it precisely because its shooting up... which makes it shoot up higher. That not only speculation... its bubble behavior.
Yep, and I can't wait to see what happens when it collapses and they all find out it will take several days to sell their stock because the entire bitcoin network is limited to about 7 transactions/second. Several days watching it crash, unable to sell unless they _seriously_ undercut everybody else to jump the queue.
It'll be a thing of beauty. A death spiral never before seen in any other 'bubble'.
No sig today...
No matter how we measure it, there is simply not enough gold to support the US economy, much less the entire world's.
No, you're wrong.Suppose the world's currency were entirely backed by gold. A single ounce would be worth $200,000. You wouldn't be able to buy an ounce (at least, most people wouldn't, which is unfortunate because it's nice for decorating purposes). The economy wouldn't collapse. People would start selling "micro-ounces" of gold, or use a bi-metallic standard. Banks would issue paper backed by gold, but each bill would only be worth a milli-gram or even micro-gram of gold. These strategies have been used for millenia. No matter how much the value of the world increases, the current amount of gold (or any other thing) can scale up to represent it by further dividing it.
Magical stuff this gold. So it's value can increase infinitely it seems. And soon we will be trading atoms of it. At which point, what will you do that has true value with an atom, or even micro ounce? And how are you going to store that micro ounce, if it is a certificate for it, well welcome to fiat.
There is a reason we don't tie the world to gold. There isn't enough of it, and it's volatility is too high because people ascribe magickal properties to it.
Anyhow, I guess some people do eat it, so it's the equivalent of bread?
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.