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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.
"7 cents? That's outrageous, the bubble will pop soon!"
"70 cents? Such foolishness, who would ever pay that much for a single bitcoin?!"
"7 dollars? Bitcoin is a scam, who's fool enough to fall for it? Stay away!"
"70 dollars? Look, it's definitely a bubble, it will pop anytime now."
"700 dollars? That's like the tulip mania! Don't ever touch bitcoin unless you want to lose a lot of money"
"7000 dollars? Again, it's a bubble, only a true idiot would buy bitcoins, trust me!"
When a single btc will be worth $70k, those idiots will still spew their usual nonsense.
Yes, I really just link to goo.gl. Why? Because it's an Economist article, which sits behind a paywall. So I instead funnelled the article through Pocket service -- a common way to break paywall -- so that most readers see an unpaywalled version of the story. Now, getpocket [dot] com wouldn't make much sense to others, but goo [dot] gl will make it clear to people that the link has been shortened.
If you really believe that, just short it instead of writing a slashdot article :)
There are more than three reasons. The question begging here assumes the only legitimate usage of bitcoin is among criminals. This is patently false. There are nations with less than ideal currencies where bitcoin is commonly being used as exchange currency. Even a poor nation can support more currency than the total bitcoin economy and bitcoin is global. Bitcoin has a property that no other currency is proven to have (including alt cryptocurrencies) transactions are not reversible and bitcoin cannot be counterfeited.
"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."
False. Bitcoin circulates, it has underlying value, and it is deflationary. Every day bitcoin goes out of circulation as people lose access to wallets. I myself have lost access to at least 25 bitcoin over the years and nobody else has access either... that would be $187,500 at the $7500 per 1.0 btc I saw the other day. Bitcoin has had a number of bubbles and when those bubbles pop people panic and sell at a loss. When those buy in to the next bubble they buy at higher prices. This create a floor where people are generally invested at a higher price and their willingness to sell stops at a higher price. Also because bitcoin has been following that bubble, pop, bigger bubble cycle consistently since it's inception with first notable bubble being dollar parity the confidence in bitcoin is increasing over time, this too will slow the selloffs and when combined with the fact that genuinely new investors eventually slow to a trickle will mean smaller and smaller bubbles.
There is no absolute reason for any particular price on bitcoin to be a ceiling so long as the market is fluid. In fact the 1.0 BTC mark needs to grow quite a bit more for price stability so that there aren't investors who can notably move the market. I believe I calculated something like $10,000 per 1.0 BTC back when SR1 was operating. If there is too great a disparity between where most people bought and the current price those people will cash out when the growth appears to slow.
The recent bubble is largely because financial institution scale investors have begun investing. I don't know how safe it is to assume that can't continue to feed for quite awhile. Bitcoin is not open to the puny little wallstreet stock market type investor, it is open to global investment on a Forex level scale. It is not unreasonable at this point to think Bitcoin is only proven cryptocurrency or blockchain implementation at this point and will not go away in the forseeable future. That leaves room for a multi-trillion dollar market, not a few billion.
The appeal of Bitcoin is that it is decentralised global money system that cannot be controlled or shut down by governments. The "three strands" are just a bonus. And no, Bitcoin is not anonymous, please stop repeating false claims.
It will continue to be a speculative investment until governments allow you to pay taxes with Bitcoin. Part of the reason the income tax came about at the same time as the Federal Reserve system in the US is that it forces people to use the new currency. You need dollars because you need to pay your taxes. It's the same reason the US fights so hard to keep oil traded in dollars. It props up and makes essential the currency.
Even now we use dollars to judge the value of Bitcoin. Perhaps some day we will judge the value based on how many you need to buy a car (for example). But for the time being and foreseeable future, Bitcoin is only worth what it can be traded for in dollars or another currency controlled by governments.
"What the American public doesn't know is what makes them the American public." -Ray Zalinsky (Tommy Boy)
Meinherr, tulips have risen to 3,000 guilders per bulb, and show no signs of a "bubble."
It is a blog post hosted on economist.com that did not appear particularly coherent to me.
Spotted the Bitcoin speculator!
The Economist nailed it. BTC would be valuable as an anonymous digital currency if the ratio of coins to everything that can be traded for coins remained stable. Traditionally, this is what the central bank of a national currency is supposed to do. BTC has no central bank, and limits its money supply mathematically. The advantage of this is that BTC cannot inflate, but it also means that as the currency trades more widely (is exchanged for for more things), the money supply grows only very slowly through new mining. It is DEFLATING, so people have taken to buying it only because they hope to sell the coins themselves for more later on.
As soon as you avoid buying a beer for BTC because you think you will get more for your coins later, it stops being a currency. It becomes a speculation, and by now it's tulip time.
As soon as you avoid buying a beer for BTC because you think you will get more for your coins later, it stops being a currency. It becomes a speculation, and by now it's tulip time.
Bitcoin is just a sort of an ersatz "fiat Gold". I'm surprised that we aren't seeing those doom and gloom gold investment infomercials on Television get competition with Bitcoin investment infomercials.
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.
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.
"The market can stay irrational longer than you can stay solvent."
Just because the price of Bitcoin keeps rising does not mean it's not a bubble. Literally every other bubble has the same evangelists spouting off the various reasons why it's not a bubble and why this time it's different.
The argument that the recent meteoric rise in Bitcoin is due to a herd speculators rather than demand for Bitcoin currency as a currency vehicle is probably the correct one. And if there's one thing that herds do is stampede. Sooner or later, they are going to stampede for the exit and your $7,000 bitcoin is going to plummet back to somewhere near what the true transactional and holding value of BC is.
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.
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.
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...
Nope, not fixed at all
2/1980 - $2,077.93/oz
2/2001 - $367.67/oz
2/2011 - $1573.27/oz
2/2016 - $1,168.00/oz
Tell the guy that bought in 1980 that the price always goes up.
These are inflation adjusted dollars.