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The Case that Bitcoin Is a Bubble (economist.com)
An anonymous reader shares an excerpt from the Economist: It seems that every day, Bitcoin seems to hit a new high. But the reported price can move up and down by $1,000 or so within a few hours. This might have made it a great investment for those who got in at the right price and are nimble enough to get out in time. But it doesn't make it a useful means of exchange (Editor's note: the link could be paywalled; alternative source). When the price is rising fast, those who use bitcoin will be reluctant to part with it; when the price falls, those who sell goods will be reluctant to accept it.
Bitcoin, with the limitation is has on the final number which can be issued, has no real future. Governments are reluctant to legislate it right now for several reasons. One reason is because of the lobby of exchanges who are currently making a killing off it. The other is that legislators, as stiff and out of touch as they may seem on the outside, are quite well aware of the ability of this to go underground and they don't want that. However, once bitcoin's ability to increase is exhausted, it has no real future. Legislators will have no choice but to step in and either modify it, or ban it.
To see this, look at the best case scenario for bitcoin. Let's say that it is 100% successful and becomes the de facto world currency. Can you really have a world currency where a few individuals control a set percentage of the world wealth? Owning even one bitcoin in that scenario means you own one 21 millionth of the entire wealth of the world. Now think of those individuals and institutions that own chunks of this.
No, bitcoin cannot continue without an extension. The split that was going to happen was averted when greed got the better of common sense of those who were going to expand it. They think if they can just hold on, if they can just get it accepted by enough people, that they will have a shot at becoming fabulously nouveau riche - as in world-class monetary controlling rich. Not going to happen. The existing money structure will kill it from behind the scenes before this happens. You'll see a sudden spate of exchange breaches financial manipulations (or both) that make it volatile and end up tanking the value, then legislators will step in to protect the market from the failed experiment.
That's the insane rambling of someone who read Ayn Rand as an undergrad and never got over it.
Banks and governments could easily manipulate Bitcoin. Just because banks and the government can't print Bitcoin doesn't mean they can't manipulate its value. Have you ever heard of the forex scandal? The United States has manipulated the currency of Japan even though the US Mint doesn't print Yen.
All it would take is a well-placed government regulation here or a series of derivative trades there to destroy Bitcoin utterly. The only reason it hasn't happened yet is that there are some powerful people trying to see if they can make a fortune or two before they pull the rug out.
You are welcome on my lawn.
You're right it doesn't need to be, because everything like this has a bubble of some kind. The real question is just what will the ripple be when this bubble pops. How many people have say mortgaged off equity in their house to try riding the bubble? You can bet your ass that people have. How many companies have sunk short-term possible high-loss futures into this as well?
30 years ago people were selling equity in their homes at high interest rates to try cashing in on the condo bubble happening in major cities around the world. Believing that they could "sell out" and still get a head. Now just think what happens if you have a several thousand people in a major city who've done the same with the stupidly low interest rates we have and were already say $50-100/mo difference from going under, but believed they saw this as a quick way to cash out. And directly lied on the line of credit for this. People did the same thing with NORTEL stocks.
Not really gonna know just how much of a mess this is going to be until that bubble pops, but as a warning to anyone who knows someone who's done something stupid like buy into this believing that "it can only go up" when they've lost all that money, they'll probably become suicidal.
Om, nomnomnom...
You can't possibly mean "medium of exchange" in the normal sense of that term, can you? This is what "medium of exchange" normally means:
Someone wants a car and has firewood.
With BARTER they'd have to find someone willing to trade a car for firewood. That would suck.
Instead they look at Craigslist and find the kind of car they want sells for $8,000
They make arrangements to sell $8,000 worth of firewood.
After the people come pick up the firewood and payments clear, they contact Craigslist sellers and buy a car for $8,000.
The dollars are a medium of exchange because the person selling the car isn't the person receiving the firewood Dollars, as a medium of exchange, allow value delivered to one person (firewood buyers) to later be valued the same by another person (the car seller).
Here's how the exchange would "work" with Bitcoins instead of dollars:
Someone wants a car and has firewood.
They look at Craigslist and find the kind of car they want sells for 2 BTC.
Actually 1.8BTC now.
No, wait, 2.2 BTC.
They make arrangements to sell 2.2BTC worth of firewood.
After the people pick up the firewood and the payments clear, they contact Craigslist sellers, who now want 3BTC for a car.
It doesn't allow the value of firewood to later be used to buy a car, because there's no telling how much 2BTC might be worth two or three days from now.
What kinda works as this:
Now selling this car for $8,000. Accepting payment by cash, certified check, Bitcoin, Visa, or MasterCard. Bitcoin can be used as a method of payment, a way of transmitting dollars from place to place, just like a check or a Visa card. The difference is. Visa transaction is confirmed in about 800 milliseconds, a Bitcoin transaction takes a day or so.
Corollary: When everyone - usually including your neighbor or friend down the street, or your grandma - is trying to buy in and ride the wave, but they can't really explain how commodity X works or will make money, it's over. It's time to get out. You've missed the wave as an investor, and you're going to get burned joining too late.
Bonus: If the "everyone" people wanting to buy commodity X can't even really explain how or why it will make money, it's going to get REALLY ugly.
The following fit the pattern:
Microsoft and other internet/tech stocks (2000)
Housing (2007)
Gold (2012)
Bitcoin (2017) will likely be the next big entry to the list.
But that is only because stuff has been nominally priced in dollars. If we instead had stuff nominally priced in 10th oz gold units, or something you'd make the same argument about accepting dollars.
The fact is gold and silver are stable enough in terms of total supply, liquidity ( in the sense people are willing to part with it ), and distribution, that either could probably work as medium of exchange either directly or backing some paper/electronic system. We can have a debate about if a gold standard would be good for our society not. I see both positives and negatives of that but that is a tangent. It could be made to work through.
Btc on the other hand has some major problems. The total supply is fixed, as a practical matter there will always be more gold to mine, if deflation gets strong enough to justify it; on the other hand all practically discoverable bitcoins will be found at some point. The money supplies growth isn't just limited it essentially has a hard cap. The next problem is because its new its kinda illiquid and forces of volatility, deflation, and block-chain limitations in terms of settlements, isn't helping. People can't gain trust in for trading real tangible property beyond a speculator class. Finally the distribution is entirely to narrow currently with 1000 or so people controlling most of the market. It over incentivized the early adopters.
I don't Btc is ever going be the currency Joe Sixpack, actually buys a six pack with for these reasons. Blockchain tech is her to stay. Some future crypto currency might become ascendant and see wide use, but Btc aint going to be it.
Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
So... probably not a bubble, unless the desire to move money around with no traceability ceases to be desireable
Seriously? Not traceable?
You just *might* want to take a look at how a bitcoin changes hands and how long the block chain exists. EVERY bitcoin transaction from the beginning of time is traceable and will be as long as it remains a "thing".
What BitCoin allows you to do is to remain anonymous, if you are careful, and if you never try to convert your BitCoin into something else that can be traced, and what's a BitCoin worth if you cannot convert it to something else?
So, the traceability idea is a misstatement and the anonymous ownership is not guaranteed. BitCoin may not be what you want to hold as a criminal or you don't want traceability for what you are doing. Cash might be better for you. Cash IS untraceable (assuming nobody knows the serial numbers in question), nearly universal and anonymous if you are careful.
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I'm not sure what the point of tulips being divisible is.
Because when something grows to some very large amount of value, if it's not divisible it essentially locks out the possibility of trade to all but a handful of people.
As the price of Bitcoin grows it does not matter because anyone can still use .001 bitcoin for a transaction. If you have a 15k tulip bulb the ability to extract value from it is far more limited and thus the market or users will shrink.
Rare tulips were indeed scarce.
Not really though since once you have a bulb, you can divide it to create more. If you have one bitcoin you cannot create another. "scarce" is not all about absolute quantity, it is about the inability to duplicate as well.
What's the value of bitcoin in and of itself?
The fact that it is not a currency tied to any one country has huge value, and tangentially you could argue there is vanity value in being part of the blockchain.
An alternative payment system to credit cards? Yeah, how is that going for you?
In the long term, extremely well. You ask like Steam being out is a deal-breaker. But anyone can see long term the trend is growth in acceptance.
And it always runs the risk of governments cracking down on it
Please tell Venezuelans how "real" currencies have no risk at all from government action. The fact is that Bitcoin is far more removed from such concerns because a government may be able to crack down on exchanges but cannot actually do anything about Bitcoin itself, and governments in other countries generally will not. The U.S. in particular will prop up Bitcoin forever because all they really care about is visibility into transactions.
According you China dropping out of support for Bitcoin should have crushed Bitcoin use. Yet obviously it did not. Can you explain why?
Bitcoin is currently in the "greater fool" investment mode.
Yes it is, but an even GREATER fool is one that believe any currency is not at even greater risk. All investment is risk. I agree that Bitcoin is risky compared to something like stocks (well depending on the company of course), but I'd say it's not all that much riskier than leaving your money as cash in any particular currency. I agree you shouldn't put any money into Bitcoin you are not prepared to lose but it's not like that same kind of risk is not all over the place, and Bitcoin seems less risky than some other things.
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