Sure. When it hits it's adoption plateau - whether that's just techies, financial institutions or everyone who would. What's the price you think is "reasonable".
The increasing price is a reflection of an increasing reservation demand for bitcoin - which is another way of saying bitcoin is increasing in "moneyness". Bitcoin's market capitalization is about 5B right now. Gold's is about 7trillion. On a technical level bitcoin is superior as a money to gold, so I wouldn't be surprised if bitcoin attained some large fraction of gold's market capitalization, eventually. E.g., it would not surprise me if bitcoin, or some other digital currency, increased in market cap to, say, 500B over the long term (i.e., less than 10% of gold's market cap, but 100x higher than it is today), giving it a price of approximately $50,000 per bitcoin.
Which is what makes BTC so disruptive. You don't need traditional financial institutions, once there is a market for goods and services. It's only the smallness of the BTC market right now that makes it necessary to buy in from and cash out into state-sponsored money.
I honestly don't know. The world is changing so fast now that it wouldn't surprise me if this happened in 10 years, or even 5 years. As context, just 6 years ago there was no iphone. 8 years ago there was no Youtube. 9 years ago there was no Google maps. 10 years ago there was no Facebook. I like to think how much these things have already changed the world, and my life, and how none of them were around just a decade ago. I'm very excited to see what the world will look like 10 years hence.
The good news that whatever comes next is probably going to be easily purchasable via bitcoin since bitcoin makes purchasing things online so damn easy. Even if you are forced to take something of a haircut you'll still probably wind up ahead if you choose to take that haircut in a modern currency like bitcoin than a legacy one like USD.
"it would not surprise me if bitcoin, or some other digital currency"
This is what makes me pessimistic about Bitcoin as long term value store. If a new digital currency that was a significant improvement on Bitcoin was developed (a Bitcoin v2, if you like), I'd expect most of the money to shift over to the new currency eventually. The fact that there is a lot of infrastructure for Bitcoin built already would mean Bitcoin would continue to be used for sometime, but its value would drop dramatically if people see the new currency as the future of digital currencies. (Tip: if you want to do this, you need to make big technical improvements, not just tweaking Bitcoin like Litecoin and all the others do, and you need to do a big marketing effort to make people believe in it.)
I voted $100-499, because MY target price is the price at which I will BUY back in (already sold all my BTC holdings) and that price point I have is in this $100-499 range.
Another good question is at what point will the US government and other countries declare bitcoin illegal? If bitcoin becomes widely used it will threaten the power of major governments. I cannot see a scenario where the US or any other major country allows that to happen.
I'm talking more long term. Right now bitcoin is not a threat or a legitimate replacement for dollars. If and when bitcoins become a normal every day option for purchases, that story could really change. For example, one of the major problems with bitcoin for a government is that they cannot as easily trace taxes on bitcoin trading. If I could do all my local purchasing with bitcoin, I assume the benefit would be that I would not pay sales tax. That's a huge issue for governments if bitcoins ever become ubiquitous.
Governments wouldn't have to declare bitcoin explicitly illegal.
Instead, governments would simply make them impossible to exchange for official currency by denying bitcoin providers access to the banking system (by closing bank accounts, defining bitcoin as "high risk for money laundering"). Under such a scenario, governments could also prohibit banks themselves from transacting in bitcoins.
In such an event, if governments were then to enforce the requirement that any income earned in bitcoin be paid as taxes in official currency, holders of bitcoin would find themselves liquidating non-bitcoin assets in order to pay their tax bill.
> On the other hand, a couple hundred bucks is a small price to pay for the chance that BTC could explode another couple orders of magnitude.
This is how I look at it. How much money will I make in a lifetime? Am I really going to miss a few hundred dollars for something that could become revolutionary? We've never seen something quite like Bitcoin before, so it's really hard to predict what will happen.
Yup, stupid advice indeed. You can't predict what's going to happen, so in the end it really depends on the case. You could find many counter examples to this quote.
The underlying idea behind the quote (and much of Buffett's investment strategy) is that its inherently a bad idea to invest in something when you can't predict what's going to happen.
That's why I am saying it's stupid. Nobody can predict anything, as best you can assume that it will go this way or that way, but that's it. The only exception may be if you are buying bonds (and even that, you never know if the bond issuer goes bankrupt in the meantime...). There's always SOME amount of risk when you invest in something. If there was no risk then everyone would invest in the same place and be rich.
I don't have super high confidence BTC will survive in the mainstream more than a few years. It's too easy to shut it out by putting pressure on banks not to open accounts for the companies running exchanges. [1]
I had bought some BTC long ago for a few dollars a coin, and spent most of it on domain names and other purchases at sites that started taking it, just to understand the ecosystem. I had my own wallet, tried some cloud wallets and both MtGox and Coinbase.
I sold what was left a few days ago in the $400s/BTC. That'll cover my Christmas gifts for family this year.
I am not sure if that's the case: I think banks and government are starting to enjoying this new competition. If there is a room for new investment and new way to generate tax revenue, they two will go forward with Bitcoin. The adoption might take a couple years to mature but I am sure they are all looking at it (Congress is already planning to regulate bitcon at some point as a bill, and government agencies like FBI is targeting at deep web which is fueled by bitcoin now).
I do however agree that bitcoin can't be a long term investment. Bitcoin is a short-term investment. You should buy and sell as soon as a target price is up.
The companies running exchanges have already been shut out and are currently doing just fine without bank accounts. The main thing a bank offers you is security of your assets; they have vaults for their dollar and BitCoin reserves.
The other thing about financial institutions is that if there is an investment opportunity that gives them the possibility of making a ton of money they will take it. As soon as they see that they can make money off of BitCoin they will welcome the exchanges with open arms.
I would have agreed that it wouldn't survive the mainstream if there was a danger of a serious attempt by the United States, the EU or China to ban its use. But it appears that government agencies are smiling on BitCoin, and both the United States government and the Chinese government appear to be embracing it. I suspect because if it becomes the world reserve currency it neutralizes the advantage that both parties have in manipulating financial markets (China by not allowing its currency to float and the US by, well, bailing out its financial system every time it leverages itself to the hilt and crashes which sends ripples through the world banking system.) The US and China want to neutralize the others' ability to manipulate their economies through monetary policy, and BitCoin gives them that opportunity.
> It's too easy to shut it out by putting pressure on banks not to open accounts for the companies running exchanges.
That would have worked last year, but right now we have ripple(http://www.ripple.com) up and running exchanges are no longer a point of failure. Ripple interprets exchanges getting shut down as network damage and routes around them efficiently. There's plenty of choke points left, but exchanges are not one of them. Price might take a hit but it'd bounce back when people realize that the solution is in their hands.
There's virtually no limit as to where it could go, since it is driven by demand and perceived value. As long as there will be a large amount of people who see value/utility in Bitcoin in the short/mid/long term, its value will continue to increase.
Keep in mind that for now, Bitcoin has almost zero utility. The day when Bitcoin becomes easier to use/to exchange/etc..., its value is likely to increase way further.
Assuming it reaches pretty widespread use, an interesting (if extremely back-of-the-envelope) number might be the world's money supply divided by peak bitcoin (21 million). That is to say, if all the world's money were replaced by bitcoin right now, that's about how much value each bitcoin would have to cover.
I'm to lazy to track this down for the world, but a quick search indicates that the US M2 money supply is about 10.5 trillion. Replacing that with bitcoin would require each bitcoin to be worth $500,000.
I'll offer you a game: A fair coin, heads you win $2^n (where n is the number of coin flips) and get another coin flip, tails you pay me $1,000,000 and get no more coin flips.
There are bounds to the rationality of expected value theory.
Incorrect. In my game, the expected value is infinitely good. You just have to keep flipping heads consecutively. The break even is after 20 consecutive heads.
No, you misunderstand mathematics. Just as 1 + 1/2 + 1/4 + 1/8 + ... only equals 2, the odds of break even is not at 20 consecutive heads. The expected values are as follows:
With this level of volatility, no one would be using BTC for anything except for pure speculation. Who would dare purchase anything for 1 BTC when the value of that BTC could go up 10% the next day?
When there is no inherent use of something other than pure speculation, then it will end badly. This is 21st century tulip bulbs, but I cheer on anyone who has the balls to jump in and make money on BTC while there's money to be made.
But holding on long term is seriously a fool's game, this is a trading instrument, not something with any long term value.
You could just as well say that your dollar lost 10% against bitcoin in a day, who would dare buy something with a dollar with it fluctuating so much so often.
I've seen a lot of bubbles since graduating college, surviving through the dot-com boom and bust, through the housing bubble and bust, the financial crisis, etc. In addition, I've read spent a lot of time reading about it, my favorite book being "Devil Take the Hindmost" by Edward Chancellor. It talks about all of the largest bubbles in the past few hundred years.
Whenever people say "This time it's different", it never is. BTC is a bubble. But I don't admonish anyone for trying to make money off of it. I don't have the balls to, but that doesn't mean people shouldn't be allowed to speculate. The ones who will lose, however, are the ones that think this is for real, and have rationalized away their common sense into thinking this is a long-term investment and sustainable.
Bitcoin might well be here to stay in the way that tulip bulbs were here to stay - you can still buy and sell tulip bulbs, the price just isn't skyrocketing.
"Who would dare purchase anything for 1 BTC when the value of that BTC could go up 10% the next day?"
Early adopters.
With the BTC/USD run-up to $550+, many early adopters who bought bitcoin when it was trading for a few dollars now have very high purchasing power; this will lead to spending, regardless of volatility.
As an example, imagine you purchased 1,000BTC when they were trading at a dollar. Your purchasing power was $1,000 back then. Today, your purchasing power is around $500K. Spending a bitcoin or two on Christmas gifts would make perfect sense to you.
Which is exactly what would be the case if you started a brand new currency, in the time it took for it to become an actual currency.
If Canada said "fuck it" on dollars today and decided they were going to start a brand new currency (let's call it the Ford, after Toronto Mayor Rob Ford), what would it be worth initially? It would be worth $0. Any increase in value after that up until the money supply and the price stabilized enough for it to be used as actual currency would be in the thousands of percent, which would make it seem quite volatile indeed. However, the huge increase in the beginning would attract a ton of investment because of the profit incentive and soon the Ford would be worth something. It would grow until it reached a saturation point where all the people who wanted a Ford had one. At that point the price would level off to the point where investors would stop seeing it as a profit opportunity. At this point it finally starts to look attractive as a currency.
In short, today's investors are tomorrow's spenders.
BitCoin had to start somewhere, and it was never going to be useful as a currency until it is widespread enough for its value to stabilize. Until then all mediums of exchange are speculative instruments.
You can convince yourself that price discovery is what's causing the rise of the value of BTC. But it's not. It's rampant speculation. Why? Because there is no substantial use of BTC to buy and sell goods.
And even if there were (which there isn't), the fact that the currency has doubled in the last 2 weeks suggests that there is massive hoarding going on now, and people would rather own the currency rather than exchange them for goods or services. Why would you spend 1 BTC when the price of the good or service could halve in BTC in a week? It's better to just dig out your old fiat currency and pay for it with that, since the price is much more stable.
There is an incredibly suitable use for bitcoin: as an exchange currency. Its decentralized nature makes it extremely attractive to smaller nations as a way of maintaining liquidity, enabling trade, all while not propping up another nation with competing interests by making their currency arbitrarily valuable. Its digital nature makes it attractive to currency trading markets for purely logistical reasons.
You are probably right about the median case, but I say there is a small chance of a >$10M value for this reason alone.
Rampant price speculation where the price encounters the incredible volatility that BTC has experienced is ALWAYS based on delusion. If you know of any counter examples, I would be interested in learning about them.
And remember, I have no problems with speculation and people making money off of this. And this speculation can go on for years. But in the end BTC will be worthless, because there is no inherent value to a BTC. Even the fundamental promise of Bitcoin being anonymous is inherently flawed! Sure, you can money launder it, but the US government will make quick work of that in due time.
At least with tulip bulbs, you can grown them into flowers, and gold can be turned into jewelery and has industrial uses.
BTC has literally zero inherent or fundamental uses for it.
My guess is that it will keep rising until the US government starts cracking down hard on it, like they did with poker sites, etc. They've already put it on their radar screen, and a lot of these companies that deal with BTC don't understand the ramifications of money transmission. Once the US government starts shutting down in earnest, people will dump their BTC and it will be over.
BTC does have inherent value.
It is valuable to vendors because it is frictionless money transfer without regard to borders or regulation and very small transaction fees, making it very inexpensive to accept payments from anywhere in the world. It is valuable to authorities because of the public ledger and because it neutralizes the threat of foreign control over money supply. It is valuable to consumers because of its easy divisibility (it is far more divisible than gold) and the ability to spend it quickly and anonymously.
Think of the BitCoin network as a financial superconductor - the resistance to movement is so small that its negligible. Is that not inherently valuable to our economy as a whole?
Doesn't it take a while for a BTC transaction to get confirmation? If so, that doesn't seem very frictionless.
As well, since those transactions can be tracked, I don't think it will take very long for governments to start cracking down on them, and taxing them. They might force you to register your wallet, they will try to break up people who allow for anonymization/laundering of transactions, etc. It doesn't take a lot for real-life friction to make this pretty hard to use unless you just want to meet face-to-face and transfer BTC offline.
It's way frictionless compared to any of the other current methods of accepting payment electronically[1] . For many cases, where things have to go through a provisioning process that can be halted before the client has any benefit, you can confirm the order and let things progress and only check that there was no double-spend later (at which point you of course halt provisioning).
I have no doubt that governments will find ways of taxing it that are at least as effective as those used to tax cash businesses presently.
edited to add footnote:
[1] ... as a relatively small player. My understanding is that payments between huge, well established institutions can approximate bitcoin in lack-of-friction.
I disagree. I don't think there's any benefit of having to wait upwards of 10 minutes for a BTC confirmation, compared to credit cards which authorize in seconds and offer you a lot of protection from fraud. If I buy something through a BTC transaction, I have no recourse, much like a cash transaction, vs credit cards which have been regulated to provide customers with a lot of protection.
You are myopically looking only at the experience of the payer during the transaction (and perhaps after). There is a whole lot more going on that adds friction.
To accept credit cards I need to fill out a bunch of paperwork, wait for blessing (which might be withheld), and then pay transaction fees on every exchange that are way higher than bitcoin transaction fees. They are likely to stay way higher since bitcoin allows direct competition on the basis of transaction fee. Then I'm faced with the possibility that the charges will be disputed!
To use credit cards, I need to fill out a bunch of paperwork, wait for blessing (which may be withheld), and only then can I easily make these payments - with the acknowledged advantages you cite. I may also have to pay an annual fee, but that's often waived because - analogous to web advertising - VISA wants larger numbers to better convince businesses they need to accept VISA.
Bitcoin is also substantially more resistant to fraud in one particular dimension: I am not constantly handing out my secret to every waiter and website I interact with.
>If Canada said "fuck it" on dollars today and decided they were going to start a brand new currency (let's call it the Ford, after Toronto Mayor Rob Ford), what would it be worth initially? It would be worth $0.
That's not true at all. The Euro was launched as a completely new currency in 1995, across a huge and diverse group of economies and backed only by trust in the ECB. The value of the Euro has remained remarkably stable, launching at 1EUR=1.12USD, peaking in 2008 at 1.59USD and currently trading at 1.35USD. The biggest increase in the value of the Euro happened as a result of the declining value of other currencies during the US financial crisis.
BTC is in the midst of a vast speculative bubble. It isn't a currency in any real sense, as the vast majority of the trading volume is purely speculative. A currency is defined by liquidity and there just aren't many things you can currently exchange for a bitcoin. BTC might eventually become justifiably very valuable, but it might just as easily become worthless due to a run on MtGox.
Also, as far as I know, there is no reason to assume that Bitcoin will ever stop being extremely volatile.
Due to the in-built deflation of the currency, the main incentive is to hold the coins until some value is reached and then sell them. But because the distribution of coin ownership is quite asymmetrical, there are people out there that could cause massive drops in coin value by accidentally flodding the market when their 'Sell!' price is reached.
So the price will go up, sometimes faster, sometimes slower, with massive drops every now and then and a continuous value increase over the very long run.
I'm giving you a hypothetical situation where Canada started up an exchange for Fords and offered the currency on the exchange for $0. What would happen? It would float toward the price that the market would bear, which would look like a thousands of percent increase.
The reason the Euro started off there is because, like an IPO, they thought that because an entire federation of countries was backing it, they could offer it initially for a price higher than $0, just like Facebook thought that because millions of people knew what Facebook was they could offer their shares for a higher price than $0. In all likelihood Canada would offer it for a price higher than $0, and the market would probably bear that price.
BitCoin couldn't do that because it wasn't introduced by a federation or a nation. Satoshi couldn't just go to an exchange and offer BitCoins for $600 because nobody had heard of BitCoin and people were skeptical. So it had to make the journey from $0 to $600 on its own.
But now that it has earned the faith of the people who use it, what makes it different from a national currency being offered that price? Not much.
" A currency is defined by liquidity and there just aren't many things you can currently exchange for a bitcoin. "
There are more and more things you can exchange a BitCoin for every single day. And if you're a vendor, don't you want to accept BitCoins? If someone wanted to give me a BitCoin in exchange for something worth say, $550, I would accept it because a BitCoin is worth about that much on the exchange and there's a high chance that it will be worth more tomorrow. It might not make a whole lot of sense to spend BitCoins right now but for the very same reason it makes all the sense in the world to accept them. Vendors have every incentive to accept BitCoins at the moment, which means there will be more and more of them, which means BitCoin's utility as a currency will only go up. Network effects.
Arguably, those selling pre-paid contracts to run miners for you (and to a lesser degree, those selling machines) are shorting bitcoins. I've heard tell that there exist more derivative-y derivatives, but I've been assuming the counterparty risk is unacceptable.
I don't think it's possible to predict. Nothing like Bitcoin has ever happened before. If it works, and if it remains the leading cryptocurrency for a few years, the upside is damned near limitless (I see a comparison to gold...but gold is such tiny percentage of the worlds transactions, and it sucks compared to the efficiency of Bitcoin). I can imagine people who would never consider gold (me, for example), using Bitcoin for everything.
I'm trying to visualize situations that would make me stop dealing in BTC (my companies both accept BTC now), and it pretty much boils down to: The government makes it illegal and puts stiff penalties on its use. I'd, obviously, have to stop accepting it for my businesses. But, it would be disastrous for the US economy to lose this innovation, so I'm betting it won't happen.
The other variable that is difficult to predict is other cryptocurrencies. They dilute the market, but not by a lot, so far. If a truly superior competitor to Bitcoin came along, it might dethrone BTC, and replace it...leaving BTC vastly less valuable.
Finally, if BTC gets broken. i.e. double spend becomes possible, mining exploits, etc. that can't be fixed without destroying existing coins...that would also cause a massive crash. I suspect we're past the point of that being a significant risk (so many eyes looking for holes, we'd probably see if by now).
I think bitcoin is only starting to gain wider adoption. There are many indicators that the currency still has a long run up:
* If you look at the numbers, there are today between 400K and 500K people in the world using bitcoin, which is a very small fraction of the population
* A new bitcoin exchange in China, the world's most populous country, has opened and offers traders 0% fees
* India, a country with more than a billion people, still does not have a major bitcoin exchange
* The bitcoin protocol has been around for more than 4 years and has been reviewed by some of the best developers in the world.
Many people are comparing the current run-up to the April bubble. The market today is much more fragmented. There are many, many more players, and thousands of cash-rich investors waiting on the sidelines for a small correction in price action to buy in. This alone would prevent an all-out sell-off.
Others point to how easily it is for one government to shut down bitcoin, by putting pressure on banks to close bitcoin exchange accounts. To do that, they would need a legitimate reason, which they don't have — and this will become more difficult as more legitimate merchants adopt bitcoin, especially the larger ones. If that does happen though, exchanges can relocate their accounts off-shore.
Bitcoin is still very small. The market cap is ~$5B, which is the size of a small company. For a currency that can be used by anyone anywhere in the world, that seems a little... undervalued.
Some of the above price targets may seem crazy, but if you compare that growth to the growth experienced by Apple or Amazon over the past few decades, it starts making sense. And bitcoin isn't a company; it's an international currency, so its growth potential is even higher.
Excellent post. Just one correction -- there are only something like 425,000 addresses with more than 0.01 bitcoin in them, which is probably a reasonable upper limit on the total number of users:
It looks to me like speculation is driving exchange services in different countries, which is encouraging arbitrage. Which is pushing us towards a world where one of the huge businesses bitcoin eats is the banking sector's spread on currency convertibility.
Bitcoin is gaining demand as a store of wealth. Given that BTC is limited in quantity, the value of 1 BTC is equal to the amount of wealth people want to store / # of BTC and the later is capped at 21M at least in the intermediate term as I understand it.
If there's demand to store $1 trillion of wealth in BTC, and let's say BTC supply is 20M at that point (keeps that math simple, LOL) then the price per BTC would be $50,000.
Is $1 trillion high or low? Well, as a point of comparison, there is about $8 trillion of wealth stored in gold. The largest bank in China has assets of just under $3 trillion. The largest US bank, $2.3 trillion.
So $1 trillion stored in Bitcoin is a lofty but attainable goal, IMHO.
Thus I think we may see price stabilization in the tens-of-thousands of dollars per bitcoin.
While $1M+ seems enticing, it would imply something like $20 trillion of wealth stored as bit coin which would dwarf any bank or even gold, so I think that is unlikely.
One of my favorite charts/metrics is to look at the "market cap" of Bitcoin (not the price per coin). This gives you the read of how much wealth is stored in BTC. It's worth sanity checking that vs. other things.
Right now it feels like there's a long way up, but again I'd probably peg the $50K range for a long-term target.
I've publicly tweeted a price target for 1 BTC to be worth more than 1 oz of gold within the next two years though. But at the rate it's growing, I'm tempted to revise the BTC / gold crossover point to within the next year.
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[ 4.8 ms ] story [ 145 ms ] threadSure. When it hits it's adoption plateau - whether that's just techies, financial institutions or everyone who would. What's the price you think is "reasonable".
edit: a word
This is what makes me pessimistic about Bitcoin as long term value store. If a new digital currency that was a significant improvement on Bitcoin was developed (a Bitcoin v2, if you like), I'd expect most of the money to shift over to the new currency eventually. The fact that there is a lot of infrastructure for Bitcoin built already would mean Bitcoin would continue to be used for sometime, but its value would drop dramatically if people see the new currency as the future of digital currencies. (Tip: if you want to do this, you need to make big technical improvements, not just tweaking Bitcoin like Litecoin and all the others do, and you need to do a big marketing effort to make people believe in it.)
I voted $100-499, because MY target price is the price at which I will BUY back in (already sold all my BTC holdings) and that price point I have is in this $100-499 range.
"U.S. Agencies to say Bitcoins Offer Legitimate Benefits"
http://www.bloomberg.com/news/2013-11-18/u-s-agencies-to-say...
Instead, governments would simply make them impossible to exchange for official currency by denying bitcoin providers access to the banking system (by closing bank accounts, defining bitcoin as "high risk for money laundering"). Under such a scenario, governments could also prohibit banks themselves from transacting in bitcoins.
In such an event, if governments were then to enforce the requirement that any income earned in bitcoin be paid as taxes in official currency, holders of bitcoin would find themselves liquidating non-bitcoin assets in order to pay their tax bill.
-Warren Buffet
I'm not touching bitcoin while there is this kind of hype around it...
On the other hand, a couple hundred bucks is a small price to pay for the chance that BTC could explode another couple orders of magnitude.
In the end, my indecisiveness on the matter will lead to laziness determining my strategy, i.e. letting the BTC I have ride.
This is how I look at it. How much money will I make in a lifetime? Am I really going to miss a few hundred dollars for something that could become revolutionary? We've never seen something quite like Bitcoin before, so it's really hard to predict what will happen.
I had bought some BTC long ago for a few dollars a coin, and spent most of it on domain names and other purchases at sites that started taking it, just to understand the ecosystem. I had my own wallet, tried some cloud wallets and both MtGox and Coinbase.
I sold what was left a few days ago in the $400s/BTC. That'll cover my Christmas gifts for family this year.
1: http://www.forbes.com/sites/kashmirhill/2013/11/15/bitcoin-c...
I do however agree that bitcoin can't be a long term investment. Bitcoin is a short-term investment. You should buy and sell as soon as a target price is up.
The other thing about financial institutions is that if there is an investment opportunity that gives them the possibility of making a ton of money they will take it. As soon as they see that they can make money off of BitCoin they will welcome the exchanges with open arms.
I would have agreed that it wouldn't survive the mainstream if there was a danger of a serious attempt by the United States, the EU or China to ban its use. But it appears that government agencies are smiling on BitCoin, and both the United States government and the Chinese government appear to be embracing it. I suspect because if it becomes the world reserve currency it neutralizes the advantage that both parties have in manipulating financial markets (China by not allowing its currency to float and the US by, well, bailing out its financial system every time it leverages itself to the hilt and crashes which sends ripples through the world banking system.) The US and China want to neutralize the others' ability to manipulate their economies through monetary policy, and BitCoin gives them that opportunity.
That would have worked last year, but right now we have ripple(http://www.ripple.com) up and running exchanges are no longer a point of failure. Ripple interprets exchanges getting shut down as network damage and routes around them efficiently. There's plenty of choke points left, but exchanges are not one of them. Price might take a hit but it'd bounce back when people realize that the solution is in their hands.
Seriously, there is NO liquidity in that market.
In January, many thought that $15 was pretty high price.
In March, many thought that $30 was a pretty high price.
In April, many thought that $250 was a pretty high price.
Today, many think that $500 is a pretty high price.
Your claim is probably just as valid as someone claiming that Bitcoin to be worth $0.01 a piece.
Keep in mind that for now, Bitcoin has almost zero utility. The day when Bitcoin becomes easier to use/to exchange/etc..., its value is likely to increase way further.
I'm to lazy to track this down for the world, but a quick search indicates that the US M2 money supply is about 10.5 trillion. Replacing that with bitcoin would require each bitcoin to be worth $500,000.
But the world money supply is also much higher than just the US money supply.
There are bounds to the rationality of expected value theory.
See this gist: https://gist.github.com/zachaysan/7603526
When there is no inherent use of something other than pure speculation, then it will end badly. This is 21st century tulip bulbs, but I cheer on anyone who has the balls to jump in and make money on BTC while there's money to be made.
But holding on long term is seriously a fool's game, this is a trading instrument, not something with any long term value.
Yes, bitcoin could be our tulip bulbs.
Or history might not be repeating this time and we might actually be looking at something new that is here to stay.
Nobody knows, I wonder why so many people have that reflex to pretend they do.
Whenever people say "This time it's different", it never is. BTC is a bubble. But I don't admonish anyone for trying to make money off of it. I don't have the balls to, but that doesn't mean people shouldn't be allowed to speculate. The ones who will lose, however, are the ones that think this is for real, and have rationalized away their common sense into thinking this is a long-term investment and sustainable.
Early adopters.
With the BTC/USD run-up to $550+, many early adopters who bought bitcoin when it was trading for a few dollars now have very high purchasing power; this will lead to spending, regardless of volatility.
As an example, imagine you purchased 1,000BTC when they were trading at a dollar. Your purchasing power was $1,000 back then. Today, your purchasing power is around $500K. Spending a bitcoin or two on Christmas gifts would make perfect sense to you.
If Canada said "fuck it" on dollars today and decided they were going to start a brand new currency (let's call it the Ford, after Toronto Mayor Rob Ford), what would it be worth initially? It would be worth $0. Any increase in value after that up until the money supply and the price stabilized enough for it to be used as actual currency would be in the thousands of percent, which would make it seem quite volatile indeed. However, the huge increase in the beginning would attract a ton of investment because of the profit incentive and soon the Ford would be worth something. It would grow until it reached a saturation point where all the people who wanted a Ford had one. At that point the price would level off to the point where investors would stop seeing it as a profit opportunity. At this point it finally starts to look attractive as a currency.
In short, today's investors are tomorrow's spenders.
BitCoin had to start somewhere, and it was never going to be useful as a currency until it is widespread enough for its value to stabilize. Until then all mediums of exchange are speculative instruments.
And even if there were (which there isn't), the fact that the currency has doubled in the last 2 weeks suggests that there is massive hoarding going on now, and people would rather own the currency rather than exchange them for goods or services. Why would you spend 1 BTC when the price of the good or service could halve in BTC in a week? It's better to just dig out your old fiat currency and pay for it with that, since the price is much more stable.
You are probably right about the median case, but I say there is a small chance of a >$10M value for this reason alone.
If millions of people start believing BitCoin will eventually be a world currency, then it will be.
I agree that it is price speculation. Is speculation always based on a delusion?
And remember, I have no problems with speculation and people making money off of this. And this speculation can go on for years. But in the end BTC will be worthless, because there is no inherent value to a BTC. Even the fundamental promise of Bitcoin being anonymous is inherently flawed! Sure, you can money launder it, but the US government will make quick work of that in due time.
At least with tulip bulbs, you can grown them into flowers, and gold can be turned into jewelery and has industrial uses.
BTC has literally zero inherent or fundamental uses for it.
My guess is that it will keep rising until the US government starts cracking down hard on it, like they did with poker sites, etc. They've already put it on their radar screen, and a lot of these companies that deal with BTC don't understand the ramifications of money transmission. Once the US government starts shutting down in earnest, people will dump their BTC and it will be over.
Think of the BitCoin network as a financial superconductor - the resistance to movement is so small that its negligible. Is that not inherently valuable to our economy as a whole?
As well, since those transactions can be tracked, I don't think it will take very long for governments to start cracking down on them, and taxing them. They might force you to register your wallet, they will try to break up people who allow for anonymization/laundering of transactions, etc. It doesn't take a lot for real-life friction to make this pretty hard to use unless you just want to meet face-to-face and transfer BTC offline.
I have no doubt that governments will find ways of taxing it that are at least as effective as those used to tax cash businesses presently.
edited to add footnote: [1] ... as a relatively small player. My understanding is that payments between huge, well established institutions can approximate bitcoin in lack-of-friction.
To accept credit cards I need to fill out a bunch of paperwork, wait for blessing (which might be withheld), and then pay transaction fees on every exchange that are way higher than bitcoin transaction fees. They are likely to stay way higher since bitcoin allows direct competition on the basis of transaction fee. Then I'm faced with the possibility that the charges will be disputed!
To use credit cards, I need to fill out a bunch of paperwork, wait for blessing (which may be withheld), and only then can I easily make these payments - with the acknowledged advantages you cite. I may also have to pay an annual fee, but that's often waived because - analogous to web advertising - VISA wants larger numbers to better convince businesses they need to accept VISA.
Bitcoin is also substantially more resistant to fraud in one particular dimension: I am not constantly handing out my secret to every waiter and website I interact with.
That's not true at all. The Euro was launched as a completely new currency in 1995, across a huge and diverse group of economies and backed only by trust in the ECB. The value of the Euro has remained remarkably stable, launching at 1EUR=1.12USD, peaking in 2008 at 1.59USD and currently trading at 1.35USD. The biggest increase in the value of the Euro happened as a result of the declining value of other currencies during the US financial crisis.
BTC is in the midst of a vast speculative bubble. It isn't a currency in any real sense, as the vast majority of the trading volume is purely speculative. A currency is defined by liquidity and there just aren't many things you can currently exchange for a bitcoin. BTC might eventually become justifiably very valuable, but it might just as easily become worthless due to a run on MtGox.
Due to the in-built deflation of the currency, the main incentive is to hold the coins until some value is reached and then sell them. But because the distribution of coin ownership is quite asymmetrical, there are people out there that could cause massive drops in coin value by accidentally flodding the market when their 'Sell!' price is reached.
So the price will go up, sometimes faster, sometimes slower, with massive drops every now and then and a continuous value increase over the very long run.
The reason the Euro started off there is because, like an IPO, they thought that because an entire federation of countries was backing it, they could offer it initially for a price higher than $0, just like Facebook thought that because millions of people knew what Facebook was they could offer their shares for a higher price than $0. In all likelihood Canada would offer it for a price higher than $0, and the market would probably bear that price.
BitCoin couldn't do that because it wasn't introduced by a federation or a nation. Satoshi couldn't just go to an exchange and offer BitCoins for $600 because nobody had heard of BitCoin and people were skeptical. So it had to make the journey from $0 to $600 on its own.
But now that it has earned the faith of the people who use it, what makes it different from a national currency being offered that price? Not much.
" A currency is defined by liquidity and there just aren't many things you can currently exchange for a bitcoin. "
There are more and more things you can exchange a BitCoin for every single day. And if you're a vendor, don't you want to accept BitCoins? If someone wanted to give me a BitCoin in exchange for something worth say, $550, I would accept it because a BitCoin is worth about that much on the exchange and there's a high chance that it will be worth more tomorrow. It might not make a whole lot of sense to spend BitCoins right now but for the very same reason it makes all the sense in the world to accept them. Vendors have every incentive to accept BitCoins at the moment, which means there will be more and more of them, which means BitCoin's utility as a currency will only go up. Network effects.
I'm trying to visualize situations that would make me stop dealing in BTC (my companies both accept BTC now), and it pretty much boils down to: The government makes it illegal and puts stiff penalties on its use. I'd, obviously, have to stop accepting it for my businesses. But, it would be disastrous for the US economy to lose this innovation, so I'm betting it won't happen.
The other variable that is difficult to predict is other cryptocurrencies. They dilute the market, but not by a lot, so far. If a truly superior competitor to Bitcoin came along, it might dethrone BTC, and replace it...leaving BTC vastly less valuable.
Finally, if BTC gets broken. i.e. double spend becomes possible, mining exploits, etc. that can't be fixed without destroying existing coins...that would also cause a massive crash. I suspect we're past the point of that being a significant risk (so many eyes looking for holes, we'd probably see if by now).
So, I'm betting it's got a very big upside still.
s/possible/practical/
* If you look at the numbers, there are today between 400K and 500K people in the world using bitcoin, which is a very small fraction of the population
* A new bitcoin exchange in China, the world's most populous country, has opened and offers traders 0% fees
* India, a country with more than a billion people, still does not have a major bitcoin exchange
* The bitcoin protocol has been around for more than 4 years and has been reviewed by some of the best developers in the world.
Many people are comparing the current run-up to the April bubble. The market today is much more fragmented. There are many, many more players, and thousands of cash-rich investors waiting on the sidelines for a small correction in price action to buy in. This alone would prevent an all-out sell-off.
Others point to how easily it is for one government to shut down bitcoin, by putting pressure on banks to close bitcoin exchange accounts. To do that, they would need a legitimate reason, which they don't have — and this will become more difficult as more legitimate merchants adopt bitcoin, especially the larger ones. If that does happen though, exchanges can relocate their accounts off-shore.
Bitcoin is still very small. The market cap is ~$5B, which is the size of a small company. For a currency that can be used by anyone anywhere in the world, that seems a little... undervalued.
Some of the above price targets may seem crazy, but if you compare that growth to the growth experienced by Apple or Amazon over the past few decades, it starts making sense. And bitcoin isn't a company; it's an international currency, so its growth potential is even higher.
My price target is $50K/BTC.
A small company is in the $0.5 to $1 million range.
When I think small company I think small business, which is significantly smaller than a $5B market cap.
http://bitcoinrichlist.com/charts/bitcoin-distribution-by-ad...
It looks to me like speculation is driving exchange services in different countries, which is encouraging arbitrage. Which is pushing us towards a world where one of the huge businesses bitcoin eats is the banking sector's spread on currency convertibility.
If there's demand to store $1 trillion of wealth in BTC, and let's say BTC supply is 20M at that point (keeps that math simple, LOL) then the price per BTC would be $50,000.
Is $1 trillion high or low? Well, as a point of comparison, there is about $8 trillion of wealth stored in gold. The largest bank in China has assets of just under $3 trillion. The largest US bank, $2.3 trillion.
So $1 trillion stored in Bitcoin is a lofty but attainable goal, IMHO.
Thus I think we may see price stabilization in the tens-of-thousands of dollars per bitcoin.
While $1M+ seems enticing, it would imply something like $20 trillion of wealth stored as bit coin which would dwarf any bank or even gold, so I think that is unlikely.
One of my favorite charts/metrics is to look at the "market cap" of Bitcoin (not the price per coin). This gives you the read of how much wealth is stored in BTC. It's worth sanity checking that vs. other things.
https://blockchain.info/charts/market-cap
Right now it feels like there's a long way up, but again I'd probably peg the $50K range for a long-term target.
I've publicly tweeted a price target for 1 BTC to be worth more than 1 oz of gold within the next two years though. But at the rate it's growing, I'm tempted to revise the BTC / gold crossover point to within the next year.