Thursday, April 11, 2013

Alex Jones on Bitcoin's New Credibility Problem


 Jones writes:
Extreme price volatility has already destroyed bitcoin credibility
Although bitcoin quickly recovered some of its losses today, the extreme volatility is a huge red flag for this currency. Why? Because it means merchants won’t want to accept payments in bitcoins because they could lose half their pay values in mere hours. This damage is already done.
Alex has a point. If the volatility continues, no merchant will want to take payment in bitcoins.

Yesterday's bitcoin crash:


9 comments:

  1. John C. Dvorak over at the NO AGENDA podcast called it a few weeks back when he called bitcoin, "The Beani-baby of currency trading."

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  2. That was written by Mike Adams, the guy who thinks the earth is extremely overpopulated.

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  3. Isn't that circular reasoning? The reason a value drop is so damaging to the business is because in order to spend the bitcoins it will most likely have to convert them due to the current low acceptance rate. So that makes the above reasoning equivalent to: Bitcoin will never become widely accepted because it is not currently widely accepted.

    Also merchants could make regular conversions to their native currency. You could just have a script that takes your accrued bitcoins at a certain time interval or even after every transaction and exchanges for whatever currency. Also having a website that prices things in bitcoins based on their spot value would be simple.

    I think what's possible is that as more businesses accept bitcoins the volatility will go down and slowly the marginal holdouts will accept them and so on.

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  4. Anybody smart with a lot of bit coins needs to get an options market set up. Granted the federallies will stick their noses into that like intrade. But the point is the market would stabilize better if you could trade options.

    The gold miners have options. Why not bit coin miners?

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  5. I think what we are seeing is not an inherent weakness in bitcoins but an immaturity in the exchanges. Mt Cox has been overwhelmed with orders mostly because of the Cyprus events, etc. Other exchanges will probably pick up the slack (free market dynamics at work), and things will even out. There remains an inherent value in having a mode of exchange where a bit of privacy is still afforded. (pun intended)

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  6. Wenzel and Jones are both using incorrect "dollar based" epistemology. They are thinking in terms of dollars, as if dollars are the standard.

    But bitcoins are a competitor in money, so one cannot use dollar based thinking to judge a competing currency. One must use "Bitcoin based" epistemology.

    If bitcoins are considered money, then it's not bitcoins that are going through bubbles and crashes, it's the dollar that is going through crashes and bubbles. (Pay attention to the order of terms in that last sentence).

    The commodity that is "volatile" is the dollar, because the standard is bitcoins.

    Bitcoin/dollar traders first valued dollars very lowly, such that over time one bitcoin exchanged for more and more dollars, and then they valued dollars very highly, such that over time one bitcoin exchanged for fewer and fewer dollars.

    This chart shows that risk averse investors may want to get out of dollars, and invest in bitcoins, for the value of the dollar relative to bitcoins has been fluctuating widly.

    The supply of bitcoins has been increasing very modestly, and the expected rate of increase in the supply of bitcoins is constrained. It is not able to be arbitrarily inflated, the way dollars can be so inflated. Instead of looking at "Dollar price of Bitcoins", we should look at "Bitcoin price of Dollars."

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  7. Bob, your comments display quite an ignorance around bitcoin. It's almost as if you're a cheer leader for its failure. There is a big difference between the success of a particular exchange (MtGox) and bitcoin as a medium of exchange. If you cannot sort out this basic distinction you're really not in a good place to provide commentary on the currency. Btw, there are thousands of merchants who accept bitcoin and the number is growing every day. The price does not need to be stable for them to accept it in payment, because there are services which accept bitcoin on behalf of the merchant then immediately convert it to dollars if they don't wish to hold bitcoins in reserve. You should minimally inform yourself so you don't make such ignorant comments on the subject.

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  8. Vijay, bitcoins are neither primarily transactional, nor a currency.

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