The price of the bitcoin, hailed by some as the new money, has been in crash mode for months.
BeatBeat.com writes:
The price of Bitcoin continues to drop by about a dollar every week to ten days, currently settling at about $2.80 USD [The peak price was $33.00], and Bitcoin enthusiasts are starting to get worried. “I am not trying to cause a panic here, but the value of Bitcoin has dropped very low today with huge spikes,” one user wrote on the Bitcoin forum on Reddit. “I do suspect it will hit 1 USD mark this week maybe even lower.We need to be discussing thoroughly on promoting Bitcoin and actively putting more effort to spread the message to newer users as I do suspect the popularity is dropping very steeply too.”Note the commenter's call on "getting the message out." Real money, e.g. gold, doesn't begin that way. Real money develops because it starts out with value that is not linked to exchange. Gold has value as jewelry and tooth fillings. When gold first started off as money, people were willing to accept gold for exchange because they knew they could lay it off in the jewelry market. Only later when the value of gold in exchange is broadly recognized does exchange value develop as the key to the value of gold.
Bitcoin, in addition to other problems, doesn't have this broad-based "lay off market", outside of perhaps a minor layoff at Silk Road, where users use bitcoins to buy illegal drugs online.
The regression theorem always comes back around to bite them in the arse eventually. Indeed, I was surprised by the supposed 'Austro-libertarian' support behind this movement, because it seemed to me that this money couldn't survive, because its entire value was based upon exchanges with current fiat currencies. It had no use value at all. Shoot, at least with paper currency you can wipe your bum or burn it for heat, or what not. With Bitcoin, there is nothing.
ReplyDeleteThe inflation rate on bitcoin is insanely high right now, that is why the price keeps dropping. The inflation rate doesnt even dip below 2% for another decade. I wonder if Satoshi designed it this way to specifically illustrate inflation vs. deflation to the masses outside of the opaque global monetary system we deal with?
ReplyDeleteThis is a long term project. On the positive side, us poor folks have another chance to get in while coins are cheap. Unfortunately some folks got screwed, but investing in a hyperinflationary currency is dangerous. If they hold long enough they may get their value back, and then some.
I've always been skeptical of bitcoin because of its lack of underlying (exchange-independent) value. Even the purely fiat dollar has value because it's provision is required for taxes and required government services to keep your property from being confiscated and body out of jail. Bitcoin's value is purely in exchange and it is thus wholly dependent upon confidence. Neither gold nor even the fiat dollar has this problem.
ReplyDeleteJoseph - Bitcoin's use value is the distributed transaction network. Bitcoin units derive a market price due to being the only commodity useful on that network, and being scarce.
ReplyDeleteBitcoin is two parts, the network and the coins. The latter derives market value from the use value of the former. When understood correctly, Bitcoin does not violate the regression theorem, though admittedly it takes more than a casual observation to realize this.
I think that gold has value because you can make gloriously beautiful things with it. The need for beauty is within us and we act in order to satisfy it. Rome, Versailles, or Saint Petersburg wouldn't be possible without gold.
ReplyDeleteI suspect the forces of deflation are working on the demand for bitcoin. In deflationary times demand for security of money increases as does demand for cash. I suspect we are about to see a major flight to safety and the demand for US dollars go through the roof as people scramble for cash. Deflation is about to become overt in the markets and the media as the realisation dawns that "the great financial assets bubble" of the last 20 years is ending.
ReplyDeletethe beauty of gold is that you can bury it
ReplyDeletea thousand years later someone can discover the gold you buried before you died (shot by the ATF)
and with that gold they can buy the same amount of bread that you could by with it
and that is the same amount of bread that people 2000 years ago could buy with it
maybe in 1000 years people will think gold is a quaint relic
but i don't think so - do you?
pop
http://thepeakoilpoet.blogspot.com/2011/08/i-surely-do-love-silver.html
Robert, right now it has nothing to do with the regression theorem (confirmation bias someone?). As someone has already pointed out bitcoin monetary inflation right now is extremely high (around 30%). Its expected that it will drop in value. If you take this into account there has been an influx of money INTO Bitcoin during all this time. Just not enough to offset the huge monetary inflation.
ReplyDeleteBitcoin is in distribution phase right now. At the end of 2012 beggining 2013 the increase of the money supply will halve, so its expected that the market will adapt to this in advance.
Also, those type of comments are nothing new. They have been there since the beggining as well. They are written by kids who dont understand that Bitcoin is not a get rich quick scheme. Bitcoin does not need to go up in price.
Sean,
ReplyDeleteYou're attempting to impute value in reverse. Basically, what I am hearing from you is that the Bitcoin's value comes from the network itself and its scarcity within that network. In other words, you are trying to say that the value of a bitcoin is based upon the capital used to create it- I should point out that the computer is a very non-specific good. This runs dangerously close to a cost-theory of production, or its ugly cousin, the labor theory of value. Which brings me back to my primary gripe against the Bitcoin, it has no practical use in and of itself. In fact, you cannot touch it, see it, hold it, or even contemplate it without jumping into the realms of the imagination.
You want to take something that does not exist and form a monetary system around that? I am sorry if I seem a little hesitant to buy this premise...
Try to take your life savings out of the country and you may begin to see some of the intrinsic value of Bitcoins.
ReplyDeleteBitcoin is a commodity that has certain unique features and benefits (qualities). The market is going through the continual process of price discovery. Since we Austrians know that value is subjective, only time will tell how much the market values the qualities of bitcoin.
ReplyDelete@Peter,
ReplyDeleteWhat are talking about? Price inflation in the CPI and PPI have more than doubled since the beginning of the year and we now have M2 soaring near or at record levels. Once this bailout in Europe goes through we will have massive money printing in the US and Europe. This is a time where major inflation is on the way.
Too bad I can't short Bitcoin.
ReplyDeleteFew things...
ReplyDelete1) For the vast majority of bitcoin's existence, they were trading at less than $1. Bitcoin didn't reach market parity with the dollar for the first time until 2/9/2011.
2) Does it really matter what some commenter (who probably dumped a shitload of $ into bitcoin) says on reddit? Have you seen how many idiotic comments about gold get posted on reddit?
3) Not that I'm suggesting this but to illustrate a point... I can put all my money into bitcoin, store most of it on various servers across the world and then encrypt the rest on a micro-sd card or thumb drive to carry on my person. I can then get on a plane or walk across any border and declare nothing even though I still have access to all of my bitcoin.
4) Do I really have to say this here? Value is subjective. As long as people have a use for bitcoin, it will be around. I think that if bitcoin can maintain parity with the USD, its use will continue to grow.
"3) Not that I'm suggesting this but to illustrate a point... I can put all my money into bitcoin, store most of it on various servers across the world and then encrypt the rest on a micro-sd card or thumb drive to carry on my person. I can then get on a plane or walk across any border and declare nothing even though I still have access to all of my bitcoin. "
ReplyDeleteThis is what I think that currently is "backing" BitCoin. It is oppressive government which tries to suppress competing money and ways for people to hide their wealth in forms not subject to taxation (directly or by inflation) etc..
But as soon as this oppressive money system is gone, nothing is backing BitCoin anymore. And even now this might be too less, because the volatility is so high that for most people it doesn’t seem to pay to put all their money in BC, spread them on different servers in the world, only to find out when they get out of the plane, that the value of BC dropped by half or even more. This volatility and the missing backstop of value (a real use-value) might still and probably will kill BC even before we ever be really free to choose the money we want to use.
Not to forget that I believe that the government can effectively shut BC down completely or at least nearly if it becomes a real issue for them, so that it is not usable for the average Joe. It should be easy for them to declare it illegal and prosecute most people and firms who trade in BC... Real goods cannot be traded in a significant amount in back rooms.
ReplyDelete@ anon 09:09
ReplyDeleteOf course you can short BC. Just look out for BC supporters who are willing to engage in such a contract with you. There is just no firm who provides such services as a standard, but you can always make them on your own.
I must agree with skylien, you can short a BC just as easily as anything else. All you're doing is borrowing the BC with a promise to return the same number of BCs at a later date. The only hinderance is the anonymity of BC. But, that can easily be dealt with using an escrow service and/or setting up an exchange website with minimum reserves for trades.
ReplyDeleteProbably the only reason that you haven't seen these things come about yet is because BC is still such a tiny market. While I am sure that there are some who have vast numbers of BC in their wallet, they are the minority. Most people who I know that transact in BC don't have enough volume to make a short even worth the effort.
"I must agree with skylien, you can short a BC just as easily as anything else. All you're doing is borrowing the BC with a promise to return the same number of BCs at a later date. The only hinderance is the anonymity of BC. But, that can easily be dealt with using an escrow service and/or setting up an exchange website with minimum reserves for trades."
ReplyDeleteAll that doesn't sound like an "easy" short to me....