Topic: $3.20 in one big buy? - page 2. (Read 6261 times)

as a rational participant in this market, i can tell you that i am looking way further into the future than 6 mo.  i have based my investment decisions on the calculated value of Bitcoin after the inflation has plateaued. 

granted there are various ways to make that calculation depending on how bullish you are but surely one way is to take US money supply and divide by 21 million.

Agreed.

Two things, markets look 6 month in the future not six years (generally). Second, speculation yes, that is one part on the answer the other one is a hedge against fiat currency's.

but markets tend to be forward looking indicators.  the market will not wait 6-7 years to price Bitcoin appropriately; they will today tend to project forward as best as possible what they think Bitcoin will be worth once the inflation has plateaued.

also you didn't really answer my gold question.  without an economy behind it, how is it that the price of gold has gone from $250 in 2001 to $1700 today?  answer:  speculation.  the exact same thing can and will happen, IMO, to Bitcoin.

My amateur analysis is predicated on a correlation to recent media stories. As anecdotal evidence, two nights ago at a business related dinner I met a person who had already heard of bitcoin. My wife practically did a spit-take when he mentioned it. He saw an article by wired. Then again last night at a party I hosted, a friend says he read about somewhere. This morning I have another speaker request in my email.
There is a lot happening right now and despite organized attack, bitcoin is still standing. That has attracted new attention and changed the way bitcoin is portrayed. The old message was something like; "Bitcoins are a type of electronic Monopoly money used to buy hit men". Now the articles are more sensible and less sensational. They also tend to focus on contrasting it against the current state of the euro and dollar.

Congrats your all early adopters all over again.

I thought more of you cypherdoc, now I understand why you are a super bull, you don't get the fundamentals. Gold is very special, why? Because the total amount of gold and the gold that is refined every year are very very different, the amount is something like 2 % a year that is added to total amount (supply) of gold, that is the reason new supply doesn't have a big impact. Bitcoin will be there some day as well, in like 6-7 years time. Today the inflation rate is around 30 %. If gold had a inflation rate of 30 % the price should have been at around the cost of creating it (plus a margin of a couple of %). Do you see the point now?

Of course it is harder to sustain, but if the price can go up to $5-$6 it can sustain $5-$6 too. Consider the Austrailian dollar: as people who buy it usually sell it later, there is a giant amount of downwards pressure on it. But the price is sustaining itself not because it's used in Austrailia, but because the traders believe in its value. This is what cypherdoc and I mean by speculative demand.

Right now, the bulls are dominant and believe $4 is possible. And that entails that it is. It may happen in days, or it may happen in January, but I think it will at least happen before February. After that, dieing bullish sentiment will entail a correction - but for now, we are in a bull market.

by making the Economy argument you are totally dismissing speculation or investor demand. 

explain to me for instance why gold is at $1700?  there is zero economy wrapped around that.

Yes, but the price of one Bitcoin makes a lot more harder to sustain when it is at 5-6 dollars, sustaining high prices would have to give a lot of money/effort in some way to this Economy long term. Once again, because of the high inflation environment for every dollar the price is higher it will need to get around 2,6 million dollars in to the Economy in some way, let it be miners that keep their Bitcoins or fresh fiat buyers at the exchanges. This is a fact, short term people miss this fundamental fact and then cry ans ask why the price is once again down. Because of that every intelligent investor should know that and take advantage of that and don't get caught in the exaggerated bull thinking.

this is correct.

the point about the 7200 btc inflation is also.  the point is that its predictable with a known decline rate unlike the USD.  investors have calculated that rate into their models and expect a much higher price than what we have currently.  in this sense Bitcoin is acting like a stock which will have an increased value in the future.

As supply increases and demand remains the same, the price will try to fall. That much is obvious. But there are two false assumptions there: 1) supply increases and 2) demand remains the same. Even if we do assume the 2) is true, 1) is still left unproven. In fact, going by your theory that the miners are selling their coins, supply should be remaining relatively constant.

What we might be looking at is an increase of demand because of speculation. And speculation is a good thing: it pushes the price up. The amount of Bitcoins minted each day is a constant until December 2012, and if we assume this is supply then demand only needs to stay constant for price to not go down. As speculation increases, demand will increase with it - fueling a bull market.

The price the Bitcoin economy can handle based on real trade demand is for sure MUCH lower than the price we're currently at. A large percentage of the price is based on expectations. But this is how it always is, the speculative demand varies but it's never 0. To me the most healthy way for Bitcoin to grow is that the speculative demand doesn't skyrocket to totally unsustainable heights as it did when we bubbled and overshot massively. What I hope for is that the real economy grows causing real trade demand to grow. The speculative demand can stay well ahead and that's fine, but it's not sustainable if the difference between the two grow too large.

someone sounds like they're caught in a short position.

The Bitcoin Economy cost some kind of effort, we can calculate it pretty easy in fiat money, in USD it is equal of 7200 x actual price / day. That is the fact long term, short term many things can happen. The miners pay for their bitcoins as well, it is a cost, same way it cost money for the fiat buyers. The Bitcoin Economy isn't that big today to handle a 4-5 dollar price with todays inflation rate. Maybe it can handle a 3 dollar price, but more likely it will go down to two dollars again.

Bulls are always in business .

Compare this rally to the one in May, or the drops to $2 recently. Which looks healthier? The May rally was quite obviously a bubble. The drops to $2 were unsustainable panics. This one is different: by my analysis we're going to $4 by January.

Bulls are back in business because they work and think as a herd, they buy in when things goes at the right direction in the short term (all of them at the same time) and forget all about the long term fundamentals. Then they cry when the price after a while gets back to where the Bitcoin Economy is at right now with the high inflation environment. This bull periods can ONLY happen in a short term fashion.

This is nothing but flawed thinking. The "7200 x price" calculations are useless and don't mean anything. For mainly two reasons. First of all the inflating amount of bitcoins is not the same thing as the inflating amount of let's say, dollars. New bitcoins are created by users and many of them decide to save bitcoins instead of selling them. This makes a good portion of miners actually investors at the same time and the decisions they make are based on the same type of reasoning as they are for investors.

So if we can assume that more investors are starting to buy bitcoins using a long term strategy, there are a lot of miners doing the same as well. So the selling pressure the miners cause is also largely dependent on market psychology. The effect of new coins to the price is not a static "7200". It varies based on many factors and some of them are the same factors that cause an investor to either buy or sell.

Then there is the other reason which is simply the fact that Bitcoin is such a small currency, so dominated by speculation, that the inflationary properties have little effect in any case. The amount of volume that is caused by day traders, investors, speculators is so large that it makes even the maximum of 7200 per day seem quite a small amount.

It's the demand and the faith of all the players in the market that move the market. The same 7200 coins were created every day when we skyrocketed to $32. I admit that the new coins do cause some selling pressure but it's a minor issue. The key issue is market sentiment, this affects the price a hell of a lot more than the "issue" of 7200 coins created every day.

I would just like to point out that the total bids to total asks ratio (in USD) since last night's rise has gone up.

its been a while since i've looked at the level 2 but what strikes me now vs just a few months ago is the increase in liquidity we're seeing.  there are bids and asks at every penny up and down both books.  we didn't used to see this.

also the shape of the bid vs ask side is interesting.  whereas most of the high volume sells are stacked up close to the price, most of the bids are placed further back while the total bid value book is much higher than the asks.

what this means to me is if the bulls can crack those asks up to $3.50 there should be relatively clear sailing to $4 and probably beyond.

this is totally expected behavior at this point in the cycle with whats going on in the general economy as well as the bitcoin economy.  the bulls are back in business.