Topic: Bitcoin Bubble 2012 - page 2. (Read 6807 times)

If Bitcoin is widely adopted, yes, but remember where that $200M comes from: inflation (IE, devaluing your coins) and to a smaller degree, transaction fees.  We have to get to $10B in commerce before that cost drops under 2% of all money flow.

It's a plausible outcome, but it's an optimistic one.  I consider these scenarios equally likely: Bitcoin remains an interesting but niche currency, and just wallows around unable to sustain that high of a market cap; or another cryptocurrency with more appealing properties comes along and all but replaces Bitcoin.


Worst case, we have either of the above scenarios and never reach $30, and you lose as much as you can tolerate before you capitulate.

In a better case, wild speculation doesn't get us to $30, and we have to to slowly, gradually achieve it with commerce.  You make your investment goal, but it takes 5 years.  15% ROR is OK, can't complain, right?  It's better than losing it, but it's not exactly stellar success for a very high risk investment.

Or Bitcoin could be wildly successful.  I'm optimistic, but I still need to see real, widespread adoption before I become confident.  Don't lull yourself into thinking that it's too good to fail.

I would hope that the price remains stable at $ 6.50
that's a fair price for all

I sincerely doubt it.

2.00 IMO was a residual effect of the pain and anguish from previous months.  The market wouldn't offer coins for lower prices despite some really stagnant trading days.

I'd be really surprised to see 2.00 hit again ever. 

Plus... the press is out there.  Once the market cap flys high and people drop a couple hundred million into mining equipment, expect to see fewer fluxuations and thus viability brought to it as a transactional medium (which ought to further stabilize price).

For the record, however, I will be selling probably 25ish percent of my holdings at $30.

Worst case, I'll be up 100% on my investment

I do understand the fallacy.  Correlation != causation.  I've said it in great frustration many times.  But now I feel like I've fallen into a bizarre alternate reality where that message got repeated too often, and everyone has now concluded: "... and therefore, causality does not exist."


I agree with everything you just said there.  I absolutely agree that the relationships are not constant.  But working within your concession, and with a year of good data that coarsely supports the theory, I think it's fair to postulate ergo propter hoc, and that I'm not running afoul of a fallacy in doing so.

oh so encouraging.  i especially liked this part:

"If President Obama were committed to Constitution and international legal norms, he would veto this bill. Instead, he seems more concerned about consolidating the power of the Executive Branch at the cost of our legal and human rights. As “terrorism” and “radical Islam” have come to replace “Communism” in the federal government’s lexicon of fear, the United States continues its spiral toward a new era of McCarthyism. The NDAA is one more step down that road."

Buy more Bitcoin.

All the lawyers disappeared.


The NDAA was signed into law. The BTC price in USD went up. Therefore, when legislation is signed into law the price of BTC in USD goes up.

spoken like a lawyer.  probably Bill.  welcome.

Post hoc ergo propter hoc. I am going to isolate the relevant sentences and bold the key part so you can read and hopefully understand since you missed it the first time.


We are talking about economics with human action and not physics. But I will concede that despite the complexities and unknowables we can know something and from that something derive tendencies.

Your quote is about the fact that the market is too complicated to model accurately, and too fleeting to easily test a theory with any respectable degree of scientific rigor.  I entirely agree - it's very hard to show causation when any given correlation could be the side effect of a near-infinite supply of other factors.

Nonetheless, it is not a logical fallacy to suggest that there are causative relationships in the market.  They're there!  They're just hard to prove.  The best we can do is theorize, then see how well our theories predict the future.  That's the whole basis of analysis.

Difficulty clearly correlates strongly with price.  It's not direct due to all the other factors I mentioned, but there is a causative relationship somewhere in there.

Trace Mayer or Bill Rounds?

Welcome to the World of the Gold/Silver Replacement:  Bitcoin.

edit:  don't miss this ramp Trace.  this time it isn't coming back.

This should be tattooed on the hand of any person that is about to speak authoritatively about economics.  Teachers, TV news fodder, drunks in bars, internet idiots, etc.

You both seem to be off in the weeds arguing a logical fallacy concerning correlation and causation.

Ludwig von Mises:

Good, we're on the same page, then.

I look at it like an SMA with some upward bias: after the price levels off at bottom an SMA will keep falling, whereas difficulty goes flat quicker (some miners keep mining even when somewhat unprofitable); when the price then goes up a level SMA will start turning up quickly whereas the difficulty lags a bit more (a few miners are willing to start when it's less-unprofitable, but most wait until the price goes high enough to make profit at a difficulty level).

In the end, it's just a lagging indicator of price, just with some extra factors thrown in ($/kW, MH/J, miners' inertia to start or stop mining, available MHps offline after a price drop, the $/MHps for new hardware) that aren't relevant to the fundamental value of a coin.

So for pricing purposes, how is it any more enlightening than an SMA45?

I said as much a long time ago:

If the price goes up, more miners come online and boost difficulty.  If it drops, they get out because it's not worth the power and difficulty falls.

The compliment happens to a degree: if difficulty is high, some people will buy coins at the market instead of mining them, thus boosting the price.

I think the first effect completely overpowers the second, so difficulty is a lagging indicator of price.  And so far, it looks that way to me:



Do you have any evidence to the contrary?

Its straightforward to quantify the difficulty, matter of fact its built into the protocol.  And not coinicidentally, its mich higher now at $5.


Try computing the value using difficulty as one of the variables.  Prices at the moon are only justified if difficulty follows.  When it doesn't, there are spikes in the price:difficulty ratio, and it stays grounded at realistic prices.

Price is just a proxy for value.  Before there was a price on an exchange, there was still stored value.  It was harder to quantify, but it still conceptually existed, and would fluctuate with need.  Without even buying or selling actual goods, the demand for novelty was enough to support the very low value per coin at that time.

At $5, you need a lot more than novelty.

Yes, I'm basically modeling it as a transactional currency, and considering the store of value as one aspect of a transaction (all stored value is intended to be spent eventually).  That's basically true for now: the value is too unstable to be a reliable value store, so people seeking a transactional currency won't store much money in BTC.

That's a weakness in the model: a very large and hard to quantify part of the formula is the amount of BTC held long for speculative value.  The actual transactions are small, and the computed value can vary a lot depending how you fudge the variables.

On the other hand, that's also it's strength: any attempt to compute the value based solely on the MAIN current use of Bitcoins (as a speculation vehicle) is completely detached and self-referential, and can be used to justify any price.  Off to the moon we go.

Edit:  Oh, don't get me wrong.  It's going up short-term.  I just don't see it lasting for more than a few months before reality sets in again.

The relation between price and difficulty is a two-way causality.  The fact that difficulty exploded before there was even a market or price for bitcoin falsifies the one-way hypothesis.

As for a fundamental, your definition only makes sense if you assume that the utility of bitcoin is strictly supporting commerce.  I assume that the utility also includes the buying and selling of dollars, euros, etc. (speculation).  Its a value storage and transfer system; a risky asset a la gold.  Its not purely a transactional medium, its an actual commodity.

Difficutly is not a byproduct of the bitcoin.  It is the essence of the bitcoin.  But we're beating a dead bear now.

Difficulty is an effect of price, not a cause.

I define the fundamental price as what is required to store sufficient value to support current commerce.  The price cannot be sustained lower since non-speculating Bitcoin users will bid it up to fill their needs.  Speculation can drive the price higher, but only as long as there is a constant influx of investment - the sum of (miners speculatively holding) + (net increase in fiat).

"Feeding the miners" (with either hope or fiat from people with hope) becomes more expensive with a rising price - at the current $5, we have to find over $1M per month of new hopes and dreams just to keep things afloat.  Getting up to $30 would require over $6M per month of influx.

So where's the floor?  Read this plus what I linked at the bottom.

tl;dr: The floor is a few cents, and a reasonable level of speculation would put us at 10x the floor - perhaps $0.50.  Any price above that requires either wild speculation (what we have now), or an increase in commerce.

Hype will get more of the former and thus a bigger, longer bubble; more people doing real commerce will cause the latter, and enable a sustainable long-term growth.  Unfortunately I see mostly the former and very little of the latter.  Until that changes, I'm keeping the bear hat on.

And whats the quantitative "fundamentals"?  I suggest looking at difficulty, which if you compare to the last time bitcoin was at $2-$5, say that its currently undervalued.