Topic: Bitcoin too valuable to spend - page 2. (Read 7070 times)

The market volume is over 3,000 BTC a day. Someone is spending BTC.

x7

This makes no sense. Say we all had good reason to believe that gold would raise to $5,000/oz over two years due to deflation. The price would rapidly be bid up close to $5,000/oz today. Yes, it would still have the property that it will be worth $5,000/oz in two years, but that would no longer be any big deal.

Once the deflation is built into the present price, it will no longer deflate. The idea that everyone can expect a currency to deflate is simply not possible under any realistic situations. An expected deflation will already be priced into the market. It is not possible for a currency to deflate regardless of what its current price is -- that's like saying it is worth more than it is worth.

The thing is, no matter what the exchange rate of BTC to USD settles at, bitcoin will still have properties that make it more valuable than USD. For me, bubbleBoy has given the best account for the hoarding scenario, deflationary expectations.

For those that argue that, essentially, the free market will value BTC to account for this, your missing the fact that the price can never account for certain properties of bitcoin, because whatever the price settles at, it still has those properties. Even if 1BTC is worth 1 Billion USD, a merchant will price a product in USD and in the equivalent BTC, based on exchange rate, and the BTC will still have those properties that make you value it over the USD, namely, deflationary expectations.

The only solution I can see it to provide a different force the stops people hoarding it, and makes them want to spent it. There are 2 universal properties people value that bitcoin could give them, that at the same time would make them want to spend it. First is low transaction fees. This is something Bitcoin already has. The second is ease of use. This is something that bitocion does not (yet) have. Even if it did, USD already has this. A niche use case (for the general population) is anonymous payments. Bitcoin will always be the preferred payment there.

My prediction:
Bitcoin will always have 'hoarding forces' acting on it, but it will also have 'spending forces' acting on it. Thus, whenever there is a tie in the forces (which depends on the situation), and a product is available in USD and BTC, the user will choose to use USD. I don't think the hoarding forces for BTC will be as strong as they are for gold.

You would want to use the local currency because there is no advantage to not doing so. Your reasoning includes all the factors in favor of your conclusion, but ignores all the precisely equal factors that lead to the opposite conclusion. If your argument were correct, it would mean almost everyone would prefer bitcoins to dollars at the current price, which would mean practically nobody would sell bitcoins at the current price and most people would want to buy them. This would raise the price to higher than it is. But not only is the price not higher than it is, it can never be higher than it is. Any argument that bitcoins are superior to another currency because of their expected future value is an argument that bitcoins are being sold too cheaply to account for that value.

If most people agreed gold would rise to $5,000/oz in the next two years, it would rapidly rise to nearly $5,000/oz today. In that case, an ounce of gold today includes the right to have an ounce of gold in two years and so the value of gold today would include the value of that right. Similarly, a bitcoin today includes the right to have a bitcoin in two years and so the value of a bitcoin today includes the value of that right. The problem is, the value of that right is somewhere between $0 and $10,000.

This is not entirely true.


Gresham's Law states that bad money drives out good only as long as there is a law requiring people to use the "bad" money.
Since the Bitcoin is decentralized and independent, and therefore by its very nature "lawless", it should drive out all the bad (fiat) currencies. So states Gresham's Law.


Not "bad" money drives out "good", but Government Force!

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There will always be some people who believe that the market is underestimating or overestimating the future value of something. The people who will not sell bitcoins at the current exchange rate believe that the market is drastically underpricing the future value of bitcoins. There are also people who think that bitcoins will become worthless any day, and therefore you shouldn't pay $15 for them today because they might crash before you can do anything with them. These people think the market is overpricing the future value.

The exchange rate for bitcoins is the weird balance largely between these two extremes. This is, I think, a temporary issue for bitcoins. Either bitcoins will die or the volume will increase to the rate that people's disagreement over the future value is not so great.

They are, but currently they are being outvoted.

A hard drive deep to center field, its going . .going . . GONE!!!.  

If the current exchange rate is so low, why aren't people buying them to make the price go up?

Of course it can. Lots of people here would not sell bitcoins at the current exchange rate because they think it's too low, so why would they spend them for something using the exchange price as reference? Unless they have no fiat currency it would be irrational, because converting fiat to bitcoins has a fee. It's more economical to use the fiat.

To put it another way:

If BTC is appreciating by 0.1%/month, whereas USD is depreciating by 0.1%/month, then if you convert your USD to BTC as soon as you receive your salary you'll get free relative 'interest' on your salary per month and as all you have are BTC you'll be spending those during the month on food, TVs, etc.

It's nonsense, for two reasons:

1) If it was correct, it would apply equally well in the other direction. If a merchant accepts both Bitcoin and fiat currency, people will always prefer to pay with bitcoin simply because the equivalent bitcoin is seen to be more valuable and thus the merchant will be willing to accept a lower price.

2) It contains the oxymoronic claim that that the "equivalent" bitcoin will be "seen to be more valuable". If it's seen to be more valuable, it's not the equivalent, it's less than that.

The reason people hoard gold (and people may hoard bitcoin for the same reason) is that they irrationally believe it will increase in value (or, equivalently, that their fiat currency will decrease in value) more than other people do. So they think others are underpricing its future value today. However, there are also going to be people who think bitcoin will blow up any day now, so they will think others are overpricing its future value.

In any event, hoarding is a fact that influences the price of a currency, but that influence is to increase its value. Scarcity isn't a problem with bitcoins because they are divisible.

Why would you give yourself that choice? If bitcoins are so valuable, why would you not immediately convert all your USD to bitcoins?

precisely.

while the OP notes that:


...he neglects that which has the most impact on that calculation:  what can one afford?

in my line - rare books - this is a common question, with a simple answer.  if one buys a group of rare books - from an estate, for example - one is left with the question of how to sell them, and there are really only two choices.

1.  sell the very best books first - they will sell more quickly and for more money.  you will get your investment back sooner, pay your bills, and take your profit from the crappy books afterwards.  the problem here is that you are depending on profits from merchandise of lesser quality - it frequently doesn't work out that way, and you're stuck with crap.  or,

2.  sell the crappy books first.  it'll take longer, and you'll have to find some way to eat and pay the rent until they sell - but when you're done with those you'll have the very best stuff to sell, which should give you your profits in larger sums (always good).  the drawback here is the vagaries of the market; books tend to fluctuate in value, as most luxuries do.

so the answer here is the same:  what can you afford?

Postulate:  as the economy of the world deteriorates, Bitcoin will do better as a medium of exchange and become less of a value store or speculative medium.

That's why I said "given the choice". Suppose you are the supermarket, they accept both USD and BTC, and you have a portable BTC e-wallet and some dollar bills. After the novelty wears out, rational people will not pay with BTC. And this is why you will never be able to pay groceries in BTC. Deflation destroys trade.

Spending on needs(food, clothing, shelter) isn't really a "choice" in the economical sense. Choice is more like buying a new TV or having a $40 meal. Those are not needed for survival.

Or you may finds goods and services that you really want, but you have like 4000 bitcoin and this thing cost 1.50 BTC.

Time preference means some investors will exhaust their patience and cash out.

Also, newbies that brought into bitcoin will have an irrational aversion to loss, which explains the current price stability.

Let not forget that investors' return is dependent on the size and growth of the economy so some will be interested in boosting productive capacity of the economy.

If you convert all of your currency into bitcoin, hunger will force you to spend them, no?