Topic: Bitcoin value question (Read 715 times)

An individual investor might consider a penny stock or gold and silver or AAPL shares at $685, whereas a pension fund is probably going to stick to treasuries, bonds, some blue chips maybe and some REITS (or whatever it is that pension funds invest in) -- Bitcoin won't be in their portfolio anytime soon.

Here's a very long thread where precious metals (gold / silver) investors are pitted against BTC investors.  Ddon't bother reading through it .. just add it to your watchlist if you care to keep on the, ahem, discussion:

 - http://bitcointalk.org/index.php?topic=68655.3080

I'm staking some bitcoin as long as the protocol and the blockchain are healty and hope it will ever be.

Large fluctuations can also be seen in smalls stocks vs large stocks, which often also equates to old company vs new company. When a large company announces earnings (or sales, or anything) will be 10% below expectations, its stock price might fall by 5%. A small company announcing the same thing might fall much more, since the possibility to go bust from small-ish swings is much greater with a small company. Its the same with bitcoins - this is a fledgling currency that could go bust at any time, so even the small issues can cause large swings (pirate...!).

Pension fund, hmmm...
So you say it wouldn't be wise to buy $10 worth of btc each month for the next 20-30 years?

All commodities and foreign currencies have fluctuations in price.    Here's soybean oil.  To a pension fund, for instance, that volatility might be no better than Bitcoin's is!



Bitcoin's fluctuations are much more dramatic than other commodities for a number of reasons.

For once, the traditional financial ecosystem has kept their distance.  While individual traders speculate on bitcoins, there are likely no pension funds invested in Bitcoins. 

So of course, with mostly short term speculation you'll see wide swings in the exchange rate.

Then you have factors like counterparty risk.   Leaving bitcoins on an exchange is a risky proposition, as those who lost bitcoins at BitFloor this week learned.   

So even when the exchange rate spikes, the sellers willing to sell at that price aren't in a position to do so. If they weren't aware of the price increase, they might have missed the spike.  Or even someone watching might send more coins to the exchange on to be too late and the price drops down.     The same problem occurs for the fiat side -- moving funds from a bank or other method are not immediate.  That's one reason why weekend dips are so brutal when they happen because there aren't enough fiat dollars around to buy up the low priced coins until the bank wires resume during the week.

Also, there are few financial derivatives available ... such as a method to short bitcoin.  This is starting to change -- there are now CALL and PUT options at MPEx.  There are futures contracts at ICBit.se    (again, ... counterparty risk exists, etc.).

Just like there are parties that would like to see precious metals have price instability to keep it from being used as a currency, there are likely parties that would like to see Bitcoin have price instability for the same reason.   That's why there might be buying spurts that seem crazy -- definite money losers, and they do lose money, but again that probably wasn't the reason the trading occurred.  (just because you are paranoid doesn't mean they aren't out trying to get you.    )

Then consider the situation where a thief gets ahold of tens of thousands of coins and liquidates them -- the market may not be in a buying mood -- and the price goes splat.

So exchange rate risk is inherent in commodities and bitcoin's unique situation amplifies these.  Particularly because some see the potential and will buy at any price.

It may take years for this all to mature to levels closer to other commodities. 

I'm new to this too.. But i think since no one really knows what to expect, since this is a new currency and what not.. It's very experimental. Who knows what could happen tomorrow.

This is a good time to play the trading game.  BTC will go up and down dramatically for some time yet, even if the long term trend is up!

Another approach is to arb several excahnges (buy at one and sell at a higher price at another).  Be careful leaving too much cash or BTC in exchanges though (many have been hacked).

Ahh thank you. That does make sense, and I see how even myself could stock up when they're low, and sell when I think its at a good selling point.

Bitcoin varies in price due to the two standard market drivers:  Fear and Greed.  It drops so people sell as they are worried it will drop further.  It rises and people buy as they dont want to miss out.  The same factors drive all markets, however BTC is a new currency which is still being issued (mining).  Additionally, volume of trades is relatively small.  As things mature, the fluctuations will decrease.  It will still go up and down, just not in such a whip saw manner.

This may sound dumb, but I'm fairly new to Bitcoins, and I'm just wondering why the value fluctuates so much, I remember just a while ago it was at $6/BTC. I'm not complaining about it, I'm just curious.

Thanks!