Topic: Bitcoin's first major deflation event, and its consequences - page 2. (Read 14121 times)

i don't think we've bottomed out yet. but we're definitely within the range of sustainable price again. we shed 80% of the value of one coin in 3 days. that's completely unprecedented. it was all just some stuff.

before this the largest collapse in value was after the June bubble, which collapsed by 90% over the course of months. the 'i told you so' is because this was very, very irresponsible and we brought it on ourselves. also because i got shouted down these past 3 months, when i was talking something like sense the whole time.

As usual I think the intellectuals in the community are over analyzing what is clearly a (Sling Blade reference) "It ain't got no gas in it"

It's only being used as a store of value because -> Merchants at large don't take it.
Merchants don't take it because -> the currency risk associated with a volatile commodity with no instant means of transfer into the fiat of your choice.
There's no means to transfer it into the fiat of your choice instantly because -> IT GOES AGAINST THE PLAN MAN!!!

In the end for bitcoin to move through this growing pain and reach adolescence someone (possibly coinseter.com) will have to give merchants the security of knowing they can instantly exchange the bitcoins received into fiat in their bank to pay overhead. At least until it reaches adulthood and they can pay their expenses in bitcoin.

Based on your argument, an "I told you so" would be fitting when we hit the utility value based on Bitcoins equivalent M1 to GDP - I estimate it would be somewhere between $2 and $20.

"I told you so" before that point might appear as if you are giving credit to the current price being the bottom based on your argument. 

I'm still bullish as it looks to me anything above $17 would suggest evidence that Bitcoin is being used as a store of wealth, and if that is the case it is all about confidence in the world in Fiat and the benefits Bitcoin has in being a finite P2P cryptocurrency and its first movers advantage.

The bottomed line is the Bitcoin economy won't grow at a viable pace if people are saving (Unfortunately this is a design oversight), and people will save while there is deflation, I'm no Keynesian but as discussed a lot in previous posts Bitcoin as a medium of exchange will suffer from the paradox of thrift. Bitcoin has properties that make it the new Digital gold, or a store of wealth, and it is here I think Bitcoin has great growth potential.   

is it too soon for i told you so?

Stop orders and forced liquidations are a large part of what drove price down to $2.xx in 2011. But that's just part of it, I guess.

As I argued on page 1 until we have saturated adoption, a relatively even distribution, and a free market we will have volatility, if you don't like volatility you need to find a P2P crypto currency that distributes coins something similar to the rate of adoption. Volatility is a result of uneven distribution.

When I first made this post, I had not even yet dreamed of $150 price swings in the bitcoin economy. My only hope is that the discussion helped others dream of just that this past week, and protect their money with stop orders and smart speculation. This is what happens when deflation gets out of hand. I hope that this correction helps return us to the new normal and we see healthy sustainable growth from here on out.

Fees havent yet replaced the missing 25btc from the recent block halving.

If gold leads to no new investments why wasn't mankind still stuck in caves hoarding its gold for 6000 years ? After all why move out of the cave and into a house when your gold will be worth more tomorrow

Not no cost.  There is always a cost to someone, although not necessarily to yourself.  Someone bears the cost.  Presently that is the miners.

What is the percent of fees per block?  Tiny.  The vast majority of 'profit' in mining right now is the block reward, not fees.  As the block reward goes down, fees will need to climb.  You can argue that costs for mining will go down because hardware gets faster, but you'd be wrong.  Its the same reason the price of computers haven't really changed.  There's a certain cost to keeping the technology "current" and you can't get around that.

got that right

but the appreciation is appreciated

Yes, yes and yes. It takes a lot of effort to compete with another currency. That's why there won't be a competitor to BTC in a long time. But if far into the future BTC is the only currency that we trade with, there will be demand for another competing currency. Should this happen, the relative costs of setting up a new digital currency are miniscule. This should be pretty obvious.

You should re-read my post, I never said that the price of BTC has anything to do with it's popularity right now. The price of BTC is just an arbitrary number, it only becomes relevant in the case I mentioned above, where BTC would be in an uncontrolled deflationary spiral.

I continue to hear this argument and don't understand the logic. It takes a significant amount of time, effort & more importantly infrastructure, to come close to competing with another currency. People will not start using ltc (or some other currency which does not have a significant advantage over the existing one) simply because btc is priced too high. There is simply to much friction stopping its adoption. The only reason btc is taking off now is because there are so many advantages to the existing currencies, it has nothing to do with the price.

Yep, we do. Cheers Arepo

arepo, your deflation assessment is true in most parts. If Bitcoin someday does not have any benefits over other currencies or becomes the only actively used currency, I believe it will succumb into a deflationary spiral.

You, however, are way, way ahead of your time looking into signs about this happening today. BTC is nowhere close to being an established major form of trade, and before it gets there, BTC follows a completely different set of rules.

Also, the other *very* important point your assessment doesn't take into account is the benefits that Bitcoin has as a form of payment over other currencies. The anonymity, protection from hostile regulation, lack of fees and possibility of instant peer to peer global transactions make it very desirable to do trades with. As long as other forms of doing trade are less desirable / not viable for certain transactions, bitcoin will have parties interested in using it for transactions and will be widely adopted as a payment method. Even though the price of Bitcoins goes up due to scarcity, you still need to make transactions to consume or do business, and you tend to pick the form of trade most suitable for those actions whether or not holding the currency in question is also a good investment. This is easy to understand by thinking what you would do if you only had bitcoins and no other possession worth of any value.

Final point that I think you are missing is that it's extremely easy to create new cryptocurrencies. Should Bitcoin's value skyrocket so high up that trading with it doesn't make any sense, people start to move to another similar currency that is more hospitable for trading, because at some point the inertia of changing currencies becomes smaller than the difficulty of doing business in the current one. This in turn will put a downward pressure on BTC's value, and in the long run these two (or more) currencies will reach some sort of a balance.

I can't help it if you can't read properly.

--> Bitcoin is divisible at no cost, dividing gold has cost (split a krugerrand and try to sell it, you will then understand what I mean)

--> Bitcoin can be moved at no cost, transportation of gold has cost in security measures (see the recent gold repatriations...)

--> Bitcoin can be securely stored at no cost, gold needs vaults and expensive security measures.

On the other hand the cost of hashing will be largely covered by fees...which are much cheeper that any bank fee...

Don't saw me down at the ankles if I'm wrong but isn't this just proof of the difficulty/price coupling?

We know for sure that if the price goes down the difficulty goes down (GPU miners stop mining)...

What if the price is decided by the miners that only sell to a high price point to be able to continue mining?!

If this is true, ASIC's will lower stabilize the price once they kick out GPU's because the electricity bill will be lower for miners.

What do you say?

Edit: I think the rush is ASIC fueled = raising the price to what it needs to be in order for ASIC to be barely profitable keeping the mining going...

Basically making this a reward drop + ASIC effect

Bitcoin do have cost, and huge cost -- the ever increasing hashing power and that power need return....

oh btw: thanks arepo for voicing your concerns. I really appreciate it.

It's probably not easy as a bear on these forums. Keep at it, we need the bears to keep us sane!