Topic: Bubble and crashes (Read 22146 times)

IMO, Bitcoin has not had a bubble or a crash.

It has had a sustained bull run from $0.06 to $8, followed by a price spike, then a correction.

The re-testing of $6 after hitting $30, gave me a lot of confidence in the Bitcoin market and emphasized my opinion of a long price discovery phase embedded within a long term bull market.

Well, the biggest bank in the game SecondLife had an administrator/representative who was a fox (had a fox avatar). ... though that bank did turn out to be somewhat of a ponzi scheme :/

BitCon 2011? I'm not sure 'Con' is the best representation for a financial instrument.

That's the kind of media shock I'm talking about; insane exposure. I might start buying as much as I can now...

Is there potential for any innovative surprises, or will we have to find out in person?

I'm with evoorhees on the price/value discovery aspect.

As far as bubbles, it depends on the trigger. If there's a spread by word-of-mouth I'd expect a more gradual growth rate, so we might not see any discernible bubbles like the 3,000% jump this year.

From what I gather (feel free to correct me), the slashdot effect (reddit, et al.) seems to have been the major trigger that started the run up. That's a good source of early adopters with technical know-how.

The next trigger will probably be a more usable interface; possibly a functional mobile application. Once that happens, the next rise will likely be much bigger. Any subsequent correction from that should take a longer time to stabilize. Continuing spread of awareness and subsequent waves of new participants ought to bring volatility down.

With mobile usage, I think the Bitcoin economy might grow faster than you'd expect (whether its flexible enough to handle the growth as is remains to be seen). Exogenous shocks from national economies are frightening individuals enough to get them moving into alternatives (gold, Swiss francs, etc). If even a small fraction of that moves into BTCs out of curiosity, the flows could be immense relative to the size of the Bitcoin economy.

I guess it's just hard for me to describe what happened with Bitcoin as a bubble, even though it has the hallmarks. It seems more like naturally exponential growth.

I'm basing my estimation on an assumption of apparent growth so far and what feels right to me in competing factors

2011 (remainder): 0-1
2012: 1-2 (major shock causing 30%+ ranges)
2013: 1-2
2014: 2+
2015: 2+ (weak bubbles; low in magnitude or quick to break)
2016: largely undetectable

I think we will have at least 2-3 bubbles a year .. iy really depend on teh number of stock whales that decide to take advantage of bitcoin.


Maybe one per new (region) entering the bitcoin era. region would be something like states, Europe, middle-east, the Asian five, china , japan and Koreas, .. etc.


Every time a new "nation" = "region"="hordes of individual new speculators and users" enter the bitcoin market a whale will show on buying in mass to raise up teh prices and whip out a lot of small new individual speculators.

Well at least this is what happens here in the ME region and regular stock markets.

the question is will BTc survive the crash EVERY time and can be worth something more than 0.01USD ? will the hard faithful miners stay there after every crash and with even lower prices between crashes to secure our beloved BTC growth ?

I think these are the million dollar (not btc) questions!!!

+1

There will be numerous bubbles... probably 1-3 per year for a number of years. Bitcoin is so revolutionary, and it's true implications lay somewhere between "gonna collapse and nobody will use it" to "it will totally change the world and dominate international finance." 

With a range of outcomes like that, and extremely liquid global marketplaces for bitcoins, nobody should be surprised to see wild swings in price while humanity tries to discover the "real" value of this new invention.

The true value of Bitcoin is unknowable... it is something the marketplace is trying to figure out.

I think the rise from less than $1 per bitcoin to over $30 per bitcoin was purely a speculative bubble, fueled by all the press/publicity. Even in the absence of global financial uneasiness I think a bubble was inevitable; maybe a lot of the interest in Bitcoin is/was driven by people looking for a deflationary escape, but I doubt it.  Measure bitcoin prices in milligrams of gold (the time-tested deflationary escape) and you'll still see a big bubble and pop over the last few months.

I think it will be years (if we're lucky) before a significant number of investors look at Bitcoin as a deflationary escape from other assets.

What's your prediction for the number of bitcoin bubbles over the next three years?  (measured against whatever basket of currencies or assets you like)  I based my projections on "feels about right to me."

Excellent thread, thanks for resurrecting it.

I'm not sure trying to estimate how many bubbles there should be is accurate. They don't necessarily occur because of an attempt to create them. What did you base your projections on?


As Bitcoiner had pointed out, bubbles must be in relation to another asset. Bitcoin experiencing a "bubble" in this case seems to be tied more to global instability than the Bitcoin system itself. Rather than a bubble, it looks like a deflationary escape from other assets (not always the same ones) mirrored by a rise in Bitcoin.

Any significant wave of new interest will generate a disturbance of capital flow until the pool is large enough to stably withstand the shocks. Derivatives such as Namecoin will likely help with that. Niche entries that are blockchain-compatible will directly provide additional liquidity, much like fractional reserve banking. The major difference is that each variant is also self-regulating - the human control risk is nullified.

I think the danger of fractional reserve banking is losing sight of which asset the system is based on. In our case, fiat dollars are certainly not what the original foundation was. It was dollars as claims on gold and silver. Dollars simply made fungible transfers easier. Bitcoin is providing the same service, but acting in both functions (precious metals backing as well as easily-exchanged currency) while removing the human influence.

Coming back to the bubble topic: in order to estimate the number of shocks to be expected, it might be better to look at how quickly the global economy is deteriorating. Its state seems to be accelerating to the downside with 1-2 minor crises per year and 1 major crisis every 2 years or so. If this rate does increase, then we might expect Bitcoin to undergo more frequent periods of high volatility as well depending on which asset class is most closely associated with the system at the time.

I'm resurrecting this old thread because I like to reality-check my predictions.

Number of bubbles so far:  one.

(the $0.008 to $0.014 price rise turned out not to be a bubble; the recent $10 to $30 back down under $10 was definitely a bubble)

Zero to one bubbles and crashes per year for the next three years still seems about right.

the answers to your questions should be in the FAQ at ripplepay.com or one of the other ripple sites. The routing is explained in quite som edetail, but I haven't got the link right to hand just now..

I think since the slashdotting we are seeing a lot of people interested in trying bitcoins so it could cause a bit of a bubble.
There is also a real demand increase that will not go away easily since it is now 3 times harder to generate bitcoins I have estimated that instead of the electricity, cpu depreciation, and ISP costing me $0.006/BC it is now about $0.018. I don't know about anyone else  but that part of the bubble seems to be here to stay.

What do you think?

Damn; and I've held off on buying some simply because I don't want to use paypal. Comeon guys! I'm willing to trade poker chips in USD$ for bitcoins!

Agree with you, unsecured Bitcoin loans are pretty much a non-starter for now, and likely will be for a long time until we have a good distributed reputation system in place, and even then they will still be expensive due to the risk.

First: it looks like we're in the middle of our first Bitcoin Bubble.  Price today went from about 0.8 US cents to 1.4 US cents on the Bitcoin Market.  Maybe the price won't crash back down... will be interesting to see what happens.

Second, RE: lending:  I think it's going to be really hard to establish enough trust to create a lending bitcoin bank.  I base that on my experiences dabbling as a Prosper.com lender; when hard times hit, repaying your Bitcoin debts will be WAAAAY down on the priority list.

Instead, I think we'll see Ponzi schemes masquerading as lending banks.  Buyer beware!

I like this post: http://mises.org/Community/forums/p/6197/345624.aspx#345624

This is how I see how banking can work under the Bitcoin models (again, I don't see how fractional reserve could be stable with on-demand deposits without an inflationary lender of last resort):

I think the effects of that "illusion" could be debated all day. I need to do a lot more reading up on the topic, myself

Here are three interesting threads that I found that you guys might be interested in:

A big one:
http://mises.org/Community/forums/t/6197.aspx

http://mises.org/Community/forums/p/17430/339679.aspx#339679
http://mises.org/Community/forums/p/8938/273181.aspx#273181

If someone deposits 100 at a bank, the bank loans out 90, and the original person can still spend his 100 or withdraw them...
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In reality, he would not be able to if that was the only deposit in the bank.  The bank *creates the illusion* of there being more money because most people will not attempt to withdraw at the same time.  It operates on the expectation that most investments will not be withdrawn, at least not all at once, and that most loans will be repaid.

When people do all withdraw at the same time, such that the amount of withdrawals is larger than the actual cash on hand at the bank, it's called a bank run, and the bank defaults and some people don't get their money back (though in Western countries today, the government generally lends the bank the money necessary to complete the client withdrawals as bank collapses tend to have nasty economic consequences).

If someone deposits 100 at a bank, the bank loans out 90, and the original person can still spend his 100 or withdraw them, then money has most certainly been created. I am not seeing how this cannot be the case. I also don't see how this is possible with BCs, so not sure how the two situations are the same.

Bitcoiner,

It still seems like you're a bit hung up on the fact that banks create cash.  This is not true.  If the government minted only $1 trillion, even after all the banks do their FR thing there will still only be $1 trillion.

Any "money creation" that the banks currently do (increasing the M1 money supply) will be equally present even if they used BC instead of USD.

The problem is the deposit insurance and too-big-to-fail. Banks have too little incentive to lower their risks if they are insured anyway. Without them the need for government-mandated reserve requirements would go away.

What does Bitcoin have to do with reserve requirements, though? From a banking perspective, isn't Bitcoin just another currency among others? (Although a currency with lower need for banking services.)