because nobody is using BTC for actual goods or services.
Huh? Of course people are using it for goods and services.
Yes, the list is growing rapidly.
Topic: Fundamental Analysis of BTC, is BTC overvalued? - page 4. (Read 14286 times)
Huh? Of course people are using it for goods and services.
Yes, the list is growing rapidly.
because nobody is using BTC for actual goods or services.
Huh? Of course people are using it for goods and services.
So is difficulty the only price driver or one of many drivers?
Most certainly not the only price driver.
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Deconstructively, what does difficulty represent?
How much computation is required (on average) to solve one block.
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Time to get a block, which is what? Electricity. What other price drivers are there? Demand for bitcoins. Which is based on what? Right now I think the demand is based on investment speculation/expectation. Am I missing anything?
Well you can't eat them so sure it's (almost) all investment. There is some trade going on too, and even a bit that is increasingly closed loop. There are people doing services for BTC and then using those BTC to buy stuff, etc. Of course this is still fairly small in absolute terms, but I would guess the rate of growth is really high. Some people are probably using it for near-costless money transfers instead of checks, bank transfers or cash, especially if the recipient wants BTC anyway.
Over time international transfers should be big. Doing those with banks can be really inefficient.
I'm trying to get at the underlying fundamentals of BTC, which nobody seems to want to approach b/c they feel it's an attack on BTC, which it is not, I think we can all benefit from fundamentals.
I don't think it's an attack on Bitcoin.
I'm not sure I agree difficulty is going to increase by 100x in two months. I do think it's going to increase a lot though.
I dunno. Look at the current growth rate of computing power, last I checked it went from 4 percent growth rate per day to 8 percent per day. PER DAY! And as profit margins increase due to price increase, more people are going to join. I assume a LINEAR growth rate for my calcs. I think 87x in 2 months is conservative. BTC is blowing up. It was on NPR yesterday or the day before. Once it hits CNBC . . . XD who knows? I mean what's the pop of BTC users now? Who knows? 6.34mil BTC in the econ. What's the average wallet size? Any stats on that? I'll guess 50 BTC, maybe? So we have about 100k users of BTC. I mean, this growth rate can easily keep going, and even accelerate for a while, which means a difficulty increase of at least 75 percent every round.
Those are the assumptions I used in my calcs when getting there. I know it's not perfect, but I think it's a good conservative estimate.
5. It becomes more expensive to replace (i.e. difficulty goes up, electricity goes up, etc.) I don't really agree with the argument that difficulty doesn't influence price (only the reverse) and I believe I could show that formally, but I don't have time to write it down.
I don't agree with that argument either.
It seems perfectly reasonable to me that an increase in difficulty drives an increase in price. After the difficulty doubles, bitcoins are twice as hard to get by mining. The nominal price should double, for the "real" price to stay the same.
Furthermore, higher difficulty indicates greater network strength/security, and like a price increase, also represent more investment.
So is difficulty the only price driver or one of many drivers? Deconstructively, what does difficulty represent? Time to get a block, which is what? Electricity. What other price drivers are there? Demand for bitcoins. Which is based on what? Right now I think the demand is based on investment speculation/expectation. Am I missing anything?
I'm trying to get at the underlying fundamentals of BTC, which nobody seems to want to approach b/c they feel it's an attack on BTC, which it is not, I think we can all benefit from fundamentals.
I don't think it's an attack on Bitcoin.
I'm not sure I agree difficulty is going to increase by 100x in two months. I do think it's going to increase a lot though.
Ok, if you want to get into monetary policy, then sure, the Fed is responsible for the amount of circulation. They increase or decrease the amount based on a number of factors, but ultimately the GDP, i.e. the collective work of the US. So yeah, your work creates dollars.
No, that work creates value that gives the dollars meaning.
Which is exactly what i'm saying for BTC. The value in BTC is the work input: the electricity. That is the only fundamental value for BTC, atm, because nobody is using BTC for actual goods or services. When people do, then we can assess some value. But right now, the price is completely speculation/expectation driven.
I don't want this to degenerate into an argument of semantics. We can all agree that the value of a currency is what you will trade it for, and over a wide enough population, that value becomes more accurate. It is also possible for the few to drive up prices unrealistically via speculation by ignoring fundamentals. Look at the housing bust, the dotcom bust, ANY bust.
I'm trying to get at the underlying fundamentals of BTC, which nobody seems to want to approach b/c they feel it's an attack on BTC, which it is not, I think we can all benefit from fundamentals.
5. It becomes more expensive to replace (i.e. difficulty goes up, electricity goes up, etc.) I don't really agree with the argument that difficulty doesn't influence price (only the reverse) and I believe I could show that formally, but I don't have time to write it down.
I don't agree with that argument either.
It seems perfectly reasonable to me that an increase in difficulty drives an increase in price. After the difficulty doubles, bitcoins are twice as hard to get by mining. The nominal price should double, for the "real" price to stay the same.
Furthermore, higher difficulty indicates greater network strength/security, and like a price increase, also represent more investment.
Ok, if you want to get into monetary policy, then sure, the Fed is responsible for the amount of circulation. They increase or decrease the amount based on a number of factors, but ultimately the GDP, i.e. the collective work of the US. So yeah, your work creates dollars.
No, that work creates value that gives the dollars meaning.
picollo7: i do agree with you. i hope some of the early coming people to btc have enough coins that he can try to do some control now cause if not now later it will be catasrophic!
Once the difficulty starts getting too crazy people will not mine as much
People are going to continue to mine at much higher difficulty levels, even if that means botnets.
And as long as mining doesn't stop completely (a total stop to hashing will prevent a difficulty adjustment), the difficulty will adjust downwards to a level that the marginal miner is eking out a small profit.
Right, but I'm saying that level is much higher.
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By your definition the dollar is worth nothing. Absolutely nothing. Too bad it's not true.
The argument is dubious.
*sigh*The argument is dubious.
No, a dollar is worth exactly the amount of work you put in to earn it, it is also worth the amount of goods you can trade it for. The underlying value of the dollar, and any currency, is the amount of work you will spend to earn it. Currently, the work for a BTC is the electricity input. You don't do anything to mine BTC, your GPU does.
So, a bitcoin that I mine is worth the cost of the electricity used to find it (production cost). But, a dollar isn't worth the cost of the paper it is printed on (production cost), it is worth the amount of effort that I put into getting it from someone else (exchange cost).
Why is a bitcoin valued at the cost of production, while the dollar is valued at the exchange cost?
A dollar IS valued at the cost of production. How do you produce a dollar? You work for it. How do you produce a BTC? You work for it (mine it). The difference is that with a dollar, you personally spend your time and effort, and with a BTC, you spend electricity. They both SHOULD be valued on production, but BTC clearly is not.
My work creates dollars? Well shit, does that mean the Secret Service is going to come after me? Because I'm pretty sure they think that dollars are printed by the Bureau of Printing and Engraving.
Or, if you expand the notion of "dollar" to include checkbook money (accounts in a database) then a little research will easily demonstrate to you that electronic dollars are created out of thin air by bankers.
Ok, if you want to get into monetary policy, then sure, the Fed is responsible for the amount of circulation. They increase or decrease the amount based on a number of factors, but ultimately the GDP, i.e. the collective work of the US. So yeah, your work creates dollars.
Once the difficulty starts getting too crazy people will not mine as much
People are going to continue to mine at much higher difficulty levels, even if that means botnets.
And as long as mining doesn't stop completely (a total stop to hashing will prevent a difficulty adjustment), the difficulty will adjust downwards to a level that the marginal miner is eking out a small profit.
Fundamental analysis of any monetized good will show that it is overvalued.
As a bubble in an asset of little-or-no elasticity of supply goes on without popping, that asset becomes the standard trade against which others are judged and thus becomes what is called money.
Bitcoin is a bubble. By any analysis that doesn't, in effect, posit that there is a greater fool out there, the value of bitcoin is for all intents and purposes zero.
Gold is a bubble. The demand level in the absence of greater fools is that of industrial demand. The industrial price of gold is about an order of magnitude lower than the current gold price. It's probably more overvalued, fundamentally, then most subprime mortgage securities were at the peak of that bubble (consider the returns earned by entities (mostly hedge funds) that backed up the truck to buy distressed subprime MBS...).
USD is a bubble. The demand level in the absence of greater fools is taxation by the USG (thus zero if USG doesn't exist). The value as a means of settling tax claims is well below the current market value of USD.
As a bubble in an asset of little-or-no elasticity of supply goes on without popping, that asset becomes the standard trade against which others are judged and thus becomes what is called money.
Bitcoin is a bubble. By any analysis that doesn't, in effect, posit that there is a greater fool out there, the value of bitcoin is for all intents and purposes zero.
Gold is a bubble. The demand level in the absence of greater fools is that of industrial demand. The industrial price of gold is about an order of magnitude lower than the current gold price. It's probably more overvalued, fundamentally, then most subprime mortgage securities were at the peak of that bubble (consider the returns earned by entities (mostly hedge funds) that backed up the truck to buy distressed subprime MBS...).
USD is a bubble. The demand level in the absence of greater fools is taxation by the USG (thus zero if USG doesn't exist). The value as a means of settling tax claims is well below the current market value of USD.
Once the difficulty starts getting too crazy people will not mine as much
People are going to continue to mine at much higher difficulty levels, even if that means botnets.
Ok, so what is a legitimate expectation of future value? I posited a reasonable expectation in 2 months to be about 25 bucks for cost. If the multiplier of 32 remains the same, this means in 2 months BTC will be 800 dollars? I don't think so. I mean, I'd love it to be. I'm long on BTC, but I just don't see it happening.
It depends what expectations are going to be in two months. I don't want to be too circular about it, but unless you base your analysis on value going all the way out, you can't really remove future expectations from the equation.
Some have made the argument that there is a potentially long growth curve ahead for Bitcoin in terms of usefulness. If it captures even a small portion of funds transfers, or even just a good share of the underground economy that could be a lot of value compared to now when it's all pizzas and alpaca socks.
We can all agree that it's based on expectations. I think it's anybody's guess about the long term future. The short term? I'm going to make a guess in two months: 50 USD. I would not be surprised if it was 100, but conservatively, I say 50, based on an extrapolated growth rate, and a multiplier of cost to price ratio of 2. Once the difficulty starts getting too crazy people will not mine as much, but it will still continue to grow, because difficulty increases lag behind growth rate.
Anyone else?
Ok, so what is a legitimate expectation of future value? I posited a reasonable expectation in 2 months to be about 25 bucks for cost. If the multiplier of 32 remains the same, this means in 2 months BTC will be 800 dollars? I don't think so. I mean, I'd love it to be. I'm long on BTC, but I just don't see it happening.
I don't either, but nor did I see a 100 fold increase in value in eight months when I bought in at 6.5 cents.
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By your definition the dollar is worth nothing. Absolutely nothing. Too bad it's not true.
The argument is dubious.
*sigh*The argument is dubious.
No, a dollar is worth exactly the amount of work you put in to earn it, it is also worth the amount of goods you can trade it for. The underlying value of the dollar, and any currency, is the amount of work you will spend to earn it. Currently, the work for a BTC is the electricity input. You don't do anything to mine BTC, your GPU does.
So, a bitcoin that I mine is worth the cost of the electricity used to find it (production cost). But, a dollar isn't worth the cost of the paper it is printed on (production cost), it is worth the amount of effort that I put into getting it from someone else (exchange cost).
Why is a bitcoin valued at the cost of production, while the dollar is valued at the exchange cost?
A dollar IS valued at the cost of production. How do you produce a dollar? You work for it. How do you produce a BTC? You work for it (mine it). The difference is that with a dollar, you personally spend your time and effort, and with a BTC, you spend electricity. They both SHOULD be valued on production, but BTC clearly is not.
My work creates dollars? Well shit, does that mean the Secret Service is going to come after me? Because I'm pretty sure they think that dollars are printed by the Bureau of Printing and Engraving.
Or, if you expand the notion of "dollar" to include checkbook money (accounts in a database) then a little research will easily demonstrate to you that electronic dollars are created out of thin air by bankers.
Why is a bitcoin valued at the cost of production, while the dollar is valued at the exchange cost?
Production cost doesn't mean anything, but replacement cost does.
You can't take a piece of paper and turn it into a dollar, but you can take electricity (and computers) and turn it into BTC. But even then, you can't do it right now (assuming you want BTC now) and you can't do it in unlimited quantity, so it's only an imperfect replacement.
Quote
By your definition the dollar is worth nothing. Absolutely nothing. Too bad it's not true.
The argument is dubious.
*sigh*The argument is dubious.
No, a dollar is worth exactly the amount of work you put in to earn it, it is also worth the amount of goods you can trade it for. The underlying value of the dollar, and any currency, is the amount of work you will spend to earn it. Currently, the work for a BTC is the electricity input. You don't do anything to mine BTC, your GPU does.
So, a bitcoin that I mine is worth the cost of the electricity used to find it (production cost). But, a dollar isn't worth the cost of the paper it is printed on (production cost), it is worth the amount of effort that I put into getting it from someone else (exchange cost).
Why is a bitcoin valued at the cost of production, while the dollar is valued at the exchange cost?
A dollar IS valued at the cost of production. How do you produce a dollar? You work for it. How do you produce a BTC? You work for it (mine it). The difference is that with a dollar, you personally spend your time and effort, and with a BTC, you spend electricity. They both SHOULD be valued on production, but BTC clearly is not.
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