Topic: Goomboo's Journal - page 52. (Read 281462 times)

All the reasons Cypherdoc cited to invest in bitcoins are the same reasons why I'm bullish on the bitcoin market. I really don't care what it is today, the big money is in the long term trend. I believe the fundamentals of BTCs point upwards. Yes, there's a finite amount of them, but it's more than that. Its utility even exceeds cash in certain cases, but the best part is that ANYONE can use them for ANYTHING, as long as they're accepted somewhere. What I'm betting on is market proliferation, and the way things are panning out.....it's definitely proliferating.

Another thing is that even though there's a slight difficulty gradient in acquiring the bitcoins, and at the same time there's a slight gradient withdrawing from BTC's store of value. This goes both ways IMO: when people put money into BTC, more will stay in than pulled out just because it's more convenient...over time. Reasons that would cause the depression of BTC pricec I can't imagine being able to hold back bullish pressures for too long.

Additional last thoughts: It is my hope that there are too many people heavily vested into this to not see a stronger, better diversified and more resilient BTC market in the mid- to long-term. Manage your risks correctly, like Goomboo is trying so hard to impart to us, so that everyone here can do their part to contribute to this fledgling, yet very exciting maturation of a new type of economy.

i wrote this for my November 23, 2011 blog post:

http://www.hussmanfunds.com/wmc/wmc111121.htm


John Hussman is one of my favorite reads.  Aside from all the other great things he writes in this post, I wanted to point out this particular passage that rang true to me, especially as they apply to Bitcoins.  Anywhere you see "Bitcoin" inserted into this passage is from me:

"Why does a fiat currency (Bitcoin) have any value at all? The answer is that the value of a fiat currency (Bitcoin), like any other asset on the face of the earth, derives its value from the stream of benefits that it delivers to its holders over the life of the asset. Currencies get value because they serve as a means of payment and as a store of value. You can think of a dollar (Bitcoin), for example, as throwing off a little bit of "benefit" every day to its holder, either because it is useful to that holder as a store of value, or it is useful in making a transaction (in which case, a new holder will control the remaining stream of benefits provided by the dollar (Bitcoin)."

Note that he defines a currency as functioning as a means of payment AND a store of value unlike others have claimed on the Forum.  Now this definition does get a bit muddled as gold does not function as a means of payment for the most part in our modern society but is defined as true money by the gold advocates because of its store of value properties.

"One unit of a good provides a certain amount of benefit, or "marginal utility." One unit of a currency (Bitcoin) provides a stream of future benefits, that adds up to its own overall "marginal utility." The price of any good, in dollars (Bitcoins), is simply the marginal utility of that good, divided by the marginal utility of a dollar (Bitcoin). If a box of paper clips provides a total of six smiley faces of utility, and a dollar (Bitcoin) provides a total of two smiley faces of utility, a box of paper clips will trade for $3.

Value always lives at the intersection between scarcity and usefulness. What determines the overall marginal utility of the dollars (Bitcoins) in circulation? Well, if there is a great deal of financial uncertainty, so that the dollar (Bitcoin) is considered a "safe-haven," each dollar (Bitcoin) will have a little bit more value than it would otherwise. On the other hand, if the supply of dollars (Bitcoin) increases significantly, dollars (Bitcoins) are less scarce, and therefore less valuable. So credit crises tend to increase the marginal utility of dollars (as safe-havens) (Bitcoin), causing deflationary pressure on prices. Printing money reduces the marginal utility of dollars (Bitcoin), causing upward pressure on prices. Printing money  during a credit crisis - providing that people actually want to hold that currency (Bitcoin) as a safe haven - is fairly neutral for inflation."


It is my contention that if Bitcoin maintains at least some USD price exchange level in perpetuity, then it IS a currency simply via the fact that it will be a store of value.  In fact, I will go as far to say that we may already be at that level as $2.00 has proven to be a hard floor for at least a month now after a precipitous decline.  I also contend that any price in the $1 range would have to imply equal value to other fiat currencies including the USD which in my mind is ludicrous given all the fundamental advantages that Bitcoin has introduced to our modern digital age.  In other words, I think Bitcoin is fairly valued at the present time and will not go lower.  If an economy does continue to build up around Bitcoin, then the price will go even higher as it assumes the "method of payment" function.  This whole "fair value" claim of mine at the current price level, however, ignores the future recognition by speculators like Keiser and Prechter, etal who when they recognize the gold/silver equivalent properties of Bitcoin will surely flood the Bitcoin landscape like cockroaches over dead meat.

"Here's something to think about. When we look at any stream of payments, the value is based on the whole long-term stream, not just the benefits received in the first few years. Those of you that are familiar with the dividend discount model, for example, know that the bulk of the "value" of a stock is not in the near-term cash flows the stock will throw off in the first few years, but in the very long-term "tail" of those cash flows (or equivalently, the terminal value expected in a buyout). Well, the same is true for a currency (Bitcoin).Even if the Federal Reserve creates a massive amount of currency (Bitcoin), it will not be inflationary provided people are absolutely convinced that the dollars (Bitcoins) will only hang around for a short period of time. If they ever become convinced that the new dollars (Bitcoin)are permanent (and especially if there is not an ongoing credit crisis to create safe-haven demand), the marginal value of each individual dollar(Bitcoin)would decline, and inflationary pressures would emerge."


Fit the concepts behind that paragraph around the fact that the Bitcoin "printing" curve is asymptotic and will go to zero in perpetuity somewhere around 2040 with a halving of introduction just next year.  Also, note that Hussman draws a parallel between currency and a stock if that currency can be viewed as having "future value".  So I can argue that despite the current inflationary "printing" of Bitcoins and the fact that the price has stabilized implies that as the "printing" subsides the value will go up.  This concept is directly contradictory to several of the Bitcoin skeptics.

This is why we invest in Bitcoin NOW.

I hear you... and every time my BTC holdings become significant, I diversify.  So far, I've funded a small IRA stock account and some physical gold with my BTC winnings.  But, I've sold everything I want to sell for now above 7.  My holdings are far from rigid, and even within BTC, most of them are working for me (interest and trading income).

Trust me, you have no idea what you may do with regard to accumulating wealth over a time frame like that. I seem to have missed the rise of a generation of one eyed mutants herding us all into stinking cattle pens so far, so that may be a consideration that you will want to incorporate in your careful planning 

The one thing I will say is that no strategy or approach lasts, I tend to follow The Church Of Whatever Works Right Now. For example what worked for me superbly in 2008 is a non-starter today.

Anyway, I guess I'm saying you have to consider investors as well as traders when considering manipulation of your strategy.  In the long run, trading will win out, but until bitcoin grows quite a bit the investors will eat into your profits.

I can't buy a beer with that share of stock.  Bitcoin is not comparable and much more useful.  So long as I see governments clamping down on fiat transactions, I will hold bitcoin long.

Very insightful GoomBoo.  Thanks for sharing.

You just revealed something about yourself - a tendency towards an upward bias.  The currency markets are unlike the stock markets in that there is no "upward" bias.  Stocks are driven by earnings, growth, developments, the economy, etc.  As an economy strengthens, so does its market.  This means that there is a bias towards the upside in the stock market - people believe that times may be better in the future and thus they invest in stocks (excluding dividends) for the long run.

The currency markets possess no upward bias.  The exchange rate of a currency fundamentally should be based on the relative demand for one currency and the willingness of the holders of another currency to sell their base currency for an alternative.

It makes very little sense to hold this for your retirement.  This shows that you believe it will appreciate over time against the dollar.  Fundamentally, this makes very little sense.  Who cares if there are 21 million bitcoin?  I can find stocks with 21 million or less shares - is that a justifiable reason for me to put it in my retirement?

$10 - where do you get this number?  What do you base this on?  Do you have some model which has worked in the past that validates your assumption?  See where I'm going here?  You need to question your decisions and find out why you actually made them in the first place.

When it comes to numbers in the market, it almost always makes sense to actually calculate out the values so as to have an idea of what is "real".

Here's a picture showing how much money needs to flow into or out of the market to move it to certain prices.  The color coding is what I believe to be the "difficulty" of actually achieving those prices.



Also, keep in mind that a moving average is a function of the number of periods that it uses.  If a person were to be manipulating it, they would have had to have been actively trading and influencing closing prices for the past 21 hours, or at least for the 3-4 hours where the averages touched.

Only 21 million ever.  I'm investing for retirement with a 30+ year timeframe.  I doubt I'm the only one with such an attitude.  At that scale, BTC will either be worth 0 or at least 10.

I'm cautious about assigning motives to market action.  Who is to say what "cheap" and "expensive" are?  In my honest opinion, BTC is massively overvalued, but I am still long because only price pays and when I act on my emotion and feeling rather than what is actually happening in the market, I'm not trading, I'm gambling.

This is the difficulty with trading on these short timeframes - I'm still long at $6.35 and by following the system I should have reversed and then went long again.  I haven't looked at BTC in 24 hours...and yeah, that crossover was a little nasty...

But that would mean somebody would have to have the experience to know that would work, and to be able to present it as a solid trading strategy. To sound convincing they would also need some experience in the market in general so they wouldn't look like a novice. I don't think I've seen anything like that recently...

I would say it's similar to a penny stock's volatility for a given volume.  The difference is, millions of people can trade that penny stock with accounts they already have.

The market was repeatedly held down to keep the 10,21 close to crossover.  After this, it shot up.  To me, that says someone was using this signal to milk a few cheap coins from suckers.

More like 10K to move things, 1000 will only get ya a few pennys on the dollar. With regard to people having no experience.....I think they generally stay out of the speculation forum because if you come here it is only for the purpose of gaining experience and should you be in that category, the first lesson of all should be risk and I think that is something mentioned more often then not.

As for major players, again things are a bit diffuse in that sense. I've a feeling that a lot of full time traders would just go straight to gox and not give a damn for anything else around bitcoin. But we both face a problem here in terms of our respective arguments in that neither of us can use quantifiable metrics to prove what we are saying.

I agree that bitcoin is a malleable market, but I would argue that the scale involved is larger then you are crediting. Not as immovable as the gold market, but not as easily shaken as a penny stock either.

In a market this size, 2 people trading with a $1000 each would make targeting them worth it, and many people here don't have the experience to do anything but follow advice.  All I can say for sure though is that the market has been acting funny around the crossovers.  Remember... this one thread on one forum is likely seen by half the major players.  This is still a tiny community.  It's not like moving the gold market.

Somehow I don't think enough traders would choose to change their strategy to enable this as a shakedown. Think about it, one thread, on one bb forum on the entire internet to move a market.... :/

With regard to the indicator, this is a perfect example of why you stick with your strategy including stop loss value which should be predetermined before hand and not on the basis of the indicator itself. It's been mentioned more then a few times in this thread already why having a strict plan and employing the discipline to stick to it is important. This is a perfect example of that.

Indicators still close together. But I made a mistake here I think. I'll keep my position until my loss on this trade is 4% (current 3%). The extra 1% risk is justified imo because the lines are still quite close together so still could go down.

I also added a new moving-average simple to my graph. Will just see if I can use this for a extra indicator. The simple moving-avarage reacts less to current prices so I think this will keep me informed off the overall trend.

After two failed crossovers, the indicator seems to be bullish again.  Enjoy the shakedown if you continue to use this signal in the short term.

Again great new content in this topic.
Just woke up and checked the charts. Looks like their is a new crossover.
Last crossover was pretty week so this should be a better one.

Just went short again @ 6.2 (2.5% loss on last trade)

edit: damm maybe was a false crossover. Hope I didn't jump the gun to fast