Topic: Has Bitcoin survived its first bubble? (Read 3496 times)

Understanding Bitcoin takes some degree of experience, and thus time. Many people are discovering how the value-meaning exchange cognitive systems we call "money" actually work, by using Bitcoin. A fascinating example of this process is detailed on this article that was linked today from the top of Bitcoinwatch:
http://www.libertariannews.org/2011/06/06/libertarian-goldbugs-hating-on-bitcoin-free-market-money/
to wit:
"I suspect that many libertarians who denounce Bitcoin as a legitimate currency system have purchased large quantities of gold and silver, and are looking to recoup some of their investment by having those metals make up the groundwork for a new monetary system.  It would stand to reason that anyone who holds large amounts of precious metals would be opposed to any new currency system that is not based on those metals...."

Human beings use money systems as a "translator" between the inner world of subjective value and the outer world of physical experience. Bitcoin, despite its digital nature, is not different in this respect.

When the so-called "crash" happened, I, like many people, was a bit worried. Quickly I assessed my feelings and thoughts about Bitcoin:

a) Was I using it  to accumulate value in a speculative manner vs. the dollar? (Answer: to some degree, yes)
b) Was I already "thinking in bitcoin," i.e, looking for spending opportunities for goods or services that were denominated specifically in bitcoin? (Answer: yes. Although in my case, these goods or services were related to the mining of bitcoins: PCI-E extenders, for instance. Still, I bought them in Bitcoin, not dollars.)
c) When I looked at my bitcoin holdings as the price dropped precipitously, did I see the entire holding as converted mentally to value equivalence in my national currency? NO. I sold some bitcoin at 23.84, guessing that the market would stay down long enough for me to buy more at a lower price, as well as take some cash out towards paying back some of my investment. I later bought back about 160% of the amount of bitcoin that I had sold, at 60% of the price. Today, of course, the market is back to 18<->20.
d) does Bitcoin have value for me as a intrinsic currency? YES. Increasingly I will look for opportunities to spend Bitcoins simply to use them in the emerging marketplace. Likewise a percentage of my holdings also will serve as a speculative investment vs. my national currency. BUT ONLY A FRACTION, probl. less than 40% overall.

I know that there are many of you who have much more experience than I in using this new system. But I have learned enough by now - both from mining and from playing small amounts in the Bitcoin market - to trust this system, which paradoxically, is based on the "no need to trust" due to the cryptosystem (see Bitcoin paper). Ironic, to me. But all money systems contain such feedback and circular logic. MONEY SYSTEMS ARE BUILT ON PARADOX.

The key is: do we all accept the paradox together?

;-)

I was referring to its intrinsic value rather than its exchange value, trying to get a handle on that. It seems to matter a lot to some precious metals bugs and maybe the population at large.

I tend to agree that 'intrinsic value' is not objective but is (collectively) subjective. It's is about social trust, and with each successful trade that trust will increase.

This was just price fluctuation. The market is so small right now that a relatively small sell-off can spur big changes.

For me, "the bubble" will come if bitcoins gain traction as a global currency.  You have real currency exchanges start offering bitcoins, Wall St. starts pumping money in, it's shown on market news show tickers next to the Euro and Yen, bitcoins will show a ridiculous appreciation.  Every Tom, Dick and Harry will want to get in on this rapidly appreciating new global currency, especially as talks of global stagnation, government debt and inflation are at play. When you hear people are taking out mortgages on their homes to buy bitcoins, that's when you get out.

"Intrinsic value" is a myth... it's like saying something is intrinsically beautiful. Value, and beauty, are always subjective and in the eye of the beholder (though many people tend to agree on what is valuable and what is beautiful).

Bitcoin's value comes from its efficacy as a money-commodity (fancy econ term). Its properties simply make it excellent money, and thus the free market has been valuing it higher and higher as people try to figure out just how valuable Bitcoin actually is. The same is true for gold - its value is not "instrinsic," but rather comes from its properties which make it an excellent money (scarcity, homogeneity, divisibility, durability, etc.).

Cars are valued for their use in transportation. Food is valued for use in human sustenance. Xbox is valued for entertainment. Gold, and now Bitcoin, are both valued for use as a medium of exchange. Cars will never be useful as money, and Bitcoins will never be useful for transportation. Both are valuable for their specific properties and the functions that those properties permit. The open market will decide, over time, the exchange rate between all goods, and you can bet that something as revolutionary as Bitcoin will swing wildly up and down in price as the market labors to value it appropriately according to its usefulness as a money.

The intrinsic value of bitcoin (if there is such a thing) is that bitcoin is a secure global distributed timestamp network of transactions.  Mining is just an integral part of the security and global coherence system.

You're talking nonsense, kiddo. Bitcoin doesn't get its value from bitcoin mining, but from supply and demand. Bitcoin mining is just a security system.

I posted this topic after reading this article:

http://www.hightechforum.org/bitcoins-a-crypto-geek-ponzi-scheme/

It concludes with the question "Can Bitcoin Survive After the Bubble Bursts?"

I was looking for some reasons on why there's more to Bitcoin than merely some speculative bubble that might someday burst; what is the intrinsic value within the Bitcoin currency that will stop it going to zero?

Personally, I think the sheer time and energy focussed on and invested in Bitcoin in mining and trading produces that intrinsic value, which forms a valid base for its value as a medium of exchange.

Bubble? Bitcoins are trading at the same price they were 2 weeks ago (at least it was last night, as I type this the price is already back up to $20...). I think this should be considered normal market volatility more than anything like a bubble burst.

I almost feel like "bubble" is now just a buzzword that was mentioned on the forums a few times and now all these people that know nothing about markets are repeating it ad nauseum.

lol

Bubble? What bubble?

I find it funny that just over a week ago, $10 was the ceiling everyone was looking forward to, waiting anxiously for it to get that unbelievably high.  Now, it's doomsday if we hit $10...

Bitcoins can go and down, but their value as a finite currency will always stay the same in my eyes.

This. The number of Bitcoins being traded rises far, far slower than the amount of USD being traded. So if people are using $2 million to shift 150k bitcoins around per day (approx.), when they start using $20 million then the price of Bitcoins will have to be roughly 10x to accommodate this. Because 1.5 million Bitcoins are not going to be moving around per day.

I don't believe we've seen any bubbles yet. This is typical of bitcoin to drop and gain value in such large amounts.

Mtgox trading volume is still rising,  so I think the Btc economy is safe.

No, and no.  Also, I'm not sure that this was "the bubble", not sure if it popped, and not sure if we survived whatever it was.

Give it time.

Don't think the value fell low enough for it to be a proper burst bubble - $10 per BTC is not the end of the world. But yep it survived a dip without everyone panic selling, and seems to be recovering nicely.

What Bubble?   

Can we now say for sure that bitcoin has survived its first bubble? I've seen numerous opinions saying that once the bubble has burst, Bitcoin is finished. Have those opinions been proved wrong? Is there some kind of invisible 'intrinsic value' that caused Bitcoin to bounce back from $10, and will assure its survival long term? Looks like to to me.