Topic: Irrational (Read 3699 times)

And one reason I mention HNWIs as an important would-be driving force is because Tradehill & Coinlab are currently limited to accredited investors and businesses.

http://www.investopedia.com/terms/a/accreditedinvestor.asp

I do not know many (if any) accredited investors that would consider Bitcoin a serious option without some level of regulation, accountability or, at least, low volatility.

Cheaper in theory, but not in practice.....and much more time consuming. Merchants pass on the 1% fee that Bitpay charges and the customer is also liable for the foreign exchange risk in USD/Bitcoin. I see a reason for investors in Bitcoin who already hold coins to make purchases with their coins. But I do not see a broad need for making intra-border (US) transactions to convert USD to BTC to purchase something that will be converted immediately back into USD because the merchants cannot handle the exchange risk.

EDIT: This doesn't even include the spread, which is routinely 0.5% to 1% or much more (5%+) during periods of high volatility. Merchant prices for BitPay must account for current spread. So, if the entire transaction (USD to BTC to USD) was instantaneous.....1% fee from BitPay plus current spread of 0.5% or 1% is already 1.5% to 2%, minimum. This doesn't even include foreign exchange risk, which can be quite substantial, and the value of the additional time it takes to make these conversions.

EDIT 2: 99.9% of merchants cannot accept Bitcoin without BitPay because BTC is a volatile investment vehicle and merchants would not be willing to take on the foreign exchange risk.

You need only look at what bitcoin does better than anything else:  1) send money at almost no cost anywhere in the world, 2) resistant to attacks (whether by government, inflation, hackers, etc).

So yes, there absolutely *is* a reason to pay for something in BTC that is available in USD.  It is 2% cheaper, at least in theory.  Merchants accepting BTC do not have to pass on 3% credit card fees to their customers.  They may anyway, since currently almost no one offers discounts for cash. 

Perhaps. If that is the case, then IMO the likelihood of success is even lower.

But its strength is transnational transactions. There is no reason for a tech savvy person to go USD to BTC to USD to pay for something in the US that is available in USD.....unless, of course, that tech savvy person already holds bitcoins as an investment. So, its transactional use within the US is subordinate to its use as an investment vehicle, although the press releases that highlight its transactional use serve to push the price higher as an investment.

It doesn't have to take over the world.....but it sure is pricing in a lot of premature success.

Who cares?  Bitcoin is not going to be used by people living in mud huts in Africa.  For now, bitcoin is for tech-savvy people.  It will get easier to use but there's a limit to how far it can penetrate, for the foreseeable future.  It doesn't have to take over the world all at once.

tl;dr Bitcoin is unpalatable to HNWIs (who account for the new Coinlab & Tradehill customers) because it is has the unique combination of being unregulated and very high risk, a bad combination for most portfolios. Lacks of these investors imperils the future.

Pricing in mBTC certainly wouldn't change my mind. I would be hesitant to buy Litecoins after such an enormous run-up regardless of the low price.

The risk is too great at current levels with lack of solid fundamentals. For BTC to be palatable to the wide range of investors that would be needed to make Bitcoin successful, with success defined as $10K to $300K per coin depending on the dream world to which one subscribes, it will need to be regulated by the CFTC (or something). Without the ability and ease to trade in a broad range of bonafide brokerage accounts (through legit custodians), and without some type of regulation for investors, the general public (and the 99.9% majority of HNWIs) will never be confident enough to purchase Bitcoin as as investment at current levels because wealth managers will scoff at the extraordinarily high systematic risk. And forget about institutional money directly investing in Bitcoin until it's regulated.

Because of these very large hurdles to success, IMO the odds of Bitcoin success are much lower than what most of you think. Whether one uses NPV, which doesn't really make sense because there are no cash flows, or EMV, which is probably better because BTC is more similar to wildcatting for oil, at $122 the math doesn't work for me because I see success as a truly infinitesimal probability (with a negative EMV). IMO there are several possible outcomes over the next couple of years, not simply success at $10K+ or failure at $0. We could meander along for awhile with constant hope of the next big development. But in the long-term, there are only two options..$0 or $??.

This makes it difficult for retail investors and the vast majority of HNWIs. I don't know many hedge funds that purchase lottery tickets as a business model. Lottery tickets are $5 (I believe??) and have 100m to 1 odds with a $100m+ payout. Bitcoins are $122 and have 1000+ to 1 odds (IMO) with a $10K potential payout. Even at a potential $300K per coin, just because there is a large potential payout doesn't make it a good investment because there is still the overwhelming likelihood of losing the investment. If you had $1M in liquid assets, would you invest $100K in lottery tickets that had a combined potential payout of $10M @ 1000 to 1 odds? I wouldn't, regardless of whichever method one uses to assign value to the investment. I wouldn't even invest $10K....or $1K.

What scares me about Bitcoin is that its price is fully dependent on finding the next round of investors, which at some point will be fully dependent on being institutionally recognized and regulated. The current price is the outcome of hoarding and speculation and has little to do with transactional volume. BitPay sells BTC immediately on the open market to hedge risk, so if current holders started making large purchases through BitPay it would probably make the market trend lower. There is no reason for someone to go out and purchase BTC to pay for something through Bitpay if they don't already hold the coins. Why go USD to BTC to USD?? BTCs success will be due to, in addition to making it palatable as an investment, its niche use in transnational transactions.

BTCs strength is crossing borders. It's weakness is that unless one already has a reason to hold Bitcoins (reason is currently mainly investment related), it is unnecessarily cumbersome and pointless to buy BTC that will simply be converted back into USD by the merchant (through BitPay) when making everyday transactions. So, in that sense, everyday use of Bitcoin within the borders of the US is still very dependent on it being accepted as an investment vehicle primarily because investors holding coins will be the ones using BTC to make transactions. This is one reason why BitPay adoption doesn't really excite me.

Stocks, bonds, gold, real estate, timber, private equity, etc etc, are all risky. But the investments are regulated, vetted, or have low volatility and fairly determinable risks. And unless one utilizes debt and leverage, illiquid assets usually have recoverable values. All-or-nothing types of investments are usually considered extremely high-risk (wildcatting, although wildcatting has much better odds) and is not something that the general public could/would ever get behind. The small gambler willing to put $500 or $1000 into lottery tickets may keep it pumped (is the best thing to keep it pumped), but will not sustain the full embodiment of Bitcoin a la $10K+ coins.

A lot of people are holding onto their bitcoins waiting for the price to go back up to 200 dollars and even beyond that. All it will take is for several very large purchases to push the price up suddenly and a buying frenzy will ensue as people sitting on the fence try to jump in.

Exactly, and thanks for bringing this up. Price Bitcoin like a penny stock and the volatility will appear normal. Price it like a mature stock/commodity and "Omg $100 is so overvalued, the only things you can buy with it are drugs and child porn, [insert made up statistic like] 99.9% of all blockchain transactions are people buying drugs on silk road, and the price we'd need to support that is in the single digits."

Now, it's a quasi-commodity so we hope it stabilizes at a higher price, but it could be a while and folks who think it'll be "stable" at $2 are kidding themselves. If you confuse relative value with absolute value - prices moves of the likes of ($2 - $4- $1.50 - $4.20) are less volatile than $262-$50. That is what Litecoin has been doing for months now, actually, but it's far more volatile than bitcoin. Most of this price resistance is purely psychological.

what's simple? bitcoin, or blockchain.info wallet... either way I think you overestimate people.

If it's not made "for dummies" a whole chunk of society will be left out... It's very simple. ANECDOTAL EVIDENCE - Like when I was in a shop the other day and one of the managers was telling his staff member he now had a phone with "giba"... (yes, he had one gigabyte of data storage on it).

It's very simple unless you've never used a computer.

I haven't used it so I can't comment. I didn't go for it as I thought, "online, unsafe" before I read too much into it.

As a non programmer and/or economist (or any related fields) I have found it's taken me over 2 weeks to fully understand enough of bitcoin to utilise it.


Jane and John who might use bitcoin to send money to Uncle Pete or buy food at the local pizza delivery or whatever, they want something that they can start using straight away... or as close to that as possible. I can only assume blockchain.info might not even do that for them?

what's wrong with blockchain.info wallet? It's at least as nice and easy to use as the ripple client and relatively secure.

Things haven't changed, but people are waking up to the fundamentals (not news, I'm sorry I said good news were fundamentals above, it's not true). In other words: I think bitcoin was massively undervalued and still is. Why? Because quite frankly, most people don't understand how it works and the majority still hasn't even heard of it.

It's simply more people joining in, using bitcoins for store-of-wealth, medium of exchange, and yes: speculation.

$100-120 dollar per bitcoin is an extremely low price, it means it currently has a market value of just above 1 billion total and since this is a global phenomenon this is still a very tiny market. I agree it would be better to think and price things in mBTC so people can put it psychologically more into perspective. If the market matures and we assume around 1 billion people on the planet have and use bitcoins then the price could be as high as 200,000 dollar per bitcoin. The current price reflects that bitcoin is not even out of its diapers yet and that its future is still very uncertain. There are some positive signs on the horizon though, but there are also many hurdles left to take.

While news coverage is certainly the most ephemeral of fundamentals, several people in this thread are making the familiar basic error of confusing absolute growth with relative growth. It's like scoffing at the miniscule growth of a penny stock, from $0.01 to $0.03. "What're you so excited about? The price hasn't changed hardly at all. It only grew two cents!"

Same psychological error, different angle. Now I see why rpietila wants to price things in mBTC; it's a natural compensator for this human tendency to confuse the absolute with the relative (a very expensive error for investors).

agree, but the people who are listening has grown wider... I am one of them. These bumps of media coverage reach out and grab people's attention to investigate and participate, whether it's for speculation or for utilisation.

"The net is vast and infinite" (well, not quite).... Countries like Argentinia, China (with it's censorship), India, and so on all could individually suddenly have a massive impact if their tech centric demographic gets ahold of this story and runs with it in action.

BUT, for a wider adoption, it needs a better front end. It HAS to have a better front end. Maybe Ripple will get there first and cover that market, who knows.


I would add that things like the new exchange developments and the wider retailer adoption and so on are the dawn of something. So while it seems things haven't changed that much, the speculation on the change that is to come has.


(DISCLAIMER - this is uneducated speculation)

This.

That would be concrete news, not Western Union is considering the possibility of maybe thinking about reading up on what bitcoin is.

press release: Apple coming out with a brand new cool iPhone 6 that will change the world. so the rumors say- watch apple's stock price go up 10% without even knowing what the iPhone 6 even is.
^ example