Topic: The Daily Bitcoin 4/8/11 (Read 2700 times)

Hoarding it is bad, but getting more merchants is good.  One thing that the hoarders could do to help, would be to create a loan system, which is what large money holders do with their currency nowadays.  Creating a credit system would allow players with a lot of BTC to give to players with not many BTC in order for them to spend on whatever they want, meaning money is spent.

By "prices" I meant the prices of goods and services in btc.  Sorry, I should have stuck with the definition from your blog which is the price of btc quoted in usd.  Is that what you meant here?

Anyway, the way to get the bitcoin price in USD to go up is to increase demand for bitcoin.  I think the best way to achieve this is to increase the number of merchants who accept bitcoins.  This will increase the number of people who hoard bitcoins.

Most likely cause of the price of bitcoins falling is that the growth rate of the userbase/marketplace has stalled while the rate of new bitcoin creation continues at a rate roughly 40% APR.  This is a high inflation rate, that won't settle down until 2013 or later.  Until that time, the value of a bitcoin is subject to wild swings.  This is not yet mature technology.

He had it right in his first post.  I think he must have typed something wrong.

Scarcity increases the value of something. Abundance decreases the value of something. I think we can all agree on that. So if people are hoarding coins, the price should be going up.  I believe the value of bitcoins is decreasing because adoption of the currency far exceeds the opportunities to use the currency. You can tell me all day that the calculated value of a bitcoin is 78 cents but until I can buy my groceries with it or easilly convert it to a currency to buy groceries, its actual value is much lower.

The solution is for more websites to offer bitcoin as a payment option.

You got this backwards, as supply increases, price falls, and as demand increases, prices go up.

If there's anywhere on the internet where it's worth discussing economics, it's here.  When bitcoin fans start sounding like Keynesians, there is even more reason to set things straight. 

A currency's exchange value is like any other market price in that its level is set by two forces: supply and demand.  Because it is on the opposite side of all exchanges, the supply and demand laws work in opposite ways.  Increase the supply, prices raise.  Increase the demand, prices fall. 

Now I assume we all know where the supply comes from: the miners.  It's constant for now and thus is not having an effect in the change of btc prices.  However, if you do a quick thought experiment, it's obvious that if miners were able to produce btc faster, supply would increase faster and prices would have to adjust to be higher than they otherwise would be.  The opposite is also true.

But since supply is set in virtual stone, demand is where the real change is found and that's where we must look to explain changes in price.  Demand for btc is the same as demand for any other durable good.  It's simply: how many people want it and how much do they want?  Demand is not defined by "what can I buy with this" but rather "how much btc should I keep on-hand in case I want to buy something later."  It may be that some are choosing to buy USD later and are holding it as an investment.  It may be that others are planning to purchase goods or services.  Others still might not know what they want to buy yet, but would like some on-hand just in case.  Whatever the reason, it's this hoarding of btc that produces all of the demand.

A decision to stop hoarding btc and start spending it instead is a decision to reduce one's holdings of btc.  This decision is therefore a decrease in demand for btc and will result in an increase in btc prices.  You might say that the merchant is taking the other side of this trade and thus "demanding" btc for his goods/services, but this is not a change in demand.  The merchant himself has a specific amount of btc that he'd like to keep on-hand and acquiring this extra btc does not change that level.  The merchant will spend this extra btc himself and in fact be more eager to do so thanks to the fact that he now has more btc than he wanted.  The change originated with the former hoarder who now demands less btc.

... only if the investments are in things that don't make us more productive.

There are really three categories, in order of desirability:

1 Investment in productive activities
2 Savings
3 Investment in non-productive activities

The broken window fallacy is confusing categories 1 and 3.

Remind me of the broken window fallacy.

Assuming some constant source of demand.  But the fewer people who spend bitcoins, the fewer people who know / care about them, thus the lower the demand (and value).

Doesn't really make sense to me, as I save money, there aren't more people that want my money.  However, if I spend my money, merchants are able to use that capital to purchase more goods and offer more services.  Unspent noninvested money is bad for any economy.

It's exactly the opposite.  Hoarding is where all of the demand for bitcoins comes from.  The more people hoard bitcoins, the fewer there are in circulation and the more valued they become.

Also, I'm alive again!

http://thedailybitcoin.blogspot.com/2011/04/simple-way-to-increase-value-of.html

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