Topic: The hoarding problem (Read 3700 times)

I am asking you here. If you ask my opinion, then :
Becoming legal tender could only make it appreciating than depreciating, since legal tender means it is allowed as payment to financial obligation. So when you have some debt to settle, you don't liquidate your bitcoins, you BUY bitcoins using your other asset, than you send your bitcoins to your creditor to offset the debt. Your creditor may choose to liquidate or choose to hold, he has no obligation to liquidate. In this scenario, you simply increase bitcoins demand.

So I am asking you why you think becoming legal tender makes people wanting to sell their bitcoins.

You're still treating USD as the baseline "true" value, but that's fine let's forget whether the actual USD still exists, and treat your dollars as a stand-in for absolute purchasing power. And you're making the point for me: A few percent fluctuation today just means a few dollars lost or gained, but in this future where a bitcoin is worth 500 USD (in 2013 eqivalent) purchasing power, a few percent fluctuation could be catastrophic for the economy.

(Actually, wheter you lose 500 or 0.05 USD2013 of purchasing power per BTC doesn't really matter - it's the percentage drop multiplied with the absulute size of the economy divided by a time quotient that matters. Measured in the value of everything produced and consumed in the whole world. If the world was on BTC, a 50% crash would be just as bad if we had 12 million BTC to go around or just 12 000.)

If a few people hoard/save bitcoins from when they were cheap, they could not just stop working and live off their massive fortune for generations and never invest anything into the economy - they could crash any BTC related market they wanted just by some careless buying. Even worse if somebody steals a wallet file and tries to get as much out of it as they can - another Flash Crash happens.

A good thing for a high-risk speculative commodity, but not for a currency that people are supposed to use for contracts, loans, price lists, fees, court judgments etc. Even for Silk Road, the sellers have to add something to their prices to compensate for currency risk or just cancel buys if the BTC fell in value.
Except those who can't afford to save, or who have debts to pay, but still could have made a valuable contribution to the economy by working or selling goods.

What's the point of putting your money at risk in an investment if it appreciates in value in your mattress? And who would take loans or investment money when they know that their loan will increase in value while their returns will sink in value? Some ventures might still be started, but only those with a fantastic return rate.

Gold is also higly divisible, but don't you think that an economy who paid for a loaf of bread with tiny flakes of gold would go into disaster mode if somebody found easily accessible purestrain gold in a supply that was the same size as all the gold already mined? The difference with Bitcoin is that you don't have that uncertainty risk - it is a certain risk that a sensible market would adjust for. Even with an assumption that "oh those Bitcoins are just in wallets that people forgot their password for", you can't know that for certain and they might crashing down on earth like a 100 m x 100 m x 100 m pure gold meteor at any minute. The only rational actor market response to that is to refuse to use Bitcoin as a currency; but humans are not 100% rational, so there you go.

Theres nothing wrong with hoarding.. Buying bitcoins helps the market, spending them will help the economy more, but somethings better then nothing.

Hoarding is going to be an issue with any finite resource of value.   Fortunately each bitcoin is highly divisible.

Care to elaborate?, I dont really get what you are hinting at.

Aren't a lot of businesses who accept bitcoins currently liquidating them instantly.. before they even get them. In fact not even touching them? I don't see that as a problem really.

Become legal tender cause liquidation?? What is the logic behind that?

I never think hoarding will be an issue, not a large scale issue at least. At some point people will become inclined to hand off either all of, or some of their BTC's to real money in order to liquidate in the event of a market crash or simply because its too tempting not to. One of the real problems will be the market powers that will accept BTC as legal tender, that would need to liquidate their coins in order to pay their bills, but as the price of BTC's rise they will struggle more and more to get the BTC converted to real money and eventually would have to stop accepting BTC.

Eventually more and more shops will close their doors to BTC and it will slowly turn into a less useful currency, just like it started out to be. At least in general, as it can still be used to found rogue organisations and what not, but hey presto, they too will struggle to find someone to pay top dollar for their BTC's so in the long run my predictions are that the market will stagnate and then slowly decline with dropping BTC prices. At some point we will reach a cutoff and then the market will sprint up again.

Just dont ask me how long that process will take.

There can be no hyper deflation. There can be deflation of money supply (because bitcoins will start to diminish at some point due to losses). In the take up period (like now) there will be deflation of prices, but eventually it will stabilize.

Remember, any actor will hold some money for spending in the future, have some safe investment returning near the natural rate of interest (which is based on each individuals time preference), lend low risk (deposit in bank or a lending consortium) for the same natural interest rate, and invest in risky entrepreneural projects (where profit and loss cancel each other out). There will never be a situation where people only hoard and never spend. That would be nonsensical. All kinds of saving of money or investment is for consumption in the future.

Spending and consumption will cancel each other in the long run. Temporary increase in total saving can occur if some kind of global crisis is expected, in that case a temporary decrease in prices will result.

The current deflation scare is partly a denigration of common people and their capacity of understanding that an increase in salary is no good if the prices of goods increase correspondingly, and partly it is a fake argument to support the transfer of wealth to banksters.

Nice thought. Just a little modification - how about of 50% of the money? That is what one party has in Syria - and that is each month! In fact, it is the definition of hyperinflation *).

It is probably not easy to get 80% of all the bitcoins, and it will be even less easy with time.

*) It is defined by 50% price increase per month really, but a definition of money supply inflation of 100% per month could also work.

I'll reword it so it sounds better. It would take a price drop of 500 dollars  if bitcoins were worth 1k each to halve your value. Now it only takes....... 9.5 dollars. It seems like there should be more stability simply because the price is higher(and of course the price couldn't get that high without a much larger transaction volume which might smooth things out).... but  one thing I like about bitcoins is that nobody knows what they are going to do.

30 cents divided by 17 dollars is a change of 1.76%
20 dollars (the minimum that can be considered "tens of") divided by 1000 dollars is a change of 2%.

Nope, ups and downs of tens of dollars would definitely be bigger than what we are seeing right now when it rises by just 30 cents.

As for volatility... if the price of bitcoins did stabilize, when would be a reasonable time to expect that? 10 years from now?

If bitcoin goes up in price enough I think the high price itself would stabilize the currency. Because if bitcoins were worth 1000 a piece.... then ups and downs of tens of dollars would be miniscule compared to what we are seeing right now when it rises by just 30 cents.

The money thus will not make it back into the economy until the person hoarding/saving sees something (s)he wants to spend said hoard on. There's no incentive to invest, and there's no incentive to borrow money to put it to work either since debts rise while prices go down. If this is allowed to run away it turns into hyper deflation.

Then - even if the market adjusts to the money taken out of it, and the currency unit is infinitely divisible - there's the risk that some of the saved-up money suddenly floods the market. If the GDP of a country is 1 BTC, after some incidents of lost wallets, and Satoshi suddenly decides to cash in 2 BTC - what happens then? You might dream that you'll be that person - and if there are many such persons the risk will even out as the fatcats cash out gradually - but where except for some kind of Objectivist or Feudal utopia would people accept that state of affairs?
That only holds true if you only use BTC as a transfer method for relatively stable currency such as USD, and transactions lasted less than a day. It would not hold true if anyone had a contract, a loan, a price list, a mortgage, or held any other instrument or document denominated in BTC that had an impact on their lives. BTC could be infinitely divisible, but with that kind of volatility it could not be a serious currency. It couldn't even be used for transactions that you immediately convert to another currency, since the value could have changed between the customer making the order and the product going out the door. (Well, that could be months in some cases we know, but it could be true even for groceries.)

From reading this thread, it indeed seems that most of you consider Bitcoin to be simply vehicle for speculation rather than an actual currency. And if it gets too volatile it won't even work as a temporary intermediary currency.

As a thought experiment, what happens if one person has collected - say - 80% of the money as some sort of dragon of Norse myth, and the rest of the economy decides "we don't want to be subject to that guy's whims - we'll make a new currency". Unlike the dragon's hoard of gold Bitcoin has no value as raw material, unlike fiat it has no backing from the government and courts, and unlike physical money has no numismatic value (the blockchain is public anyway) - so there's nothing to stop the rest of the market to decide that they don't want anything more to do with the Bitcoin currency.

If the dragon lost the purchasing power of his gold, he could at least swim around in it, and maybe earn some new money for food by charging admissions.

I am a hoarder... mostly because there is basically nothing to spend them on in the UK yet! I pay for a VPN with them, thats it.
I hope more vendors accept it soon. Hardly anyone has head of BTC in the uk!

Its probably a good thing, slow and steady growth... though thats not whats happening today!!!

That I agree, bitcoin's is Schrodinger's cat, binary fate.

A non-guaranteed trend which could stop at any time, indeed.

Though should bitcoin use even reach a noticeable fraction of critical mass engagement, I can't see its price not being above (if not well above) $1 per mBTC to be honest. But that's just me and I could be very wrong. My opinion, along with quite a few others I've witnessed, is that within five years or so, a bitcoin will either be worth >>$1000 or basically nothing, but probably not something in between.

For any short run , yes, it fluctuates and people may sell high, but in the long run, there is Trend.

The issue of a deflationary currency in regards to bitcoin I think is silly. If the price is going up it will encourage people to hoard it. But a rising price with something as uncertain as bitcoin also means that it will actually make people want to sell it when the price goes up........ you know in case the price goes back down.  If the price of bitcoins suddenly shot up tomorrow to 30 dollars a bitcoin I bet there would be a lot of selling going on. The only way a deflationary aspect and hoarding could hurt bitcoin.......... is if the price was guaranteed to go up. But it's not guaranteed.

I think some of the hoarding problem is that there really isn't anything to spend bitcoin currencys on! That's the main reason I am not spending, because there is only gambling, drugs and small electronics dealers that accept bitcoin. If there is more reason to spend it there is less hoarding in the future!