Topic: Why Bitcoin will collapse in price. - page 17. (Read 24617 times)

Governments can pass laws that make it illegal to mine bitcoins. Simple. They can raide miners houses if need be. They can threaten you with death penalities if you mine despite it being prohibited. Again its just another line of attack that is unnecessary as you already have two major lines of attack (with one already being law, ie capital gains) to make sure it wont become a major medium of exchange as I discussed in the OP.

How can you make it illegal to mine?

The difference is that the "medium of exchange" is taxed.

For example: If the merchant accepts dollars and holds onto them and eventually uses them to buy new supply (i.e. sells dollars), he doesnt have to pay capital gains taxes on a possible increase in the dollars value. If the dollar trades higher versus the euro, the government does not force you to pay taxes on these exchange rate "gains".

However if the merchant accepts bitcoin and holds on them and eventually uses them to buy new supply (i.e. sells bitcoins), he will have to pay capital gains taxes.

The same is true for your average bitcoin holder. If he buys one bitcoin for 100 dollars and eventually buys products with the same bitcoin (which is now worth 500 dollars) he will have to pay capital gains taxes on the 400 dollar increase. He wont have to do this if dollars increase in value in comparison to bitcoins, euros or any other currency.

I didn't get that point. If you buy something for dollars and then sell it for dollars, you still have to pay taxes. What am I missing here and what is the difference between dollars and bitcoins then?

Read my actual text! Hint: The second bolded paragraph goes into detail why bitcoin wont be a store of value.  The first one was just to show that it will start off (trying to gain that status) in a bad position. Not more not less!!

You did not quote the full explanation.



A medium of exchange (like dollars, yuan or gold in ancient times) is used to exchange it for goods and services. If the merchant sells for dollars immediatley bitcoin cant be qualified to be a medium of exchange. Look at it this way: The merchant does not want your bitcoin but dollars. He accepts bitcoin only because he can get dollars by selling them. In this case dollar is the currency not bitcoin. If you would have sold for dollars and then used dollars to buy goods from the merchant it would be the same thing. Would you say in this scenario that bitcoin is a medium of exchange? Of course not!

Its easy to predict that governments wont allow to be outcompeted by bitcoin. They have a money monopoly and thus will prohibit significant competition. Thats different than prohibiting alcohol as the merchant can accept dollars instead. No need to accept bitcoins. However alcohol is something you cant replace. Also alcohol is not where government derives its power from. Money is (inflation to finance its operation). It is already impossible for bitcoin to become a significant medium of exchange due to tax law.

Now regarding store of value I have explained why I think bitcoin is not suitable.

What government? All the governments in the world? They could as well make it illegal to sell alcohol or cigarettes, but it doesn't stop people from investing in these branches. You are thinking too much about things you just can't predict.

Just look at technological investment opportunities of the past 20 years, if you threw money into an early Microsoft, Apple, Google, Facebook, you got a lot out of it, if you did the same with Kodak - your loss. In the recent years Nokia and Motorola lost a lot of phone market to Samsung.

Thanks for your detailed respone.

State why the above reasoning is false.

and the FUD begins .....

Bitcoin is going up in price because people believe it will be used as a medium of exchange and store of value. If they realise this wont happen it will collapse in price. So lets look at these two aspects.

1) Medium of exchange.

Bitcoin is only a medium of exchange when merchants accept it and hold onto it. Right now merchants are dumping bitcoin for dollars, so its not being used as a medium of exchange. This btw. also throws the transaction cost benefit argument right out of the window (spread).

Now will merchants ever accept bitcoin and hold onto them?
No.

Why?

a) Governments have already effectively made it impossible for people to use bitcoin as a medium of exchange, as they expect taxes to be paid on bitcoin gains. Thus it cant function as a medium of exchange (same goes for gold btw.). Unless Government loses its control on its money monopoly this law wont be altered.

b) Governments will prohibt merchants from accepting bitcoins. Again: They will never give up their monoply on money.

2) Store of Value

After people realize that merchants are not adopting bitcoin and that it is not used as a medium of exchange, it will collapse in price. Will anybody store significant wealth in Bitcoin after this spectacular collapse? Not likely.

Also Bitcoin is a technology, that can be outcompeted by other altcoins. Your wallet can be hacked. The average citizen cant judge if the code can or can not be hacked and thus more bitcoins created. If you want to store wealth over a long period of time investing in a technology is not the best and easiest option. Also Bitcoin is not useful or wanted. If you ask a Bitcoiner what can I do with it they will say: dump it on the next guy it will go up in price! Gold and Silver where always wanted (jewlery and nowadays industry) and thats why they became MONEY in the first place! They have unique properties and everybody love to hold them in their hand. This will always be the case ensuring significant value and acceptance. Nothing like this can be said for bitcoins. Thus I dont believe bitcoin will function as a store of value in any significant way.

Conclusion:

I predict bitcoin to collapse in price (as it wont be used either as a medium of exchange nor as a store of value).

EDIT: The price increasing shows bitcoin is used as a speculative vehicle. It does not demonstrate bitcoins viability as a store of value or medium of exchange.

(Additional line of attack for governments: Government could come down hard on miners. They could make it illegal to mine bitcoins. Then bitcoin will lose all of its advantages compared to alternative cryptocurrencies. It will be a code like the rest of them.)

EDIT2: Also consider this post (on why bitcoin cant be money):
https://bitcointalksearch.org/topic/m.3926046