Topic: Will bitcoin be the next Tulip Mania? - page 2. (Read 5657 times)

Here is the thing that I find shocking... the Bitcoin economy is $5 million or something, right? (per bitcoinwatch.com, I'm using an assumption of parity for simplicity)

If you look at the volume of trades that have been swinging the market 10 cents at a time, they are nowhere close to any meaningful fraction $5 million.  At best, they are $10k-$15k USD.  Each 10 cent change in the price supposedly changes the value of the whole Bitcoin economy by over $500k USD...

which leads me to believe that something's just not right.  There is a huge disparity here.  Someone should not be able to create or destroy $500k worth of "wealth" by moving only $15k.  That is as unrealistic as throwing $15 worth of coins in a mall fountain surrounded by a hall of mirrors, and then believing the illusion that suddenly there is now $500 under the water.  The money is just not there.  Can anyone even buy 1 million BTC on MtGox right now?  How about even 100kBTC?  As soon as you take the $15 out of the mirrored fountain, the entire illusion disappears.

Is the BTC economy really worth $5 million?  How did it get that way?  Seems to me, three or four big buy transactions around $15k each, and the rest is pure hot air.

What seems to me to be happening, is that at best, only a couple percent of the whole volume of coins is actually even participating in the market.  There is a very artificial scarcity right now, probably while everyone who got BTC for pennies is waiting for them to become $100 bills... artificial scarcity which creates high prices, but not any real value.

The risk that goes along with that, is that even if BTC became worth $50 each, if that value is established by a small chunk of change with only 1 or 2% of the coins, the value is largely hollow.  Only 1-2% of the holders of BTC would be able to cash it out and get anything.  The remaining 98-99% would not get even a fighting chance at a piece of the pie, except perhaps unless they were the first to cash out.  For the value to be real, the Bitcoin economy will need a huge influx of goods, services, or at least capitalization that actually represents most of the BTC out there.

The number of people aware of bitcoins and interesting in buying them has not such a strong link with the amount of goods and services offered on BTC.

I would agree its "true" value is increasing. I just don't think going from $.05/BTC at the beginning of September to $1.00 right now - almost a 500% annualized rate of increase - is at all realistic. The goods-for-BTC market is not increasing at that rate.

OK ...

It's a fact that the number of things for sale with Bitcoins is increasing, and has increased every month for the past year. So would you agree that, even if Bitcoin is valued too high right now, its "true" value is trending upwards?

I think that smaller or bigger versions of "tulip manias" are happening a lot on Bitcoin market - it's simple matter of overspeculation.
But complete destruction of currency is not likely to happen as with the tulips.

I mean even if Bitcoin's value drops 10 - fold due to enormously massive overspeculation, it will still be a usable currency. It will still have all the means to be a currency and drop in value is not going to change that.

haha, I missed that bit about the gold robbing in history class apparently.

The analogous scenario here would be a fork into several bitcoin systems, making more and more useless cash :-)

The Tulip crash.

It is the oldest known example of a financial meltdown.

People did use gold and silver as money, but there was also a lot of trading of "tulip-papers", tulip-bonds, tulip-options etc. you name it.

At the end just before the crash, people would set their house as security to buy a tulip option for one single tulip that wasn't even an onion yet.

So they built up a lot of artificial money, just waiting for the bubble to burst.

The tulip mania has a lot of parallels with the dotcom crash, krueger crash and quite a few other well-known crashes.

Not impossible that the bitcoin will create a similar hysteria, but that will take place if you trade in derivate papers of bitcoins yet to be made at a speculated future price.

As long as you have the coins themselves I think it's safe value, just as gold and silver was during the tulip mania.

Less than it is now. Gut feeling based on the number of things I see for sale with Bitcoins.

There's more to the explanation of the tulip mania.
People used gold and silver at the time as money. There was a huge inflation of these metals in Europe after Spanish invasion of South America. Basically they've stolen a lot and all ended up on the dutch banks. The reasons why it ended up there to be used as credit are explained in the article, I think.

In the end, it is yet another application of the austrian theory of business cycles. It's just a peculiar one because inflation came out of massive theft of precious metals instead of money printing.

see here's the thing, bitcoins are digital currency...tulips are flowers...

Everybody keep saying these things but the only way you can find out is by waiting.

You could also help pitch in by offering services and goods instead of worrying about a bubble.

How much do you think a Bitcoin is "really" worth, and why?

I don't think the amount of useful things you can currently buy with Bitcoin can support its high valuation for very long. I think a crash is coming.

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Bitcoin is a little different.

Here is an interesting article about the Tulip Mania of 1637.
http://mises.org/daily/2564

The explanation essentially comes down to the idea that in 17th century Netherlands there was a relative free market in money, which causes lots of money to flow into the Netherlands, causing a mania. Assuming the Austrian school explanation of the Tulip Mania is the correct one, are there any parallels with the Bitcoin Mania of 2011?