Bitcoin approaches US$10,000 record high

[Corky34]

So because this is not backed by any individual authority - because the whole point of it is that it's decentralised - that's why it's a bubble?

It's a bubble, arguably, because its value exceeds its intrinsic value.

With a currency like the pound or dollar money has value because the currency issuer creates both the demand (in the form of taxes and such) and the supply (in form of money), cryptocurrency on the other hand doesn't, it's in essences worthless and only given value because of limited supply versus whatever the level of demand is at the time, they may seem the same or similar but with something like the dollar or pound the currency issuer can either increase or decrees both the supply and/or demand, so as to stabilise its value, should the markets decide to either dump or buy up large amounts of the currency.

[wazzickle]

I don't think you (or I) are in a position to state whether its value exceeds its intrinsic value.

Say, then, what is it about government-backed hard currency that gives it the value? The worth of a piece of paper or weight of gold is entirely dependent on an agreement between each party that that represents something. It doesn't matter that the paper is government-backed, if all the people decided it was worthless, it would be worthless. What's happened with bitcoin is the opposite of that. We've decided it has value, so it has value. That's how currencies work, having them be government backed obviously adds some value, but then again, having something entirely out of the hands of the government is of some value too, hence why it's exploded.

[Saracen]

Should I buy Bitcoins or not ?

Not using money you aren't prepared to risk losing.

Put it this way, it might double, or collapse. Would you put that money, however much it is, on the flip of a coin?


My advice with any purely speculative purchase (as opposed to a genuine if risky investment) is to ONLY buy if you thoroughly understand the purchase and the risk. So, in short, if you have to ask the question, and wouldn't put it on a coin flip, then no, you shoukdn't.

All IMHO, of course.

[Saracen]

I don't think you (or I) are in a position to state whether its value exceeds its intrinsic value.

Say, then, what is it about government-backed hard currency that gives it the value? The worth of a piece of paper or weight of gold is entirely dependent on an agreement between each party that that represents something. It doesn't matter that the paper is government-backed, if all the people decided it was worthless, it would be worthless. What's happened with bitcoin is the opposite of that. We've decided it has value, so it has value. That's how currencies work, having them be government backed obviously adds some value, but then again, having something entirely out of the hands of the government is of some value too, hence why it's exploded.

Up to a point, I agree. A pound or dollar is "worth" a given amount because of the belief of people that it is. It's not because ofcthe intribsic value of the paper note or pressed metal of the currency itself. However .... that belief is in a government guarantee backed by the assets and economy of a nation, and in our case, a fairly large pretty stable and comparatively prosperous one.

Substitute our economy for, say, post WW1 Germany or modern Zimbabwe, among others, and we see what happens to currency, and government promises, if not backed by a strong economy.

Trouble is, Bitcoin has no intrinsic value in either the 'currency' or the guarantees behind it because the first is virtual and the second non-existent.

Bitcoin is virtually a textbook definition of bubble, with value created by demand exceeding supply, and confidence in that. If that confidence starts to erode, as it almost inevitably will sooner or later, we will very likely see Bitcoin react the same way a balloon reacts to a pin.

[pp05]

Up to a point, I agree. A pound or dollar is "worth" a given amount because of the belief of people that it is. It's not because ofcthe intribsic value of the paper note or pressed metal of the currency itself. However .... that belief is in a government guarantee backed by the assets and economy of a nation, and in our case, a fairly large pretty stable and comparatively prosperous one.

Substitute our economy for, say, post WW1 Germany or modern Zimbabwe, among others, and we see what happens to currency, and government promises, if not backed by a strong economy.

Trouble is, Bitcoin has no intrinsic value in either the 'currency' or the guarantees behind it because the first is virtual and the second non-existent.

Bitcoin is virtually a textbook definition of bubble, with value created by demand exceeding supply, and confidence in that. If that confidence starts to erode, as it almost inevitably will sooner or later, we will very likely see Bitcoin react the same way a balloon reacts to a pin.

It digitizes gold essentially. No central vaults. You keep it. No Cyprus scenarios. No need to trust institutions who have let people down time and time again with hacks. I hear it's Uber this week.

It reminds me of people who used to print their kodak film and half the photos came out a shade too dark. They didn't want to pay to have it printed again just in case it came out the same. Then the PC era came and they scanned it into their pc and suddenly they could alter brightness, dabble with contrast, manipulate it according to their needs. It makes credit permeable. When you need it. No one can cheat it. If the development community get it right then there is huge potential.

[Corky34]

I don't think you (or I) are in a position to state whether its value exceeds its intrinsic value.

Say, then, what is it about government-backed hard currency that gives it the value? The worth of a piece of paper or weight of gold is entirely dependent on an agreement between each party that that represents something. It doesn't matter that the paper is government-backed, if all the people decided it was worthless, it would be worthless. What's happened with bitcoin is the opposite of that. We've decided it has value, so it has value. That's how currencies work, having them be government backed obviously adds some value, but then again, having something entirely out of the hands of the government is of some value too, hence why it's exploded.

Apologies as i perhaps over simplified it, when i said the pound or dollar has intrinsic value i was using the old commodity currency system that was linked to the value of gold, in essence you used to be able to turn up to the BoE and exchange your £10 note for the equivalent weight in gold depending on whatever the value of gold was on a given day, the fact that the dollar and pound were backed up by the gold standard meant that for all intense and purposes you were carrying around promissory notes that were the equivalent of little bits of gold.


Saracen touched on what we've been using for the last 30 odd years, we've been using a fiat currency, that is a currency whose only value comes from the fact that the currency issuer says it has X value, however the principals of supply and demand still dictate what the value of that money is, i was going to write a long explanation of what gives a fiat currency value and use the quantitative easing program that the BoE embarked upon after the 08 financial crisis as an example of how a currency issuer controls the supply and demand but no matter how hard i tried my explanation ended up looking like a dissertation.

Getting back OT, cryptocurrencies by their very nature are prone to creating bubbles, one of the main reasons people like them so much is because there decentralised, no one controls them, however the very fact that no one controls them is what can lead to a bubble and that bubble bursting, if for example someone with large reserves of Bitcoins decided to cash out tomorrow supply would jump and value decrease, if that decrease in value was enough to spook others you'd soon find yourself with hundreds, if not thousands, of people wanting to cash in, it would be the equivalent of a run on the pound, or in this case the Bitcoin, with a currency like the pound or dollar the centralised authority can step in and start buying what people are selling (they don't actual buy it but things would start to get really confusing if i were to explain how a currency issuer can't buy, sell, or borrow from itself) and thus restoring confidence in the market and slow down or even prevent the selling off.

[wazzickle]

Let's take a step back. What is a currency? What properties does a currency need in order to be useful?

1: The two main purposes of currency are that it must store value, and be exchangeable.

As such, 2: it must be rare, otherwise it could hold no value, it must be robust and not easily perishable, and it must be conveniently divisible and easy to carry round.

Gold is rare and robust, but not easily divisible, and not convenient to carry around with you. The idea that simply because currencies used to be on the gold standard, i.e. that you could walk into a bank and ask for the equivalent weight in gold, is pretty useless - even back then, try going around the shops and paying for things with a gold bar.

The rarity of cash is controlled, it is robust enough, and a useful system devised for convenience, barring hyperinflation. For a live marketplace, it is perfect. However, for the online marketplace, btc is better: it is cheaper to transfer, untraceable, instant, more secure (with some care and thought) than buying something from a hackable corporation, and your money is your own money - your savings are there in your wallet, rather than with banks who only need to hold 10% of your funds at any one time.

The market cap of btc right now is $173B; if you add in the next 9 biggest coins that gets to nearly $300B. I'm sure there are lots of early adopters who have f***tons of the stuff right now, any one of which deciding to shift their stack could easily lead to a big dent in the price. But they won't, certainly not attempt to shift it all on the same go. These are people who are living most of their lives online and as such can spend their btc happily rather than just sell it (you can now buy property, for example), and even if they do need to pay someone in cash, they will convert theirs a little by little. They don't do firesales.

At the end of the day, though, it sounds like you think you know enough that your position is unchangeable, and I'm talking into the ether here. I guess the question I have is this: what would have to change for your opinion to change? I would have thought breaking the $10k barrier might have done it. $20k? $50k? $200k? Or this is self-affirming, i.e. the bigger it gets, the more you believe it's overpriced? What would have to happen for you not to believe it's a con?

[Corky34]

I'm not sure where you're getting the idea that someone who holds a large amount of Bitcoins isn't going to cash in and in turn spook the market causing more people to cash in and that snowballing, in effect bursting the bubble.

TBH i don't have a position, i was only trying to explain the difference between fiat currencies that have the backing of central organisation and those that don't and why those that don't are more susceptible to an economic bubble, it would help if i knew what you think my position is as it wasn't my intention to have one so maybe that needs pointing out to me so i can clarify.

I most certainly don't think it's a con as it's like most other market valuation IMO, it's worth what people believe it's worth, if people keep believing in it the price will continue to climb, however the reverse is also true, if people stop believing in it the price will fall and without anyone able to step in and prevent that it may well continue to fall uncontrollably.

[Saracen]

.... and even if they do need to pay someone in cash, they will convert theirs a little by little. They don't do firesales.

At the end of the day, though, it sounds like you think you know enough that your position is unchangeable, and I'm talking into the ether here. I guess the question I have is this: what would have to change for your opinion to change? I would have thought breaking the $10k barrier might have done it. $20k? $50k? $200k? Or this is self-affirming, i.e. the bigger it gets, the more you believe it's overpriced? What would have to happen for you not to believe it's a con?

They don't need to sell all at once, and I agree, only a complete moron would attempt to sell a market-shifting position all at once.

However, the risk is that the more people buy into BTC as a speculation, the more price-elastic it becomes in response to price changes, because of speculation. Speculators holding large positions are going to get jumpy if something, anything, starts to cause a price drop, and they may reduce their position, profit-take on some or all of it or even get out altogether. So price weakens a bit more. Which triggers a further nervous reaction. You get this in real currencies too, but the difference is they have central banks, and economies, behind them. That doesn't make them safe, but for major currencies, it sure makes them safer. And we still get speculative shifts, and even speculators seeking to trigger shifts, depending on position, especially where there's a futures market.

But even in dire situations for real currencies, like sterling crashing out of the ERM and the speculative bleeding that resulted in, there's still an economy behind sterling providing a backstop, a buffer, to speculation. While it sure can be bled, sterling won't collapse unless the UK economy does, and the almighty dollar is similarly protected bg the US economy and it's status as the premiere reerve currency. And in both cases, confidence. If confidence evaporates, there's those backstops. BTC has no such backstop, leaving it vulnerable to the same effect as a snowball rolling down a long, steep, snow-covered hill. That is, after a point, the momentum may become unstoppable,

BTC isn't a con. It has it's uses and all you say is true. Nonetheless, it has value because people have confidence that it does, and if that confidence falters .... hang on to your hat.

[wazzickle]

BTC has no such backstop

It's backed by the entire online business that deals with bitcoin, which is huge.

Consequently I have my doubts as to how much of the market is fuelled by speculation and how much it's backed by actual industry. I suppose this is something we can't actually find out, and largely determines the answer to the question of whether it's currently overpriced.

[Corky34]

That's not what being backed means in terms of a currency, the online businesses can't and won't buy up massive amounts of BTC to prevent a run.

Arguably BTC is closer to an asset than a currency for that very reason, the rises and falls of normal currencies are relatively small over a period of time because there's a central authority manipulating the supply and demand, that makes them a relatively stable stores of value, you can be fairly certain that if you place 100 units of value into a particular currency that X amount of time later you'll get 101 units of value back.

BTC is closer to an asset because your investment may go down as well as up.

[pp05]

That's not what being backed means in terms of a currency, the online businesses can't and won't buy up massive amounts of BTC to prevent a run.

Arguably BTC is closer to an asset than a currency for that very reason, the rises and falls of normal currencies are relatively small over a period of time because there's a central authority manipulating the supply and demand, that makes them a relatively stable stores of value, you can be fairly certain that if you place 100 units of value into a particular currency that X amount of time later you'll get 101 units of value back.

BTC is closer to an asset because your investment may go down as well as up.

I agree. It's more like an asset, this paves the way for another crypto to be used like cash. I still think there will be another currency that usurps it.

BTC have a computer system that manipulates time, for example every 10 mins there is a new block created. In this sense it is predictable. We know roughly when the last coin mined will be assuming computing time is halved every 4-5 years.

If mining numbers drop the algorithm speeds up how long it takes to make a new block or slows down according to what's needed. It's not a central authority or individual, it's a machine that's monitoring the network. The only question remaining is what happens to bitcoins that people have lost passwords to and a usable wallet that's secure and accessible. They have to come up with an answer for this to get them back into circulation. But the long-term is that the mining gets pushed to the edges of the network, in the middle sits the marketplace which will take the biggest share.

[badass]

Consequently I have my doubts as to how much of the market is fuelled by speculation and how much it's backed by actual industry. I suppose this is something we can't actually find out, and largely determines the answer to the question of whether it's currently overpriced.

It absolutely is backed by industry. The ransomware industry

[ik9000]

LOL.. well anyway, it's going south (for now)

Bitcoin slides amid roller coaster ride

http://www.bbc.co.uk/news/business-42178705

[Millennium]

It's clearly volatile. Something will take over, true, maybe eth (I say that but I have like 0.55). Maybe lots will take over. Time will tell, surely.

[Corky34]

http://www.bbc.co.uk/news/business-42178705

The image the BBC used for Sir Jon Cunliffe in that article did make me chuckle.