If you compare Tulip Mania to the world's first decentralized, censorship-resistant, inflation-resistant, digital currency, then you don't understand Bitcoin. At all.
This is what the real-time monetization of a good looks like. In the early stages you have massive price increases until there is enough liquidity and volatility declines. Bitcoin looks like a bubble, but money is inherently a bubble phenomena:
http://unqualified-reservations.blogspot.com/2013/04/bitcoin...
Viewed on a log scale, it's clear that $650 is too high. But, it's not quite as outlandish as the linear plot implies. http://i.imgur.com/GOYWUMo.png According to that armchair-financier line fitting, the trend is for the price to still be below $300. What's more interesting is the long term trend of 10X price increase every 12.5 months for the past 3+ years running. Disclaimer: past performance is not an indicator of anything.
It's clear that such a slope is unsustainable in the long term. If bitcoin continues its growth, with a $5B market cap now, and a ~$100T world GDP, it's clear that there's, at most, another four orders of magnitude to go.
And, given that perhaps a few thousand collectors are each willing to pay a few dollars to own most of the world's BTC, there's perhaps six orders of magnitude of room for the price to fall.
I think it is telling that in the time from when this was posted to this reply, bitcoin is up to 668.5.
This is a bubble, anyone who thinks otherwise doesn't understand that people make an effectively stupid amount of money by using bitcoin as a pump and dump scheme.
If you think this bubble is helping bitcoin as a currency, then you are terrifically incorrect. For all the good that bitcoin is capable of, how the hell do you base a payment system around something that has no price stability?
Agreed. I'd like to purchase a cheese sandwich at my local BTC-accepting food truck, but I'm going to skip it this week precisely because I might be able to buy twice as many (or half as many) sandwiches next week.
Things are so volatile this week, that even nearly-instantaneous transactions USD-->BTC-->BTC-->USD (whose utility isn't affected by the price of 1 BTC) aren't guaranteed to happen as expected. Better to wait a week for things to chill out. They will.
I'm not sure how people are determining this is a bubble. There are roughly 12 million bitcoins in existence. Priced at $668, that means there is a mere $8 billion in the entire Bitcoin system. That's tiny. For a global currency with the unique advantages Bitcoin has, I would expect the currency to be in the $10s to 100s of billions soon enough.
In order for bitcoin to actually matter, it needs to grow. You're going to get $668 bitcoins no matter what, if people start using it. That's simple supply and demand. Network effects being what they are, it's going to grow quickly.
In order for Bitcoin to remain stable, it would need to grow slowly. Thanks to the Internet and the plethora of Bitcoin news lately, I just don't see that happening.
You need to understand what a bubble is and what isn't. It's a bubble when bets are made on things that have nothing backing up their immense valuation.
Now, you need some smartness to understand that the value in currencies is not in it´s physical value ($100 are worth maybe $0.02 in physical value), but how many people use it.
Millions of people now use bitcoin, thousands of businesses have started accepting bitcoin over the past 6 months. In a year these numbers will be 50-fold.
Things that people use a lot, are not bubbles. Also, this doesn't take into consideration the potential, which is a major factor determining a valuation. And that is that Bitcoin or something similar has the potential to replace all banks and all currencies entirely.
EDIT: Changed "don't have an underlying value" to have nothing backing up their immense valuation". And sorry I was a bit angry, but I've read it now a hundred times on hackernews over the past 2 years, we're in a bubble here, we're in a bubble there. It is not a bubble, when millions and millions of people are using it.
The 2000 bubble was a bubble because there were 300M internet users at the time. Now we have 2B, that's the difference.
Transfers. The overall transfer market utilizes 100 BTC (made up) and the overall transfer market at any given instant is worth $65000 (made up) therefore the average price on the transfer market is $650, although that doesn't mean anything to anyone in the transfer market.
If the price collapsed to $10 tomorrow, then the international transfer market would still be worth $65000 at any given instant (duh, unless world trade collapses), it would just require 6500 BTC instead of 100 BTC. If the market can't provide 6500 BTC at $10 (I don't think it can..) then the market clearing price will rise until the transfer market obtains its average $65000.
The buy and hold and the pump and dump crowds get all confused about what it means.
The current exchange value on the open market has to remain constant-ish for months because of middlemen. So I ordered a Debian branded swiss army knife and the whole transaction must have taken months, I'd be pretty pissed if the exchange rate from $ to swiss francs or whatever it was varied much. On the other hand as a replacement for Western Union to send cash to Mexico or whatever, I guess the value needs to remain constant for what, like 10 minutes?
Now I'm just a little bit disappointed I didn't buy any when I first heard of them... But this feels like the same bubble Bitcoin has had twice before - it spikes then plummets, but it plummets to a point higher than the last drop
So how exactly does one come up with a "reasonable" price for anything? Why is $10 for a chicken any more "reasonable" than $10,000?
Things have value because we (collectively) believe they do. Currency is a numbering system. In practical terms, what matters is how easy are the numbers to use, and what's the relative value of one thing versus another.
And if you think we can rationally decide how many chickens a hip placement is worth, you're still nuts.
i'm not sure whether this current bitcoin price run is a bubble or just the currency becoming more valuable as it gains more attention and recognition from world governments. my guess is that a downward correction is coming soon. either way, though, i'm certain that in the long run, the currency is worth much more than the $600 it trades at now.
the model i'm using is BTC as a new form of gold. the current value of all the gold in the world, by my primitive calculation, is around 4 trillion. if all the bitcoins in circulation eventually reach a quarter of that value - which i think is totally realistic, most likely an underestimate, that puts the price per bitcoin at over $100k, a number that already seemed reasonable to me.
my guess is it'll be there in less than 10 years. anybody want over / under?
Coinbase: Note! We've exceeded our normal buy limits for today. If you would still like to purchase you will receive the market price of bitcoin on Friday Nov 22, 2013 at 11:01AM PST after your funds have arrived.
The price is rapidly dropping, lost nearly 10% now from today's peak.
Good for Coinbase. It's in their interests to remain solvent, and to encourage moderation. I really liked having my desire to buy tempered by their ~week-timescale delays in the past.
(That said, if you really want to buy, keep trying, Coinbase's buy limit opens and shuts sometimes.)
This is just the beginning of the tides turning. This huge jump is just a few thousand Chinese investors coming online. More will come.
Next think about when another country gets its own exchange, say India. Expect more large jumps before things settle down.
[+] [-] mrb|12 years ago|reply
Combine this with absolutely zero efforts to estimate the worth of the Bitcoin system, how Bitcoin is used today, etc. That's the difference between being published at Techcrunch and more prestigious publications like http://www.nytimes.com/2013/10/31/technology/bitcoin-pursues... or http://www.washingtonpost.com/blogs/the-switch/wp/2013/11/08...
[+] [-] maxerickson|12 years ago|reply
[+] [-] VMG|12 years ago|reply
[+] [-] vijayboyapati|12 years ago|reply
[+] [-] exit|12 years ago|reply
[+] [-] baddox|12 years ago|reply
[+] [-] corysama|12 years ago|reply
[+] [-] ISL|12 years ago|reply
And, given that perhaps a few thousand collectors are each willing to pay a few dollars to own most of the world's BTC, there's perhaps six orders of magnitude of room for the price to fall.
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] Everlag|12 years ago|reply
This is a bubble, anyone who thinks otherwise doesn't understand that people make an effectively stupid amount of money by using bitcoin as a pump and dump scheme.
If you think this bubble is helping bitcoin as a currency, then you are terrifically incorrect. For all the good that bitcoin is capable of, how the hell do you base a payment system around something that has no price stability?
[+] [-] ISL|12 years ago|reply
Things are so volatile this week, that even nearly-instantaneous transactions USD-->BTC-->BTC-->USD (whose utility isn't affected by the price of 1 BTC) aren't guaranteed to happen as expected. Better to wait a week for things to chill out. They will.
[+] [-] aryastark|12 years ago|reply
In order for bitcoin to actually matter, it needs to grow. You're going to get $668 bitcoins no matter what, if people start using it. That's simple supply and demand. Network effects being what they are, it's going to grow quickly.
In order for Bitcoin to remain stable, it would need to grow slowly. Thanks to the Internet and the plethora of Bitcoin news lately, I just don't see that happening.
[+] [-] wellboy|12 years ago|reply
Now, you need some smartness to understand that the value in currencies is not in it´s physical value ($100 are worth maybe $0.02 in physical value), but how many people use it.
Millions of people now use bitcoin, thousands of businesses have started accepting bitcoin over the past 6 months. In a year these numbers will be 50-fold.
Things that people use a lot, are not bubbles. Also, this doesn't take into consideration the potential, which is a major factor determining a valuation. And that is that Bitcoin or something similar has the potential to replace all banks and all currencies entirely.
EDIT: Changed "don't have an underlying value" to have nothing backing up their immense valuation". And sorry I was a bit angry, but I've read it now a hundred times on hackernews over the past 2 years, we're in a bubble here, we're in a bubble there. It is not a bubble, when millions and millions of people are using it.
The 2000 bubble was a bubble because there were 300M internet users at the time. Now we have 2B, that's the difference.
[+] [-] a3voices|12 years ago|reply
[+] [-] ISL|12 years ago|reply
A better way to look at a quantity which has changed so much is to use a logarithm.
http://bitcoincharts.com/charts/mtgoxUSD#tgSzm1g10zm2g25zvzl
[+] [-] johnrob|12 years ago|reply
[+] [-] VLM|12 years ago|reply
If the price collapsed to $10 tomorrow, then the international transfer market would still be worth $65000 at any given instant (duh, unless world trade collapses), it would just require 6500 BTC instead of 100 BTC. If the market can't provide 6500 BTC at $10 (I don't think it can..) then the market clearing price will rise until the transfer market obtains its average $65000.
The buy and hold and the pump and dump crowds get all confused about what it means.
The current exchange value on the open market has to remain constant-ish for months because of middlemen. So I ordered a Debian branded swiss army knife and the whole transaction must have taken months, I'd be pretty pissed if the exchange rate from $ to swiss francs or whatever it was varied much. On the other hand as a replacement for Western Union to send cash to Mexico or whatever, I guess the value needs to remain constant for what, like 10 minutes?
[+] [-] ISL|12 years ago|reply
[+] [-] craigyk|12 years ago|reply
[+] [-] exit|12 years ago|reply
[+] [-] phaed|12 years ago|reply
[+] [-] a3voices|12 years ago|reply
[+] [-] IanChiles|12 years ago|reply
[+] [-] tlrobinson|12 years ago|reply
[+] [-] VikingCoder|12 years ago|reply
Things have value because we (collectively) believe they do. Currency is a numbering system. In practical terms, what matters is how easy are the numbers to use, and what's the relative value of one thing versus another.
And if you think we can rationally decide how many chickens a hip placement is worth, you're still nuts.
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] massarog|12 years ago|reply
[+] [-] aestra|12 years ago|reply
[+] [-] MarkPNeyer|12 years ago|reply
the model i'm using is BTC as a new form of gold. the current value of all the gold in the world, by my primitive calculation, is around 4 trillion. if all the bitcoins in circulation eventually reach a quarter of that value - which i think is totally realistic, most likely an underestimate, that puts the price per bitcoin at over $100k, a number that already seemed reasonable to me.
my guess is it'll be there in less than 10 years. anybody want over / under?
[+] [-] jjsz|12 years ago|reply
[+] [-] conductr|12 years ago|reply
[+] [-] conductr|12 years ago|reply
http://www.coindesk.com/china-leading-global-rise-bitcoin/
[+] [-] cft|12 years ago|reply
The price is rapidly dropping, lost nearly 10% now from today's peak.
[+] [-] ISL|12 years ago|reply
(That said, if you really want to buy, keep trying, Coinbase's buy limit opens and shuts sometimes.)
[+] [-] robius|12 years ago|reply
[+] [-] JanezStupar|12 years ago|reply
[+] [-] tlrobinson|12 years ago|reply
[+] [-] Moral_|12 years ago|reply
[+] [-] VMG|12 years ago|reply
[+] [-] a3voices|12 years ago|reply
http://i.imgur.com/qgT9vxx.png