People overstate their importance
I often see comments in these forums about how people are trying to "pump" the price of bitcoins or how they are "shills." The argument is almost as if everyone has some sort of motive, and that they can cause changes in the marketplace simply by stating what they want to happen.
It is quite arrogant for people to believe that they, or anyone here, can somehow cause the price of bitcoins to rise or fall based on their words alone. People who accuse others of having motives need to stop and reconsider their viewpoint. The vast majority of people are simply stating what they believe.
The more important reason that these accusations are ludicrous is that if you were to aggregate the holdings of everyone who reads /r/bitcoinmarkets, then you would probably end up with about 0.5% of the market capitalization of bitcoins. As I've said before, we are but peons in the grant scheme of things. The people who actually do cause markets to move aren't reading places like this, and if they do, they certainly aren't influenced by what anyone here is saying.
Explanation for false bubbles
I was thinking yesterday about why there would be two types of bubbles. There have been several large bubbles and several small "false" bubbles that do not set new highs, but each of the bubbles has always occurred within at intervals of 234 days plus or minus one month. There obviously is some reason why certain bubbles are huge and other bubbles are not.
I've stated before that the time period is fundamental to the cycle, and have theorized on the reason why (the length of the software development cycle, or some biological characteristic of human memory, for example). Regardless of the exact reason, suppose that this reason creates the conditions necessary, but not sufficient, for a bubble around every eight months. At that point, the price of bitcoins starts to rise, but it only continues to rise if some external event triggers a large bubble. Otherwise, only a small bubble occurs. Even if the bubble was only a false one, the conditions necessary for the bubble only last a short time. After a period ends, the bubble conditions "expire" and do not recur for another 8 months.
This theory aligns with the observation that no matter how much good news there is most of the time, there is little effect on the price. The only time the good news can have an effect on the price is in the short window during which the bubble conditions are present. When good news occurs without those conditions present, it is ignored.
If the "bubble conditions" are the software deveopment lifecycle, then the condition that must be present is that new software has just been released that can accept an influx of new users; otherwise, the infrastructure can't support the load. If the "bubble conditions" are innate human memory limitations, then the condition that must be present is that the memory of the last bubble must have been overwritten; otherwise, people still remember the last crash and don't buy. If the "bubble conditions" are related to mining or block halvings, then the condition that must be present is some characteristic of the bitcoin network's processing; the network can't produce the right number of coins to cause a bubble.
This idea of "necessary but not sufficient" conditions for bubbles needs to be explored further in future posts.
User of the day
/u/coledaman is yesterday's user of the day for a post he made at http://www.reddit.com/r/BitcoinMarkets/ ... 14/cirsng7. In the post, he jokingly points out that the app Tinder has more users than bitcoins do, which means that bitcoins have a lot of potential for growth.
I'd like to twist his words around a little bit, though, and ask seriously: since bitcoin obviously has a higher potential marketshare than Tinder does, has been around longer than Tinder has, and is useful to the entire population rather than just a small subset, why has Tinder become so large and bitcoin has not outgrown Tinder?
Growth rate
Tinder demonstrates something important: given the standards by which bitcoin should be measured, bitcoin is not a life-changing technology. Tinder has made more difference in the lives of people so far than bitcoin has. More importantly, truly innovative ideas catch on like wildfire; we see that all the time with many Kickstarter projects and viral videos.
There are people in /r/bitcoinmarkets who attempt to explain away the lack of Google Trends surges this bubble cycle by stating that the growth of bitcoin is a slow push to world domination, that linear growth is what should be expected, and that "more time" is needed. The problem with their argument is that a simple extrapolation into a linear growth rate means that bitcoins would be worth $10,000 in 10 years. The technology can't survive if it is worth so little so long from now, because something else will have surpassed it or the companies that had been waiting to join in will not have the market capitalization to proceed with their plans.
In my opinion, it is reasonable to be concerned with the lack of adoption recently, and the recent trend of some people trying to "lower expectations" is an incorrect one. The usage and value of bitcoins not only can, but is required to continue to grow exponentially to extremely high valuations if it is to become a world-changing technology.
Technology overrides people problems
Yesterday, a commenter posted that the biggest issues facing bitcoins right now are people problems, like the regulations that inhibit ETFs, and money transmitting rules. A common people problem about which some are discouraged is security. There are those who believe that bitcoins will never become secure enough because it is impossible to secure a private key sufficiently.
Today is a good example of how technology comes along and ignores all the people who are involved in the debate. Bitpay released a multisignature wallet that allows people on different computers to send transactions. In their model, you need separate machines to send a bitcoin using a multisignature transaction. Suppose that you use a multisignature wallet with one key on a cell phone, one key on a desktop, and the other key in cold storage or somewhere else that it doesn't matter.
If each key is encrypted, even if someone practices poor computer security, it's almost impossible that a theft can occur using this system. Look at how difficult it is to port apps between different operating systems already. Now imagine how difficult it is for the same virus creator to not only write a virus for two separate systems, but to find two zero-day exploits at the same time. Then, assume that the virus creator somehow captures the passwords, decrypts the keys, and is not sabotaged by other virus creators who steal the keys first. If he steals just 1000 private keys, it would take on average 1000!/2 tries just to find the one combination necessary to sign the transaction to steal the money, and that assumes that the wallet he is able to crack still has any money in it after the unimaginable amount of time required to do that.
Multisignature wallets that require two different systems to sign a transaction are so effective at preventing theft that one could actually argue it's not even necessary to encrypt the key on each device. When combined with strong password encryption and two-factor authentication, the wallets are nearly unbreakable.
This is an example of how, when there are problems that a single person can solve, technology can easily overcome people problems. Once BitPay gets their software out of beta mode (like the other press releases recently, they made that part difficult to find), the problem of security will have essentially been solved.
Other
- Days until July 24: 15