A few thoughts - Wednesday, April 16, 2014

[Steve Sokolowski]

Time for another daily "story" of related points that all wrap up into an interesting conclusion:

1. People who argue that these 200,000 coins from Mt Gox (if they are sold) will be sold off-market are missing the point. They key issue is that those coins would have been sold anyway. The same amount of demand for the coins is still there, and all bitcoins are worth the same, so an off-market sale simply delays the effects of the sale until people realize that there are so many more bitcoins than buyers. Therefore, it is irrelevant to the longterm bitcoin price trend where these coins are sold, as the price will still trend down. It will take longer for the trend to become apparent.

2. People who panic sell on news like the 200,000 coins fail to recognize that many creditors will withdrawal their payments and buy back in immediately. Since the impact from selling the 200,000 coins would be long-term, and a rush of creditors to buy back in would be immediate, the end result of such a distribution would result in a spike in prices followed by a leveling off. People who try to anticipate such an event and get out before the sale will likely lose money.

3. /u/moralagent's "bubble watch" charts show periods of "holding steady" after each downtrend. But does this feel more like a bubble than a "steady period" to anyone else? It was in November, not during previous "steady periods," where one would wake up every day to find the price 10% higher than it was the day before. In August, a change of a few dollars every day was considered the norm, not huge 10-20% upswings.

4. Following what I said about "off-market" sales, suppose that while these investment banks have been saying they'll get into bitcoins in a few months, they have actually been acquiring bitcoins off-market for the past few weeks during this crisis. The effects of such a move would, as stated above, be manifest in a delayed reaction when people who would have otherwise listed their coins on the exchanges have already sold their stakes. With fewer bitcoins available for purchase, people who want to buy find themselves chasing rising prices because there aren't any to buy.

5. If you look at the history of posts in this forum over the past year, there is a consistent trend towards overestimating how long it will take until the next event happens (in this case, the next bubble). For example, in December, people said that everyone would buy back in when they returned to work on January 2. But the rise began two weeks earlier. This rule still holds true for whatever reason - just look at what people here are saying, and subtract a few weeks to make money.

6. Since it doesn't take much to set off a bubble, a few more of these upticks, and a resultant short squeeze, could start the exponential growth phase earlier than expected. People who want to buy will discover that all of the coins are no longer there, because big banks have bought them all up. Meanwhile, the investment bankers will be sitting in their penthouses, reading your posts, and laughing at how everyone here is a fool for losing money to them on all that fake Chinese news while they were acquiring their fortunes.