A few thoughts - Thursday, May 22, 2014
Posted: Thu May 22, 2014 12:00 pm
A few thoughts:
1.
There are quite a few people here still looking for a bubble trigger. I've seen some people saying things like "nobody is out there to buy" or "nobody knows about bitcoins yet."
The previous bubbles had no clear triggers. They just started rising, and they all happened well before the system was ready to support the volume. That's why Mt Gox crashed in April when there was high trading volume. I think this is because of #2 - we are far earlier in the overall development than anyone thinks.
2.
I think that we all are just starting to realize how much higher the floor for the bitcoin price actually is. All of the price estimates out there attempt to compare the market cap of bitcoins to various corporations or assets and extrapolate the end price. But these are not realistic estimates. Most bitcoins are being used as a store of value, not for transactions. There's no reason to suggest that bitcoin will ever cease to be used primarily as a store of value, even as merchant transactions become commonplace. It is simply too easy for people to memorize eight random words and have access to their entire life savings anywhere in the world, and to have nobody be able to seize them.
You can't just take the value of, say, Western Union plus Mastercard, and divide by the number of bitcoins, because there are bitcoins being used for other purposes than those business models. There are bitcoins that are lost, and there are a certain number that will never or rarely be spent because people are just storing money. The few remaining are the ones that will circulate in the bitcoin economy and upon which the market capitalization comparisons should be based.
I personally think that people are going to be shocked in a decade when the end value of bitcoins exceeds all of the predictions that people have been making over the past few years.
3.
This place is going to change in a few months, so be ready for it. Bitcoins used to be the curiosity of computer scientists and libertarians. Soon, there are likely to be many professional traders stopping by. The number of posts is going to increase, and the threads will probably get more serious. This will turn into a traditional stock trading forum. In a few bubbles, bitcoins will be just like another traditional asset.
There will also be lots of newbies who despair by buying close to the top of the bubble, and who, rather than holding, will sell during the following few months to lose lots of money.
4.
Paying attention to bitcoins is rather depressing, isn't it? Stocks where the companies are growing usually have steadier growth patterns and a consistent uptrend. With bitcoins, there are six months of constant bad news and then nothing happening, followed by two months when things look positive for a change.
It's sad to think that, even in the best case, it is very likely that in two months things will be going downhill again with a barrage of negative news from media sources who think that bitcoins are going to disappear and that this was the "last bubble."
5.
Dogecoins were designed to be deflationary like bitcoins. However, the developers made an error, and the block reward of dogecoins will never decrease to zero, making them inflationary. That brings up an interesting thought experiment: if bitcoins had been designed as inflationary, would they have gotten to this point?
My answer to this question is "no," although others may have a different opinion. The idea that bitcoins are deflationary has made them a great store of value, and bitcoins need to be a much greater store of value than they are now in order to be very successful, because there is not enough liquidity yet for companies to do interesting things with them. People would not have bought bitcoins if their bitcoins were inflating away, especially in the beginning when there weren't many people around to maintain the price in light of the inflation. This is why I've always maintained that buying bitcoins is just as important as building businesses that use them.
The fact that the answer is no indicates that no inflationary altcoin will ever take over. It also indicates that if the first cryptocurrency had been inflationary, then it would have been supplanted by a deflationary successor.
Other
1.
There are quite a few people here still looking for a bubble trigger. I've seen some people saying things like "nobody is out there to buy" or "nobody knows about bitcoins yet."
The previous bubbles had no clear triggers. They just started rising, and they all happened well before the system was ready to support the volume. That's why Mt Gox crashed in April when there was high trading volume. I think this is because of #2 - we are far earlier in the overall development than anyone thinks.
2.
I think that we all are just starting to realize how much higher the floor for the bitcoin price actually is. All of the price estimates out there attempt to compare the market cap of bitcoins to various corporations or assets and extrapolate the end price. But these are not realistic estimates. Most bitcoins are being used as a store of value, not for transactions. There's no reason to suggest that bitcoin will ever cease to be used primarily as a store of value, even as merchant transactions become commonplace. It is simply too easy for people to memorize eight random words and have access to their entire life savings anywhere in the world, and to have nobody be able to seize them.
You can't just take the value of, say, Western Union plus Mastercard, and divide by the number of bitcoins, because there are bitcoins being used for other purposes than those business models. There are bitcoins that are lost, and there are a certain number that will never or rarely be spent because people are just storing money. The few remaining are the ones that will circulate in the bitcoin economy and upon which the market capitalization comparisons should be based.
I personally think that people are going to be shocked in a decade when the end value of bitcoins exceeds all of the predictions that people have been making over the past few years.
3.
This place is going to change in a few months, so be ready for it. Bitcoins used to be the curiosity of computer scientists and libertarians. Soon, there are likely to be many professional traders stopping by. The number of posts is going to increase, and the threads will probably get more serious. This will turn into a traditional stock trading forum. In a few bubbles, bitcoins will be just like another traditional asset.
There will also be lots of newbies who despair by buying close to the top of the bubble, and who, rather than holding, will sell during the following few months to lose lots of money.
4.
Paying attention to bitcoins is rather depressing, isn't it? Stocks where the companies are growing usually have steadier growth patterns and a consistent uptrend. With bitcoins, there are six months of constant bad news and then nothing happening, followed by two months when things look positive for a change.
It's sad to think that, even in the best case, it is very likely that in two months things will be going downhill again with a barrage of negative news from media sources who think that bitcoins are going to disappear and that this was the "last bubble."
5.
Dogecoins were designed to be deflationary like bitcoins. However, the developers made an error, and the block reward of dogecoins will never decrease to zero, making them inflationary. That brings up an interesting thought experiment: if bitcoins had been designed as inflationary, would they have gotten to this point?
My answer to this question is "no," although others may have a different opinion. The idea that bitcoins are deflationary has made them a great store of value, and bitcoins need to be a much greater store of value than they are now in order to be very successful, because there is not enough liquidity yet for companies to do interesting things with them. People would not have bought bitcoins if their bitcoins were inflating away, especially in the beginning when there weren't many people around to maintain the price in light of the inflation. This is why I've always maintained that buying bitcoins is just as important as building businesses that use them.
The fact that the answer is no indicates that no inflationary altcoin will ever take over. It also indicates that if the first cryptocurrency had been inflationary, then it would have been supplanted by a deflationary successor.
Other
- Days until July 24: 64