Bitcoin: may the value rise!

Bitcoin is like nothing that has ever existed on this world. Ever. It’s a way to protect wealth from any assault, while simultaneously being able to transfer it to anyone, anywhere in the world, without any interference. You could be a millionaire and no one has to know, not even a banker or a government.

This week, Bloomberg really shined by inviting someone who actually looked into Bitcoin before starting talking about it:

He sees the potential, but at the same time acknowledges that we are in uncharted waters.

Many are nervous with the rising price. With its unique characteristics, Bitcoin can be seen as a commodity. And as most commodities, a 1000% rise in value is often a sign of bubble.

Unless…

Unless… you are talking about monetization. This is a process by which a commodity becomes money. Let me cite Konrad S. Graf, as he explains it in a better way than I ever could:

(…) In the case of a monetization event, though, the practical use-value of the trading unit (not only its price in terms of other goods or monies) actually does rise with the number of people using it and the depth of the market. To imagine how different this is from a classic asset bubble, it would be as if not only the price of bubble-era houses were rising, but also that their actual sought-after qualities as houses were improving spontaneously at the same time. Such houses might sprout new rooms with no one building them, with new paint jobs appearing mysteriously overnight without any painters having visited.

(I highly suggest you read the entire article; the insights are brilliant. Hyper-monetization: Questioning the “Bitcoin bubble” bubble.)

For money, the more the value rise, the better it is!

Let’s try to see it with a big company viewpoint. Would Amazon even consider to use Bitcoin if the entire market cap is less than its own cash flow? Of course not! So the first users are necessarily the small ones. They buy, use it, increase the price, and then the market cap can go to a billion. This in turns allow for medium enterprises to join the movement. They start accepting payments in the new currency and building infrastructure around it. This activity makes the currency more valuable and the price rises again… and again and again, in a self reinforcing feedback loop.

Let me repeat this again: for money, the higher the value, the better it is! Is there speculators trying to make a quick buck on Bitcoin’s back? Absolutely. Many of them don’t even understand how Bitcoin works. And yet, whether they want it or not, they increase Bitcoin’s market depth. They increase its value, making it more and more powerful. Each additional dollar in the price legitimizes Bitcoin, makes it more trustable and more acceptable.

At 0.10$, it was toy money. At 1$, a weird currency for anarchists and drug addicts. At 100$, it’s a worldwide experiment about money. At 1000$, it’s an obvious investment.


13 responses to “Bitcoin: may the value rise!

  • Robert Nielsen

    Yes but because the supply is fixed, rises in the price get out of control and the currency falls into a deflationary spiral. If your bitcoins are going to be more valuable tomorrow, why spend any today? The problem is that if everyone does this, the currency fails as no one is using it. That’s why no economy can be based on bitcoins.

    • Frozenlock

      Oh goodie, the deflation argument…
      I invite you to see this video by the well spoken Tom Woods:

      You might also be interested into this article:

      http://mises.org/daily/6362/The-Deflationary-Spiral-Bogey

      • Robert Nielsen

        I don’t have time to watch the video, but I did read the article. However, it is speaking about deflation in our current economy as opposed to one in a bitcoin economy. Hence the author relies on expectations and argues that people won’t expect deflation to last forever. However, in a bitcoin economy, this is exactly what will happen. If the economy grows and the supply of money is fixed, then there will be deflation. Everyone will know this, thus they will expect deflation.

        Seeing as that article is based on the premise that people will not expect continuous deflation, whereas this is exactly what will happen in a bitcoin economy, the article doesn’t help your case.

      • Frozenlock

        Ok, let me ask this:

        I need a new computer. Will I wait for next year, because I know they will be cheaper?

        You are hungry and want to buy a sandwich. Will you wait tomorrow because you know your money will be worth more?

        Ultimately, one has to consume, regardless of the expected gain he can expect from saving.

        And this is EVEN when knowing the value of your savings will increase. Bitcoin right now is in no way that certain. Let me tell you that the various items I can buy on http://www.bitcoinstore.com are more and more appealing…

  • Robert Nielsen

    Surely the events of today have blown you’re argument out of the water? I presume you no longer expect the value to always rise or do you still deny its a bubble?

    • Frozenlock

      *sigh*
      Firstly, prices are still up what they were when I wrote this article (might have wanted to wait at least 3 more hours on this one, or at least wait for the DDOS to stop).

      Secondly, you can’t go around and say “it’s a bubble” without trying to call a top. If I say something is a bubble at 5$, it goes to 200$, then to 100$, I didn’t call shit.

      Thirdly, I’ve been in Bitcoin since 2011. You want volatility? You’ll have a truckload! But you know what? Recent highs pushed Bitcoin into the mainstream media and now more people are aware of it. Are you ready to say the price will never go up to 200$ again? EVER?

      For what it’s worth, I’ve sold some @ 250$. I believe in Bitcoin, but I’m not a lunatic. You see, that’s what calling a bubble is.

      *edit* Yes, I do believe the value will rise.

      • Robert Nielsen

        I think you place to much emphasis on an exact prediction. For example a doctor can diagnosis you’re disease and say you are going to die, but they give an exact date. Likewise, we all know that there was a housing bubble and a dotcom bubble in the 90s. However, it is not possible to point to the exact moment it became a bubble, nor to predict in advance what price it will fall to. It is unreasonable to expect otherwise. We simply do not have capabilities for exact prediction, rough measures are the nearest we have.

        So when I say bitcoin is a bubble, I mean the price has peaked and it will drop rapidly. I don’t know what the final price will be, but it will be below $50. It’s only a question of time. Like all bubble there will be brief rallies and recoveries followed by deeper falls.

        There will be temporary spikes but bitcoins will not hold a price above $266 again. It will not be a dominant currency and will eventually fade into obscurity. The only question is time.

        During the housing bubble some people knew it was a bubble. They couldn’t say what was the peak or where it would fall to, but they were still right to call it a bubble. As are those who call bitcoin a bubble.

      • Frozenlock

        I think you chose the perfect example with your doctor. I too can say you will die. And you know what? I’ll be 100% right. Not everyone who called the dotcom bubble were right. If you called it after you saw your first computer, you were wrong.

        Now, you say the final price will be below 50$. You realize that that’s the price Bitcoin was a month ago? I wouldn’t be surprised to see it go below 10$! But I wouldn’t be surprised to see it rise again to 500$.

        “There will be temporary spikes but bitcoins will not hold a price above $266 again.” Now you’re talking! Now we have something to check! :-)

        “It will not be a dominant currency and will eventually fade into obscurity. The only question is time.” That’s just silly. Every currency dies with time. The only monies that survived through time are gold and silver (and mostly only as a store of value).

        It seems you expect a currency to sprout out of nowhere and have stable price, with wide acceptability and a huge market cap. I say give it time.

        So I’ll keep my BTCs, and you’ll keep your USDs. You’ll be able to quote me whenever you want when Bitcoin fails. And I’ll be able to quote you when it goes past 266$.

        Cheers!

      • Robert Nielsen

        Bitcoin is supposed to be a currency, not a stock or a get-rich-quick scheme. If you bought and held bitcoins then you have gambled and won, but that is all bitcoin is. A gamble not a currency.

    • Frozenlock

      Well well well.

      Just a quick note to let you know that we’ve gone past the previous high of $266.

      • Robert Nielsen

        And how many times has it spectacularly crashed in the meantime? A fall of 25% is a disaster in any other market, but it happens every other week to bitcoin. How much do you want to bet that bitcoin will hold its new value?

      • Frozenlock

        The price stability wasn’t my point, nor was it yours when you gloated at the crash, telling how Bitcoin would just disappear.

        I used my bet money by placing it where my mouth is. (With a pretty return I might add.)

        How about you? Did you short all the way ‘down’ ?

  • The Bitcoin Bubble Has Burst | Robert Nielsen

    [...] have been some slight recoveries which have given hope to bitcoinites (I argued with two here and here). They cling to the hope that this is only a correction and that bitcoin will bounce back [...]

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