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Comment by jamiegreen | Hacker News Reader

One thing I struggle with is what is the 'right' price for a bitcoin. How do you calculate that? You hear such wildly divergent claims I just have no idea.

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You can't calculate it. There is no right price.

But damn, the price has increased by 10^5 since I started using Bitcoin. Looking back, it's been a pretty steady exponential. Looking forward, I have no clue.

Bottom line, don't bet more than you can stand to lose.

There is no "right" price. There's a limited amount of bitcoin, and a lot of people who want it. As long as more people keep wanting bitcoin, the price will go up. When demand drops, prices will go down.

Bitcoin has the problem that there's no real value backing it up. You can't eat a bitcoin, or use it to make something. It has value only as long as other people think it has. But as long as people keep trusting bitcoin, it could keep growing.

The real interesting question is not so much what the price is, but how much actual commerce there is in bitcoin. If people are merely hoarding it, it's vulnerable to collapse as soon as people start to realise it's not actually doing anything. But if there's actual sustainable trade in it, then that could be seen as the economy backing up the value of bitcoin.

>One thing I struggle with is what is the 'right' price for a bitcoin. How do you calculate that?

Do you think Bitcoin is money?

Then the right price is simple: The amount of goods you can buy for 1 hour of labour should be equal between USD and BTC. If you can buy an apple pie for $5USD, then you should be able to buy a pie with $5USD in BTC. The problem is no one is actually selling anything in BTC in the real world.

If you think Bitcoin is money, you shouldn't be "making money" off it anymore than buying another currency in USD. The fact that it is increasing exponentially in price is a bug, not a feature.

Exactly. The volatile price suggests it's all speculation, hype and hoarding, and not actual trade.

> Do you think Bitcoin is money?

Let's say yes.

> Then the right price is simple: The amount of goods you can buy for 1 hour of labour should be equal between USD and BTC. If you can buy an apple pie for $5USD, then you should be able to buy a pie with $5USD in BTC.

OK. So how exactly do we compute the "right" price for Bitcoin from this? I struggle to do this simple math.

You're selling an apple pie for your own currency piecoin. If I to buy a pie from you I have to buy x piecoins first to match your price whatever it is. My need of a piecoin is defined by the need of our settlement for a pie ('right' price). Usually, pie like yours costs $5 so I have no incentive to pay more for your pie. If your price for a pie is x piecoins then I will buy x piecoins for $5 and 1 piecoin will cost me x/5.

'Wrong' part of a price is about modelling other people need for piecoins which in turn is about modelling need for pies and other people speculation and that's can be incredibly complex. As you can easily see 'wrong' part of a price makes your coin shitty currency.

None of this answers my question for how exactly to do the parent's math for Bitcoin, which the parent claimed was simple. None of this even talks about Bitcoin, which was specifically what I asked about.

I don't know. Maybe is is more a store of value like gold. Especially given the relatively high transaction cost, perhaps this is more likely?

> The amount of goods you can buy for 1 hour of labour should be equal between USD and BTC.

Why? The amount of goods I can buy isn't equal between USD and GBP. Or between either and EUR. So why exactly should it be equal for BTC?

The right price for anything is what people are ready to pay for it.

I guess one could try to estimate a limit under the (very optimistic) assumption that BTC becomes a major currency like the dollar or euro.

Part of bitcoin price that's defined by needs of settling between different parties is the 'right' price. The 'wrong' part of the price is defined by speculative interest - expectations of bitcoin growth. Of course, any price is right if bitcoin is a pure speculative asset in your eyes.

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