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brucephillips

Serious question: How is BTC going to ever achieve the price stability required for a currency?

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I'm not an expert, but from what I've read it sounds like derivatives (i.e futures) might help.

https://qz.com/1144262/the-cftcs-green-light-for-bitcoin-fut...

Ah, I didn't realize derivatives were illegal until now. Thanks!

Why haven't derivative exchanges popped up in unregulated markets, the same way that ICOs have avoided US regulators.

It is likely that volatility will drop a lot once and if it gains widespread adoption.

I don't know much about monetary policy. Why does adoption imply price stability?

Right now there are still trillions of dollars that could go into Bitcoin (potentially), and the more of that money gets converted into Bitcoin, the more its price increases (because the number of Bitcoins is relatively stable from month to month or even year to year, so it's logical that 1BTC will cost more when $1 trillion are put into Bitcoin than when $100 billion are put into Bitcoin).

As Bitcoin gets closer to its "maximum potential" (which could very well be the total world transactions being done in Bitcoin, or say 50% of them, if Bitcoin's share of total cryptocurrency market cap remains the same as it is now), the price should stabilize, as there wouldn't be extra money that could be put into Bitcoin, or at least not much more than there already is.

Also, there's a big difference between adding $100 billion into Bitcoin when the total Bitcoin market cap is $100 billion before that, and adding $100 billion when Bitcoin's market cap is $10 trillion. That's why when Bitcoin's market cap will represent a much larger share of the world transactions, its price should become increasingly more stable.

> the price should stabilize, as there wouldn't be extra money that could be put into Bitcoin.

I've heard some wild logic from BTC fans, but this takes the cake. BTC will stabilize because no more money can be put into it, huh? What about, you know, money that can be taken out?

I don't think there are any guarantees, but the reasoning is that widespread adoption implies that the violent capital inflows have subdued and a more stable equilibrium is reached. Of course, panics can still happen for various reasons (security breaches, outlawing it etc).

What about violent capital outflows?

Why are people so obsessed with stability? Prices can float freely.

Currencies, at least traditionally, are a store of value. You don't want stores of values to be volatile.

Though I suppose the end game for BTC could be a transfer mechanism that no one actually holds. It would still be subject to flash crashes, though.

Currencies are the store of value of poor people, because unfortunately they don't have the sophistication to manage their wealth using assets that don't loose their value. And that is unfortunate because they are taxed the most by the continuous devaluation of currencies. Wealthy people avoid the devaluation of their wealth through various sophisticated method, which leads to increasing inequality. Of course, this is only one perspective in the nebulous economic system.

I suppose directly most people don't store value in currencies, but indirectly, they definitely do. Bonds are denominated in currency, and the value of stocks are derived from companies that hold assets in largely cash and bonds.

Perhaps a lot of people own houses too, but still, I think the majority of people don't even own bonds or stocks (which can have a return). I think US people are more sophisticated when it comes to using financial tools but my impression is that in Europe most people have no clue about investing their money besides buying a house. Hell, most of my peers in my generation barely have any savings.

Around half of Americans own stock. http://news.gallup.com/poll/190883/half-americans-own-stocks...

> my impression is that in Europe most people have no clue about investing their money besides buying a house. Hell, most of my peers in my generation barely have any savings.

If there are more Americans in the stock market it's probably because the American social safety net is very weak.

Most people have some kind of pension and most work pensions are invested in some kind of diversified portfolio involving stocks and bonds.

Which is better, a currency that's guaranteed to decrease in value over time, or one with a fixed supply that has historically increased in value consistently?

I think with the volatility everything tends to average out. And the economic theory that currency must be inflationary is widely accepted as correct, but I don't really understand why or what the first principles are behind that claim.

If you're explicitly asking about USD vs. BTC, I'll definitely take USD, which has a strong history of stability. BTC certainly doesn't have that. Maybe BTC is going to appreciate or stabilize for the next century, but why would I risk that?

But consider the hypothetical scenario, where you have two currencies that have been around for the same amount of time, with similar reputations. One is inflationary and one is deflationary. Which one would you choose to save your wealth in?

Obviously deflationary. What's your point?

I was alluding to your comment regarding price history and track record. People put their money in bitcoin (and other assets) based on future expectations. It's very risky now because we don't know if it will deliver on it's potential, but it definitely has some attractive features.

Like several other people in this discussion, you point to the deflationary nature of Bitcoin as a positive. I do not doubt Bitcoin would be deflationary if widely used, but what I do doubt is that an economy that converted to a deflationary form of currency would be anything other than miserable for most people.

And also a unit of account, which you definitely want to be stable.

As a person who uses bitcoin as a store of value, i am quite ok with it being worth 10x what it was less than a year ago. More volatility for me please.

you might be a lot less happy when that means 1/10th of the value.

If i were you I'd be dumping my USD then.

Because this: https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

Another great example for why you should use Bitcoin.

With derivatives.

... or the transaction volume?

The volume will increase in line with adoption.

Isn't this tautological? What does "adoption" mean if not "transaction volume"?

I assume the parent was referring to the trade volume, which is significantly lower than more established assets.

Ah, I interpreted it to mean transaction volume, since that's an indicator of BTC's utility beyond speculation.

Is that before or after they figure out how to do more than 7 BTC transactions a second?

Well, traditional currencies were stable because of the gold standard, but nowadays the stability of bitcoin comes from the miners and the difficulty setting, while the stability of national currencies is controlled by institutions like the FED.

Nevertheless, at the moment there is an increased global demand for bitcoins due to the many people and organizations who are joining the system. The only problem is that due to high demand the bitcoin value to normal currencies quote increases so rapidly that it attracts even more people, which could lead to many people loosing their interest in bitcoin as soon as the growth rates cool down.

So let's hope the cool down will happen gradually. That way we should not be afraid of the bubble.

> the stability of bitcoin comes from the miners and the difficulty setting

The mining system controls the supply, not the value.

And I thought 'supply and demand' define 'value'. So when you control the 'supply' you should be able to control the value to some extend. Granted, as the mining system can only add coins the control is limited.

Only in the short term. The difficulty adjustment eventually makes changes in mining capacity moot.

I consider the difficult adjustment to be part of the "mining system". My point is that BTC self-regulates supply, not value. Value is determined by the (volatile) market.

OK, so we have shown that inflation of Bitcoins would not be likely if they were in wide use. Have you considered deflation at all? Deflation is great if you're holding the currency to speculate, but not if it's running an economy.

Stop the fucking mantra of "deflation is bad". We've had way more crisis caused by inflation than by deflation. Stop thinking that the problems caused by printing more money can only be solved by printing more money!

And actually, maybe these days our planet needs a bit of deflation, to stop all that mad consumerism of our society.

Wow, with such a well-reasoned argument how could I not be convinced?

It's the person that makes the assertion the one that needs to give proof. Most of the "deflation is bad" arguments are never argumented. I'm calling them out.

As I've said repeatedly, deflation is bad because it discourages investment and buying, and would grind our economy to a halt. Also more Americans are net debtors than not. You are the one looking to argue against essentially every economist on Earth here.

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