Bitcoin Tops $50USD on MtGox | Hacker News Reader

Bitcoin Tops $50USD on MtGox

mtgox.com

87 pointskenthorvath90 comments

Don't listen to the "it's out of control" or "is very due for a crash because it's rising so quickly" stuff. It comes down to a very simple test: do you think that there are significant reasons Bitcoin would or would not gain acceptance as a mainstream currency?

A few reasons I can think of why it would:

* The current banking system is inherently insecure. If you have an account number and a routing number (written on the bottom of every check), you can pull money. Bitcoin is potentially much more secure.

* It's way too difficult to send money today, especially internationally, and fraud is a huge issue. We shouldn't need something like PayPal. Bitcoin solves this.

* If you don't have faith in banks or central governments, Bitcoin doesn't require trust in any third party to function. You aren't dependent on any bank.

A few reasons it might not:

* It requires too much technical knowledge to use and is unapproachable for mainstream users.

* It's too tied up with illicit interests and won't break out of that image, leading it to an untimely demise in culture. A fax machine is no use if no one else has one.

* There are lurking fatal flaws in the underlying technology. Maybe a blockchain fork is much more possible than currently assumed, or there's found to be an error in the cryptographic scheme.

* Mining power ends up concentrated in the hands of few when ASICs are in full swing and transaction fees aren't enough to keep individuals at it, giving power over the blockchain to a few (potentially malicious) actors. There's no guarantee transaction fees will actually pick up the incentive slack.

If you think that Bitcoin will ultimately be widely adopted, buy now. $50 / btc is very cheap in that world. If you think Bitcoin will fail, then any price is too much. Any mumbling that "it's doubled in a month and therefore is set up to come back down to earth" is just hand waving.

I think the "max block size" issue is one of the biggest ones at the moment. Oh and the censorship of S.Dice sets a terrible precedent too.

Do you have a reference link about what you mean by censorship of Satoshi Dice?

I'm not the parent but he's probably referring to the opinion of some that SD is the equivalent of a spammer and its transactions should be blocked. You can find lots of threads on bitcointalk.org discussing it: https://bitcointalk.org/index.php?topic=150405.0

SD notifies losers by sending them a very small transaction. Because of this SD generates the majority of BTC transactions and inflates the size of the generated blocks.

https://bitcointalk.org/index.php?topic=150405.msg1598258#ms...

https://bitcointalk.org/index.php?topic=150481.0

There were a few more discussions around this time too, a few people including a pool operator want to block all businesses and applications that "abuse" the blockchain. This shows that a few higher ups in the Bitcoin community are short-sighted and very selfish, and also shows the problems Bitcoin will have at getting any larger.

I read a few pages of the forum posts about SD's transaction "spam". Could you clarify the notion in the thread that SD is generating more money for themselves by using these micro-transactions rather than internalized accounting?

I can't think of any way SatoshiDice benefits from the spam it creates. It's almost like a form of trolling. If this spam benefits no one a rule change shouldn't be a big deal.

The spam is the 1 Satoshi (0.00000001 Bitcoin) sent to players to confirm a loss, whereas a win they send a healthy amount back (The winnings)

At the moment Bitcoin cannot handle lots of transactions made with its smallest unit. This is being called spamming the block chain.

I gathered most of that. My confusion was that people on the bitcoin forum were implying that performing loads of 1 Satoshi transactions was financially beneficial for SD somehow, as well as to miners.

> The current banking system is inherently insecure. If you have an account number and a routing number (written on the bottom of every check), you can pull money. Bitcoin is potentially much more secure.

If the company you store your wallet with is hacked you lose everything, if your laptop is stolen or your dropbox account is hacked... it's as safe as keeping cash in your apartment. If your bank fucks up your money is (almost always) insured.

http://arstechnica.com/tech-policy/2012/09/hacker-steals-250... http://arstechnica.com/business/2012/03/bitcoins-worth-22800... http://arstechnica.com/tech-policy/2011/06/bitcoin-price-plu...

> It's way too difficult to send money today, especially internationally, and fraud is a huge issue. We shouldn't need something like PayPal. Bitcoin solves this.

Fraud is a huge issue that Bitcoin does not solve. Send your money over bitcoin and it's gone, forever. Paypal etc. offer protections, they're not bulletproof but they're better than nothing.

"If the company you store your wallet with is hacked you lose everything"

Which is why it is not recommended to store Bitcoin wallets with third parties. Store it and secure it yourself.

"if your laptop is stolen or your dropbox account is hacked... it's as safe as keeping cash in your apartment."

Which is why it is recommended to encrypt your wallet, so that if your laptop is stolen, the attacker has no access to it.

"If your bank fucks up your money is (almost always) insured."

Eventually, if the Bitcoin economy continues to grow, an insurance market will develop itself.

"Fraud is a huge issue that Bitcoin does not solve"

Actually it does solve the biggest fraud issue of today: fraud during purchases. Merchants receiving bitcoins are guaranteed that transactions are irreversible and cannot be charged back.

What you mean, is not that Bitcoin does not solve fraud, it is that Bitcoin is hard to "secure". It is a hassle for a user to encrypt his local Bitcoin wallet with a secure passphrase and to ensure that his computer is not infected by keyloggers/malware attempting to steal the passphrase.

Fortunately, there are efforts from different groups to develop credit-card sized tamper-proof hardware Bitcoin wallets (think about typing a pin code on a small device, which sends a Bitcoin transaction via NFC or via showing a QR code on an e-paper display).

BTC may solve buyer-side fraud, but it creates a giant seller-side fraud problem.

I basically see advantages for the seller (lower fees, fraud protection), but none for the buyer (seller-side fraud potential, no cash-back).

Therefore, why would I, a buyer use this vs a credit card?

Since transactions are irreversible, buyers need to fill less forms and have lower prices. Coindl.com sells you stuff with no registration/forms/emails - it shows a QR code and gives you a download button within two seconds after you sent a transaction. And buyer does not need to trust his CC details to new merchants. He only risks the amount to be paid, not the whole bank account.

But a compromised credit card doesn't mean you risk your whole bank account. First, at least in the US, there are limits to what you are liable if you are card is compromised -- report within 48 hours, the limit is $50, report within 60 days, the limit is $500. Second, credit cards have a credit limit -- so, worst case scenario, you'd be out to whatever your limit is (which is unlikely to happen as any weird use of your card would probably trigger it for a security review, which wouldn't allow any transactions until someone talks to you). Finally, credit cards (unlike debit cards), are not linked to your bank account.

Compromised credit card adds significant hassle while Bitcoin transaction adds zero hassle. So CC is worse than Bitcoin for both parties: merchant can lose money and have to insure against it with paper work and higher prices, customer has to worry about reputation of a merchant and check his balance regularly, call the bank quickly etc.

Yes, if the merchant steals from the buyer, the raw BTC transaction is not reversible. But normally merchant has much more to lose than you if he is not nice (and merchants show their commitment by investing a lot in marketing and development) and in rare cases when you transact more money, you can use escrow and extra paperwork. But that's totally optional and is not needed when paying for a coffee, a book, or some inexpensive service.

Your thinking is too narrow. You are focused on the small subset of transactions where you use credit cards. Bitcoin is a solution to a much larger set of problems where credit cards do not work at all, or well enough.

Firstly, you just cannot use your credit card (or Paypal, or Western Union) to do certain transactions: sending any amount of money to a family member overseas (WU does not operate in many countries, and has limits), making a donation to an organization censored/oppressed by governments (PP blocks donations to Wikileaks), etc.

Secondly, even when you can use the traditional banking system, it is inconvenient: driving 30min to a WU office to receive money, waiting days for wire transfers to complete, etc.

Thirdly, your credit card is tied to an account that your government, bank, or a court can seize for whatever reason (your spouse making fraudulent claims during a divorce going badly, etc). Bitcoin protects you from that. With Bitcoin, you own a purchasing power that no one can regulate or block.

Fourthly, Bitcoin transactions fees are voluntary, hence very low: typically less than 0.01%. This benefits not only sellers, but also buyers. Credit card transactions cost 1-2% (even if you do not see them as a buyer, the seller increase its prices to cover them).

Fifthly, the USD in your account tied to a credit card depreciates over time, because the Federal Reserve prints money continuously (causing long-term inflation). Whereas with Bitcoin your purchasing power is preserved or increased over time, as the maximum number of Bitcoins is capped (causing long-term deflation). Therefore you do not have to resort to various more or less risky investment options to preserve your net worth over your lifetime.

Unless you live in Cyprus, or maybe another European country.

> If the company you store your wallet with is hacked you lose everything, if your laptop is stolen or your dropbox account is hacked... it's as safe as keeping cash in your apartment. If your bank fucks up your money is (almost always) insured.

What unthinking person leaves his bitcoins with a third party or on a computer? Would you leave your RL wallet with a stranger? Would you leave something easily stolen in public?

Store bitcoins in a paper wallet until you need to use them. They'll never get lost or stolen unless one is just as careless with the paper as they might be with their live keys.

Thank you, this is the kind of well reasoned argument that makes HN worth it.

I don't pretend to know whether Bitcoin is going to $5,000 or to $0, but I do see a big market opportunity along with some very large risks.

Here are a few more:

* Positive: increasing mainstream interest and investments -- Coinbase, Silicon Valley Bank, Wordpress, Reddit, Mega, Tradehill, etc.

* Positive: greater public awareness of the risks of government monetary systems -- Cyprus confiscating bank deposits, central banks printing money, etc.

* Negative: online exchanges and wallet services frequently compromised.

* Negative: association with conspiracy theorists, fringe media personalities, etc.

Let's have a fact-based discussion. Speculation about exchange rates based only on gut instinct is just noise.

You're missing the biggest risk: Governments are likely to declare Bitcoin illegal as soon as it shows any signs of threatening their control over the global financial system. Of course they can't stop people from trading Bitcoins online, but they can come down hard on the exchanges, which must exist as brick-and-mortar institutions with deep ties to the existing financial system, and thus can't be hidden or decentralized in any practical way. That would cause Bitcoin to crash to 0 overnight, as Bitcoins are worthless if you can't exchange them for other currencies.

While I grant you that this is possible, it's probably risk #971 on my list of Bitcoin risks right now. China has already forbidden buying real things with virtual currencies, but I think it's very unlikely that many Western governments, especially the United States, will do so. It's almost certainly constitutionally protected, though it will trigger complex tax questions. I can't guess what will happen with China, but I don't think that it's a game breaker.

I think "fighting terrorism" in the form of preventing "money laundering" through Bitcoin will be more than enough justification to push a bill through Congress, and even if it is unconstitutional it won't really matter at that point, because Bitcoin will crash long before any constitutional challenge could possibly make it through the courts.

Just like alcohol use crashed with prohibition, or the drug market? Previous attempts to stop these have resulted in larger market shares of those willing to still do related business and almost always increases demand.

Illegality doesn't increase demand. It just means that the supply gets provided by shady criminals instead of legal business that follow the rules.

It increases the per-vendor demand as experienced by the vendors who stay in the market.

>Don't listen to the "it's out of control" or "is very due for a crash because it's rising so quickly" stuff. It comes down to a very simple test: do you think that there are significant reasons Bitcoin would or would not gain acceptance as a mainstream currency?

Bit of a strawman.

>If you think that Bitcoin will ultimately be widely adopted, buy now. $50 / btc is very cheap in that world. If you think Bitcoin will fail, then any price is too much. Any mumbling that "it's doubled in a month and therefore is set up to come back down to earth" is just hand waving.

Bitcoin's use as a currency does not depend in any way on its value. A shirt selling for 1 BTC can sell just as easily for 0.5 BTC. In such a case where the government-mandated currency becomes useless and BTC is used as a true currency fallback, if anything it becomes a major problem, but in this present world it's basically just a proxy for sending fiat currency and a speculative asset.

I love BTC. But I don't need to hold on to any amount of it, or depend on any particular value, to use it to buy stuff. When huge corporations deny donations to Wikileaks, or when Paypal randomly freezes assets, having a digital currency is not only desirable but a necessity. Those of us that would use BTC for its intended purpose (assuming it isn't just a massive social engineernig hack from Satoshi loloolololo) don't even care if it crashes.

That said, I see the price as purely speculative at this point.

If 500 million people were to embrace Bitcoin to the point where they own on average $100 worth, then it would represent $50 Billion in value (500 Million x $100). With only 20 Million Bitcoins in circulation, each Bitcoin would be worth $2500.

That's discounting other deflationary factors.

I think it would be nuts to put all your savings in Bitcoin, but as a hedge against fiat currencies and interesting place to put play money: time to buy!

I Speculate on Bitcoin by holding a few, but be-careful! First if you read the forums a lot there are a lot of scaling issues happening at the moment (Max block size) that mean Bitcoin cannot handle a large amount of transactions and this will put a big dampener on the BTC being worth thousands of dollars.

Second, time to buy is never when the price is sky-rocketing. Bitcoin is not perfect and we need to see what the devs do over the next year to decide if Bitcoin will ever be allowed to scale because at the moment Bitcoin cannot scale up beyond 2-4 times its current usage and adoption.

This recent spike may have a lot of do with this just-issued repot from the Treasury department.

http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G...

This 100%. The U.S. Government just effectively legalized Bitcoins and other virtual currencies in the document posted above. This is a huge development, much more important than Bitcoin going over $50.

Is there any exchange where I can short sell bitcoins? Besides the fact that this will almost definitely be a profitable strategy in the near future, it would seem that allowing both short and long positions would create market stability. Most securities exchanges allow both short and long positions.

It would be great for the system by creating more liquidity.

Short selling Bitcoins would be an incredibly risky move on your part. There are no financial regulations in place to prevent market manipulation. You used to be able to short sell on Bitcoinica and there were some really questionable margin calls that took place.

Can you elaborate? I'm not too familiar with the bitcoin market, just viewing it from a normal (amateur) financial perspective.

if you didn't understand what he said then you shouldn't be short selling

Read up on the hunt brothers and the silver markets. Essentially, they would buy up contracts with brokers to buy 1lb of silver on july 1st for $10 (or whatever the specifics happen to be). Then, in June they bought all the silver, like some ridiculously huge fraction of all the silver in the world. When it comes time for that broker to find that pound of silver he owes the hunt brothers, the hunt brothers get to set the price, because they're the only ones with silver. So this broker, he has to come up with how ever much the Hunt brothers demand, he is really over a barrel.

Just one memorable example of market manipulation and unlimited exposure.

Yes, go ahead:

http://mpex.co/ https://icbit.se/

I want to load some more, so the more you short them the merrier.

A pre-requisite for this would be liquid Bitcoin lending, to establish the Bitcoin rates market.

I would be happy to lend you bitcoin you can sell (secured with sufficient collateral of course).

I'm far from a bitcoin bull, but shorting a market that's gained 500% in a few months is suicidal.

Shorting a market that's recently undergone a significant price spike is actually a quite common strategy, betting that it's a temporary anomaly and will revert to the long-run trend. I have no idea whether it's a good strategy here, but it's hardly unusual. In fact, it's probably the common case: you short-sell things that you think are over-valued, and things that have undergone rapid escalations in price where your analysis doesn't conclude that the fundamentals support it are prime candidates. Lots of people made money shorting $140/barrel oil in 2008, for example; or shorting real-estate in the mid-2000s, which had been on a decade-long upward trajectory just prior to the crash.

"Markets can remain irrational a lot longer than you and I can remain solvent." - John Maynard Keynes

Two things you're not taking into account: 1) There are no fundamentals in the bitcoin market and 2) Margin calls

Based on the price action of just the last few months, it's easy to imagine you might need to cover for BTC at $250 or more (log trend), yet your max upside would be $50.

Also give https://www.bitfinex.com a go

This comes up on most Bitcoin threads, and you'd think a google search could answer that, but the results are pretty unclear. Apparently Bitcoinica used to but no longer exists. The lack of a direct answer would suggest no, unless someone here chimes in otherwise.

Shorting isn't possible within the Bitcoin protocol itself, since there's no mechanism for the lender to compel the short-seller to cover and return the borrowed bitcoins. And Bitcoins are usually not kept in custody with a broker that could lend them, since doing so would defeat the purpose of the protocol in the first place, that only you can spend your coins. (Any lending or any other means of paying a bitcoin is spending it as far as the protocol is concerned.)

Such an exchange could exist, if it established its own trustworthiness outside of the Bitcoin protocol. It would have power to spend depositors' bitcoins on their behalf, like a bank for fiat currency does, but unlike a bank there is no higher authority such as a government to appeal to if the bank breaches its trust. The exchange would have to do something really really compelling to entice Bitcoin depositors and earn their trust. This set of problems would appear to be deep enough that a Bitcoin short exchange does not currently exist.

If you really want to bet on BTC going down, you might consider a put option, rather than short selling. You can bet that a financial instrument will go down without borrowing money to do so and risking a potentially indefinite loss. You can always let a put option expire, and just lose the fee you paid for it. And right now, you shouldn't have any trouble getting people to accept such a put option, because most people want to bet on BTC going up.

https://icbit.se/ is a Bitcoin Derivatives Market and Exchange. It's probably got the most liquidity available. I think more and more merchants and miners will use icbit for currency exchange hedges.

Are bitcoins in a position to have a crash as tumultuous as last time, or is the currency more stable now overall?

I would say a crash is almost guaranteed, the question is when and at what price. A few weeks ago people were having this conversation when it peaked $30.

There are still many people holding large amounts of bitcoin (because they mined them in the early days) and just one of them selling everything would cause a pretty large downswing.

how many is a large amount? 1000?

Here's a list of the top 100 large wallets from Dec, 2011. The biggest wallet then had 447785 BTC. Anyone have an updated list?

http://bitcoinreport.appspot.com/

Wow, this is a fascinating list. So we know there are at least 25 bitcoin millionaires (bitcoin wallets with value > $1,000,000 USD).

For such large amounts, you can't simply calculate the number of bitcoins * price per bitcoin, since the act of selling such large amounts would itself affect the price.

This is true, of course (and a pet peeve of mine when people naively calculate e.g. how much it would cost to replace all coal-fired power plants in the world with solar). However, these days MtGox's average daily volume is in the $1m range. I think you could sell $1m BTC over a couple of weeks without anyone even noticing.

Same applies to a lot of wealthy people in shares. If they sold all their shares, they'd make the share price plummet and they wouldn't get anywhere as much as you initially quoted.

As volume picks up (market depth has nearly tripled in 2 months) this is a lesser problem.

No, we know that there is some fuzzy nebulous number of bitcoin millionaires which may be centered around 25 - more based on how many have coins split across many addresses, and less based on the known fact that many earlier miners didn't store their coins safely (because it was just an interesting crypto prototype they were playing with) and many tens of thousands of coins have been lost. (That Polish exchange running on Amazon without backups took out, IIRC, something like 10k all on its own.)

Do any of the largest Wallets have known owners?

I found https://bitcointalk.org/index.php?PHPSESSID=h72gmr1luhb169j1...

which shows that the top two wallets are gone now and the 80,000BTC Wallet has grown to 111111.11

The top 400 goes down to about 3,000BTC. A bunch of those could be the former largest ones broken up.

That is awesome. If you follow the chain of transactions from 12RYJjGk22NiNbhTHffCrCso4XgVzet5Eh (biggest wallet). It all ended up in a MtGox account...

Here is some more info on Bitcoin users' demographics:

http://www.zerohedge.com/news/2013-03-10/demographics-bitcoi...

I read somewhere (source unknown, possibly unreliable) that 75% of all BTC are hoarded (ie. not in circulation).

It will probably crash. Obviously it has had greater accessibility and hype lately. Coupled with profitable mining becoming impossible for most people riding the boom looks more and more attractive. At some point in the future the buying volume will taper off due to less new speculators getting into the game.

If BTC had anything actually underpinning its value we could work out the ratio of how overvalued it is. Unfortunately it doesn't - even the fact that real transactions are made with BTC doesn't change anything, as the value is so elastic that a T-shirt selling for 1 BTC 6 months ago would sell for a fraction of the BTC now.

If the currency is stable now, what exactly is making it stable? Where does the equilibrium come from? Isn't it unstable by definition anyway since it's rising uncontrollably?

"Coupled with profitable mining becoming impossible"

Well it is incorrect to state that. Obviously, as the exchange rate increases, mining becomes more and more profitable. In fact, as of today ($50/BTC, difficulty factor around 4.9M, 25BTC/block) mining has never been so profitable in over a year(!) since January 2011 ($6/BTC, diff=1.1M, 50BTC/block)!

It's literally doubled in a month. This is out of control.

And it is terrible for legitimizing them. Why should someone adopt Bitcoins as a currency if there's not a stable value? Bring in all of the security issues that have been popping up as its popularity has increased and I see a decline in Bitcoin adoption coming soon.

I don't think Bitcoins are the answer to the problems they are trying to solve.

Bitcoin hasn't been legitimate for a long time. The last boom-bust they went through proved that and nothing has changed since.

If you still have Bitcoins, sell'em and don't buy more, except as an intermediary exchange for your discreet transactions.

If everyone took your second piece of advice and only used it for discrete transactions, then Bitcoin would be worth exponentially more than it is now, which would invalidate your first piece of advice. The number of bitcoin users is still exceptionally small.

Implicit in the advice is the (strong) assumption that not everyone's going to take it.

-_-

Because the cost of accepting them and converting them to currency is less than the transaction fees of credit cards or PayPal. If you don't need to convert to cash right away, then the transaction fees are very low indeed.

Not for reddit:

    So far we're spending more money on accountants handling the non-trivial 
    reconciliation of our BTC transactions than revenue we're making in Bitcoin, 
    haha. Hopefully it will get better.

http://www.reddit.com/r/Bitcoin/comments/19t3uq/hey_rbitcoin...

And what problems are they "trying" to solve?

This is what traction looks like, sometimes it's messy. That doesn't mean it's not legitimate.

What does legitimising a currency mean anyway? It's already used as a medium of exchange and a store of value, that's legitimate.

But if you are going to try and compare it to the "legitimacy" of fiat money, you're not going to find what you're looking for.

Bitcoin is an anarchist concept, it does not seek to be legitimised. It is achieving exactly what is set out to do.

you could just see the fluctuations as the currency being honest about its value as opposed to fiat money which is just as vulnerable yet artificially stabilised (legitimised?).

Facebook's market cap is $63,000,000,000. If the market cap of Bitcoin were just 10% of Facebook, each Bitcoin would be worth about $500. 1% and it's about $50.

Can a global financial system conceivably give the world just 10% of the value of Facebook? Because just ten percent ... and one BTC is $500.

Oh, but clearly society demands Farmville, you say? Clearly we don't need a new financial system ... more than we need to know who Joe Bob hooked up with this weekend.

As if there's no pain being solved here by Bitcoin. As if there are no problems with USD or the EUR. As if Cypriots are just pissed off over spilled milk right now. After all it's only a "haircut".

It's so funny to see how most people on HN are here to make businesses that scale infinitely. What could possibly, POSSIBLY, scale faster and more widely than an open source global currency? The price increase in the last month represents a trickle of people around the globe exchanging fiat for BTC. Just a trickle. Whereas most people are obviously hesitant to invest. That would include most people on HN.

The supply of Bitcoin is ridiculously tiny. Only 11,000,000 in total are in circulation today, let alone available for purchase on the market.

Sellers wanted. I acquired enough BTC to make me happy without being over the top - and I'm not ever exchanging it back into any other ass backwards asset class, gold and silver (and USD) included. Early adopters of BTC are from what I can tell mostly the same way, if crazier than I am.

Bitcoin is valuable because the world desperately needs to escape the current financial system. Individual sovereignty and financial privacy are the most scarce resources on the planet, bar none. It's not too late to acquire BTC, put it in a brainwallet and carry around $10k at all times. Now let's all go back to flinging monkey poop at consumers over the Internet.

The supply of Bitcoin is ridiculously tiny. Only 11,000,000 in total are in circulation today, let alone available for purchase on the market.

Bitcoins can be divided to 8 decimal places at the moment (it could be expanded). So instead of 1.1e7 units, isn't it 1.1e15 units?

Yes, but the exchange rate is quoted in BTC.

So? Everyone knows how to do the necessary math.

One Japanese Yen currently costs $0.0104715 USD. The price fluctuates down into the lower decimals. People deal with this every day.

> Bitcoin is valuable because the world desperately needs to escape the current financial system. Individual sovereignty and financial privacy are the most scarce resources on the planet, bar none.

Someone needs a way to sell firearms, ammo, and canned goods for BTC. That sounds funny, but I'm dead serious. Local laws against shipping arms can often be worked around.

The armory used to exist; basically silk road for guns. I am not aware of any other tor hidden services offering a market, but it is doubtless that these transactions are actually taking place (maybe not for canned goods).

A global financial currency can surely give the world many times the value of Facebook. But the price increase does not represent interest in Bitcoin as a currency, but instead as a speculative investment vehicle and/or store of value. You yourself talked about not exchanging your bitcoins: it sounds like you wish to own bitcoins, but not circulate or spend them. They are not a currency for you.

This is as predicted by those who say that Bitcoin is a deflationary currency.

Let's assume that the fundamental value of 1 BTC is over $1,000 as in your scenario. That still doesn't necessarily explain rapid increase in the exchange rate. Are people suddenly discovering these fundamentals? Why? (In which case the exchange rate will continue to climb.) Or are we witnessing another speculative mini-bubble? (In which case the price will drop temporarily before resuming a generally upward trend.)

Really interesting stuff. I was expecting a crash or at least "return to normal" in that period where the price jumped to around $25 (before a mini-crash to like $16, and then the subsequent takeoff to the 40s).

Personally, I dont think they're worth $50, but heck, thats a horrible reason for you not to buy them. A more objective reason not to buy now is that there are people holding thousands of bitcoins. If a few of them (or maybe even one big player) sells tons of them, it could cause a crash like last time, when the price fell from $33ish to almost 0.

Interesting times for bitcoin either way.

You are incorrect. When the "price fell to zero" in June 2011, it was the result of bogus trades from a hacker: http://blog.zorinaq.com/?e=55 No one had enough bitcoins to crash the price that low for real.

As of today there are so many bids on MtGox alone that selling 100k bitcoins is barely sufficient to crash the price to the low $30s. Anybody owning that much is obviously long on bitcoin. It will take a lot more than a "few large holders" to crash the price to $30 or below. It would take a massive market panic.

I originally put about $500 dollars into Bitcoin to play with. Have withdrawn about $2000 cash and still have about 35 BTC worth left. Would have loved to get in on this back in the early days...

What is the proportion of BTC volume due to speculation vs. due to buying transactions?

Time to sell

Yes, it seems like people are willing to sell their bitcoins at that price.

$500 will be a better time.

It seems funny to assume that. I mean I haven't been tracking the underlying fundamentals, but the nature of most currencies today is that because they are managed, they tend to go up and down. If the fundamentals are solid for Bitcoins, as in there is actually increasing demand (which seems feasible given all the new services advertising their acceptance) and the supply is increasing in tune with expectations (which seems feasible given that it can be forecast with a fair amount of accuracy), this may just as well be the time to buy as it is to sell.

I guess human psychology could also play a part in thinking this is the time to sell, but do the fundamentals actually seem questionable to you?

I don't believe that you actually have any understanding of the supply/demand economics of booms/busts necessary to be skeptical of parent.

Increasing demand of a finite resource drives the price up. This drives the demand up even more.

The real value of a Bitcoin is still in USD, of course, so at some point it's going to cross over a line where the people holding Bitcoins want to get rid of it.

Decreasing demand of a finite resource drives the price down. This drives the demand down even more.

The fact that the price is accelerating so quickly indicates a runaway effect.

What, do you _really_ think the real-world USD value of all the Bitcoins in the world has doubled in two weeks?

Your analysis holds true if you are treating bitcoins as purely speculative.

You are correct that I don't fully understand supply/demand economics, because as an Austrian theorist, my concepts relating to booms and busts use dynamic models and not the statics you are using to prove your point. In a static situation, increasing demand of a finite resource does drive the price up, which can drive up demand even more, but thats if you ignore the effect of substitutes, which for both the exchange and speculative value of bitcoins, there are several.

Do I really think that it has doubled? No. But I don't think that people expecting a large crash like before are doing so because they understand the fundamentals. I think, as in any market, you do have speculators, but I also think that the legitimate demand for bitcoins as a means for exchange has gone up since the previous crash providing a more solid basis for the higher price.

>Do I really think that it has doubled? No.

Then it sounds like the speculative bits are driving, even if there are other passengers in the car.

Everyone holding Bitcoins is a speculator. If they believe the price is only going down, they will sell and crash the market, just like before.

Notice i did not say everyone using bitcoins are speculators.. but if you are say a merchant with goods available in bitcoins, (and you don't wish to speculate) you will peg your price to your local currency, and after selling your goods will sell your bitcoin immediately for local currency. Which means you are no longer holding bitcoin or having any impact on bitcoin demand.

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