BTC bubbles
scottlocklin.wordpress.com
scottlocklin.wordpress.com
He's right. Without shorting, options, and future contracts... it becomes impossible for BTC to stabilize in the wake of media exposure. Add on to the fact that the majority of BTC users seem to be idiots (ie: they look at the price as some sort of indicator of BTC penetration, as opposed to more useful statistics), and you've definitely got a situation where bubbles will continuously form.
Anyway, I don't necessarily think he's right. There will always be some function that fits some data... and he may have gotten lucky this time that data fits his model. Either way, it is certainly an interesting piece to read. And his model seems to have solid theory behind it.
I agree that a futures market would be a stabilizing force, but other volatile commodities are still highly volatile even with futures markets.
The reason most currencies aren't volatile is that they have a central bank behind them actively manipulating their supply to make sure they are stable relative to some other asset or basket of goods. In the case of the USD, the dollar is roughly pegged to CPI. Unbacked commodities that aren't pegged by a central authority tend to be on a highly volatile random walk, with or without futures markets.
EDIT: Looks like I mistyped, maybe it looked like I was saying the opposite.
Speculating, I think an optimistic outcome is that it will end up with volatility similar to an equity index (which themselves effectively have futures markets).
Its all comparative. :-p It will still be more volatile than currencies, but a hell-of-a-lot better than it is right now.
The speculators aren't in any danger of disappearing, no sir, this is just an opportunity to buy 'cheap' bitcoin and increase their holdings. Because obviously squirrelling away as much of it as possible will help it become a viable currency...
IE: A business expects to get say 10 BTC in 30 days... but wants the money in USD. So he wants to buy a contract to sell 10 BTC 30 days from now. It can even be in the form of call / put options.
A vibrant speculative community will provide these businessmen with contracts. And then everyone benefits. Speculators will begin to add value to the market. As opposed to now, where all of them seem to be relying on the greater fool theory.
A call option is a contract, allowing you to buy the asset at a specific price at a specific time. I'll put parenthesis to make it easier to understand... IE: I'll sell you a (contract to buy 10 BTC for $30 each on April 30, 2013) for $300.
So today, you can buy the contract from me. In April 30, if BTC remains high in price, you can execute the contract and buy 10 BTC @ $30. If BTC crashes in price, the contract is worthless, and you can instead buy BTC from the market. You make a profit if on April 30, the price of BTC is $60 or higher.
The opposite is true for put options. You buy put options to sell BTC on the market at a particular price at a particular time.
Here's the kicker: options are bought and sold on the open market. IE: The futures market. So the spot price of $300 for this contract will go up / down based on what speculators believe the price of BTC will be in 30 days. (The terms of the contract don't change. Only the cost of the contract changes)
For businessmen who primarily work in USD, getting a spot price of BTC way off in the future will help solidify his business.
The underlying asset may be volatile, but futures allow the businessman to guarantee a price on the BTC <--> USD exchange.
http://commodities.about.com/od/futuresoptions/a/futures-opt...
I'd expect the first strategy people will do when a futures market opens is to start making a lot of straddles. Therefore, these people make money if the market moves in ANY direction, up or down. (the more the market moves, the more they make money). Thanks to the magic of options.
A ton of people buying straddles will slow down the movement of the market. Then the straddlers make less money when the market fails to move.
Every time someone profits off of straddling, the market volatility decreases, leading to an overall more stable BTC market.
We now have a testable prediction. Let see if bitcoin actually falls to to 20 and 10 dollars per bitcoin within 4 weeks.
Not necessarily as a stable value, but in the last few days it's bounced around madly between about 50 and 100 dollars. I think at this point it's fair to say that nobody has any idea of the real 'value' of a bitcoin, and mad speculation is still the order of the day.
Nonsense. They have no use, not even as a status symbol or as a practical unit of exchange. The “real value of a bitcoin” is zero, and the fact that this isn’t obvious to everyone is, frankly, astonishing.
[1] Please enlighten me if you know more ways of determining the value of assets.
However, it's not in the interest of users of BTC to use a wildly unstable currency. My prediction is that bitcoin will be replaced at some point by another crypto currency which fixes some of its major flaws - particularly its deflationary nature.
As far as I can tell, there's no real reason it has to stay deflationary.
At some point there could be a consensus that inflation would be good for bitcoin and they could patch the client to start increasing the new bitcoins per block.
tbh I don't know why it isn't inflationary, if it was you could remove/reduce transaction fees as miners would always have an incentive
In theory there could.
In practice, the vast majority of the bitcoin users are speculators, and will fight tooth-and-nail against changing away from being deflationary.
If the miners think that they'll get more value out of the system by creating new coins forever, they'll make the change. They have to be careful not to destroy confidence in the system; this will be part of their value assessment.
Which IMHO is what will kill it; it's just a terrible feature for a currency.
That bitcoins are divisible completely misses the point that prices go up faster than they go down, i.e. they are sticky, and deflation is painful and feeds back into itself leading to a recession. Divisibility is not the correct solution, inflation is the correction solution, i.e. add more money rather than expect all prices to go down to adjust to the supply of a fixed currency.
Sometimes it is more valuable to accept what you do not know instead of pretending. Bitcoin may drop to $0 or bounce back to $250. I do not know, but I know why it made it this far and that is something that I would suggest you attempt to grasp before making any broad, unsubstantiated statements.
"I have better things to do with my time than play with weird monopoly money"
And say "I like the cut of this guy's jib", for similar reasons, but I guess now I have...
I won't further comment on BTC since both sides are staunchly rooted in their positions.
Show me your inherent-value-meter, or shut up. Simple, eh?
That's dodging the question. And in a rather clumsy way. The "use value" of things depends heavily on epoch, person, even fashion and weather. So what is exactly "real" in real value?
> the present value of future cash flows
You don't say! Sorry but a) future cash flows is an estimation at best b) the present value of future cash flows depends heavily on the circumstances of the valuator.
On whether you have a debt to a mobster to pay, or an angry girlfriend to placate..
Traditionally, the idea with a bubble is that everyone (well, almost everyone) knows it's a bubble, but no one seems to know when it will pop or how far it will fall.
Would this same model have fit the 2008 stock market collapse? Would it have accurately showed when and where the bottom was?
Would this same model have fit the BTC curve as well if the dataset had started 100 or 200 days earlier or later?
Just some curiousity about a model I'm hearing of for the first time.
The bubble was specifically in Credit Default Swaps, a derivative of the bond market. The problem here is that CDSes were untracked and unregulated. No one knew there was a bubble because there was no way to see the "fair price" of a CDS. Companies were making deals on CDSes in their backrooms, away from exchanges.
When all of the companies involved in CDSes failed (because people failed to pay their subprime mortgage loans), it killed the banking industry... even those unrelated to the bubble. When your business partner goes bankrupt, you're also in danger. Again: there were lots of factories who couldn't get a loan to pay their workers... because the bank they relied on died in the whole crisis.
This leads to factory closings, lots of people losing their job, and then a general Stock market crash.
But again, Stocks weren't the bubble in 2008. The Credit Default Swaps in the bond market was the problem.
You'd do better to apply it to a 2001 tech index.
The difference is a bubble is driven by greed, and "greater fool" behaviors turning to fear and panic selling. De-levering contagion is driven by a position going down triggering margin calls which necessitate selling other positions which drive down prices which furthers the cycle.
https://en.wikipedia.org/wiki/Random_walk_hypothesis
https://en.wikipedia.org/wiki/Nash_equilibrium
https://en.wikipedia.org/wiki/Efficient-market_hypothesis
I though you guys were more smart than this.
And also a new funded startup coming: http://siliconangle.com/blog/2013/04/11/coinsetter-the-newes...
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