Key Post Bitcoin is a clearly identifiable economic bubble

Merowig

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I've said it before, but looking for intrinsic value in things that are digital makes no sense. If I were to offer you ownership of the domain name google.com for 100 would you buy it? Domain names are potentially infinite in supply and have no intrinsic value so any day now they'll all be worth 0 on the open market right?
I am not sure I would buy it as it is very likely that a court would take the domain away. And the underlying value for domain names are quite often big brands/companies - or domain names which attract a lot of traffic (and therefor you can generate advertisement income).
Bitcoin doesn't have this characteristic. It has a value because everyone believes it in it. The same is true for currencies like the Dollar - though the Dollar is backed up by the US Government and the US Economy. Bitcoin is backed up by nothing. You pay your tax in Euro not in Bitcoins...
Sooner or later the Fata Morgana will disappear and a lot of tears will be shed.
 
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fpalb

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And the underlying value for domain names are quite often big brands/companies - or domain names which attract a lot of traffic (and therefor you can generate advertisement income).
Yes they attract a lot of traffic, and therefore have value... but it's not intrinsic value, it's extrinsic. They have zero intrinsic value, if tomorrow the users all decide they no longer have any interest in google, or google is replaced by something else and the brand tarnished, the domain may be worthless.

Bitcoin doesn't have this characteristic. It has a value because everyone believes it in it. The same is true for currencies like the Dollar - though the Dollar is backed up by the US Government and the US Economy. Bitcoin is backed up by nothing.
Sooner or later the Fata Morgana will disappear and a lot of tears will be shed.
We believe in it because it's useful to us, it's not a blind faith (speaking for myself at least). The Dollar is backed by a gov led by Donald Trump, the pound is backed by a gov fumbling with a Brexit. Bitcoin does not *need* to be backed by (or expose itself to the risk of failure of) a national government.

What is this sudden moment you are anticipating where I suddenly will no longer value bitcoins? What will cause it?
 

Merowig

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I never wrote it is intrinsic - Google is a company which makes money with its advertising services, company subscriptions to their cloud services (Google Docs, Gmail etc) , and selling some hardware.
Yahoo was also a big company which fell - it was not compelety worthless but just lost a lot of value.
They are businesses and the value of their domains is just reflecting the values of the companies.

Yes the Dollar and the Pound are backed by the respective Governments - and their underlying Economies! The US Economy is not doing bad and the UK one is doing ok'ish so far.
You still will need Dollars/Pounds/Euros to pay your taxes when you are under the tax jurisdiction of the respective country. Dollars are used in a couple of countries and territories as well as legal tender and in many more countries unofficially (e.g. Venezuela, Zimbabwe). Bitcoins? Many just hold them because of gambling/ they read about it in the press. If I go to a shop the shop has to accept Euros - but not Bitcoins, the taxman only accepts Euros...

People generally do not believe in the usefulness of Bitcoin and are not using it for paying, the majority buy Bitcoins because they believe it will rise further - till suddenly it bursts. It is a typical herd mentality. Tulips all over.

I wish I would know what (and when) will start to burst the bubble as the person who is shortening Bitcoins in that moment will make a lot of money.
 
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fpalb

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I never wrote it is intrinsic - Google is a company which makes money with its advertising services, company subscriptions to their cloud services (Google Docs, Gmail etc) , and selling some hardware.
Yahoo was also a big company which fell - it was not compelety worthless but just lost a lot of value.
They are businesses and the value of their domains is just reflecting the values of the companies.
Yeah but that's my point really, the domain name has no intrinsic value, but it has extrinsic value based on the Google the company.

Bitcoins have no intrinsic value but they have extrinsic value based on the fact they fulfill the necessary traits to be used as money, and that the bitcoin network and ecosystem is the largest of all cryptocurrencies. The value comes from the network of miners, exchanges, wallets, day traders, software developers and users (including speculative holders).

Yes the Dollar and the Pound are backed by the respective Governments - and their underlying Economies! The US Economy is not doing bad and the UK one is doing ok'ish so far.
You still will need Dollars/Pounds/Euros to pay your taxes when you are under the tax jurisdiction of the respective country. Dollars are used in a couple of countries and territories as well as legal tender and in many more countries unofficially (e.g. Venezuela, Zimbabwe). Bitcoins? Many just hold them because of gambling/ they read about it in the press. If I go to a shop the shop has to accept Euros - but not Bitcoins, the taxman only accepts Euros...
I won't argue with any of that.

People generally do not believe in the usefulness of Bitcoin and are not using it for paying, the majority buy Bitcoins because they believe it will rise further - till suddenly it bursts. It is a typical herd mentality. Tulips all over.

I wish I would know what (and when) will start to burst the bubble as the person who is shortening Bitcoins in that moment will make a lot of money.
This bursting you speak of, what specifically do you think will happen? Will it just be like the last time it burst in 2014 where I got to buy more bitcoins cheap?

I don't think a bubble and subsequent crash will end bitcoin. There'll be enough people like me who are selling some now who will be ready to load up if they're cheap again.
 

Merowig

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The tulip prices never recovered after their crash o_O. Dutch tulips also had a network of traders, were traded on exchanges, a futures market etc. This all didn't justify their value they reached.
I dispute that Bitcoins have any backed value - they are no legal tender. It also doesn't produce any returns (e.g. interest/dividends). It is an object of pure speculation, it gets value because people believe it will further rise till at some point it won't but crashes with no real recovery.


In the end it is your money, not mine - so I won't tell you how to use it.
 

MrEarl

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Probably not a very good comparison given that air travel is vastly safer than most other forms of conventional transport. .....
Maybe not the perfect example, but I felt that it got the point across ....

If Bitcoin falls, then you lose your money, but if the plane falls, you most likely lose your life !

I accept what you say about the safety record of flight and because we've had planes flying for so long, we can compute some sort of rational odds of a loss occurring. However, because Bitcoin is still relatively new, there's far less chance of trying to compute any sort of rational odds (regardless of what those odds may ultimately come out at).

We don't disagree that speculating on Bitcoin is a very extremely business btw.
 

Brendan Burgess

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Maybe not the perfect example, but I felt that it got the point across ....
With respect, it got the point across that, on this topic, you have taken leave of your normal usual senses and have abandoned all reasoned argument. But that happens in bubbles. The guys who paid a year's income for tulips weren't thick. They were normal, smart, Dutchmen.

Anyone with reason and logic would be quite happy to fly a plane. There is no comparison between flying a plane and buying Bitcoin just as there is no comparison between buying Bitcoin and buying gold.

Brendan
 

MrEarl

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Sorry Mr. Burgess,

But I don't see it quite that clearly.

Sure, I take the point you are making (and perhaps I am a little bit mad ;))...

however, surely you must acknowledge that we cannot look to long term trends for Bitcoin at this early stage in it's existence, to form any definitive views or try to calculate the probability of something happening such as it crashing (unlike the stats that are produced to conclude that flight is a very safe method of transport).
 

fpalb

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The tulip prices never recovered after their crash o_O. Dutch tulips also had a network of traders, were traded on exchanges, a futures market etc. This all didn't justify their value they reached.
The guys who paid a year's income for tulips weren't thick. They were normal, smart, Dutchmen.
Both of you mention the tulips. I've been getting the tulip argument for years by now when discussing bitcoin. I understand it's an example of a bubble (perhaps a mostly fictional one, but anyway: https://www.smithsonianmag.com/history/there-never-was-real-tulip-fever-180964915/) but I don't understand the rational for buying them. I plan to read up on it when I get time, but I haven't yet.

I understand why I want bitcoin, it's because it fulfills the properties of money for me, i.e. divisibility, a unit of account, fungiblity, portability, verifiablity, transparency, robustness, scarceness of supply. Tulips are a terrible thing to use as a store of value as they score really badly in all of these metrics. So why were were smart people spending so much on them?
 

ant dee

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The stopped clock analogy fits nicely the people calling Bitcoin a bubble since $30 doesn't it?
Pretty much like the doom sayers calling for the global financial collapse since 2009 .
Predictions are hard, especially for the future!
 

STEINER

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Locations, products and technologies change over the centuries but essentially, human behaviour doesn't. With any bubble, money is made or lost, depending on the timing of purchase/sale. A bubble has a life cycle with human behaviour to the fore. It is classic behavioural economics.

See selection of slides attached, about 2 years old now, but even Bitcoin gets a mention.
 

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MrEarl

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You do not need long-term trends. Bitcoin has zero value. The long-term will not make any difference to that at all.

Brendan
Sorry Mr. Burgess,

But we disagree on this one and I suspect we will continue to :)

Perhaps it's because I see a value in Bitcoin for it's use as a low cost, instant, worldwide payment method (and once again, let me stress that I am not saying it's worth $9k-10k per unit of Bitcoin, or anything even close to those figures).
 

Merowig

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Bitcoin is not low cost looking at Energy consumption, secondly with a volatility which is 18 times higher than the US Dollar it doesn't make it too attractive for payment, lastly with everyone hoarding Bitcoins but not really using it (I posted the low daily transaction numbers earlier) , Bitcoin is clearly less a payment method and much more a method of speculation. I would confidently claim the huge majority of people is getting Bitcoins because they read in the papers that prices are increasing and try to hop on the bandwagon to be a part of that, not because they use it...
 

joe sod

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I wonder can daily trading volumes as a percentage of total market capitalization of bitcoin tell us anything. I think currently the bitcoin market cap is around $180 billion , but daily trading volume is only $1.7 billion less than 1%. I dont know much about trading volumes but I think in a healthy market the trading volumes should be much higher. This suggests that investors are holding onto it and not selling
 

Duke of Marmalade

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The vast majority of Bitcoin purchases are speculative. Who really needs a Bitcoin to transact?

As Bitcoin Wiki, itself reasonably supportive, observes, just because it costs a lot for 1000 men to dig a huge hole in the ground does not mean that same hole has value. Similarly each one's fingerprints is extremely scarce but that does not confer much value.

The only value of Bitcoin is as a medium of exchange. Its very strength, that it can't be manipulated, is why it will never be a major medium of exchange, just as Gold lost its ascendancy, Bitcoin will never attain its. The central banks will have it long banned as a medium of exchange rather than lose their control of the money supply. It is totally worthless, but betting when that reality will dawn is a high risk game.
 

TheBigShort

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But then you don't invest in the Euro, the Dollar or Sterling either - You speculate. You also have major economies, regulation and central banks managing the currencies.
Fair enough, bitcoin is speculation, just like fiat currency traders. So what odds?
I would be interested in hearing the difference between 'investment' and 'speculation'.



If any thing goes wrong with the Euro you can expect the ECB and the SNB (Swiss National Bank) to conduct market operations,
That's ok if you accept market interference by the centralised command banking economy, or....

the will not happen with bitcoin.
...you support the notion of free trade without interference.

The problem with today's 'free market' advocates is that when all is good, they cheerlead to their hearts content. When things go wrong, they are more than happy for governments, taxpayers, central banks etc to step in to perform 'market operations'.

Bitcoin has none of this. It's simple, don't 'trade', 'invest' or 'speculate' if you don't want to.

The only difference between a tulip and bitcoin is that today no one thing a tulip has any value beyond it's value as a seed.
You may be right, but my understanding of bitcoin is not so much itself as a new 'currency', but rather the underlying blockchain technology. Anything I have read about blockchain technology is that it is more and more likely to become mainstream (in a way that barcode became mainstream).
If this happens, it may be through bitcoin, or some other crypto currency or other form. But for now, bitcoin has stolen a march on competitors - it reminds me somewhat of FB to all other social media platforms.
 
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