If Bitcoin was worth $1 each in 2011, why are they worth $12,000 each now?

Discussion in 'Alternative Investments' started by Brendan Burgess, Dec 6, 2017.

  1. Brendan Burgess

    Brendan Burgess Founder

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    What has changed in the intervening 6 years?

    Brendan
     
  2. PaddyBloggit

    PaddyBloggit Frequent Poster

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    Economic instability?

    People looking elsewhere to put/hide their money?

    or just plain stupidity?
     
  3. fpalb

    fpalb Frequent Poster

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    Last edited: Dec 6, 2017
    I hadn't heard of bitcoin until 2013, but I can say that even since then a LOT has changed

    - Almost no one had heard of it 2011, since bitcoin isn't a company it doesn't have a marketing department, it relied on word of mouth and it's difficult to understand so it took time.
    Most people need to hear about multiple times over a few years before they say "Bitcoin is a still a thing? I better actually look into it".
    - There were no good educational resources, so even when you did want to learn about it there were no books or good youtube videos like there are now.
    - Even by 2013 they were difficult to buy, there were no regulated exchanges where you would want to deposit any large amount. I mean I was ready to write off the first 50 quid I experimented with. I had to use bitcoin.de as escrow and actually do a SEPA transfer direct to the seller, not knowing if I was going to get scammed. Mt Gox was doing something like 90% of the exchange trading, an exchange run basically by one guy with no financial and you would have to send money to Japan to trade on it, I never even bothered to try.
    - There was a poor choice of wallets, I'm not certain but I expect that in 2011 the only wallet available was probably the one Satoshi wrote, and it required you download the entire blockchain before you could use it. There were no mobile wallets, no web wallets.
    - There were no hardware wallets at all.
    - There were almost no merchants accepting it, there still aren't many in the grand scheme of things, but there are more now.
    - A LOT of people I spoke to about bitcoin wanted to wait until it was more mature before bothering with it. They figured it was a fad that would be gone in a year or two, so they'd wait around to see if it survived before buying any - especially after the 2014 crash and Mt. Gox failing.
    - Bitcoin didn't get any mainstream media attention - this is related to the previous point, the media treated it as a fad, they've taken it more seriously in recent years.
    - At lower values bitcoin had less mining power, making it less secure. The threat of a company or government overpowering the network seemed trivially easy compared to now.
    - Governments and regulatory bodies had not made their stances clear on it. Many (me included in 2013) felt that the US government being hostile towards it would drive it underground and prevent any kind of mainstream or institutional adoption.

    About the only aspect of bitcoin that was actually better then is that there were so few transactions that even ones with zero fees would get confirmed by miners pretty quickly.

    Metcalfe's Law applies somewhat to bitcoin since it is a network: https://en.wikipedia.org/wiki/Metcalfe's_law so an increase in the number of users makes bitcoins more valuable.
     
    Last edited: Dec 6, 2017
  4. john luc

    john luc Frequent Poster

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    how is this $12,000 valuation arrived at. Are there people paying this for 1 bitcoin.
     
  5. ant dee

    ant dee Frequent Poster

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    €12,445 at the moment, yes. About 10k btc 24h volume on the kraken exchange.
    https://www.kraken.com/charts
     
  6. Dan Murray

    Dan Murray Frequent Poster

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    Hi Ant Dee,

    Just be careful not to confuse one "currency" with another!;)
     
  7. TheBigShort

    TheBigShort Frequent Poster

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    That's a pretty comprehensive answer to the OP from fpalb.
     
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  8. elacsaplau

    elacsaplau Frequent Poster

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    Last edited: Dec 7, 2017
    Agreed. Another very helpful contribution from Fpalb. It's interesting (probably due to our different backgrounds, mind-sets, etc.) that I would have explained it in somewhat different terms but we'd still arrive at the same place!

    I feel that it's a bit of a pity that given Fpalb took the time to prepare such a considered response to Brendan's question that his reply has not even been acknowledged.

    At the end of the day, we should all remember the words of Jack Bogle (my investment God the Father). Please look at the following clip (lasts less than a minute) - https://www.youtube.com/watch?v=A0gQiz0pCyI
     
    Last edited: Dec 7, 2017
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  9. ant dee

    ant dee Frequent Poster

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    Brendan will probably show up and say that Bitcoin is surely totally absolutely worthless, zero value.
     
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  10. TheBigShort

    TheBigShort Frequent Poster

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    I agree with this guy. All investment is speculation - to lesser or greater degrees.
     
  11. TheBigShort

    TheBigShort Frequent Poster

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    Which would be somewhat disingenuous in my opinion. Considering the OP question and fpalb response to it, is it beyond reason to take up a position that considers bitcoin has some value? Even if that value is €1?
    Certainly the onus is on those who think bitcoin has zero value to explain why they think that.
    Tulip like bubble answers don't suffice as even a tulip still holds some value.
    So why does bitcoin have zero value?
     
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  12. noproblem

    noproblem Frequent Poster

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    Last edited: Dec 7, 2017
    Zero value? I think it's around $15k at the moment.
     
    Last edited: Dec 7, 2017
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  13. jhegarty

    jhegarty Frequent Poster

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    It's been a while since your post , so $16,383

    How many tulips can I buy for that ?
     
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  14. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: Dec 8, 2017
    Hi fp

    Unfortunately, not one point you made in that long reply actually relates very much to the value of Bitcoin. I can fully understand that Bitcoin zealots see this long post and feel that, in some way, it supports their case.

    Back in 2011, Tulip plc made €1 per share profit and the share price was €10. Today, it makes €3 per share profit and interest rates have fallen, so the market values Tulip plc shares at €30 per share.

    That is the sort of explanation I was hoping for.

    Tulip plc didn't have many shares back then. Now it has lots. Doesn't change the underlying value, very much, if at all.

    Tulip plc wasn't well known back then, now it's very well known. OK, a brand name makes the price higher, but doesn't really change the underlying value.

    Stockbrokers didn't cover Tulip plc back then. They do now. Again, not much impact on the underlying value, but it does affect price.

    Back in 2011, Tulip plc was dealt on the grey market - today, it is a listed company. OK, again, affects the price a bit, but not the underlying value.

    So taking all these factors together, probably means that Tulip plc was underpriced a bit in 2011 and may be a bit overpriced today. I instead of being worth €10 a share back in 2011, it's real value was €12. And maybe these factors since means that it is overvalued by about 10% so it's really worth only €27. But the underlying value has still increased from €12 to €27 for very good fundamental, rational, reasons.

    Back in 2011, the market valued Bitcoin at $1 despite the fact that it wasn't used very widely.
    Today, it values it at $15,000, despite the fact that it still isn't used very widely.

    I have not seen any reason for changing its valuation. Which means that it really was worth $15,000 back in 2011 and was underpriced, or else it's worth $1 now, and is overpriced.

    You didn't mention its use by criminals as a support for the increase in its price. At $1 each, it was of no interest to criminals for laundering money. At $1,000 it became more interesting. I know that doesn't change the underlying value, but it sure boosted the underlying as distinct from the speculative demand.

    Bitcoin was worth zero back in 2011. It is worth zero today. It may well have a price of $150,000 by the time I finish posting this, but eventually, it will fall to zero.

    Brendan
     
    Last edited: Dec 8, 2017
  15. azerogo

    azerogo Registered User

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    The biggest issue i can see based on multiple response on a lot of other sites also is the confusion between blockchain - the underlying technology bitcoin is built on which has potential future potential and
    bitcoin - simply the first mover of this technology.

    Nearly ever pro-bitcoin reply is "this is the future to change the world" and once again yes that might apply to blockchain but not bitcoin.

    The most likely outcome should blockchain become a main stream technology is an agreement between all financial institutions and central governments and the creation of a brand new digital currency which will wipe out the value of every other one including bitcoin.

    I bought bitcoin some time ago and have sold with no regrets as the crash is not if but when.

    “If it’s too good to be true, it isn’t true. But people didn’t care. They were greedy.” Bernard 'Bernie’ Madoff
     
  16. fpalb

    fpalb Frequent Poster

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    Well a simple summary is, the utility of bitcoin has increased over the years and when you increase the utility of something scarce, its value increases. When the user-base for a network grows, the value of the network to all users increases.
    If you try to value bitcoin like a company you won't get anywhere, because it isn't a company.
    I don't know what else to say.

    Governments already have digital fiat currency. Services like paypal already exist. Maybe SWIFT settlement times can be improved by using a private blockchain somehow, but the idea there will be a government or corporate blockchain that competes directly with bitcoin seems unlikely to me. If it's controlled by a government or a company, then it isn't open, and the government or company is responsible for complying with regulation in every country in the world. This is why paypal is not available everywhere for example. It will also mean that the system cannot be permission-less.

    What it boils down to is a blockchain is useful for decentralised systems where there is no authority to trust, and therefore the idea of a centralised blockchain controlled by an authority makes no sense. I'm all ears if anyone can present an example of one or suggest how one would work.
     
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  17. TheBigShort

    TheBigShort Frequent Poster

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    Just a slight problem with this in itself. Getting financial institutions like Swiss banks and say, the central government of the Peoples Republic of China, the Federal Reserve, Goldman Sachs, the ECB, Deutsche Bank, Barclays, etc to agree to a blockchain monetary system that they cannot manipulate could be tricky.
     
  18. Brendan Burgess

    Brendan Burgess Founder

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    Hi fp

    Has the utility really increased? Very few used it in 2011. Very few use it in 2017 - apart from speculators, traders and criminals.

    I am struggling to get my head around the utility argument anyway. Can you give some other example of something with no value whatsoever whose utility makes it valuable?

    I was using Tulip Ltd to show how an increase in valuation might be justified.

    I could just as easily have used an example of a property investment. Interest rates have fallen. Rents have risen. Earnings have increased. So the value of the property has risen.

    But there is no similar explanation for Bitcoin.

    If it had some value, let's say $100. Then I could understand why increased confidence and publicity and utility might increase its price from $80 to $120. But it had no value in 2011 and it has no value now. Which is really my point.

    Brendan
     
  19. fpalb

    fpalb Frequent Poster

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    And I'm struggling to find a good comparison. Your examples of companies and property are different because they generate income. I think the network aspect (Metcalfe's Law that I mentioned) is probably the most important part of it, so I guess the best type of thing to consider is something like that.

    Imagine in the pre-internet era, if you had the only fax machine in the world it would have zero utility right? Now imagine everyone else in the world gets a fax machine. Because they're so popular there's the guy who can service and repair your machine on your street and the corner shop sells paper and ink. Now suddenly your fax machine is way more useful, as you can use it to contact anyone in the world. But nothing changed in terms of your physical machine or what it was capable of, all that changed is the network grew, and that resulted in supporting services becoming viable (ink selling, repair services).

    This analogy fails completely in some other aspects: because the above increase in utility of your fax machine would not necessarily result in much of a price increase of fax machines, because they are not absolutely scarce. Manufacturers would just produce more fax machines to meet demand, and economies of scale would make them cheaper to produce, which would keep the price down. Bitcoin is completely different in this aspect
     
  20. Brendan Burgess

    Brendan Burgess Founder

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    How about if I seal an empty brown envelope and tell everyone that it's worth a lot of money.

    They will laugh at me. One sympathetic person might give me 1 € for it as a joke.

    Then other people start marketing empty envelopes and they are much more persuasive than I am. They get people to pay €10 for the empty envelopes. Then it begins to take off and others jump on the bandwagon and the price gets a bit of momentum.


    Now my empty envelope doesn't seem to be so outlandish anymore. The guy who paid me €1 for it is laughing because he can sell it for €10,000, sorry €12,000, sorry €15,000.

    Brendan