Bitcoin gets a $100 haircut on rollercoaster trading run Virtual currency Bitcoin lost $100 in value relative to the US dollar on Wednesday due to panic selling by its devotees. The currency began tumbling from a high of $260 on Wednesday after major Bitcoin exchange MtGox started getting hammered by many micro trading requests per second. This bout of high-frequency Bitcoin trading …
So do bitcoins. The question is how much that value is - and how much it could be in future. Indeed in this sense, it's in a better position than gold (and tulips) - the inherent value of gold is unlikely to change in value, so changes in price are always down to speculation (as someone pointed out above, gold does have a fiat nature), whilst bitcoin's inherent value is likely to change (whether up or down), and long term is completely unknown.
The hard part now seems to be buying bitcoins - amusingly because you have to deal with all of the bad aspects of currency (dealing with banks, paying fees, converting and transferring) - once in bitcoins, it's effortless to zap it around the globe under your control.
I'm surprised at the negativity here - paypal has shown there is a large need for the ability to transfer money without the reliance on visa etc, but paypal is not an ideal solution, as surely any geek knows.
Maybe it's some envy at the people who bought at $10 and have made lots of money, people want it to fail - but even after the "crash", the value is still way up on historical values. And it seems somewhat childish to want something to fail just because it went up in value.
Of course it was clear in the short term that it was overvalued, but long term is a different matter. The current total market value of a billion or so dollars is peanuts in the world economy. Even if the future sees multiple competing virtual currency, or even if bitcoin only becomes a paypal-like thing rather than a replacement world currency, that's still a use far greater than today (hence also needing a higher value for the higher money supply). Is that value higher than the peak it got yesterday? Who knows. But the possibility that it might doesn't seem ludicrous to me. It's just like any other high risk investment - you might lose it all, but if you can afford to lose, it's perfectly ordinary to put a small proportion invested into higher risk areas.
Mark .,
Bitcoins have no inherent value. Nothing whatsoever. Nada. Zip. Zilch. Deal with it.
Gold and silver have actual uses. Even if people stopped wearing jewellery (unlikely after a known 5,000 year history of its use) you can still use them for industrial processes and both have medical applications.
Fiat currencies are backed by countries. They have to use them, so they have no choice but to support them. No-one backs Bitcoins. It is as likely that everyone who uses them will have stopped by next year as not. The only fiat currency you might possibly say that of is the Euro.
People like me knock Bitcoins because I hate to see people lose their money through ignorance, or getting scammed.
The fact that you keep talking about the rise in value of bitcoins proves that even you don't see it as a currency really. You see it as an investment. And they're two different things. I'm negative about it, so if anyone sees a post like yours, there's a dose of reality next to it to warn them. Then it's up to them. I'm not jealous that you may, or may not have, made a profit. Apart from anything else, the faith in Bitcoins could evaporate tomorrow. Then yours would be worth nothing. You can only crystalise that gain if you sell, and as yesterday proved, there is no easy way to sell, as all the exchanges are either scams or flakey - and keep getting hacked DDoSed, or plain fall over.
Finally, in more proof that it's not a currency, all the Bitcoin boosters I've ever seen keep talking about its dollar value. Even though exchange rates of real currencies fluctuate, because they have a genuine internal market that's not as important a factor. Sure you can buy stuff with BTC, but in reality it's still an investment (and a horrible one), because most people don't see it in terms of the economy it supports, but how many dolalrs they can get for it.
"Gold and silver have inherent value."
Nope, they don't, like everything in life they are only worth what someone wants to pay for it.
Lately I am watching Tv series like storage wars and pawn stars and one of the reasons is the amazement I get seeing how much people are willing to pay for rubbish.
Yes, I know, it's nothing but a guilty pleasure.
True, but list in order of intrinsic value (highest first):
1/ Houses
2/ Uranium
3/ Beanie Babies
4/ Tulips
---
5/ Bitcoin
You can argue over the order of the first 4, but they all have an underlying intrinsic value, even if that is very low in the case of 3 & 4. Bitcoin has such a negligible intrinsic value it is effectively zero. This has all the hallmarks of the Tulip bubble. There will come a point when everyone realises:
"Hold on a minute, these are worthless, how was I so stupid?"
Then those same masses will then try and find a way to blame the government, cue class action lawsuits for compensation for anyone who looks like a worthy target.
Do you actually know what Bitcoin are? They do have uses - in fact a poster gives a use he needed them for just two comments above them. We can debate how useful they are or how useful they could become, but they are nonetheless on the same level as the other examples on your list, as well as any other kind of investment like gold or stocks and shares.
The only one I'd say is intrinsically different is houses, in that if you're buying purely for an investment, you can also rent it out as an income. Whether bitcoin is seen as a high risk investment, or something that's used for something, there's nothing fundamentally different to other high risk investments in things that also have some intrinsic use to some people.
I talked about 'intrinsic value'. I never claimed it didn't have a use.
If I want something that resembles a house, I can buy one. Alternatively I could build one. Either way, it costs time/effort/money. There is the intrinsic value.
Uranium - it needs digging out the ground and refining. TIme/effort/money. For many applications there are no alternatives.
Beanie Babies - I could make my own copy. Time/effort/money. There's the intrinsic value.
Tulips - I could grow my own. Time/effort/money.
Where is the intrinsic value in Bitcoin? There is none.
In terms of shares in companies, they have intrinsic value, which is the book value of the company. They often cost more than this because those companies can generate wealth.
Gold, you almost have a point here, but gold has alternate applications where there are no alternatives. Additionally, people like shiny, shiny which ultimately pushes the price of it up given it's rarity.
You can make your own bitcoins - that's part of the design ("mining"). It's increasingly harder - though still far easier for most people than building a house or getting uranium(!) More generally (since you're including making alternate copies), you could create your own alternative bitcoin network trivially (it's open source after all), it's just that those would be worth little, since no one would want to trade with your single independent network (and fewer people would want to buy an unofficial trademark-infringing beanie baby, too). So if that's your definition of intrinsic worth, they have them.
Though it seems odd to dismiss their use. I mean, if you're trying to say "Bitcoins are useful, and have worth, they just have no _intrinsic_ worth", then I'm not sure what point you're really making? What is the practical difference?
"but gold has alternate applications"
As does bitcoins, but you just said you weren't talking about uses...
"Additionally, people like shiny, shiny which ultimately pushes the price of it up given it's rarity."
And some people like bitcoins. Plus for most people, investing in gold means it's stored in a vault where you can't see or touch it, and you just see the numbers that you own, which lessens the "like shiny" appeal of it, which doesn't apply for someone who likes the appeal of bitcoins.
I guess my point is that I believe Bitcoins will eventually move towards their intrinsic value, which I believe is zero. That doesn't mean you can't make money out of them, in the same way that pump-n-dumpers make money out of penny shares.
You still haven't defined this "intrinsic value" definition that is somehow different to value. You offered one definition, I then showed it applied to bitcoin, now you back-pedal to some other definition that you don't explain.
Perhaps the value could tend towards zero - that could happen either suddenly or gradually, if a flaw was discovered, or a better alternative for payments came along. But your guess is as good as anyone else's.
Like I say, it's a high risk investment. Do you put 100% of savings into low interest safe bank accounts, and lecture anyone who invests that they might lose their money (as if they don't already know that)?
It's a standard definition Mark, look it up. I've shown the intrinsic value in the items I compared it to, fundamentals that Bitcoins don't have. Others have also shown this earlier in the comments.
I have a mixture of investments, some more risky than others. I feel Bitcoins bear far too much resemblance to a Ponzi scheme for me to go near them (and I do acknowledge there are some differences to traditional Ponzi schemes).
I can't demonstrate here that my 'guess' is any better than yours, and I don't wish to post here my experience with finance, so we'll have to agree to differ. I hope you're right and you don't lose out, because the future value of Bitcoins will have no effect on me.
Gold, you almost have a point here, but gold has alternate applications where there are no alternatives. Additionally, people like shiny, shiny which ultimately pushes the price of it up given it's rarity.
Yah, shining nicely is an application the same as facilitating the free flow of electrons at connection points. Ultimately nothing has value outside of what humans credit it with. Everything is worth what the people trying to acquire it think it's worth - it's just that if you're basing off a physical thing then you're more subject to the foibles of the real world. Typically that tends to introduce price stability but it doesn't always.
It's all part of a game we choose to play called 'civilisation'.
And no, I don't mean Sid Meier's.
:)
"Where is the intrinsic value in Bitcoin? There is none."
There isn't much intrinsic value in a small square of paper.
Wipe your ar5e with it, or spend it (if its a 100 dollar bill).
Its worth what other people will pay for it. So long as enough people consider Bitcoin a useful form of currency to trade, then it has value. It offers a number of advantages that nothing else does at present
- relative finite, like gold (and unlike pounds or dollars, which as we've seen central banks can print at will eroding your savings with inflation)
- anonymous, like cash
- easy to transfer through the internet (like paypal etc, but with out the requirement to have an account, or the risk of chargebacks, account closure, US sanctions etc)
I suspect therefore it will survive and prosper. Its boomed and crashed before but the concept and system is sound. The dotcom crash didn't spell the end of the internet or dotcom companies in general. Bitcoin's price rise has been as absurd as the dotcom share valuations, but to write it off based on that would be like writing off the internet in 2000.
But when you ask to be paid with one, you have little idea what its going to be worth in a month's / week's / day's / hour's time.
I can be almost certain that the dollar / pound / yen isn't going to double or halve its value in that time - and I'd even trust the Euro not to do so - but there's no way I can trust Bitcoin not to do it, given its problems.
True, we can't be sure of this.
OTOH, a site could charge in bitcoins to avoid dealing with (an example) credit cards and its costs. It would receive the bitcoins and ship the product.
As soon as the (bitcoin) transaction is confirmed, it could sell the bitcoins in a local exchange - turning it in "hard" money, and avoiding this problem.
"I can be almost certain that the dollar / pound / yen isn't going to double or halve its value in that time"
Your euros might if they were in a Cypriot bank.
Your icelandic Krona pretty much did when they decided they weren't going to pay up
Your Iranian whatevers might become worthless if the USA decides you to impose some freedom.
Only if I am foolish enough to use a Cypriot (rather than a German) bank AND have more in any one place than is covered by the EU guarantee.
For the rest, yep if you want to have some minor currency... but that's what Bitcoin is, except Bitcoin is more unstable and less accountable. When the Krona goes down, Icelandic politicians lose their jobs.
Intrinsic value relates to the benefits you receive from owning it, not the effort involved in producing it.
If you own a house, you can live in it, or you can rent it out.
If you have Uranium, you can put it into a nuclear power station and get electricity, you can make a bomb out of it and scare people into doing what you want them to do or you can use it in medial equipment.
If you have Beanie Babies, you might enjoy looking at them or playing with them, or have a child who likes them.
Again with tulips, you might enjoy looking at them
You can use gold to make pretty looking things to wear, or for electrical contacts and so on.
That is the intrinsic value. Regardless of how much effort is involved in making a bitcoin, you can't do anything useful with an actual bitcoin, just trade it for something else. Therefore it has no intrinsic value.
Incidentally, the floral industry global revenue is about $100 billion, whilst the total bitcoin worth was under $3 billion even at yesterday's peak, so if one thought bitcoins were only as useful as flowers, it would suggest they were undervalued...
(No, this isn't really comparing like with like - but I'm not the one comparing them to flowers in the first place.)
Incidentally, the floral industry global revenue is about $100 billion, whilst the total bitcoin worth was under $3 billion even at yesterday's peak, so if one thought bitcoins were only as useful as flowers, it would suggest they were undervalued...
I think maybe people are making a reference to 17th century 'tulip mania', rather than the current value of the global floral industry:
"Now is a good time to buy?"
That's what a lot of this is about - it's been happening enough, and with enough poking at from suspicious origins, that it's almost certainly deliberate manipulation, e.g. disrupt a key point or two, watch Chicken Little reaction drive down price, buy. A few cycles of this and you can start getting some profit without making massive buys on the lows, or otherwise drawing attention to yourself. It might have been interesting if this blog had dug a bit deeper into this.
I was forced to use bitcoins to subscribe to an NZB site I know of (their banks started to refuse to handle payments). So for £15 (IIRC) I thought it was worth a punt. I signed up, subscribed, and promptly forgot about it (this is December last year).
Imagine my amazement to discover the 0.xxxx bitcoins I had left were worth £21 week before last. Out of curiousity, I spent another £20, and decided to just wait and watch ....
If I cashed in Tuesday, I would have got £104 ....
INVESTMENT ADVICE: Never spend more than you can afford to lose.
There is one clear similarity with a Ponzi scheme. Mining for bitcoins gets harder as time goes on, to enforce scarcity. When it first kicked off, you wouldn't have to spend so much money on electricity and hardware to get a higher amount of bitcoin out.
Providing you didn't spend the bitcoins your assets earned you, you would now have a pretty penny as the value of the bitcoins has appreciated as demand has increased for the scarce currency.
So in that way, yes, early investors clearly benefit over new entrants and this can be similar to a Ponzi scheme which benefits those at the top of the tree. But everything is like this - if you invest early on in something that becomes successful/appreciates in value, you win - be it a house in a desirable area, Apple shares in the 90s, whatever.
So I don't think it's fair to call something like this a scam without applying it to all speculation.
FWIW a year or two ago when I looked into mining, it was patently obvious that it was not worth mining. Although the "difficulty" of mining had greatly increased, the value of the bitcoin hadn't sufficiently risen to match the resources required to break even. Maybe now that has changed. But what I was left thinking was that if scarcity doesn't match the rate of technological progress, there will always be distinct peaks and troughs with this currency, making it highly volatile. But I must admit, I didn't read that much further into it, but perhaps it's time for a re-appraisal.
"There is one clear similarity with a Ponzi scheme. Mining for bitcoins gets harder as time goes on, to enforce scarcity. When it first kicked off, you wouldn't have to spend so much money on electricity and hardware to get a higher amount of bitcoin out."
Wrong. For starters:
1) No one said You would receive an "X" value/product. You have the bitcoins You bought/received/mined - and that's it. If there is no delivery promess, there is no Ponzi
2) Mining for bitcoins does not get harder as times goes by. It gets harder/easier based on the number of bitcoins mined on a given period. Really. Check it out. The difficulty is adjusted in order to keep the mining of about "Y" bitcoins/day. If, for some reason, the number of mining machines goes down, the difficulty level follows.
3) There is a finite number of bitcoins to be mined. By design, and since day one. There is, also, a timeframe for this to happen - hence the changes of difficulty. It is weird, but we can have a rough idea of how many bitcoins will be mined each day.
I can't comment on the affirmative of the difficulty of early days. But I can say that it IS feasible to a new player (a new miner) begin today, and make some money. You don't have to be an old player, because You CAN mine for yourself - and the mining isn't affected by the number of bitcoins You already have.
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