ESOC Crypto Corner

[Gendarme]

It's Laurence Drake. Read his posts only for the occasional comedic value, nothing else.

[Laurence Drake]

This thread alone is evidence that bitcoin is a bubble.

https://www.ft.com/content/c84caffc-d68 ... 60cb1e5f44

The surge in Bitcoin’s value is arguably unprecedented. In the 12 months to November 30, the bitcoin price rose 1,773 per cent, bringing its value to nearly $170bn, around the market capitalisation of General Electric. By comparison, the Nasdaq Composite barely doubled during the final year of the dotcom boom. Other stock market bubbles, such as in the US in 1929, Japan in 1989 or China in 2007, were of much the same magnitude as the tech sector’s.

If you spend money on this don't expect to get any of it back.

"Don't expect to get any of it back"
Errr.... That's a surprisingly ignorant comment, even by ESOC standards.

Who are you?

[lejend]

So which shitcoins do you recommend? BTC, Eth, LTC, XLM, what?

[Gendarme]

Long-term I think Bitcoin is the way. If you want to capitalize on fluctuations I have no clue.

[Snuden]

I agree that Bitcoin is the way to long term profitsh.
For "buy and flip" coins you have to stay on top of the ICO game.

[Snuden]

HempCoin (THC) 'as gone up by 102.5% in the last 24 hours.

[momuuu]

The bitcoin still seems like something that gets its value from the trust of people in it and the idea that it will be worth a lot. A dollar will always at least buy you a banana in the USA, a banana can always be eaten, but I'm still missing the intrinsic value that the bitcoin has. It's honestly been generating money out of nothing, which is something I fail to understand (as a physicist I'm wondering, is there a law of conservation of money? XD) so I'm intuitively inclined to believe somewhere along the road people will lose a lot of money.

[Snuden]

In order for BTC miners to be rewarded with a block, they must complete PoW (Proof of Work) for that particular block.
So no, it is not generated out of nothing. However, I agree that it can appear so to the uneducated.

[momuuu]

I don't think that's what I mean. This sort of stuff bugs me. I'm confused about how something works and bring that up for discussion, and then some knowitall kiddo comes in and gives this argument that doesn't at all adress the actual question and is something I could've come up with myself if it was relevant.

[Snuden]

Jerom: It's honestly been generating money out of nothing, which is something I fail to understand...

Snuden: In order for BTC miners to be rewarded with a block, they must complete PoW (Proof of Work) for that particular block.
So no, it is not generated out of nothing...

[momuuu]

Jerom: It's honestly been generating money out of nothing, which is something I fail to understand...

Snuden: In order for BTC miners to be rewarded with a block, they must complete PoW (Proof of Work) for that particular block.
So no, it is not generated out of nothing...

I mean that people are earning money while the bitcoin isn't producing anything. The blocks are, as far as I understand, representing computing power that is used for transactions so that wouldn't at all adress my points. Besides, those blocks only generate bitcoins not actual value and do not explain the steep increase in value. Actually that should just lead to decrease in value because of inflation so it actually shouldn't generate any money at all. That's like saying you can make money by printing money, which is clearly not true.

[Snuden]

... A dollar will always at least buy you a banana in the USA, a banana can always be eaten, but I'm still missing the intrinsic value that the bitcoin has...

Imagine a different scenario... Imagine going into a shop, which solely deals in BTC. Even with $1000 in cash you would leave that shop with an empty stomach.

[momuuu]

... A dollar will always at least buy you a banana in the USA, a banana can always be eaten, but I'm still missing the intrinsic value that the bitcoin has...

Imagine a different scenario... Imagine going into a shop, which solely deals in BTC. Even with $1000 in cash you would leave that shop with an empty stomach.

So the investers truly believe this is a realistic scenario? So thats why people are stocking up bitcoins from the very start? Isn't bitcoin supposed to die in 2030 anyways? The world order would need to be disrupted quite badly and quickly then probably.

[Snuden]

Jerom: It's honestly been generating money out of nothing, which is something I fail to understand...

Snuden: In order for BTC miners to be rewarded with a block, they must complete PoW (Proof of Work) for that particular block.
So no, it is not generated out of nothing...

I mean that people are earning money while the bitcoin isn't producing anything. The blocks are, as far as I understand, representing computing power that is used for transactions so that wouldn't at all adress my points. Besides, those blocks only generate bitcoins not actual value and do not explain the steep increase in value. Actually that should just lead to decrease in value because of inflation so it actually shouldn't generate any money at all. That's like saying you can make money by printing money, which is clearly not true.

First of all, I don't think any currency produces anything. Hmm... the blocks are not representing computing power, computing power is needed to confirm the transactions, which then reward the miner with bitcoins.

Bitcoins are valued based on supply and demand, just like for example gold is. Gold in itself don't represent any value on it's own.

[momuuu]

Actually thats true, although gold is something people find pretty so it does have some value intrinsically. But maybe it's possible for such a thing to persist having a high value due to consistent consumer trust.

[Snuden]

... A dollar will always at least buy you a banana in the USA, a banana can always be eaten, but I'm still missing the intrinsic value that the bitcoin has...

Imagine a different scenario... Imagine going into a shop, which solely deals in BTC. Even with $1000 in cash you would leave that shop with an empty stomach.

So the investers truly believe this is a realistic scenario? So thats why people are stocking up bitcoins from the very start? Isn't bitcoin supposed to die in 2030 anyways? The world order would need to be disrupted quite badly and quickly then probably.

It is a CURRENT scenario. I think the sudden increase of BTC value is because of a lot of new money from people who are "afraid" of missing out. Most people are making money by trading various coins, either against BTC or ETH. On yobit.net you will find some of the more obscure coins being traded against each other.

The last Bitcoin is estimated to be mined in 2040.

[Goodspeed]

Jerom: It's honestly been generating money out of nothing, which is something I fail to understand...

Snuden: In order for BTC miners to be rewarded with a block, they must complete PoW (Proof of Work) for that particular block.
So no, it is not generated out of nothing...

I mean that people are earning money while the bitcoin isn't producing anything. The blocks are, as far as I understand, representing computing power that is used for transactions so that wouldn't at all adress my points. Besides, those blocks only generate bitcoins not actual value and do not explain the steep increase in value. Actually that should just lead to decrease in value because of inflation so it actually shouldn't generate any money at all. That's like saying you can make money by printing money, which is clearly not true.

Yeah it's a highly speculative market. The price reflects what people think it'll be worth in the future. You often see this in the stock market. Arguably, crypto currency is a speculative "bubble" where the price is much higher than it realistically should be.

[Snuden]

Actually thats true, although gold is something people find pretty so it does have some value intrinsically. But maybe it's possible for such a thing to persist having a high value due to consistent consumer trust.

It (gold) holds emotional value, just like art.
Yes, people need to trust the system and that it wont collapse.

What we are talking about right now could show to be completely wrong in just 6 months :-)

[Snuden]

Jerom: It's honestly been generating money out of nothing, which is something I fail to understand...

Snuden: In order for BTC miners to be rewarded with a block, they must complete PoW (Proof of Work) for that particular block.
So no, it is not generated out of nothing...

I mean that people are earning money while the bitcoin isn't producing anything. The blocks are, as far as I understand, representing computing power that is used for transactions so that wouldn't at all adress my points. Besides, those blocks only generate bitcoins not actual value and do not explain the steep increase in value. Actually that should just lead to decrease in value because of inflation so it actually shouldn't generate any money at all. That's like saying you can make money by printing money, which is clearly not true.

Yeah it's a highly speculative market. The price reflects what people think it'll be worth in the future. You often see this in the stock market. Arguably, crypto currency is a speculative "bubble" where the price is much higher than it realistically should be.

I also think that current BTC price is way out of proportions, but it is reflecting what people are willing to pay.

[momuuu]

Jerom: It's honestly been generating money out of nothing, which is something I fail to understand...

Snuden: In order for BTC miners to be rewarded with a block, they must complete PoW (Proof of Work) for that particular block.
So no, it is not generated out of nothing...

I mean that people are earning money while the bitcoin isn't producing anything. The blocks are, as far as I understand, representing computing power that is used for transactions so that wouldn't at all adress my points. Besides, those blocks only generate bitcoins not actual value and do not explain the steep increase in value. Actually that should just lead to decrease in value because of inflation so it actually shouldn't generate any money at all. That's like saying you can make money by printing money, which is clearly not true.

Yeah it's a highly speculative market. The price reflects what people think it'll be worth in the future. You often see this in the stock market. Arguably, crypto currency is a speculative "bubble" where the price is much higher than it realistically should be.

Yes thats what I am thinking, but maybe realistically since it realistically is worth nothing instrinsically and all its value rests on the trust people have in it then it could be stable? But then theres other aspects that make it feel like a bubble that could burst really hard because many people are just in it for short-mid term value.

[Gendarme]

A dollar will always buy you a banana?? 100 years ago people could have said "A dollar will always buy you 10 loafs of bread", look how much you can get for a dollar now. Add to that the fact that circumstances get worse continuously as this goes on; right now we're probably at the brink of a functioning western world. The only reasons the US dollar has any worth is for the things you are ironically attributing to Bitcoin. The nation of USA is probably the poorest one in the world with that national debt. If it weren't for the status of international currency the US dollar, which USA has maintained through its military power (vide petrodollar), it would probably be suffering the same fate as its Zimbabwean cousin.

If anything it is Bitcoin (in reality cryptocurrency, but let's stay with Bitcoin for simplicity) that has intrinsic value. Bitcoin offers you secure storage, secure international two-party transcation, anonymity, and protection against currency manipulation of banks (although I am personally not sure about this one). If you want to store your money without having to trust anyone you need either cash or other physical assets such as gold, or Bitcoin. If you want to transact money without any chance of it failing (e.g. hacked), or without any third party, or without having to trust anyone you need cash, gold or other physical assets, or Bitcoin. If you want to transact money without revealing your identity to anyone you need Bitcoin.

With all that said, you are asking the wrong question. Intrinsic value (assuming such a thing even exists) is not necessary for a commodity. As long as others are willing to accept that which you have, it is valuable. "What if people stop accepting it? There is no real reason to accept it, right?" Well, what if people stop thinking gold looks nice and an industrial revolution voids the need for gold? What if Sweden stops accepting the krona? No commodity has intrinsic value, at least not a monetary one. Don't get fooled by Austrian economics. I bought into it myself not too long ago; it sounds good and nowadays appeals to the young internet-rebels, but is based on false assumptions from which the whole theory is derived.

Taking all the services that Bitcoin offers into consideration, I'd say that there is a very low chance that people would stop accepting it as payment. Those services are more important now than ever before, and will continue to get even more important as we rapidly move towards 1984. Bitcoins are not tulips.

[Goodspeed]

Yes thats what I am thinking, but maybe realistically since it realistically is worth nothing instrinsically and all its value rests on the trust people have in it then it could be stable? But then theres other aspects that make it feel like a bubble that could burst really hard because many people are just in it for short-mid term value.

It's stable as long as nothing changes, but if something happens that makes it obvious to investors that the currency will not be worth its current price, people will start selling. And what you often see in bubbles is that people get in not because they believe in the currency, but because they think the price will continue to increase for other reasons. When there's the slightest doubt, those people will start to sell and the more the price drops, the more of these people will want to get out. That's the bubble "popping". It can cause the price to drop hard and quickly, and what you're left with is the people who actually believe in the currency long-term. That process is long overdue when it comes to BTC I think.

[Snuden]

Yes thats what I am thinking, but maybe realistically since it realistically is worth nothing instrinsically and all its value rests on the trust people have in it then it could be stable? But then theres other aspects that make it feel like a bubble that could burst really hard because many people are just in it for short-mid term value.

It's stable as long as nothing changes, but if something happens that makes it obvious to investors that the currency will not be worth its current price, people will start selling. And what you often see in bubbles is that people get in not because they believe in the currency, but because they think the price will continue to increase for other reasons. When there's the slightest doubt, those people will start to sell and the more the price drops, the more of these people will want to get out. That's the bubble "popping". It can cause the price to drop hard and quickly, and what you're left with is the people who actually believe in the currency long-term. That process is long overdue when it comes to BTC I think.

I am curious as to why you think the time is overdue.

[Goodspeed]

Because the price is massively inflated due to speculation, and I don't really believe in crypto currency so I think the speculation is wrong. Also out of crypto currencies it seems unlikely to me that BTC is the one that will end up lasting. I gave some reasons earlier ITT.

I should add that I don't know what I'm talking about and am just going by how I intuitively feel about it based on news I read over the years. I haven't really researched it.

[Gendarme]

Yeah I don't see it being long overdue either. It is on a relatively rapid long term rise. Even if it drops by 50% tomorrow it would probably quickly catch up again with the increasing acceptance of Bitcoin. I don't think there's much risk in holding Bitcoin in the long term, although we may want to cash out in a few months if something bad happens (e.g. financial depression) in which case there may be some problems. But probably not even then as situations like that are precisely what Bitcoin was created for.

I am a believer in national currency, however. I don't think cryptocurrency is ideal, but it's probably a good alternative to what we have at the moment.