Quote from: inca on January 12, 2015, 10:54:28 AM

Your reply is too long to break down as my time is short.

Your first reply regarding miners entirely missed my point. Miners have no financial interest in smashing the price in a manipulative manner by selling huge tranches of coins in a single sell. They have costs (although we know that many are either VC backed or have significant fiat reserves and sell OTC instead) but a business which relies upon selling a commodity generally wishes for the best price when they sell it. Unless of course they are trying to drive other miners out of business - this is a possibility but if the price falls much lower then the bitcoin ecosystem will be harmed for some time, which in turn will damage mining companies prospects over the longer term.

If the market is so terribly illiquid that even just trading the inflationary part is going to crash prices, then you have a serious problem ! That would mean that demand is essentially inexisting and that the price is actually determined by a very very shallow shell of coins, where essentially 99% is frozen and doesn't participate in the market. That's an explosive, highly unstable situation !

That's like assuming, say, that 1 million tons of gold are held by people who never trade them, and that the price is determined by the small amount of people trading 3 tons or so. Any gold mine can then "crash the price" if they do anything else than hold their own gold.

That's then an asset with no fundamentals at all: the day that the price goes below any trigger level that makes an insignificant part of these holders panic-sell, the crash down is unavoidable. An asset of which the price is only held up by the fact that nobody's selling 99% of it, is a gigantically over-priced asset !

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For the second point. You do not seem to understand that bitcoin has very little current or past usage as a medium of exchange for goods and services.

I know, but that is the fundamental that determines its sustainable price. That is why that price is, today, very low. In fact you are kind of wrong, because the black market did appreciate bitcoin as a medium of exchange. I have no idea if this is still the case with all those law enforcement crackdowns on silk road and so on. But it was probably an initial fundamental that drove up the bitcoin price for real in early stages.
If, say, $100 million worth of goods were exchanged for bitcoin on the black market, there were 10 million coins, and coins were held on average 30 days, then that would have pushed the coins price to of the order of $1.-
I can easily be off a factor of 10 on these numbers, so that may even push the price to $10.-, if all coins participated.
That was enough to bootstrap bitcoin.

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It has algorithmically exponentially falling inflation with each block reward halving. Yet the price has rocketed up from 0 to where we are today in only a few short years. This despite an inflation rate much higher than now. How is this?

That's simple ! Greater fool hypothesis, which worked out, until end of 2013. The history of bitcoin was fantastic up to that point: average 800% rise. The moon was the limit.

This is what I'm saying: bitcoin's price has mainly been driven by greater fool hypothesis, and the fundamental of currency value has been lagging behind. The large adoption of bitcoin in 2014 couldn't cover the huge gap that existed between its fundamental and the actual price, which was mainly driven by the "belief in to the moon soon". I remember even in october, people waiting for a rally to a few thousand $.

The point is that the influx of money wasn't sufficient (there were not enough greater fools).

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Firstly there will only ever be 21,000,000 coins. And secondly 10% inflation sounds a lot but is it really?

It is a lot to sustain a "greater fool" price. It would have been no problem if we were at the fundamental price of a few $, and adoption (merchant adoption) rose at the same or higher velocity as the inflation. If during the year, there was 10% more merchant adoption, then 10% inflation would have been exactly OK to keep the price constant.

Of course, the price wouldn't be the fundamental, because there is of course speculation of the future fundamental, which can really be high. At full adoption (all fiat replaced by bitcoin), a coin should go for about $ 3 million (value of today). Full merchant adoption, meaning we use bitcoin everywhere in the world as the normal currency.

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Obviously we are in the depths of a bear market but the reality is that even then adoption of bitcoin is rising significantly more than 10% a year. It will continue to rise more than 10% a year and therefore anyone buying now (barring unexpected disaster) is highly likely to have an advantage over those buying later.

Well, that depends on where bitcoin levels off in adoption. If 0.1% of world fiat is replaced by bitcoin (when will that happen ? 15 years from now ? 30 years from now ?), the market cap should be of the order of 10 times higher than now if bitcoin velocity is the same as fiat velocity. However, at 0.1%, most of the economy is still fiat, so fast conversion to fiat is then still probable. If the bitcoin holding times are 10 times shorter (because quick reconversion to fiat) than fiat holding times (which are of the order of 6 months or so), then the current market cap will be sufficient to provide with that currency usage.
In other words, with a full liquidity of bitcoin in a 0.1% of all fiat market share, and 10 times higher velocity (because of fast conversion to fiat), the total market cap doesn't even need to increase.
People buying now will then have about the same bitcoin price as 15 or 30 years from now.
The difference being that now, most of the price is "greater fool" driven, and then, it is equal to the fundamental as demand for currency. And of course, there will not be any "greater fool" incentive by then !

However, if bitcoin succeeds in replacing 2% of world fiat, and in concentrated economies so that the direct conversion to fiat is not so much the case anymore (retailers can pay their employees in bitcoin, and their suppliers in bitcoin...), then the market cap will be 20 times the current market cap. The price will be around $ 5000 or so. When will 2% of all world fiat be running on bitcoin ? I don't think this can happen before 20-30 years in any case.

It can be that by that time, people start building confidence in bitcoin to store value in it for the long term (like in gold or so). That may add a second fundamental to the price. If 5% of the gold market is taken over by bitcoin, that would be about $35 billion or so, which is 8 times the current market cap. So instead of 20 times the current market cap, we can make it 30 times the current market cap, bringing a coin's price to about $8000 or so.

If you're serious, 2% of all of world fiat, and 5% of all of the gold market is a huge success for bitcoin. I don't think that it is possible before several decades, so 20 years from now is terribly optimistic.

In these cases, indeed, one can make a reasonable benefit by buying now. The market price, not based upon "greater fool" but on those two far future estimated fundamentals, can already incorporate them with their estimated chance of success.

As the estimation of that success is widely unknown, rational speculation on that price can be very wide: from already a few $1000 now (to remain there for several years) to much lower than today.

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You are focussing on the price and saying that because the price is falling adoption is failing and bitcoin is dead (points at last year on chart). You miss that this has happened several times before and yet we are still here several orders of magnitude higher in price

I'm NOT saying that bitcoin is dead, at all. I'm simply trying to analyse the price components today, and my conclusion is that the price today and in the last 2 years is mainly driven by the "greater fool" drive, and not by any current fundamental. It could be driven by a speculation on a future fundamental in part, but then there's no reason why it goes down: everything seems to indicate a brighter future today than a year ago.

Prices of several thousand $ are not sustainable with the current fundamentals however, so it is very strange that people were expecting that. It is normal to run out of "greater fools" at these prices.