Quote from: miztaziggy on January 12, 2015, 04:13:42 PM

What gives Bitcoin its value?

Supply and demand?

Surely, as more merchants accept Bitcoin, more bitcoin gets sold for $$ driving the price down. The lower the price, the more people will panic and sell their BTC or trade it for goods, thus reinforcing the cycle.

I am getting to the point now where I am so tempted to sell my own BTC. I don't normally waver on things like this, I believed Bitcoin had a bright future, but my belief is shaken now.

I can't see anything in the near future that will increase the demand side of the equation....

Well done. I think in 6 months to a year this will be self evident to the majority.

Small economies can function around their own currency because everything is priced in it. Rent, utilities, labour & most supplies. So if you know your outgoings are 5000 BananaBits, then you can keep the BananaBits you receive as payment even if they're volatile. However if someone pays you in a volatile MonkeyNuts you have no choice but to sell them for BananaBits. This is Bitcoin's problem. Every business is working around expenses priced in their own fiat currency or one of the major fiats if they do business internationally. Anything other than fiat is currently unsuitable as a transactional currency. Even if they were paid in Gold they would have to convert to fiat to budget for their expenses, unless their country worked on a gold standard.

Example: You have an online retail business - If your next 3 months of expenses - staff, rent, utility and average supplies totals $45 000 and you make $50 000 worth of Bitcoin. How much of it can you keep in Bitcoin and pay your expenses as they're due, knowing that you'll be able to meet them?

The answer is very little because even if Bitcoin goes down 20% you're now in the red. Most retailers work on very tight margins of a only a few %, so this is a problem they can't have.

Even if your supplier accepts Bitcoin, the price they charge in Bitcoin fluctuates with the exchange rate. So you can't set aside 500 BTC for a supplier that charges 1 BTC a widget because if Bitcoin halves in value, he'll charge 2BTC a widget and your budget will be messed up.

(An exception to this is countries with highly inflationary currencies, which is why Argentina is often cited as most likely to adopt Bitcoin. In their case a highly volatile currency like Bitcoin is superior to a rapidly depreciating one.)

What is the solution?

It is simple, straightforward and already here. Currency stable assets. Businesses can hold the stable currency asset while we can hold the unstable crypto-currency that backs it. The more demand there is for the stable BitCurrency the more the value of the backing currency increases.

Using the same example above

You have an online retail business - If your next 3 months of expenses - staff, rent, utility and average supplies totals $45 000 and you make 50 000 BitUSD. How much of it can you keep in BitUSD and pay your expenses as they're due, knowing that you'll be able to meet them? The answer is you can keep nearly all of the earnings in BitUSD.

Overstock for example tried to keep a bit of their sales in Bitcoin and probably got bitten with the price fall, whereas they could have kept it in BitUSD & not had that problem while still supporting crypto-currency.

I think this is fairly straightforward and I have yet to see a decent rebuttal to this argument.

I also believe crypto is doing better than ever before, more people know about it, more places accept it and more transactions are happening. The price is a reflection of the volatility problem not of the lack of Bitcoin adoption.