Quote from: molecular on February 13, 2013, 10:00:04 PM

I've never fully understood how exactly a "deflationary event" works. The definition of deflation brought up ("increased demand + limited supply = lower prices of goods/services") makes sense. But what makes this a "deflationary event". It's just increased demand for the medium so value measured with it has a lower price. And how does "selloffs don't cause panics and are almost immediately absorbed by buying pressure, for one" follow from that. 2011 bubble was also increased demand + limited supply. Where's the difference?

the problem is that there is little difference, but this time around, we see the effect bolded above. during the first bubble, the prices were not sustainable because the irrational bulls converted all of their fiat to btc and there reached a point where the influx suddenly stopped. this caused a panic and a huge correction, which left many, many bag-holders in its wake.

this time around, the influx of new buyers isn't slowing. people with little to no exposure of bitcoin are rushing to buy simply because the price has been going up, up, up. it's the same psychology, except the scale is much larger and the price is much higher for many more coins. smart money pulls its asks because it sees that the fundamentals are different this time around, and there won't be a huge crash. selloffs are immediately absorbed by new buyers who don't understand the risk of purchasing an asset whose price has made 500% gains in the last year.

this is going to lead perhaps not to a bubble as it did before, but a massive deflationary event that pushes the purchasing power of bitcoin far above its track for healthy growth (see the height above the SMAs that the price is at right now) and will inevitably lead to massive profit-taking, predatory speculation, and price volatility. many new investors who thought they were going to be rich will find themselves in the same position as those who bought coins at $30. the growth of the userbase is good and should be encouraged not by predatory speculative behavior where earlier adopters laugh as the new users line their pockets, but lower-risk lower-price-point profit-taking that won't introduce massive volatility into the market. the former will help the bitcoin community grow in the long run. the latter will hurt the adoption of btc in the short run.

in other words, it's short-sighted and introduces systemic risk into the community. this is an example of a nash equilibrium that leaves players worse off than if they played in a pre-coordinated manner, like the Prisoner's Dilemma. everyone would be better off if the price of the coins were growing but with less risk of suddenly crashing. at this point purchasing coins is again a very high-risk investment because users have decided to distribute risk amongst the entire userbase while they continue to play musical chairs.

Quote from: superduh on February 14, 2013, 09:07:18 PM

what on earth is happening NOW.. why the crazy jump of 800% since about a year ago.. it's good.. but what seems to actually be driving the price up so fast lately..

don't let them fool you. traders will point to good news during rallies and bad news during sell-offs but the cause and effect is less clear. i say it's very straightforward, positive-feedback loop deflation.

Quote from: sublime5447 on February 15, 2013, 09:32:16 PM

First let me say that I didnt read all of the post, but that I agree with arepo, in fact I have really enjoyed most of his post. The problem that he is talking about relates first and foremost to price stability. I can tell from the responses that I did read that we don't have a lot of retail business owners commenting here. This price spike has pushed me right out of the market and has friends saying that they won't use it.

thanks for the bump. the responses in this thread made me more worried than when i first made the post because of the unchecked bullish sentiment.