Quote from: deisik on April 19, 2017, 02:39:28 PM

Quote from: lazyturtle on April 19, 2017, 01:31:24 PM

Quote from: deisik on April 19, 2017, 01:08:52 PM

Right now it is (for the most part, at least)

Bitcoin and other cryptocurrencies fit well into the definition of a financial bubble. I could even claim that Bitcoin is a sort of tulipomania. Just like tulips, bitcoins are useful for some purpose, namely, for transferring value around the world while completely bypassing centralized (real controlled) entities like banks, but Bitcoin current price is by no means determined by this utility. Most of Bitcoin value today comes from sheer speculation. Whether Bitcoin bubble is going to pop eventually or its real use as a currency will finally match its use as a speculative vehicle is not clear as of yet

Good answer, always fun to hear others opinion. =)
I agree with you, bitcoin does fit well in the definition of a bubble as it is completly speculative. But what about fiat money? We have seen again and again trough history how fiat money has just blew up in a bubble, happend with the german mark after world war 2 and then the zimbabwean dollar. Does this not show that fiat moneys value also comes trough speculation? the only diffrence being that it can much more easily be controlled, manipulated and abused to hurt individuals, while cryptocurrencies also are speculative in there value, it does have the security fiat-money does not against corruption and protecting the individual

I think that no, the fiat money value doesn't come about via speculation

But I'm still curious how you can even imagine that. It is more or less clear how people speculate with bitcoins (basically, "buy low, sell high"). It is possible as long as Bitcoin price is rising, i.e. new users constantly bringing their hard-earned dollars, euro, or whatever to the market and buy bitcoins in the hope of selling them at a higher price. I suspect there cannot be bubbles of that kind with fiat currencies. The examples you give refer to severe currency devaluations. Obviously, the latter have nothing to do with speculative bubbles, though the end result is essentially the same (i.e. dramatic loss of value)

Well you are assuming two things here and i will try to give you my opinion. Let me try and explain why i can imagine fiat money being a speculative bubble, english is second language so give me a break on the spelling. =)

Your first assumption that fiat money value is not a result of market speculation, could you elaborate what you believe are the true factors for a currencies value? You seem like you now your economics and i am always eager to hear everyone opinion.

My assumption here is that fiat-money with floating exchanges truly get their value determined from speculation. I aslo believe fixed exchanges have a element of speculation in them, as the government has to speculate to set a fixed value. This can be seen in the case with England 1967 when Harold Wilson devalued the pound. England basically speculated then that the devaluation was needed to stimulate the economy, but no substainsable evidence is to be found to show that the devaluation improved the growth. Acctually it was quite slow in the UK after the devaluation, witch was the opposite to what England was trying to do, thus we can see that even governments speculate the value when they set it, and can never truly know what effect it will have.

I recently read a report from Riksbanken (the central bank of sweden) in witch the report explored what truly drives the value of floating exchanges. They tried to explain the value as an effect of growth using diffrent stats (gdp,cpi etc...) but in all cases the random walk model prevailed (the market moves randomly).

They also explored the inflation theory, that inflation is what determines the value, but this also was hard to prove to be totaly excluded from speculation as inflation is a pretty abstract value. Sure CPI and diffrent stats can give us a general feeling of the inflation, but this still is speculative (IMO).

The report did not ofcourse try every possibility that could effect a currencies value, so ofcourse there could be unexplored topics that could explain what drives the price, but their conclusion was that when a currency get a floating exchange, big actors and small actors will speculate on the price. The price moves by liqidity in the market, witch comes from actors speculating in what they believe the currency is worth relative to another.

There is no physical relation that a healthy country automaticaly should have a currency that is worth more then a country that is unhealthy witch often is the standard explanation of why a country has a stronger currency. This according to basic economics should be determined by demand and supply, and when you have a centralized force governing the supply of money (by being able to print it), we as smaller actors really have to speculate as we can never know when our government might drastically increase supply (as Germany did) and dilute the value to the point that we are standing there with paper money that does not hold any real physical value then the one we attribute to it.

The german case was not a case of devaluation. Devaluation is when a country change their fixed exchange rate to another value then the current (like england 1967).

What Germany exeperienced is called hyperinflation, witch basically is when money supply increases extremly with no growth in the country to sustain or explain it. This IMO shows speculative elements in the fiat money value. As i said earlier, we constantly speculate on currencies value because we do not truly now what factors drive the exchange, and we can never know if the supply drastically increases, witch would render the money useless as it has no true physical use other then the value we give it.

Your second assumption is that the speculation in crypto currencies more or less only comes from buy low, sell high mentality while fiat money does not.

I dont really agree with that that is the only driving factor, but i understand your point. I think that you basically mean that fiat-currencies have something substanaible that aids traders to make speculative descisions on the value, while crypto currencies dont really have that and people are just buying and selling coins randomly because they think it will be worth more or less tomorow on the chart.

I personally know alot of people (including myself) who basically just keeps buying bitcoins at what ever price because we believe in the idea the our government cant control a economy fairly and intelligently, and see bitcoin as a hedge against the government. I started buying bitcoins in 2012 and i am just holding and holding and holding witch is quite common in the bitcoin community IMO (might be wrong here).

The daytrading speculative elements of buying low and selling high is extremly clear in stocks, currencies and commodities. Some of the biggest actors (hedge fund, banks) speculating in currencies use algo trading. A preprogrammed robot making descisions of a value according to mathematical points of interest, that IMO is extremly speculative and really has no ground to what the real value should be (this exists very much in currency hedge funds, atleast the once i have visited).
I assume you mention the "buy low, sell high" mentality because you believe it exists in crypto currencies but not fiat money, is just wanted to explain why i think this might be so.

I could only find the report from Riksbanken in Swedish, but i will try to find a translated version so i can share it with you if it would be of interest, quite exciting research report =)

LazyTurtle