Post
Topic
Board Economics
Re: Why bitcoins are dropping, and will continue to do so
by
David M
on 05/07/2011, 20:57:39 UTC
Any merchant who accepts Bitcoins needs to cash out really fast. We're seeing 25% changes in a day, and 10% changes in 10 minutes.  By the time a Bitcoin transaction is confirmed, it may have lost 10% of its value. You can't run a business on that.

Someone needs to learn about derivatives.

Example:

Shop A pays $US to suppliers with 30 day terms.
Shop A buys a Put expiring as close to the term as possible at the current market rate (X)
Shop A accepts Bitcoins.

Scenario 1:  Bitcoin rises in value. -> Shop A lets the Put expire or sells it.
Scenario 2:  Bitcoin falls in value. -> Shop A takes the Put to delivery and is guaranteed price X

The maximum cost to Shop A is the price of the Put regardless of price movement.