Quote from: hazek on March 09, 2011, 06:17:30 PM

I had to actually read back and see what exactly my initial point of this argument was because I agree with your statement in bold. But my initial argument was that we are already at that stage where the exchange rate is too high and that it will have to come down first before the economy can grow at a faster potentially exponential rate and and that the sooner the hoarders realize this the sooner the influx of new goods and services will happen..

My point is that the current exchange rate is not realistic and already too high and all my posts was basically theory supporting why that might be true.

The high price of bitcoins is due to an expectation of future value. Remember that if we know the price of something will double next week, then it will actually double today, then not change next week.

The value of any item-- gold, stocks, bonds, currencies-- is always equal to the limit (calculus) of the expected value at time X in the future, in today's dollars, as X goes to infinity. Example: Gold is worth 1000$/oz today. A worker at a gold mine leaks information to his friend that there is a HUGE gold deposit equal to all the gold previously thought to exist (so supply will double). But it will take 2 years to mine all of this gold. Result: gold price immediately drops to 500$. It does not take 2 years to slowly drop down to 500$.

Proof:
We know that gold is trading at 1000$/oz prior to the information leak. Therefore, lim x->inf (EV(x)) = 1000.
We expect that 5000 years from now (x = 5000 years) value will be 1/2 of what the market previously expected. (Note: 5000 years was picked as an arbitrarily long time, beyond which the market has no additional expectations, good or bad, about the value of gold)
With no information past 5000 years, the new graph of EV(x) is equal to half of the old graph, for all values > 5000 years, since the only new information we have is that supply will be double the old expectation once all gold is mined.
Therefore, lim EV(x) = half of the previous limit = 500, which is equal to the gold price.