Post
Topic
Board Speculation
Re: Bitcoin will plummet to $10 by first half of 2014
by
JorgeStolfi
on 21/08/2014, 02:57:57 UTC
No but I think the implication was it's totally ridiculous assumption or guess.  Could Apple drop to $10 by Dec, of course it -could-, but its highly unlikely.  -Could- Bitcoin drop to $10 by Dec?  Of course.  But again, highly unlikely.

It is not the same thing at all, that was his point.

The price of a company's stock is based on the value of the company's assets (their factories, stores, patents, etc.) and their expected profit, which depends on demand for their products.  If you own one share of the company, you own a certain slice (say, 1/10'000'000) of those assets and profits.   When the company distributes their profits, you will get that slice of the profit.  If the compant were to close down, their assets would be sold and you would get that slice of the money.

Financial analysts have formulas to compute the "sensible" share price from these so-called "fundamentals".  These fundamentals cannot drop suddenly by 98% (unless some global catastrophe happens, like an asteroid hitting Earth, or there is something very wrong going on with the company's finances that no one knew).  Thus the stock fof companies like Apple or Coca-Cola is very unlikely to drop by 98% all of a sudden.

Bitcoins, on the other hand, have zero assets and zero profits.  Their value is supposed to derive entirely from the demand by people who want to buy them in order to pay for things over the internet.  However, that demand is still very small.  The current price (over 500$) is due to the much larger demand by short-term speculators (day traders) who buy and sell bitcoins on the exchanges for profit; and most of that trade is in China. 

So why is the price at the exchanges 500$, rather than 5000$ or 50$?  There is no logical explanation, that is just the price at the thousands of Chinese day-traders are willing to buy and sell it now.  They think that 1 BTC is worth 500$ because they see that everybody else is paying 500$ for 1 BTC, and buy it expecting the price to be somwhat higher sometime later. At times they get more optimistic about the future price and start paying more, at times they get more pessimistic and will pay less. 

So it is perfectly possible that the price will fall to 10$ or lower, if all the traders just get convinced that the value is 10$.  Last November the price shoot up from ~120$ to ~1200$ for no reason, just because thousands of Chinese traders discovered bitcoin and wanted to day-trade with it.  Just as it shoot up without a concrete reason, it could come down without a concrete reason.  (And it has, so much that  the price now is only 50% of what it was on Nov/29.)