The price would likely be even higher right now if Bitinstant, once one of the most popular and easy ways to obtain Bitcoins, hadn't had serious financial and technical issues over the last two weeks. Here's hoping they get their issues sorted.
Besides, illicit transactions are still transactions.
And.. you are just plain wrong. Bitcoin is also useful for buying many completely legal things. Including a VPN that can't be linked to your identity. (Illicit you say? What about a journalist in a repressive regime).
(This article may help in understanding the chart: http://codinginmysleep.com/measuring-bitcoin-speculation/)
The chart shows that the rise is not due to an insane rise in speculation.
I'd never spend my bitcoins on drugs or gambling. That's what the rapidly devaluing dollar is for. Recall that the US dollar is Narco Currency #1 on the planet.
Bitcoins are useful as leverage due to their rapidly expanding (and sometimes deflating) value. I bought my first bitcoins for ~$3 two years ago and held them, even through the first spike and afterwards. I bought more btc at $5-12 as they were floating along last year.
I recently traded some of my btc for hard assets, gold and silver. I then sold some of the gold to a friend and bought more bitcoins.
Useless? No, Bitcoin is a very useful tool. It's the email of money.
I have been wishing for my bank to give me this kind of service for a long time, but still no sign of it happening.
For example, Argentina's real inflation rate is around 18-25%. Because of that, they've taken drastic measures to prevent their citizens from transferring money out of the country.
Here's one guy’s story of using a Bitcoin mailing list to buy pesos at a 25% better exchange rate, due to number of Argentines who wanted to offload their pesos: http://thebluemarket.wordpress.com/2012/10/18/bitcoin-dollar...
As the Euro crisis deepens, and the chances of one or more countries leaving the Euro gets higher, we should see a spike in Bitcoin prices. For example, if Greece was about to leave the Euro, they'd have to impose draconian currency controls, because everyone's bank deposits would be devalued overnight.
There is a reason the Greek government will impose draconian currency controls. It is for the benefit of the Greek people, so their savings accounts will only drop 50% rather than 80-90%.
A purely decentralized currency may be the way of the future, but it will be replacing old problems with new ones. Whether it is ultimately better is anyones' guess.
I think this is one of those cases where the demand is so strong that people put up with anything. Online Payments really sucks, for both sides. Merchants aren't guaranteed that the money they get will stay in their accounts. They need to become experts in fraud & risk & money laundering. The whole process is mitigated by a duopoly with 150 years of technical debt. Credit Cards, Payment Gateways, Merchant Accounts, Paypal, Chargebacks. All these suck. Not everyone has access to them. No one feels safe using them.
When natural demand is that high, it can overcome everything else. There's a whole class of products priced at insane prices. Quality is uncertain. They product can be dangerous. It's only available from dangerous criminals. You need to be introduced to the vendor by your least favorite "friend." If this product was breakfast cereal, people would just eat something else. But since natural demand for ilegal narcotics is so high, all those hurdles get jumped.
My personal opinion is that Bitcoin is popular because it makes money more flexible, and enables people to take absolute control over their money - in the same way that the mp3 standard enabled them to take control of their music.
Until governments notice they are losing control and outlaw it.
They can easily take bitcoin-based businesses down but they would just shift to different/distributed jurisdictions (Japan, Eastern Europe) where they will be hell to control or influence.
New mining equipment called asics are being produced, at least one manufacturer, demands payment in bitcoin, and the price of bitcoin rises. Other people see the rising price and start thinking, hmmm should I buy an asic?.
My prediction is that by the end of the summer the price will be back to around $15, lots of people will have received their asic and will want to pay off the cost of the unit (~$1200+).
Of course there is always silk road, according the ars article last year they were doing 10,000 btc a week in revenue. Apart from SR I don't see where the demand is coming from except asics.
As I hold a few bitcoins, I would love to be proved wrong.
ASIC hardware sales don't even make 1 days worth of transactions (when we account for the "number" of transactions). I don't see the bitcoin price going back to where it was 3 months ago.
What we do know, is that so long as new users flock to the currency there is an increasing demand, and this will drive the price up – until the recruitment halts. Then what will happen? We don’t know. It might disappear, it might drop slightly, and it might stay the same. That will be the true experiment. Right now we don’t have enough data to say whether it is sustainable over the long term.
Doesn't that mean that it's expected to rise in price? This also ends up being the currency's downfall, since there's an incentive to hoard it rather than spend it.
By that logic, everyone would put their dollars into investments that beat inflation (this is a form of saving). Yet they do not. You can hold (hoard?) securities (VBLTX, HTS, JNJ) that beat inflation, yet people spend dollars on depreciating assets (cars, computers). There are other less-risky financial instruments [1] that beat nominal CPI, yet people spend dollars.
> Doesn't that mean that it's expected to rise in price?
Sure, relative to an inflationary currency. But bitcoin fluctuates quite a bit.
By they way, currency is just a good, like anything else. One trades currency for some other good that one values more than the currency [2].
[1] http://www.mint.com/blog/investing/beat-inflation-with-i-bon...
No-one buys a dozen computers and puts them in their basement as savings for retirement. People buy cars and computers to use, not as investments. People with nontrivial quantities of "spare" dollars generally do put them into inflation-beating investments.
(So I mean, the point of the securities you mention is exactly to hold/hoard them, whereas the point of a currency is not to hold it, but to pass it around, or?)
Doesn't that mean that it's expected to rise in price?
True, this amount is set to decrease to 0 eventually. However, with some planning conceivably this could be changed, as long as the majority of bitcoin users agree it should be changed.
The mechanism that would happen through is just as you predict. People would buy & hold bitcoin. Buying & holding is an increase of demand (buying) & a decrease in supply (holding). These both increase prices until the point where buying and holding isn't any more attractive than buying and holding some other asset with a known future value (like government bonds).
In reality that certainty doesn't exist. Current prices of bitcoin a reflection of all sorts of wild guesses about possible future effects that are dependent on all sorts of things.
Whether that means a 'downfall' is far less clear. If Bitcoin just keeps becoming more valuable, serving a role but not circulating as much as other currencies (be they traditional or digital-of-a-post-Bitcoin-design), is that a 'downfall', or just a peculiar kind of success?
Bitcoin is like a new form of monetary/economic matter... some lessons from traditional domains may apply, but others not at all. Casual, confident pronouncements either way are silly.
"The argument that increasing value means people would prefer to hold Bitcoins rather than spend them is specious. While it will make people want to have Bitcoins more, it will also make people want to convince others to give them Bitcoins more so they can have them."
I don't see how these are compatible. Reminds me of "No one in New York drove. There was too much traffic."
I say that because investing has different skill levels and different risk/reward profiles. The lowest level is perhaps savings accounts and CDs and at the most extreme end are derivative financial instruments. Long before you get to currency speculation you go through equity value investing, bond investing, and equity option investing. After going through those things you get to commodities, precious metals (a form of commodity) and then currencies.
So to ask the question "should I invest in this right now?" doesn't make a lot of sense to an investor who is always looking at what they have invested, the risks of those investments, and the forces that move things. If you are wondering what the outlook is for price expansion of bitcoin relative to the Yen or Yuan, or what geo-political events are most likely to move the value of bitcoin and in which way, then you are looking at the investment in context and really the only answer is one with your other context which isn't part of your question. If you portfolio was a million dollars and you wanted to put $10K into bitcoin as a 'kicker' (something that would potentially kick up a big return but if you lost it in its entirety it would only represent 1% of the return. That's an interesting question. It has far more downside than upside at this point.
I don't know how much downside it has, as a long term gamble, because there's an upper limit on the amount of currency. If it does take off with the general public, the longer you can hold the more it will be worth.
"Hard limit of about 21 million Bitcoins" say you bought 1 million bitcoin at $1 and bitcoin becomes a replacement for paypal?
Look at Apple: http://goo.gl/6hZfI
People felt like they "missed the boat" in 2005, 2006, 2007, 2008, 2009, 2010, 2011, and 2012. Seriously.
And none of them had any concrete way of knowing that it would continuously impress year over year.
...Or that it would go from 700 to 450 in the last six months.
and no, you shouldn't. there is a set of people who hold piles of bitcoins obtained when mining activity was minuscule or because they run pools, exchanges or such. The bitcoin spot price is almost entirely determined by how much this group is selling, and the general amount of demand from speculators.
While they've learned a lot about effective market control since the last time they got it up to 30 and then crashed it to 5 in an almost instant panic caused by one big seller and everyone else's fear of being left behind, it's still a fragile process.
In the end, even though BTC stands a fair chance of continuing to rise from here, you stand a strong chance of not timing the peak and holding into a big crash. Timing a speculative market you know little about, has no fundamental value floor and that's primarily driven by a small number of players is probably not the best way to try to make money.
Whenever the BTC price moves up or down, do you honestly believe "It's those blasted early adopters, at it again I tell you"
You also appear to assume, incorrectly, that early adopters are just itching to exchange out into fiat currencies, as if their eyes are glued to their computer monitors, just waiting for their lucky day to "cash out BIG" ... into fiat currency. Hmmmm
This goes without saying. As with PM investors, many Bitcoin holders see real issues with fiat currency, specifically that banks are a terrible place to put your life savings.
I mean people can tell you their opinions, but the reality is that nobody knows - as in all other investments...
Now that I think of it, at least with BitCoin there can be no insider trading, because there is no company that owns BitCoin. (There could still be information not available to all, for example somebody could have cracked the protocoll and short BTC knowing that it would be dead once he releases the information).
Yes, there are legal bitcoin traders or bussinesses. And No, you can't pretend these are the majority.
And it's not really a problem that I am thinking this. The big problem is that the European Central Bank is saying this too. The legal status of Bitcoin businesses remains unsolved, even if the proponents don't run out of reasons why trading Bitcoins is purportedly legal.
How do you get all members of a distributed system to upgrade? Would holders of bitcoins have to upgrade as well?
Are those coins out of circulation forever? Will this gradually decrease the supply of bitcoins?
I have .9 of a bitcoin somewhere transferred between a Linux PC and three different phones over two or three years.
I have about $28 US somewhere.
I fixed this problem now by printing the keys out, storing them securely in a safe and deleting the wallet files.
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Here was my coinbase timeline- Keep in mind I verified my account, did 2 step auth, everything. About as normal a user as possible. They make buying bitcoins near impossible.
1: Create a account and link it with a US bank. I am located in the US myself.
2: Wait 3 days to verify
3: Put in a order for a max of 10 bitcoins.
4: Wait 5 days for order to complete. You cannot order more than 10 bitcoins during this process.
5: Be told they are over capacity and have your order cancelled.
6: Go to 3
.
Coinbase is only a option if you want to buy under 10 bitcoins and dont mind waiting. I wanted to buy much more than that. I wish they put up on the homepage that they only allow you to buy 10 bitcoins a day.
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Also, they say "once you are verified you can do 100 bitcoins a day" but the truth is, they do not have the supply and cannot fulfill those orders (gathered this from searching on twitter and my own experience). Also, you will need to wait a month to get this level of verification.
