Bitcoin exchange rate reached $100 USD per BTC

Some people here seem to think that this is temporary, that sometime in the future Bitcoin will stabilize into a glorious future global currency -- never mind the new class of cryptobarons it will have created from its inner circle, through shameless hoarding.<p>My question is, what then will happen when Bitcoin stabilizes, that is, when the time to new coin mined approaches practically infinity? Let's assume the global economy grows at 4% per year. Do Bitcoin's proponents believe a constant 4% deflation rate will be somehow compatible with capitalism? Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises. Could a economy based on Bitcoin survive them, and not crash inevitably into a deflationary spiral? I claim it won't.<p>The party line usually argues for the evils of inflation. What they don't understand, I think, is that capitalism, in its revolutionary (in the sense of production) facet, <i>needs</i> inflation, <i>feeds</i> from it. Inflation might screw lenders, and favor debtors, sure. But deflation is just the inverse: a gift for the leecherous rentier class, and a massive "fuck you" to entrepreneurs.

I added a Bitcoin purchase option to Scribophile to test the waters. But I'm interested in a Bitcoin economy, not a USD cash alternative--the situation where a Bitcoin has its own value, not a value dependent on a different currency. For that reason, I decided to fix the price of an upgrade to 2 BTC, not peg it to the dollar like most other sites do.<p>Unfortunately it seems like that's just not going to work at this point. I set the price at 2 BTC when the exchange rate was $35--like two weeks ago or so. That meant the BTC membership price was about in line with the USD price. But in a few weeks, the value of a Bitcoin has tripled. Since most people using BTC ultimately want to convert it to dollars, this insane instability makes BTC impossible to use for anyone interested in a pure BTC economy. Too bad.

This feels kinda like a pump and dump to me. I don't mind articles/projects/sites that make use of bitcoins. But the frequency of posts on how much each bitcoin is worth feels like pennystocks/etc on an investing forum. People trying to get more people to buy in. To drive it up. So they can get out while it's high.

I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle. In principle, there's nothing wrong with this; currency trading is common and well-explored. The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. When it is rarely used to that effect, people may reconsider their investment in the currency.<p>It'd also be interesting to look at the effects of deflation in the fledgling bitcoin economy, although the actual exchange of currency for goods and services is a bit small to judge this effectively.

Currencies have existed in a huge variety of forms over time. Basically anything can work as a medium of exchange as long as everyone has a high degree of confidence that if they are paid in the currency, that they too can pay someone else in that currency. But that's not to say all currency regimes are created equally -- we've learned a number of lessons, painfully, about how to manage currencies.<p>For a small-scale, but very instructive example that shows there are cases where simply increasing the money supply can sometimes create more value in the economy (or how deflation can destroy value), see the story of the Capitol Hill Babysitter Co-Op [0].<p>At a more serious scale, many prominent economists believe that an artificial restriction of the monetary supply led to, or exacerbated the Great Depression [1].<p>So, like Krugman [2], I think that BTC proponents really have to explain how the artificial restriction of the size of the BTC money supply is not a serious design flaw in the currency. Are BTC just crypotographic gold? If so, then is a successful BTC economy just a different gold standard (and all its associated problems)?<p>[0] <a href="http://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op" rel="nofollow">http://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op</a><p>[1] <a href="http://en.wikipedia.org/wiki/Gold_standard#Prolongation_of_the_Great_Depression" rel="nofollow">http://en.wikipedia.org/wiki/Gold_standard#Prolongation_of_t...</a><p>[2] <a href="http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfetters/" rel="nofollow">http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfett...</a>

As Moldbug wrote: "In any economy, there exists no less than one commodity or security of inelastic volume which is overvalued due to reservation demand. Ie: one scarce good which is money." Bitcoin's increasing price is a sign that it's further along in its passage to monetization. Gold, too, experiences the same phenomena of being "overvalued". I.e., being far above the price warranted by its use value. In the same way gold is also partially monetized (in particular it has large reservation demand from central banks)<p>Buying bitcoin is essentially a bet on the probability it will be monetized. This probability will wax and wane in the minds of the population participating in the bitcoin market, who in turn will be influenced by media perceptions, the actions of the state etc. So the price will no doubt be quite volatile. But the increase in price, based on an increase in reservation demand, is self-reinforcing. It increases the desire of merchants to accept bitcoin in payment (since there are now a greater pool of holders who have greater savings looking for an outlet to spend those savings). And as new merchants begin accepting bitcoin in payment, the reservation demand increases. These two causalities are linked together and reinforce each other. At some point they become entrenched enough that the whole thing "lifts off", so to speak, and the commodity becomes money. Interestingly, the same thing happens with gold, except that one of the two causalities is short-circuited by the state: the reservation demand for gold does not spur merchants to accept gold in payment, because that is made illegal by the state. Thankfully bitcoin is so well engineered that the problem of the state banning use in transactions is essentially moot (no offense "Chuck" Schumer).

Monetary economists have a measure called <i>velocity</i>, which is "the average frequency with which a unit of money is spent on new goods and services produced domestically in a specific period of time. Velocity has to do with the amount of economic activity associated with a given money supply." [1] It can be thought of as the "rate of turnover in the money supply" [2]. It is a good indicator of the "health" of a currency.<p>The annualised velocity of the M2 Money Stock for Q4 2012 2 was 6.152 [2]. That is, the average dollar in the form of notes and coins in circulation (M0), traveller's cheques, checking account/demand deposits, savings deposits, time deposits/CDs under $100 000, and individuals' money market deposits was spent 1.538 times on economically useful activities in the fourth quarter of last year.<p>The annualised velocity of the Bitcoin Money Stock for Q4 2012 was 1.27. That is, the average Bitcoin in existence was transacted 0.32 times in the last 90 days of 2012. This includes economically useless transfer payments, i.e. transactions not involving the exchange of real goods or services, as well as economically useless hoarded or lost coins, i.e. Bitcoins not in circulation and so less a unit of "money" than a speculative asset (in the case of hoarding). Since this is a ratio, the two balance out, though it is still biased to the downside. For the 30 days ending on 29 March 2013, it was 1.86. Here is what it has been doing since February 2009 [3].<p>More encouragingly, Bitcoin Velocity has quadrupled YoY. M2 Velocity declined 4% over the same time. I would thus offer, very tentatively, that there is a substantial portion of the Bitcoin economy involved in real transactions (versus financial ones, e.g. trading on an exchange).<p>Curiously, yet to emerge (to my knowledge [EDIT: which was wrong]) is a majour vendor of Bitcoin mining equipment that accepts Bitcoin as a mode of payment. If that were to happen, the Bitcoin economy would have an endogenous "risk-free rate" in the form of mining yields, with power companies serving as the most salient factor. If it were not for the ceiling on the number of Bitcoins which can come into existence, it could very well have been the first currency pseudo-denominated in energy.<p>[1] <a href="https://en.wikipedia.org/wiki/Velocity_of_money" rel="nofollow">https://en.wikipedia.org/wiki/Velocity_of_money</a><p>[2] <a href="http://research.stlouisfed.org/fred2/series/M2V?cid=32242" rel="nofollow">http://research.stlouisfed.org/fred2/series/M2V?cid=32242</a><p>[3] <a href="http://imgur.com/f7oFZKb" rel="nofollow">http://imgur.com/f7oFZKb</a> <i>Annualised Bitcoin Velocity, Feb 2009 - March 2013</i>

It looks like a classic bubble now - while slow gains programmed in could be justifiable, this seems to be driven purely by expectations of future price rises - which is a classic bubble sign. So far, all bubbles popped sooner or later. Maybe this would be the only one in history that doesn't - I wouldn't bet on that, but maybe someone would and become a millionaire. Or lose all his money.

I hope that people who got in last year or earlier this year are starting to sell some of their bitcoins, at least enough to cover the cost basis. I wouldn't be surprised to see a very sharp fall soon.

Everyone keeps saying that a crash is around the corner and the current price is unsustainable, been hearing it since $40/BTC, maybe earlier. I don't completely disagree, the question I keep pondering though is, if there is a big sustained crash coming, is it from $100 to $30, or $900 to $300?

Is it possible to sell short, or buy put options? I think bitcoin has potential long-term but this seems like a ridiculous speculation-fueled bubble.

That pizza laszlo bought [1] nearly 3 years ago would now be worth over a million dollars.<p>[1] <a href="https://en.bitcoin.it/wiki/History" rel="nofollow">https://en.bitcoin.it/wiki/History</a>

I am going out on a limb and calling this price peanuts. The rise is due to Cyprus, and if bankers keep stealing people's money (and printing it) ... which they sure will because they compete amongst themselves about who has the most multi-millions (regardless of how they got it)... a portion will move their wealth into bitcoin. Also, as fiat currencies lose value, bitcoin will rise. Bitcoin is a hedge against fiat.<p>add: in fact the ideology of bitcoin is steeped in disempowering central banks. So you are buying into an ideology, and so long as the tech can keep up with the ideology, and there's nothing with better tech, and central banks keep ripping people off, then bitcoin will rise. It's far from perfect, but I think the web itself was about unlocking information to empower people (as created by hippies), something like the advent of literacy to empower people to read the bible when it was limited to priestly classes. Bitcoin is like grade 1 spelling and grammar, or the first web browsers: sure is better than not having either.

What would it take for somebody like Amazon or eBay to (even partially) support bitcoins? How much of a risk could it be?

That's insane. Only a few months ago 1BTC was going for about $30 USD. There were threads discussing $30/BTC where people were saying that it was too late to get on the wagon...

People like Max Keiser are calling 100k to 1mill per bitcoin. Hard to imagine. I left my gpu running for a few weeks a year or so ago and mined myself 1 bitcoin. I figure that should Keiser's prediction comes true - it will be a nice easy pay day - if not, I didn't waste much time, energy on it.<p>I've been looking at it lately though and thinking that it surely must drop back soon. I'm thinking a drop back down to 15 us is reasonable.

Earlier today this had 135 comments. Checked later, 200. Now 350! OMG BUY! BUY! BUY!

This crash is becoming really worrisome. Will it ever stop? <a href="http://i.imgur.com/c2ZpwrS.png" rel="nofollow">http://i.imgur.com/c2ZpwrS.png</a>.

Bitcoins are in a speculative bubble. This bubble is attracting fringe merchants, which provides a veneer of legitimacy to the dramatic speculative rise. Note that there is no way to effectively short bitcoins at this point, so there's no counterbalance to the speculation. When the bitcoin market turns south, it will fall hard as the shallow liquidity evaporates quickly.

Proof that Bitcoin is worthless:<p>I set up camp over the Golden Gate Bridge. I ask people if they'd be willing to throw their lunch into the water (use their computer's time/energy/money to mine Bitcoin), with no possibility of retrieving it, and in return I offer to give them a certificate stating that they've thrown their lunch away (a Bitcoin).<p>Now, I see no reason why anyone would expect why these certificates would have any value. But let's suppose they do have value, and people can trade their certificates, say, for a lunch (or perhaps half a lunch). NOW, suppose I have been secretly stashing away those lunches (really it doesn't need to be in secret - you don't care what happens to your lunch after you throw it away). Then there is now objectively more value in the world than there was before I set up shop - there are the same amount of lunches in the world, but there are also now certificates that have some positive value. We've made a free lunch!<p>This is a contradiction. If we could create value by this silly game, we could easily make as much value as we want, and we would have solved all the world's problem.<p>But this should be obvious in the first place! Why on earth would you expect to be rewarded with something of value (a Bitcoin) for doing something fundamentally useless to society (mining Bitcoin). Even though mining Bitcoin comes at a cost to you, this doesn't matter - it just means you're throwing your lunch away.<p>Now why does the US Dollar have value? Instead of throwing away our lunches for a certificate, we basically asked the government to store our lunches in Fort Knox. Today, lots of gold and other items of value are held there. Why are they held there? There is an implicit assumption that these items of value support the US Dollar. The government knows it could not start "eating those lunches" that it's got in its reserve! It would not yield society a free lunch - it would crash the US Dollar.

I think a lot of people here would benefit from reading some William Gibson novels.<p>I don't think the BTC will ever be a 'currency' as the USD or the GBP. It is also not necessary for the BTC to be at a 'fixed value' at any time. As a virtual currency it's ok for the BTC to fluctuate heavily as the only thing needed for it to still succeed is that payment systems are 'always on' and can determine a spot price for goods and services.<p>I would rather see the BTC tied to 'Pizza index' than USD. This would make it easy for people to use an in-app value determinator when making purchases.<p>Say you just tap your phone with a BTC wallet against a cash register. The register answers, well your burger will be 0.00065 BTC at spot price as of 12.24.44.32 PM. Accept/decline.<p>That's it. I see the BTC/LTC (Litecoin) as alternative currencies but still worthy of a HUGE market share for micro/everyday transactions.

How could the bitcoin exchange rate reverse its trend and start falling? Do you have any scenarios in mind?

Some people lack the knowledge and skills needed to be able to buy something from Amazon. Compare buying something from Amazon with buying anything using Bitcoins - Amazon is ridiculously easy.<p>Bitcoin will never reach that level of ease of use. But when it has something like a 5 step LiveCD[1] it might start to get wider use.<p>[1] Something like insert CD, prepare anonymising stuff; load encrypted file from USB stick; load key from hardware token and enter short password; and have the distro wallpaper give idiot proof flowchart diagram instructions.

Banks is still necessary to migrate analog currencies to digital currencies in todays financial economy. People trust banks and they would also be offering support on how to use the new currency, and with their investments on the highest security to guard their assets, it's much secure for them to generate the wallets and safeguard the information and incorporate them into the main currency. Banks are absolute necessity for propagating the new system, and merging the old currencies into bitcoin.

If any big companies today would be the first to utilize Bitcoin and use them, they would really glad that they did, with the prices of bitcoin soaring, the more people invest in it the more the price gets higher and people trusts the currency, it would be really wise to invest in them. Imagine if any of Facebook, Google, Amazon, Paypal would use them first, it would be faster to propagate bitcoins into the main financial system, and I think they will make a really good and wise decision.

I.e. the USD has fallen below 10 mBTC.

Bitcoins were designed to do that. If the price for 1 BTC rises to the level it becomes profitable to offer them computing power for the network people will generate new money. Until then its value gonna rise. This will loop until infinity.<p>Its hard to compare against dollar. As bitcoin is newborn with freedom written all over it. If it gets adapted more chances are its gonna be rising in value and will become first a currency for savings later on a day to day activity currency.

Excuse my lack of knowledge, but seeing as how one BTC is now worth $100. Is it possible to send someone half a bitcoin or 1/10th?<p>Or is it a single unit or nothing?

Imagine, if banks are using a bitcoin wallet, issues a bitcoin card (in a form of debit, savings card or credit card) with private keys on back and public keys on front, the bank then deposits money into the wallet then the end user withdraw money with the same bank or supporting banks.<p>This is one of the scenarios I think that would incorporate bitoin into the current financial system.

Gold and silver for day-to-day local transactions.<p>Bitcoin for larger sums, international or less timely.

It's difficult to say how much can this rise indefinitely. The higher the rise, if the bitcoin bubble does collapse, expect a even bigger fall when speculators start dumping their bitcoins on the market.

So.. how do I mine bitcoins again?

...and what happens when a competing cryptocurrency is released?

It gapped up on no volume whatsoever.. April Fools prank?

reminds me of the icelandic krona