The economics of BitCoin

westernpromise

Eric_the_half_a_bee wrote: »

So can I sell forward at $18,800, buy now at $16,700, and guarantee myself a risk-free profit?

Well, no, because the contract's cash-settled. You can't take your $16,700 bitcoin and deliver it against a futures short, because there's no delivery. So you'd have either to buy the futures back or let them cash out. And what would the price be? Well, who knows, because the future is not behaving like the underlying, so GOK what the $18.8k price actually represents.

At some point the futures price should converge on the underlying because supposedly the underlying price settles the future. It will be interesting to see if it actually does.

hildosaver

Will be a very interesting couple of weeks for Bitcoin now that the initial futures market appears to have started in a positive way. The big test will be on the 18th when CME starts.

GreatApe

Google trend search for bitcoin correlates well with its price.

As the price goes up more people search for terms like 'how to buy bitcoin'

Searches are up ~20x on the year and so is the price

economic

Taxi drivers and hairdressers were talking about stocks prior to the tech bubble bursting. in fact they were talking about it a few years before that bubble burst.

Who knows how long it will take for the BTC bubble to burst.

Interestingly during the dot com period, it was retail investors who came in after the institutions. Now it is retail who have come in before institutions. What does this mean?

westernpromise

That it's risky to short it because in a bubble nobody knows how high it could go. The top is when the last sucker's in. That could be anywhere.

Bitcoins, unlike houses, classic cars and fine art, have no legitimate utility whatever. A picture you can at least hang on the wall, a classic car you can pose in, but what do you do with a bitcoin after the herd's moved on to the next crypto currency?

I understand that bodies such as the FIA are very unhappy about the bitcoin future and reportedly the Democrats are looking at the whole process whereby US exchanges self-certify the legitimacy of contracts they list.

GreatApe

Valuation is so hard for this 'asset'

A perfect cyrpto 'asset' (maybe bitcoin but also maybe one of its clones) does have value in much the same way gold has value. Its value is only in the value the next guy will pay for it.

Some of the players in this new 'asset' are a bit crazy in their future price predictions
Total net world wealth is about $300 trillion and since this coin adds no actual additional wealth any value gained would surely be lost from part of this $300 trillion???

Could a new asset class like these coins destroy fiat and fiat debt?
For instance if the worlds countries started to one by one abandon their own currencies and start using gold coins then of course the old currencies with no users would be worthless. There is no good reason to do this you just transfer a massive amount of wealth from debt holders (eg like pension funds with government bonds) to gold holders. You also create a massive problem (many problems) in that this conversion to gold as a currency would drive its real price up 10 fold so more people would be allocated to the pointless task of digging gold out of the ground. Almost exactly what would happen if a coin replaced currencies.

I think this could potential evolve into a financial problem/crisis

A few hundred thousand bitcoin bulls/owners now but if governments and big debtors realize this could inflate their fiat dominated debts away then there might be a $100 trillion reason to embrace a new 'currency'

GreatApe

westernpromise wrote: »

That it's risky to short it because in a bubble nobody knows how high it could go. The top is when the last sucker's in.

Bitcoins, unlike houses, classic cars and fine art, have no legitimate utility whatever. A picture you can at least hang on the wall, a classic car you can pose in, but what do you do with a bitcoin after the herd's moved on to the next crypto currency?

But isn't all value subjective? Nothing really has 'intrinsic' value.

We could say that some things are necessities and so long as there are people the people will place a positive value on it. Eg homes and land and shares in businesses would be in that category they all have a non zero value. And in the course of anything other than extremely unlikely events their values will not fall much. For instance house prices or land prices can fall a little bit but not a lot unless something extreme happens like a plague that kills half the population in which case house prices or land can fall a lot and maybe towards zero (say 90% off)

However fiat currency, these cypto coins, gold, classic cars, art, and even thinks like football player cards that kids trade. All of those have no value and are not necessities so could fall to zero. Their only value is in what someone else will give you for it later. Fiats have gone to zero, a lot of crypto has gone to zero, gold in some cultures was almost worthless (like how the Europeans traded trinkets for lumps of gold with the americas natives).

The utility of digital coins is no more or less than of paper notes or football cards or art or even gold. In some ways the digital coins have better advantages in that they are divisible and can be transferred at great distances for low cost.

GreatApe

Just to note I think the most likely role for these coins is a new form of gambling
They will survive for years and maybe decades going up and down and up and down
The sad part is people who normally do not gamble are being drawn into it and it can be fixed somewhat so its not so much roll of the dice gambling or poker gambling but somewhere in between the two

Herzlos

https://amp.theguardian.com/technology/2017/dec/07/bitcoin-64m-cryptocurrency-stolen-hack-attack-marketplace-nicehash-passwords

Is a pretty big example of how risky it is. That's a lot of money stolen and there's no chance of it being recovered, no insurance cover or guarantee to fall back on. Totally gone.

GreatApe

https://www.theguardian.com/technology/2017/dec/13/video-site-visitors-unwittingly-mine-cryptocurrency-as-they-watch-report-openload-streamango-rapidvideo-onlinevideoconverter-monero

This is very bad news lots of websites having their users mine coins.
The big problem is the users probably are unaware but even worse than that there is no economic case to mine with general computers. For every $1 you make from coins it costs over $100 in electricity on a normal computer

But the websites dont care they are not paying your electricity bill

This is clearly a side effect they did not consider when making these coin systems.

Very bad side effects which probably have no solutoin