Bitcoin...the New Unbacked Etf

[Traktion]

The bit I'm struggling with is, if we take Traktion's suggestion that 10% of black market transactions might, in the future, be conducted in bitcoins, then each bitcoin would be worth around ten million dollars. This does not seem supportable for any number of reasons.

It strikes me that the hard limit on the number of bitcoins is a fundamental flaw. Far better to have some pricing mechanism that allows further creation (with the aim of a maintaining a stable value and discouraging speculation).

Probably won't stop me buying one bitcoin - but then I have a nice Weimar 1,000,000 mark note in my desk drawer too, so they'll balance each other nicely...

Why not? Granted, it doesn't sound credible considering the current value, but the suggestion isn't that outlandish.

[LetsGetReadyToTumble]

Bitcoins are truly only worth anything if the demand is there.

Ironically, the fact that they are hard to get hold if does mean that their price goes up.

I can currently get them at a reasonable price + 3.5% fee, which is much cheaper than BitBargain but was hard to sort out. Now it'd be nice to sell on BitBargain... I'm still quite limited on daily amounts, however.

What other sites handle online sales to individuals nicely? LocalBitCoins seems to be mainly about cash, at least in the UK, and values are lower than BB. OTC looks risky as anything.

Why are the prices a lot more on Bitbargain, as compared to localbitcoins, all purchased through the internet?

I see prices vary wildly even on the same site. Why?

[Sour Mash]

meanwhile, in spite of all the bitcoin millionaires, there is not 1 penny of wealth created to cover them...this is sold as the essence of the bitcoin...it is debt free, or, backed by nothing..It is therefore going to be a friction free currency, valuation based on only what the traders can get for it.

There's no wealth behind any of the vast amounts of freshly printed fiat currency being churned out by the Central Banks of debt-ridden Western states either. You can claim that the currency itself has backing because governments can tax people in it - but the fiat currency itself has no intrinsic value.

It's an electronic analogy to gold - you can 'mine' new supplies in ever decreasing quantities but you can't simply magic up large amounts of the stuff upon demand. If you want it you have to mine or trade for it.

AFAIK the bitcoin software is open source so anyone could come up with their own version/variation of it. It would be very interesting indeed if a someone used a bitcoin-like system as a currency and backed it with a set amount of gold (i.e. guaranteed to convert one token to a set amount of physical gold).

[Traktion]

Why are the prices a lot more on Bitbargain, as compared to localbitcoins, all purchased through the internet?

I see prices vary wildly even on the same site. Why?

For localbitcoins, the price is set by the seller, so can vary according to what the individual thinks it is worth.

Ultimately, this is what happens in all markets. There are bids and asks and the difference between them is called the spread and the last successful trade is considered the spot.

However, with localbitcoins, there are many mini-markets, rather than one large market. That is, the bids/asks don't go in one big 'pot', so the process is a bit more manual (more like going between different market stalls and comparing prices).

[Traktion]

There's no wealth behind any of the vast amounts of freshly printed fiat currency being churned out by the Central Banks of debt-ridden Western states either. You can claim that the currency itself has backing because governments can tax people in it - but the fiat currency itself has no intrinsic value.

It's an electronic analogy to gold - you can 'mine' new supplies in ever decreasing quantities but you can't simply magic up large amounts of the stuff upon demand. If you want it you have to mine or trade for it.

AFAIK the bitcoin software is open source so anyone could come up with their own version/variation of it. It would be very interesting indeed if a someone used a bitcoin-like system as a currency and backed it with a set amount of gold (i.e. guaranteed to convert one token to a set amount of physical gold).

Neither does gold or silver... nor anything else, for that matter!

When people understand this, they realise that value is entirely subjective; Bitcoin then starts to make some sense. Bitcoins are valued in themselves just as gold or silver are.

[Bloo Loo]

There's no wealth behind any of the vast amounts of freshly printed fiat currency being churned out by the Central Banks of debt-ridden Western states either. You can claim that the currency itself has backing because governments can tax people in it - but the fiat currency itself has no intrinsic value.

It's an electronic analogy to gold - you can 'mine' new supplies in ever decreasing quantities but you can't simply magic up large amounts of the stuff upon demand. If you want it you have to mine or trade for it.

AFAIK the bitcoin software is open source so anyone could come up with their own version/variation of it. It would be very interesting indeed if a someone used a bitcoin-like system as a currency and backed it with a set amount of gold (i.e. guaranteed to convert one token to a set amount of physical gold).

thats right, what I was trying to get across was that ETFs also are backed by a promise of redemption for a whatever...gold, silver ,BTC.

the nominal ETF is therefore backed by this promise, yet, there isnt enough Gold or Silver to pay out all the ETFs...the same thing will happen with Bitcoin...the inventor, rumoured to be Max Keiser, probably envisaged the same thing and hoped ( maybe) that there would be no ETF (derivatives) of the BTC...assuming that a take down in this way would wipe out its value....that hasnt happened with PM ETFs, but the value of physical is very much affect by the ETFs.

[goldbug9999]

there isnt enough Gold or Silver to pay out all the ETFs

Really ? ... so give us some examples of precious metal ETFs that not at or very close to 100% Net Asset Value.

[Sour Mash]

Neither does gold or silver... nor anything else, for that matter!

When people understand this, they realise that value is entirely subjective; Bitcoin then starts to make some sense. Bitcoins are valued in themselves just as gold or silver are.

Well stuff that can keep you alive like food, water and energy (heat) certainly does have an intrinsic value in that people need it and will work or trade for it if they don't have enough to meet their needs.

Gold may not be that useful per se but it has long been coveted, so it has a desirability that is proven throughout history. Silver actually seems to be getting more and more useful as new technologies come along.

Bitcoin could be a useful currency but it needs to be backed by something or at least be accepted into widespread use to succeed in the longer term. I don't think that a simple desire to speculate on it as we are seeing happening now is going to help much. If anything, this could kill it off.

I wouldn't be at all surprised if the big financial organisations had mined a load of bitcoin (they have massive computing power at their service) and were busy pushing the price up in order to make a big profit for themselves by cashing it in, whilst crippling the chances of it emerging as a viable currency in the longer term.

[mfp123]

Bitcoin could be a useful currency but it needs to be backed by something or at least be accepted into widespread use to succeed in the longer term. I don't think that a simple desire to speculate on it as we are seeing happening now is going to help much. If anything, this could kill it off.

bitcoin only needs to have value to the people that use it and accept it. it doesnt need widespread use, it can be as small or as big as the market decides.

interesting fact: the value of bitcoin broad money supply exceeds the bottom 20 currencies in the world.

it currently ranks around 170 out of 190.

156 Rwanda $ 1,536,000,000

157 Togo $ 1,534,000,000

158 Malawi $ 1,382,000,000

159 Cape Verde $ 1,362,000,000

160 Maldives $ 1,298,000,000

161 Belize $ 1,263,000,000

162 Niger $ 1,201,000,000

163 Djibouti $ 1,158,000,000

164 Sierra Leone $ 1,152,000,000

165 Saint Lucia $ 1,149,000,000

166 Antigua and Barbuda $ 1,131,000,000

167 Swaziland $ 1,106,000,000

168 Bhutan $ 1,018,000,000

169 Saint Kitts and Nevis $ 964,100,000

170 Lesotho $ 897,000,000

171 Grenada $ 715,600,000

172 Liberia $ 664,100,000

173 Vanuatu $ 610,800,000

174 Seychelles $ 553,400,000

175 Burundi $ 519,000,000

176 Gambia, The $ 512,200,000

177 Central African Republic $ 459,700,000

178 Saint Vincent and the Grenadines $ 431,900,000

179 Guinea-Bissau $ 414,300,000

180 Dominica $ 413,700,000

181 Timor-Leste $ 386,900,000

182 Solomon Islands $ 386,400,000

183 Anguilla $ 383,300,000

184 Samoa $ 327,900,000

185 Comoros $ 212,100,000

186 Tonga $ 169,200,000

187 Cook Islands $ 148,200,000

188 Micronesia, Federated States of $ 118,400,000

189 Sao Tome and Principe $ 80,550,000

190 Montserrat $ 71,330,000

the UK is $4 trillion

the US is $13 trillion

so its current value is of a micro country. the long term viability of it depends solely on the people who use it at a particular point in time. it doesnt need to match sterling or US dollars, it only needs to stand up on its own, backed by the people that use it.

so for example the currency of the maldives doesnt matter to you and me, the fact that we dont use the maldivian currency doesnt mean it has no value, it only has no value to you and me. a currency only needs to matter to the people who use it, which gives it value.

if bitcoins dont grow from here on, for the next 10 years, it will still serve its own purpose for its own community.

Edited April 5, 2013 by mfp123

[justthisbloke]

My view is that BC will fail legally for precisely this reason. It is incompatible with the reasonable demands of government for traceability of transactions (thwarting criminals) and also incompatible with their less reasonable demands to tax the hell out of everything.

Are those demands "reasonable"?

I need a bit more convincing; it's always struck me that the core reason for AML is the latter reason; taxation. The "think of the terrorists" line is just window dressing.

Maybe I've just become too jaded about politicians over the years.

[Bloo Loo]

Really ? ... so give us some examples of precious metal ETFs that not at or very close to 100% Net Asset Value.

I dunno....Global MF...failed...

Margan Stanley apparently were paying contracts in Cash rather than PM...even got a law changed to make it legal..

thats two...must be thousands of funds.

[Gigantic Purple Slug]

Are those demands "reasonable"?

I need a bit more convincing; it's always struck me that the core reason for AML is the latter reason; taxation. The "think of the terrorists" line is just window dressing.

Maybe I've just become too jaded about politicians over the years.

I think your becoming jaded is more than justified.

For me the issue with bitcoin is whether it offers anything fundamentally different from any other currency, and as far as I can tell it doesn't. It also lacks a few things that other currencies have, like being backed by force. It attempts to make up for this by being "very difficult" to forge. Best of luck with that approach. History shows otherwise.

Ultimately control of a currency brings you power and therefore people will always seek to either control or destroy them for their own ends. I don't see any practical way this can be stopped for anything.

If it ever did become massively successful TPTB would probably wait for the first major crash and then would ban it as as some sort of "scheme" - for our own protection of course.

[miggy]

Why are the prices a lot more on Bitbargain, as compared to localbitcoins, all purchased through the internet?

I see prices vary wildly even on the same site. Why?

Firstly, I meant 2.5% fee and mt gox plus a bit prices to buy nr instantly. For buys which take 1-5 days there are various ways to buy at the going rate with costs varying from £1 and 0.5% bitcoin transaction fees to a bit more for international transfers. I think I need to blog post my research in an easy to read form as doing things from the UK is messy right now and it's taken a lot of reading up.

Secondly, BitBargain prices are high because of how hard it is to get the coins in the UK and to become a seller on BitBargain. Wildly varying prices are simply down to when people put their sell offers up.

[Priced_Out_GenXer]

I think your becoming jaded is more than justified.

For me the issue with bitcoin is whether it offers anything fundamentally different from any other currency, and as far as I can tell it doesn't. It also lacks a few things that other currencies have, like being backed by force. It attempts to make up for this by being "very difficult" to forge. Best of luck with that approach. History shows otherwise.

Ultimately control of a currency brings you power and therefore people will always seek to either control or destroy them for their own ends. I don't see any practical way this can be stopped for anything.

If it ever did become massively successful TPTB would probably wait for the first major crash and then would ban it as as some sort of "scheme" - for our own protection of course.

The powers that be could ban it but - bearing in mind Bitcoin is open source - how long would it be before another cryptocurrency took it place? I suppose the TPTB could shut down online exchanges but so long as there are individuals willing to accept cryptocurrency as payment for goods and/or exchange it for FIAT currency then how could they ban it? And would they also have to ban other virtual currencies such as Second Life Linden dollars and Microsoft Xbox points etc? If not where would they draw the line?

btw - these are genuine questions, as someone who is considering a small investment in Bitcoins I'd be interested to know the answers.

[mfp123]

the powers that be may want to shut it down but then i guess thats the point of something like this. people are tired with the current system and want to do things themselves.

it would be hard to shut it down given the jurisdiction issue of a digital currency, however youd assume one way it would try to hurt it would be to ban banks from accepting payments in bank accounts relating to bitcoin.

in essence using the control of their currency to destroy a currency that tries to break free from that control.

that kind of control however is why something like this exists. its no coincidence that the value of bitcoin shot up after the cyprus debacle. bitcoin may bite the dust but its trailblazed the way for other currencies to pop up.

Edited April 5, 2013 by mfp123

[Bloo Loo]

the powers that be may want to shut it down but then i guess thats the point of something like this. people are tired with the current system and want to do things themselves.

it would be hard to shut it down given the jurisdiction issue of a digital currency, however youd assume one way it would try to hurt it would be to ban banks from accepting payments in bank accounts relating to bitcoin.

in essence using the control of their currency to destroy a currency that tries to break free from that control.

that kind of control however is why something like this exists. its no coincidence that the value of bitcoin shot up after the cyprus debacle. bitcoin may bite the dust but its trailblazed the way for other currencies to pop up.

Its dead easy to shut it down.

Issue ETFs on it...no bitcoins required.

bitcoiners would hope that people would shun them...but where there is a fast buck to be made, then a scandle....ETF is the way to go.

[Traktion]

Well stuff that can keep you alive like food, water and energy (heat) certainly does have an intrinsic value in that people need it and will work or trade for it if they don't have enough to meet their needs.

Gold may not be that useful per se but it has long been coveted, so it has a desirability that is proven throughout history. Silver actually seems to be getting more and more useful as new technologies come along.

Bitcoin could be a useful currency but it needs to be backed by something or at least be accepted into widespread use to succeed in the longer term. I don't think that a simple desire to speculate on it as we are seeing happening now is going to help much. If anything, this could kill it off.

I wouldn't be at all surprised if the big financial organisations had mined a load of bitcoin (they have massive computing power at their service) and were busy pushing the price up in order to make a big profit for themselves by cashing it in, whilst crippling the chances of it emerging as a viable currency in the longer term.

Even food and water are only desirable when you are hungry or thirsty.

Bitcoin hasn't needed backing so far and that is its strength. Having no counter party is core to it being useful.

[Priced_Out_GenXer]

Its dead easy to shut it down.

Issue ETFs on it...no bitcoins required.

bitcoiners would hope that people would shun them...but where there is a fast buck to be made, then a scandle....ETF is the way to go.

I don't even know what an ETF is but have Google'd - presumably then an ETF would attract investors some of whom might otherwise have invested directly in bitcoins. But I don't see how that would shut it down, in fact I've read quite a few posts from people who suggest ETF would be a good thing for Bitcoin. In any case surely there would be many people who would still want to barter and trade directly in bitcoins for reasons of anonymity or ideology?

[evetsm]

How can something that never existed before be in a bubble? Surely a bubble are prices that are historically high, out of all proportion. ?

The internet itself went from zero to everyone in about 20 years. That was no bubble, it was just a disruptive paradigm shift that is here to stay.

[Bloo Loo]

How can something that never existed before be in a bubble? Surely a bubble are prices that are historically high, out of all proportion. ?

The internet itself went from zero to everyone in about 20 years. That was no bubble, it was just a disruptive paradigm shift that is here to stay.

Tulips to you sir.

BTC may not be in a bubble as you say...but the value of it rising so fast is a bit odd....a worker taking 1 BTC a couple of years ago would now be taking 0.005 of a BTC for the same work today.

[evetsm]

Tulips to you sir.

BTC may not be in a bubble as you say...but the value of it rising so fast is a bit odd....a worker taking 1 BTC a couple of years ago would now be taking 0.005 of a BTC for the same work today.

if you measure btc against some trivial fraction of the outstanding credit, a future claim against cash money, then btc ( and gold) are vastly undervalued. The bond market alone is worth some $100 trillion. Even if you measured btc potential against actual global gdp of $60 trillion, btc at even 1/60 th of that, are vastly undervalued. Measured against a trivial fraction of the black market btc are vastly undervalued.

If btc holds up and no fatal flaws are found, its potential value is huge. imo btc either goes up enormously in value or goes to zero. Nothing in between. The most asymmetrical bet ever. A bet that it would be foolish not to take. imo

[Bloo Loo]

if you measure btc against some trivial fraction of the outstanding credit, a future claim against cash money, then btc ( and gold) are vastly undervalued. The bond market alone is worth some $100 trillion. Even if you measured btc potential against actual global gdp of $60 trillion, btc at even 1/60 th of that, are vastly undervalued. Measured against a trivial fraction of the black market btc are vastly undervalued.

If btc holds up and no fatal flaws are found, its potential value is huge. imo btc either goes up enormously in value or goes to zero. Nothing in between. The most asymmetrical bet ever. A bet that it would be foolish not to take. imo

TBH, I thought the same way on the day I posted the OP....but some woman tried to kill me at the petrol station so i didnt get round to buying...maybe a greater power was warning me.

[gadget]

How can something that never existed before be in a bubble? Surely a bubble are prices that are historically high, out of all proportion. ?

The internet itself went from zero to everyone in about 20 years. That was no bubble, it was just a disruptive paradigm shift that is here to stay.

I agree.

BTW i've got some boo.com shares you can buy if you want them. They're in a draw with my canal shares, railway shares. and some South Sea company that's going to do something very exciting but secret....

if you measure btc against some trivial fraction of the outstanding credit, a future claim against cash money, then btc ( and gold) are vastly undervalued. The bond market alone is worth some $100 trillion. Even if you measured btc potential against actual global gdp of $60 trillion, btc at even 1/60 th of that, are vastly undervalued. Measured against a trivial fraction of the black market btc are vastly undervalued.

If btc holds up and no fatal flaws are found, its potential value is huge. imo btc either goes up enormously in value or goes to zero. Nothing in between. The most asymmetrical bet ever. A bet that it would be foolish not to take. imo

The problem with this line of reasonable is it's contradictory.

If bitcoins are sure to rocket in price noone will want to "spend" them. So it'll never be used in any of the transaction you say mean it's sure to rocket in price.

I'm with Felix Salmon

[evetsm]

I agree.

The problem with this line of reasonable is it's contradictory.

If bitcoins are sure to rocket in price noone will want to "spend" them. So it'll never be used in any of the transaction you say mean it's sure to rocket in price.

I'm with Felix Salmon

A better way to measure the potential value of btc is wrt 1oz of gold. Sound currency in terms of sound currency, a like for like substitution. Gold's value in a free market grows at the same rate as the economy. The wild fluctuations seen in the price of gold is due to the wild fluctuations of the fiat in which it is quoted. Most gold students believe it is currently undervalued in fiat, but assume it is fairly valued. Divide total number of btc into total oz gold and you get 1 btc = 230 oz gold, approx.

ie. 1 btc = $1600x230= $368,000

Of course, this is all making big assumptions eg. that btc will replace gold entirely. Likely there will be a mix, and some lower valuation. Still, we are currently only at about a relatively puny $150 per btc.

[Ted]

I agree.

BTW i've got some boo.com shares you can buy if you want them. They're in a draw with my canal shares, railway shares. and some South Sea company that's going to do something very exciting but secret....

The problem with this line of reasonable is it's contradictory.

If bitcoins are sure to rocket in price noone will want to "spend" them. So it'll never be used in any of the transaction you say mean it's sure to rocket in price.

I'm with Felix Salmon

As they are still quite new, their price is obviously going to be volatile. Whether they eventually fail or succeed ( not sure how you measure success) their price is going to be extremely volatile initially. In 20 years if they are still widely used and have a much higher market cap, then I would expect them to be much more stable .