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Offline Empirical1.1

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Personally I've speculated that businesses being unable to hold Bitcoin is a primary factor in Bitcoin's decline as it potentially means the more utility Bitcoin gains the worse it does, obviously inflation & speculation plays a role and other external factors/events. Just thought I'd post to see what people's thoughts are on the subject & whether we should communicate this angle more.

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Bitcoin was more well known in 2014 than ever before with more VC investment than ever before and is now accepted by tens of thousands of businesses worldwide, yet the price generally, clearly trended down the whole year. Why?

I suggest the reason is volatility.

The majority of businesses immediately sell their Bitcoin for fiat.

"Mr. White says that Coinbase’s list of merchants is continuing to grow at a rate of 10% each month despite bitcoin’s recent price drop. The “vast majority” of them convert their bitcoin into dollars, he says." http://www.wsj.com/articles/even-bitcoins-fans-prefer-to-keep-cash-1419539916

The problem for the price of Bitcoin is that a sale IN Bitcoin equals a sale OF Bitcoin. Imagine if every time you paid in Dollars at a shop, the shop didn't keep the Dollars and had to immediately sell the Dollars for Euro. I imagine the Dollar would rapidly devalue. Unfortunately the more people shop with Bitcoin the more selling pressure there is.

When few people accepted Bitcoin the price could rise, because we were all hoarding it. New demand had to chase newly mined coins. Now new demand has to soak up high inflation and all the Bitcoin we spend that businesses are selling for fiat as soon as they get it.

Except for inflation, a Bitcoin Dam was in place but now the Bitcoin leaks out via businesses.
If the businesses held & re-circulated more crypto, it would make a lake that got bigger and bigger with new demand & whenever people replenished. But Bitcoin leaks out because businesses don't hold it. Currently we're just refilling a leaking dam, which wouldn't leak nearly as much with a stable crypto-currency option for businesses. Though Bitcoin's short term value is speculative, I think the 2014 trend shows Bitcoin is losing a lot despite greater investment, development, exposure and utility.

It's likely that once options like BitUSD gain traction which offer stability, interest and all the advantages of decentralization that this situation will reverse & crypto will rise especially as an average of $3 worth of BitShares backs each BitUSD, so a little demand could go a long way.

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If that is a primary factor. I think we should communicate that more as the mindset now is that 'crypto is doomed/declining or not taking off' - if we can communicate that crypto is doing better than ever before but businesses not using stable BitCurrency options yet is a big factor in the downturn and once they do use BitCurrencies more the trend could rapidly reverse, that could be beneficial.



« Last Edit: January 12, 2015, 10:16:21 AM by Empirical1.1 »

Offline davidpbrown

Re: How much of a role has volatilty played in Bitcoin's decline?
« Reply #1 on: January 12, 2015, 01:39:58 PM »
Most of that makes sense except

> I suggest the reason is volatility.

The reason is not volatility, it's more simply that holding Bitcoin is less useful to them. In time, if their suppliers are accepting Bitcoin, then businesses would see more utility in holding and using it themselves.

This is what the on ramp to Bitcoin looks like.. a slow iteration of people buying; spending; merchants selling - that will have to grow, long before ever we see businesses doing the same. So, this change was expected and will continue until buying Bitcoin is easier and more common, which will lead to more appetite from individuals.. and much later more businesses using Bitcoin themselves. I'd expect this this weak Bitcoin will continue for a year. The real squeeze on BTC might come in 2017 with then next halving day.

BitShares then will do well positioning itself in parallel with that, so that it sees a turnover.. turnover is what matters. Market cap and holding alone, don't make mainstream consensus.


Someone on reddit was asking about Ethereum timeline to which I replied with this:
Quote
5 years to mainstream for the core of what Ethereum is attempting to do. Any faster seems highly unlikely given the time required to educate; overcome doubts about network stability; have the intention and the execution. Sure there will be immediate offerings but for the network to accept real value, it needs to prove itself first.

So, timeline I expect, if all goes well, might be:

1 year for cryptocurrencies like Bitcoin

2 years for Ripple-like money transporting services

3 years for crypto assets and currencies pegged to fiat and commodities

4 years for zero-value proof of person applications

5 years for more exotic business models going mainstream

That will require that Government acknowledges the potential. Any frustration from legislation etc will slow everything down.

In the event that a Government got enthusiastic and encouraged crypto-currencies and assets, then it could happen faster.

The full potential and exploitation of the opportunity this tech provides, will take a lot longer still.

I think a lot of crypto-crowd want it to happen over night because they want to get rich quick but there's a lot of work to do yet and that is why marketing is so important.. getting out into the real world and making utility apparent to as many people as possible.. so that we see the turnover that Bitcoin is seeing and more.

On the up side, we're not alone and BitShares benefits indirectly from any other crypto that's making an effort to educate people. So, we shouldn't be too critical of other offerings as they do us a favour.
« Last Edit: January 12, 2015, 01:42:39 PM by davidpbrown »
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Offline Empirical1.1

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Re: How much of a role has volatilty played in Bitcoin's decline?
« Reply #2 on: January 12, 2015, 04:38:23 PM »
Most of that makes sense except

> I suggest the reason is volatility.

The reason is not volatility, it's more simply that holding Bitcoin is less useful to them. In time, if their suppliers are accepting Bitcoin, then businesses would see more utility in holding and using it themselves.



I don't think so. If you run a retail business you have a long list of expenses - labour, rent, utilities, suppliers. All of these are priced in local currency and sometimes USD or other if you do business internationally. Most retail businesses work on very tight margins, a few %. It's much easier for most businesses to convert to fiat to have any chance of realistically managing their expenses on a tight budget.

For some businesses like I3, they could keep some in Bitcoin & the volatility would just effect what they had to work with. Not so for retail.

If your next 3 months of expenses - staff, rent, utility and average supplies totals $45 000 and you make $50 000 worth of Bitcoin. How much of it can you keep in Bitcoin and pay your expenses as they're due, knowing that you'll be able to meet them? I think the answer is nearly none. If you earn 50 000 BitUSD, how much can you keep in BitUSD? I think a lot of it.

There's very little priced in Bitcoin that I can think of where you'd be better staying in Bitcoin to be able to meet those expenses than fiat. I think.

So imo, definitely for retailers who work on tight margins and need to keep prices competitive and for the majority of other businesses, BitCurrencies are huge and a bigger and bigger crypto-economy can start to be built around them. (Very big for business when you consider the yield & privacy aspect too...)

Maybe there's some crypto-specific businesses that can interact in Bitcoin but I think unstable Crypto-currencies  may be in trouble imo short term (<5 years) but BitCurrencies largely solve the problem and can be useful almost immediately and hence hopefully gain rapid adoption.


(I was a bit confused but I think this is true too - Even if your supplier accepts Bitcoin the price they charge in Bitcoin for the forseeable future fluctuates with the exchange rate. So you can't set aside 500 BTC for a supplier that charges 1 BTC a widget because if Bitcoin halves in value, he'll charge 2BTC a widget and your budget will be messed up. There may be some obvious examples where this isn't true but I can't think of any off the top of my head.)







« Last Edit: January 12, 2015, 05:03:57 PM by Empirical1.1 »

Offline davidpbrown

Re: How much of a role has volatilty played in Bitcoin's decline?
« Reply #3 on: January 12, 2015, 05:02:50 PM »
In the event that Government accepts that a digital token can have value that is equivalent to fiat, then you might be right about that second stage of businesses moving to bitUSD+ happening faster. The value of something is a private concern, that a digital token has the value of a USD or GBP, should not be an issue. In the event that Government's suggest that such an exchange of value is real, then businesses could fast track to using those stable digital currencies the like that BitShares offers already.. but the on ramp iteration would still need to occur, in order to engage businesses broadly. The economic stress and low margin's of certain businesses obviously does help - I think that was one of the reasons Overstock noted.

So, for what you suggest to occur at speed, we need Government.. which needn't be impossible; given the state of the economy, I expect they are keen for any good option to create new economy. I replied encouraging the same to the UK.gov's call for information and hopefully they will listen more to positive opportunity than to existing third party authorities being cynical about the threats from blockchain technology.

The creation of bitUSD doesn't affect the value of USD, it enhances it; so, by rights Government's should see this as a win-win. They just need to stop dragging their feet.
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Offline Empirical1.1

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Re: How much of a role has volatilty played in Bitcoin's decline?
« Reply #4 on: January 12, 2015, 05:07:00 PM »
I guess yeah govt. would have to recognise it for it to really grow huge fast, but I still think businesses can confidently keep more and more in BitCurrencies for longer and longer periods knowing when they need to convert they can meet their expenses. So I hope that alone is enough to make a big difference vs. needing to convert Bitcoin to fiat straight away.

I also think more and more people in a lot of supply chains can be rapidly converted to accepting BitCurrencies for this reason too.

Overstock for example tried to keep a bit of their sales in Bitcoin and probably got bitten with the price fall, whereas they could have kept it in BitUSD & not had that problem while still supporting crypto-currency.
« Last Edit: January 12, 2015, 05:15:13 PM by Empirical1.1 »

Offline davidpbrown

Re: How much of a role has volatilty played in Bitcoin's decline?
« Reply #5 on: January 12, 2015, 05:27:22 PM »
Which tempts the thought that there is an untapped market of those individuals stung by alt-coin drops..
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Offline starspirit

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Re: How much of a role has volatilty played in Bitcoin's decline?
« Reply #6 on: January 12, 2015, 09:26:08 PM »
This argument is contradictory. Merchant adoption, to the extent that it does occur despite the obstacle of volatility, increases the utility of BTC. Those who wanted to hold BTC, now have the opportunity to spend it on goods, and then buy back BTC (to maintain their average holding) as it gets recirculated by the merchants. Those who wanted to sell BTC anyway, now have the opportunity to trade it for goods, rather than selling it directly in the markets. In either case, the market impact is unchanged, but the utility of BTC is increased through additional spending options. Merchants can only drive the BTC price down if there are fewer buyers for their BTC, but that would have happened in the market anyway if holders wanted to lighten their holdings of BTC.

I don't think volatility has caused the decline at all (BTC has had major upswings on higher volatility), but certainly volatility affects the magnitude of any potential decline. And volatility would definitely slow merchant adoption. That's where more stable digital currencies can be a more attractive short term option for merchants. But we should be clear - BTC is competing for a role as digital money, whereas bitAssets are derivatives of money and are not vying for the longer term role of digital money.

To other comments about government acceptance, government would never back a private issue like bitUSD, because they cannot offer any protection in the event that BTS declines and people lose money.

Offline donkeypong

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Re: How much of a role has volatilty played in Bitcoin's decline?
« Reply #7 on: January 12, 2015, 09:49:24 PM »
Personally I've speculated that businesses being unable to hold Bitcoin is a primary factor in Bitcoin's decline as it potentially means the more utility Bitcoin gains the worse it does, obviously inflation & speculation plays a role and other external factors/events. Just thought I'd post to see what people's thoughts are on the subject & whether we should communicate this angle more.

---

Bitcoin was more well known in 2014 than ever before with more VC investment than ever before and is now accepted by tens of thousands of businesses worldwide, yet the price generally, clearly trended down the whole year. Why?

I suggest the reason is volatility.

The majority of businesses immediately sell their Bitcoin for fiat.


I agree with you. This is one big reason it hasn't worked well so far. And I think the story will be different (in time, as they learn to trust it) with BitUSD.

Offline PotatoPeeler

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Re: How much of a role has volatilty played in Bitcoin's decline?
« Reply #8 on: January 12, 2015, 10:41:45 PM »

I agree about volatility hurting bitcoin. I had some sitting around but I'm somewhat confident the price will continue to drop.  I hoped 300 would hold but once it broke I think 200 could just as well be the next 300.

I'd go further and say that the same volatility hurts bitUSD because it makes the job of market makers a lot more difficult.

 

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