This is from an ArsTechnica article based on interviews with "Brent Goldfarb...a business professor at the University of Maryland, and William Deringer...a historian at MIT."
"Uncertainty of valuation is often a huge issue in bubbles," Deringer told Ars. Unlike a stock or bond, Bitcoin pays no interest or dividends, making it hard to figure out how much the currency ought to be worth. "It is hard to pinpoint exactly what the fundamentals of Bitcoin are," Deringer said.
[I'm tellin' ya, ya ain't gonna get nowheres analyzing Bitcoin with financial analogs like "fundamentals." Bitcoiners are culpable here, too. You cannot justify Bitcoin or its worth with the blockchain technology. Stop!]
Deringer also sees parallels between tulip mania and today's Bitcoin boom. In both cases, he told us, "the value of the thing was not just about a calculation of its economic return but also about the aesthetic value of its coolness."
[I'm tellin ya...]
...
Bitcoin owners don't get interest, dividends, or other benefits from holding bitcoins. It's like a technology stock that's going to be pre-revenue forever. And this makes it less obvious what kind of developments could cause investors to have second thoughts.
["The first person to reason by analogy was the devil," The Prophet Muhammad.]
Goldfarb compares bitcoins to assets with "artificial scarcity" like fine art. "It'll have value so long as people believe it has value," Goldfarb says.
[Okay! Professor Goldfarb has stumbled uncontrollably into the truth! It IS the people.]
We shouldn't take this line of argument too far, however. Bitcoins don't pay dividends, but their value can be pushed upward if a lot of people start using the Bitcoin network. The supply of bitcoins is permanently capped at 21 million. So if a lot of people want to make payments over the Bitcoin network, the value of bitcoins will need to rise (or at least stay at high levels) to accommodate that demand.
[I disagree with the Ars writer there but I don't know enough to say he is wrong. Imo, the price of Bitcoin has to fall if people are going to use it. Why? Because who's going to spend a $16,020 coin?]
The other, weirder possibility is that bitcoins could prove to be a digital version of gold. Gold's value defies conventional market analysis in much the same way bitcoin's value does. Gold doesn't pay a dividend and only about half of the world's gold supply is devoted to jewelry or industrial use.
[I disagree. Gold does not defy economics. Gold has had stable value for hundreds of years: it's "correct" price is about what it takes to buy a really good men's suit. Gold has had that valuation for so long because it is actually, like, used, in jewelry, in industry, Bitcoin Is. Not. Used. Period there. Therefore, Bitcoin has no "correct" price based on such "fundamentals" because Bitcoin is based on people.]
A lot of gold is held in vaults and under floorboards as a long-term store of value and a hedge against inflation and global turmoil—and this kind of speculative trading has a big impact on gold's price. If enough people continue believing that gold is a good investment, this becomes a self-fulfilling prophesy.
[That is true.]
Something similar could be happening with Bitcoin. Bitcoin now has a large subculture of "hodlers"—a deliberate, whimsical misspelling of "holders"—who make it a point of pride that they hold on to their bitcoins as a long-term investment regardless of short-term market fluctuations. The hodler ideology could be self-fulfilling in much the same way that goldbug ideology is: the more people who come to believe that bitcoins are a good long-term store of wealth, the more it will be a good long-term store of wealth.
*Update: Bitcoin is the new China here. I write something clever about it and the board lights up. This post got 18 readers in just over an hour. The gestalt shifting "I have a new idea" had 11 in about the same time but got drowned out by subsequent posts and is now at 20, still one of the most read posts in about the last 100.
"Uncertainty of valuation is often a huge issue in bubbles," Deringer told Ars. Unlike a stock or bond, Bitcoin pays no interest or dividends, making it hard to figure out how much the currency ought to be worth. "It is hard to pinpoint exactly what the fundamentals of Bitcoin are," Deringer said.
[I'm tellin' ya, ya ain't gonna get nowheres analyzing Bitcoin with financial analogs like "fundamentals." Bitcoiners are culpable here, too. You cannot justify Bitcoin or its worth with the blockchain technology. Stop!]
Deringer also sees parallels between tulip mania and today's Bitcoin boom. In both cases, he told us, "the value of the thing was not just about a calculation of its economic return but also about the aesthetic value of its coolness."
[I'm tellin ya...]
...
Bitcoin owners don't get interest, dividends, or other benefits from holding bitcoins. It's like a technology stock that's going to be pre-revenue forever. And this makes it less obvious what kind of developments could cause investors to have second thoughts.
["The first person to reason by analogy was the devil," The Prophet Muhammad.]
Goldfarb compares bitcoins to assets with "artificial scarcity" like fine art. "It'll have value so long as people believe it has value," Goldfarb says.
[Okay! Professor Goldfarb has stumbled uncontrollably into the truth! It IS the people.]
We shouldn't take this line of argument too far, however. Bitcoins don't pay dividends, but their value can be pushed upward if a lot of people start using the Bitcoin network. The supply of bitcoins is permanently capped at 21 million. So if a lot of people want to make payments over the Bitcoin network, the value of bitcoins will need to rise (or at least stay at high levels) to accommodate that demand.
[I disagree with the Ars writer there but I don't know enough to say he is wrong. Imo, the price of Bitcoin has to fall if people are going to use it. Why? Because who's going to spend a $16,020 coin?]
The other, weirder possibility is that bitcoins could prove to be a digital version of gold. Gold's value defies conventional market analysis in much the same way bitcoin's value does. Gold doesn't pay a dividend and only about half of the world's gold supply is devoted to jewelry or industrial use.
[I disagree. Gold does not defy economics. Gold has had stable value for hundreds of years: it's "correct" price is about what it takes to buy a really good men's suit. Gold has had that valuation for so long because it is actually, like, used, in jewelry, in industry, Bitcoin Is. Not. Used. Period there. Therefore, Bitcoin has no "correct" price based on such "fundamentals" because Bitcoin is based on people.]
A lot of gold is held in vaults and under floorboards as a long-term store of value and a hedge against inflation and global turmoil—and this kind of speculative trading has a big impact on gold's price. If enough people continue believing that gold is a good investment, this becomes a self-fulfilling prophesy.
[That is true.]
Something similar could be happening with Bitcoin. Bitcoin now has a large subculture of "hodlers"—a deliberate, whimsical misspelling of "holders"—who make it a point of pride that they hold on to their bitcoins as a long-term investment regardless of short-term market fluctuations. The hodler ideology could be self-fulfilling in much the same way that goldbug ideology is: the more people who come to believe that bitcoins are a good long-term store of wealth, the more it will be a good long-term store of wealth.
*Update: Bitcoin is the new China here. I write something clever about it and the board lights up. This post got 18 readers in just over an hour. The gestalt shifting "I have a new idea" had 11 in about the same time but got drowned out by subsequent posts and is now at 20, still one of the most read posts in about the last 100.
