Never in my ten years of studying economics and trading on financial markets. have I seen such rubbish. And Ill tell you why. Their argument: 1) the first reinforcement cycle involves a spike in the amount of online searches being carried out around the currency. This leads to more chatter about Bitcoins, and in turn prompts a rise in its value. This makes a lot of sense -- the more public attention something gets, the more people will invest and the more its price will surge. Counter argument: If I search Bitcoin, it doesnt necessarily mean I will buy it. Now if we try to support their argument we might say, if Apple company received a spike in internet searches in would likely lead to a spike in value for two reasons. (A) the searches are more likely happening because something fundamental has happened, leading to an increase in value anyway, or (B), that if people were just naturally becoming more interested they may buy apple. More internet searches is more interest and more potential buyers. It is (B) that is being carried over by this article in support of their argument. The problem with this is, that there is a difference between apple stock, something you can buy easily, and Bitcoin, something fairly new, and difficult to buy at the current time due to the complexities involved, making it a large step when making a decision to try and buy. Because of this, it is very unlikely that internet searches have any correlation to demand. We could see spikes in searches, without necessarily having the correct demand. This argument is further more made ridiculous, because there is no consideration that searches may be either positive or negative, creating buyers or sellers. The more public attention has no effect on whether the attention is positive or negative. Their argument: 2) The second feedback loop involves a rise in search volume which makes more people download the software and join in the mining pools that generate coins. This too tends to lead to a rise in the nominal value of Bitcoins. Counter argument: The more miners, the more coins in circulation, the less value the coins are unless the market capitalisation also rises. If the miners try to sell these coins, the supply will cause downward pressure on price. Simple supply and demand 101. A fifteen year old in business studies class will know this. The mistake is made to presume that more searches, leads to more miners, which fair enough is a possibility, since it is simple to setup. But mining has become so difficult it requires thousands to be spent on mining rigs designed for this. Those searching Bitcoins, arent necessarily ready to fork out a huge cash payment to get into mining, just because they searched the term Bitcoin. Unless all the people searching Bitcoins are filthy rich that is, but its likely in reality this has very little effect on the market. My argument: Back in April, and leading up to April Bitcoin gained wide attention. Folks like RT and Max Kieser helped give it a bit of PR, leading to recent price increases to $1000. Soon after there has been a price decline by almost 50%. This is simple to explain. If you had say $1000 of Bitcoin at $100, you would know have $10,000 when the price hit $1000. No doubt many people sold to profit, but this selling has seen support from buyers who are still keen for the opportunity to invest in Bitcoin. Bitcoin could fail or succeed - but not because of silly arguments. For now, the average joe will not have much of an impact on bitcoin. The large price swings will be caused by the big bucks, companies restructuring to accept bitcoin, and firms putting millions behind mining equipment, and big money investors, pension funds hedge funds etc. Why would anyone do this. The truth is in the pudding, Bitcoin is a technology and it is revolutionary. But you will continue to hear negative news towards bitcoin, as big bucks try to push the price down to buy in themselves. In reality most crashes are caused by profit taking and scares from bitcoin third party companies getting hacked. But this is not really any indication on bitcoins own security. Bitcoin as far as Im concerned is secure. Third party companies are insecure. Trust in bitcoin yourself, not third parties. In the end bitcoin may fail for a number of reasons, but arguments like these are designed to make you sell, so that others can buy your coins cheaper. Where is the prove of this. One question. How much mining power does the Federal Institute of Technology Zurich have?
Posted on: Sun, 10 Aug 2014 19:35:35 +0000
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