[ExI] What happens when Bitcoin goes to a million bucks?

[Mirco Romanato]

Il 07/11/2013 06:12, Brent Allsop ha scritto:
> 
> Transhumanist economists,
> 
> As most of you know, in 2010, some guy purchased about $25 worth of
> Bitcoin, which is now worth over $800K.  My working hypothesis is that
> this will continue and that before 2020, Bitcoin will be worth a million
> bucks.  It's so funny to tell people that, and see them look at you with
> that "Your CRAZY" look in their eyes, as they say "A Bitcoin isn't going
> to be worth a million bucks!"

Yes, appearing an idiot to a bunch of stupid people have its own appeal.
Then we will see in a few years who was an idiot and who was not.

> Have you checked the price of Gold, lately?  It's been crashing,
> dramatically, for 2 years now.  Why do you think?  The so called gold
> experts, are saying things like:

> "The bear market in gold has been going on for two years. It seems to
> fly in the face of fundamentals, as central banks print enough currency
> to paper the world."

The problem with gold is simply the future market drive the physical
market, so paper claims on gold drive the price of actual gold. But
backwardation of gold (negative GOFO rates) signal there is a severe
scarcity of physical gold to be delivered.

The governments papering the world with their worthless paper are
driving the market crash with injections of physical gold. They are
dis-hoarding their gold (or someone else gold) in a stealth manner (if
they did openly it would defeat their goal).
Why they are doing this? Because the price of gold is the canary in the
mine. The price of gold is like a canary with its own oxygen reservoir
in a sealed cage. There could be gas outside, but the canary will not
signal it. But the fact the canary have a sealed cage with its own
oxygen is a signal of something very dangerous is occurring.

> Once you factor in the fact that there is a new competitor in town, and
> that people are starting to sell Gold to buy Bitcoin, that explains what
> otherwise doesn't make sense to these traditional gold "experts" that
> have made lots of money up till two years ago.  In other words, All the
> money that is in the pockets of holders of Gold, is now flowing into the
> pockets of holders of Bitcoins, at a very rapid rate.

No.
The money flowing in and out bitcoin is, for now, too smallish to modify
the price trend of gold (even if it come only from gold).
Gold is, now, around 1% of the value of investment assets.
Bitcoin is, at the current market cap, no more than 0.5% of the market
cap of gold.
Currently the Fed print just the entire market cap of Bitcoin in just 30
hours. it was 15 hours a month ago.

> And My belief is that this Gold casualty that is just getting started,
> is just the first casualty.  It will soon spread to stocks, bonds, real
> estate, and anything with value that can be sold.  All the money in the
> pockets of the people holding them, will be quickly draining into the
> pockets of Bitcoiners at an increasing accelerating rate.

Gold is just a coiled spring.
TPTB are just able to push down the price, but can not prevent people
from buying physical gold and silver and take delivery.
This is draining the COMEX, the GLD and, probably, the SLV.
Or they call force majeur and settle people in cash (and rumors say they
are already doing it with small players).

> Bitcoin, as many experts are starting to say: "is simply the best
> investment out there, bar none."  So what would you expect?  Money flows
> to where it is treated the best, just like water flows downhill.  And if
> you have a Bitcoin in your pocket, that is looking increasingly tempting.

I do not think is the best investment out there, just because
investments are a personal thing. What is good for me is not good for
you or for a major enterprise like Amazon. We have different needs,
outlook, preferences.

> As the cost of money and interest rates starts to skyrocket, as all
> sources of capital continue to flow into Bitcoin what will happen? I
> think at least the following will happen:






> 1.    People will be selling anything they can liquidate, so they can
> buy Bitcoin.  Even at a loss, since that loss will soon be made up for,
> once it is in Bitcoin.  (Do you think a tax penalty of 10%, will stop
> people from liquidating their IRAs?)

This will happen later on, when a real mania phase will start and the
crowd will tumult to enter bitcoin.
Usually is when the smart money start to move for the exits.
This if they are allowed to liquidate their IRAs.

> 2.    People will be borrowing money, mortgaging things, like their
> house, to buy Bitcoins, because no interest rate will come close to the
> rate at which Bitcoin will continue to go up.

This could be a smart move or a very stupid move, because leveraging is
very dangerous but allow large gains.

> 3.    The price of stocks will decline.  The PE ratio of stocks has
> historically been at around 20.   This will drop by half or more, as
> nobody will want to buy stocks, unless it is a very good value.  The
> greatly reduced PE, will become "the new normal" and it will be much
> harder to make money by going public.

Usually stocks are a pass-through (in the end) of inflation: Their price
adjust to their value. But PE of 20 is pretty low (thanks Fed low
interest rate policy). As the Fed QE policy start to fail (it will)
interest rates will raise a lot (and the government will directly
monetize the debt or default on it).

A PE of 10 is more sustainable in the long term, but many stocks could
collapse or go bankrupt in the meantime.

> 4.    Interest rates will go up significantly, because of the demand for
> money, to buy Bitcoins.

Or they could go up because people foresee a devaluation of the currency
($) and ask an interest rate high enough to compensate the devaluation.
Many people will just try to sell stuff for Bitcoin, reducing the demand
for fiat currency (and discounting the prices to offer bargains to
bitcoin holders).

> 5. Yhe economy will convert from a consumer economy with lots of debt
> to everyone will only want to only buy something when they absolutely
> need it.  As it will be far better to spend it on something that will be
> worth 10 times its value in a year or so.  It will convert to a bit time
> saving economy.  Will this stabilize the boom and bust cycle?

It is not buying only what you need. it is buying only what you can
afford to pay in cash. Or, if you go in debt, buying only what will make
you a lot more money than you pay for interests.


> 6.    The Winklevoss twins will be laughing at Facebook, and Zukkerberg,
> as Facebook  stock price continues to decline and fails to keep pace
> with their 1% of all bitcoins.

Zuckember could, if he want, enter the Bitcoin market and buy a lot of
Bitcoin (driving the prices nut).
The statements of the Winlevoss make me think they were behind the spike
of price in August 2011.

> When we head into a recession, the fed lowers the interest rate to Zero
> to provide 'liquidity' and in hopes people will borrow money to invest
> in the economy.  But this doesn't work very well as there is nothing
> that is making money, to make it worth borrowing during a recession.

The problem is you do not fix a blood loss with water.
Not if it is severe and continuous. Because blood is make of water and
other stuff.

> But Bitcoin will change this dramatically.  Everyone will want to borrow
> money even more in a recession, as recession will cause Bitcoins to go
> up even faster than they are now.

The problem is, in a recession, even with QE, credit is cheap but
difficult to get at cheap rates.

> People will have even less motivation to invest in the economy.

Every thing is "the economy".
But people usually try to invest in something with the best return in
purchasing power.

> So there will be two market forces.  Bitcoins
> driving up interest rates, and the federal reserve printing money and
> trying to lower interest rates.  People will be borrowing this printed
> money, purchasing Bitcions.  WIll that cause rapid inflation of fiat
> currency?

In the end, the interest rate is decided at the margin:
the interest rate of bitcoin will be somewhere the interest rate of the
US$ plus devaluation of the US$ against the bitcoin.

Currently only a madman would take loans in Bitcoin for more than a few
hours or days if they have any other option.

> Who will win such an epic battle between Bitcoin trying to increasa
> interest rates, and the Fed trying to lower them?  What will the effect
> be, when Bitcoin starts rapidly approaching one million $$ ?

The market will win. It always do, in the end.

The market will inflate the value of not inflationable assets like gold,
silver, land, whatever, and deflate the value of inflationable (and
inflated) assets like fiat currency and assets denominated in fiat
currencies.

> One thing I feel for sure.  Everyone should have at last one Bitcoin. 
> And people only say there is no such thing as a "Get Rich Quick Scheme",
> because they don't know how close the singularity is.

It is not as a "Get rich Quick scheme" as a "redistribute the wealth
quick scheme". It do not work alway, just when the "planets" are in the
right alignment.
And like in the "V" movie, all dominoes are set and we are seeing the fall

Parity watch
https://bitcointalk.org/index.php?topic=154954.0;all
http://coinometrics.com/bitcoin/bmix

107	Costa Rica	3,871 (Billions US$)
108	Bitcoin		3,791
109	Senegal		3,577

Mirco