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

[Kelly Anderson]

On Wed, Nov 6, 2013 at 10:12 PM, Brent Allsop <brent.allsop at canonizer.com>wrote:

>
> 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!"
>

It did briefly shoot above $300 for a moment this morning. Crazier things
have happened. My dad is typical of the "it's a Ponzi scheme" crowd. I
don't know exactly how to explain why it is not a Ponzi scheme, but it is
my belief that it is not.

In looking at the graph, it seems we're in a third bubble at the moment. It
is just going up too steep. The $20 of bitcoin I bought Tuesday are now at
$25. Crazy stuff.


> 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."
>

It is hard to believe that gold isn't flying upwards given the state of the
world. Guess there are more optimists than pessimists. Which overall may be
good, or bad... depending on who's right about that sort of thing.


> 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.
>

I think it is incredibly premature to say "All the money" is doing
ANYTHING. All the Bitcoins in the world are worth around $3.5 billion
dollars at present. (It was $2.5 billion last week, so who knows where it
will be next week)
http://blockchain.info/charts/market-cap


Accordign to
https://en.wikipedia.org/wiki/Gold
The total gold mined to 2012 was estimated to be 5.6 billion troy
ounces<https://en.wikipedia.org/wiki/Troy_ounce>

Current spot is $1305.40, so that's $7,310,240,000,000 if I did my math
right. Not quite half of the US national debt.

That means all the gold in the world is worth 2089 times what all the
Bitcoins in the world are currently worth (even in the current little
bubble). Do you honestly think the price of Bitcoins could effect the price
of gold all that much given that ratio?

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.
>

We'll see. I'm a huge fan of Bitcoins. I think they will keep going up
(although they might go down a little before they continue up). But someone
explained to me last night that if you valued everything on the planet, and
divided it by the number of Sitoshi you would get about 50 cents. (They
used this to prove that the rapper 50 cent is Sitoshi, an interesting
speculation at best.)


> 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.
>

Scary that people look at it as an investment, rather than as a means to an
end.


> 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?)
>

That kind of "gold fever" is not sustainable, and this kind of thinking
does turn Bitcoin into a kind of Ponzi scheme.


> 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.
>

I hope people don't do that.


> 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.
>

It would take a mass hysteria for that to happen.


> 4.    Interest rates will go up significantly, because of the demand for
> money, to buy Bitcoins.
> 5.    The 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?
>

This all assumes that Bitcoin is going to catch on like wildfire. If people
don't use it like money, it won't succeed, and then it is just a Ponzi
scheme.


> 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.
>

That could happen.


> 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.
>
> 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.  People will have even less motivation to
> invest in the economy.  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?
>
> 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 $$ ?
>
> My minds seems to get all scrambled when I try to analyze such.  Can you
> guys help provide some additional rational to my attempt to get my head
> around what could happen?  Could everyone brainstorm some of the long term
> possibilities, here?
>

What COULD happen is anything. I think that some sanity will eventually
grip the market, and that Bitcoin will settle back into a slower growth
mode. How far in the future that is depends on whether it can be made into
real money, or just the biggest mess in the history of ever.


> I've tried to browse some of the Bitcoins forums for some intelligent
> information on this, but all of them are idiots that can only think
> linearly, and they haven't got a clue.  While Transhumanists are good at
> thinking exponentially.  So, what are some of the more extreme
> possibilities you guys see?
>
> 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.
>

How do you see the Singularity as being tied to Bitcoin? (Real question,
not rhetorical.) I just bought my first bitcoins the other day. I will buy
more soon if I can.

-Kelly
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