Speculative attack bitcoin exchange rates
It will rapidly escalate into Class IV hemorrhaging due to speculative attacks on weak fiat currencies. The end result will be hyperbitcoinization, i. Good Money Drives Out Bad Historically, it has been good, strong currencies that have driven out bad, weak currencies.
Over the span of several millennia, strong currencies have dominated and driven out weak in international competition. The Persian daric , the Greek tetradrachma , the Macedonian stater , and the Roman denarius did not become dominant currencies of the ancient world because they were "bad" or "weak. The pound sterling in the 19 th century and the dollar in the 20 th century did not become the dominant currencies of their time because they were weak.
Consistency, stability and high quality have been the attributes of great currencies that have won the competition for use as international money. Bitcoins are not just good money, they are the best money 5. The Bitcoin network has the best monetary policy 6 and the best brand 7. We should therefore expect that bitcoins will drive out bad, weak currencies 8.
By what process will bitcoins become the dominant currency? Which fiat currencies will be the first to disappear? These are the interesting questions of the day, as the necessary premises for these questions are already established truths 9. Bitcoin's current trend is to increase in value on an exponential trend line as new users arrive in waves.
The good money is "slowly" driving out the bad. Two factors drive this: Reduction in information asymmetry — people are learning about Bitcoin and coming to the realization that bitcoins are indeed the best money. One can reasonably predict that this will also be the case a year from now.
Because selling bitcoins is a profitable and competitive business. Because people want bitcoins, see above. Due to group psychology , these newcomers arrive in waves. The waves have a destabilizing effect on the exchange rate: Regardless, once the tide has pulled back and the weak hands have folded, the price is a few times higher than before the wave.
This 'slow' bleed is the current adoption model, and commentators generally assume one of the following: Slow bleed never occurred, it's a fiction based on misleading data Slow bleed has stopped, the above motives only affect lolbertarians and angry teens The process will taper off now, as all the super tech-savvy people are already getting on board.
My own prediction is that slow bleed has been accelerating and is only the first step. The second step will be speculative attacks that use bitcoins as a platform. The third and final step will be hyperbitcoinization.
It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy. Once it gets bootstrapped, there are so many applications if you could effortlessly pay a few cents to a website as easily as dropping coins in a vending machine.
Slow bleed leads to currency crisis as the expected value of bitcoins solidifies in people's minds. At first they are conservative, they invest "what they can afford to lose". After months, their small stash of bitcoins has dramatically increased in value. They see no reason why this long term trend should reverse: They buy more bitcoins. They see the price crash a few times, due to bubbles bursting or just garden-variety panic sales — it entices them to buy more, "a bargain".
Bitcoin grows on the asset side of their balance sheet. On the liability side of the Bitcoiner's balance sheet there are mortgages, student loans, car loans, credit cards, etc. Everyone admonishes people to not borrow in order to buy bitcoins. The reality is that money is fungible: Almost everyone is a leveraged bitcoin investor, because it makes economic sense within reason. How leveraged someone's balance sheet is depends on the ratio between assets and liabilities.
The appeal of leveraging up increases if people believe that fiat-denominated liabilities are going to decrease in real terms, i. At that point it becomes a no-brainer to borrow the weak local currency using whatever collateral a bank will accept, invest in a strong foreign currency, and pay back the loan later with realized gains.
In this process, banks create more weak currency, amplifying the problem. The effect of people, businesses, or financial institutions borrowing their local currency to buy bitcoins is that the bitcoin price in that currency would go up relative to other currencies. To illustrate, let's say that middle-class Indians trickle into bitcoin. Thousands of buyers turns into hundreds of thousands of buyers. They gleefully worry that Bitcoin will not make it across the innovation chasm:.
The response from the Bitcoin community is to either endlessly argue over the above points 3 or to find their inner Bitcoin Jonah 4 with platitudes like:. The above sophisms are each worth their own article, if just to analyze the psycho-social archetypes of the relevant parrots. A few of the criticisms mentioned earlier are correct, yet they are complete non sequiturs. Bitcoin will not be eagerly adopted by the mainstream, it will be forced upon them.
Forced , as in "compelled by economic reality". People will be forced to pay with bitcoins, not because of 'the technology', but because no one will accept their worthless fiat for payments.
Contrary to popular belief, good money drives out bad. This "driving out" has started as a small fiat bleed. It will rapidly escalate into Class IV hemorrhaging due to speculative attacks on weak fiat currencies. The end result will be hyperbitcoinization, i.
Good Money Drives Out Bad Historically, it has been good, strong currencies that have driven out bad, weak currencies. Over the span of several millennia, strong currencies have dominated and driven out weak in international competition.
The Persian daric , the Greek tetradrachma , the Macedonian stater , and the Roman denarius did not become dominant currencies of the ancient world because they were "bad" or "weak. The pound sterling in the 19 th century and the dollar in the 20 th century did not become the dominant currencies of their time because they were weak. Consistency, stability and high quality have been the attributes of great currencies that have won the competition for use as international money.
Bitcoins are not just good money, they are the best money 5. The Bitcoin network has the best monetary policy 6 and the best brand 7. We should therefore expect that bitcoins will drive out bad, weak currencies 8. By what process will bitcoins become the dominant currency? Which fiat currencies will be the first to disappear?
These are the interesting questions of the day, as the necessary premises for these questions are already established truths 9. Bitcoin's current trend is to increase in value on an exponential trend line as new users arrive in waves.
The good money is "slowly" driving out the bad. Two factors drive this: Reduction in information asymmetry — people are learning about Bitcoin and coming to the realization that bitcoins are indeed the best money. One can reasonably predict that this will also be the case a year from now. Because selling bitcoins is a profitable and competitive business. Because people want bitcoins, see above. Due to group psychology , these newcomers arrive in waves. The waves have a destabilizing effect on the exchange rate: Regardless, once the tide has pulled back and the weak hands have folded, the price is a few times higher than before the wave.
This 'slow' bleed is the current adoption model, and commentators generally assume one of the following: Slow bleed never occurred, it's a fiction based on misleading data Slow bleed has stopped, the above motives only affect lolbertarians and angry teens The process will taper off now, as all the super tech-savvy people are already getting on board.
My own prediction is that slow bleed has been accelerating and is only the first step. The second step will be speculative attacks that use bitcoins as a platform. The third and final step will be hyperbitcoinization.
It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy. Once it gets bootstrapped, there are so many applications if you could effortlessly pay a few cents to a website as easily as dropping coins in a vending machine.
Slow bleed leads to currency crisis as the expected value of bitcoins solidifies in people's minds. At first they are conservative, they invest "what they can afford to lose". After months, their small stash of bitcoins has dramatically increased in value.
They see no reason why this long term trend should reverse: They buy more bitcoins. They see the price crash a few times, due to bubbles bursting or just garden-variety panic sales — it entices them to buy more, "a bargain". Bitcoin grows on the asset side of their balance sheet. On the liability side of the Bitcoiner's balance sheet there are mortgages, student loans, car loans, credit cards, etc.
Everyone admonishes people to not borrow in order to buy bitcoins.