How liquid are bitcoins and other crypto-currencies?

[Stephen Tashi]

How liquid are bitcoins and other crypto-currencies ? (i.e. How easy is it exchange them for normal currencies or for goods and services?)

For example, in the USA, a person with foreign coins (of the physical variety) can't go into a typical bank and exchange them for US currency. Is getting USA currency or other national currency in exchange for crypto-currency a big problem?

What merchants accept crypt-currency in exchange for goods? Do the people who honor crypto-currency form a subculture or sect of some sort?

 

[Greg Bernhardt]

For example, in the USA, a person with foreign coins (of the physical variety) can't go into a typical bank and exchange them for US currency. Is getting USA currency or other national currency in exchange for crypto-currency a big problem?

There are several websites that buy the bitcoins and then transfer the money into your bank account.

 

[mathman]

Personal opinion: bitcoin mania will end. It strongly resembles the infamous Dutch tulip bubble.
https://en.wikipedia.org/wiki/Tulip_mania

 

[Vanadium 50]

How easy is it exchange them for normal currencies or for goods and services?

This really depends on whether you trying to convert one bitcoin or a million.

 

[MartTin]

Will the bitcoin ever fall? How can bitcoin ensure monetary equilibrium? I want to invest money in Bitcoin and began studying the investment from this article - https://bitcoinbestbuy.com/. Can someone advise me something on the semblance of this article?

 

[Vanadium 50]

Will the bitcoin ever fall?

Of course. It's fallen roughly 10% since Monday.

I want to invest money in Bitcoin

Not a smart idea if you can't answer the question "will it ever fall" by yourself.

 

[gleem]

Bitcoins are somewhat mysterious to me. Having said that there are some characteristics that are fairly clear. One of the advantages, but a possible Achilles heel , is its transactional anonymity. Won't the Feds see it as a way to launder illegal money or avoid taxes and put some restrictions on its use?

Bitcoins are like gold, rare/limited, except bitcoin only exists as 0's and 1's in a computer or cloud but you can touch/hold gold. Supposedly it is impossible or very very unlikely that fraud can occur so what ever is transacted will be safe an accurate. But will it behave like gold. Really gold should be worth way more than it actually is. Today the total value of all the gold in the world is about $7.7 T at its current price. The total worth of the US is currently about $85 T. So why is gold so cheap? Will bitcoins follow gold and not live up to its "potential" and sucker "investors" to bid it up until it is realized that their is nothing but electrical signals. Bitcoins are a true fiat currency. Will bitcoin help raise the price of gold?

 

[Vanadium 50]

Really gold should be worth way more than it actually is. Today the total value of all the gold in the world is about $7.7 T at its current price. The total worth of the US is currently about $85 T.

Huh? You are surely not arguing that the value of gold should equal the net worth of the world. That would mean that nothing besides gold has any value. What are you trying to say?

 

[256bits]

bitcoin only exists as 0's and 1's in a computer or cloud but you can touch/hold gold

So does the account in your bank - it is just 1's and 0's. No bank has enough 'hard cash' on hand to cover all deposits.
Pay by credit card, debit card, or any other electronic means and no actual paper money or coin exchanges hands.
But as you have referenced or implied, 'legitimate' transactions leave a trail that can be investigated.

Bitcoin is different in that there is no central 'bank' that makes a record of who owns what amount of bitcoin.
What ever is in your bitcoin wallet is what you have, and like anything else these days, only you should be the only one to be able to access your wallet.

 

[FactChecker]

Bitcoin is different in that there is no central 'bank' that makes a record of who owns what amount of bitcoin.
What ever is in your bitcoin wallet is what you have, and like anything else these days, only you should be the only one to be able to access your wallet.

It's also different because no country would use their army, their legal system, their international agreements, or their financial institutions to back it up.

Fans of bitcoins like it because it is not associated with or manipulated by the policies of any country. But the down side of that is that no country backs it.

 

[gleem]

Huh? You are surely not arguing that the value of gold should equal the net worth of the world. That would mean that nothing besides gold has any value. What are you trying to say?

( Note: I have no expertise or formal education in economics or monetary systems and any statements and conclusions regarding these topics are due to my own limited knowledge (and or misconceptions) and are presented as items that I seek more understanding or explanations ).

No I wasn't thinking of that, just that the total value of US asset compared to the world gold supply (and the US supply is only (0.4T) seems out of balance considering what gold means. Gold is used for representing the value of things transferred to others and we will always possesses things other than gold. It stores previously created value. But value of assets is increasing faster than the supply of gold. The world GDP has been increasing more than 3% per year for decades The gold supply on the other hand has been increasing only about 1.7 % annually. One would also think that the amount of value extracted from these assets as they are transferred and stored will also be increasing faster than the gold supply thus one would see a need for more gold or increase its value. On top of that gold is actually being consumed. It is estimated that 17% of new gold is used in industry is such a way that it cannot be recycled and is therefore lost. The total commercial bank deposits in the US is $12T unmaterialized, value paper 0's and 1's. Considering the US government only hold $0.4T in gold about 3 cents on the dollar there is a lot of faith in the dollar and that's OK as long as the world does not develop doubts in the US government or its economy.

Personal opinion: bitcoin mania will end. It strongly resembles the infamous Dutch tulip bubble.

Only in the sense that people think the bitcoin value like the tulip bulb will increase dramatically but that is true of most speculative IPO's look at ROKU recently

The bitcoin with its block chain protocol has some built in positive properties as a currency but it is like a stock and it fluctuates sometimes drastically from day to day (high volatility). It viability as a currency will depend on belief in its stability but its interest is in its volatility. Whether or not it was introduced as a get rich scheme we may never know but that is what it is being exploited as. I do not understand how merchants at this point in time can risk taking it as a currency with up to 30% fluctuations in value in short periods of time unless they too are also speculators much like tulip brokers who bought bulbs and just stored them until the price increased to the point that they made their targeted profit.

So does the account in your bank - it is just 1's and 0's. No bank has enough 'hard cash' on hand to cover all deposits.
Pay by credit card, debit card, or any other electronic means and no actual paper money or coin exchanges hands.
But as you have referenced or implied, 'legitimate' transactions leave a trail that can be investigated.

True, but there is a paper trail to a tangible? asset whose buying power, value is assured by a government. A bitcoin is what? a promise or hope by an unknown entity of what? that some day we will use it as a currency whose value is determined by who? a bunch of gamblers? It is said that the block chain protocol (probably bitcoins best characteristic) is secure. Really? My feeling is If it is on a computer it is hackable..

 

[mfb]

@gleem: Why do you think gold is special in any way? What about all the other metals?

Gold is used for representing the value of things transferred to others

I never did any transaction where gold would have been involved in any way.

In the distant past currencies were linked to gold or other metals, but that stopped long ago.

 

[256bits]

I do not understand how merchants at this point in time can risk taking it as a currency with up to 30% fluctuations in value in short periods of time

Good one.
I had never actually thought of that particular aspect of Bitcoin volatility

 

[mathman]

Bitcoin price depends entirely on people's image of it. This is in contrast to money, which depends on the credit of the country issuing it, while stocks etc. have a price depending on the underlying value of the assets.

 

[gleem]

@gleem: Why do you think gold is special in any way? What about all the other metals?

Why do most countries acquire and hold gold ? I think It is universally considered valuable. Gold is still considered providing tangible value to a country when their currency becomes weak. Currently China and Russia are buying gold at an unprecedented rate. If other countries balk at taking Yens or Rubles for trade or debt they will take gold. At the end of WWII Germany had to buy everything with gold. to bootstrap their economy. Gold is not irrelevant It seems to me there must be some universal agreed upon currency that at least countries can use to carry out financial transactions when their economy becomes suspect. Would anybody today accept a Venezuela Bolivar (8000 ≅ 1USD) for anything? Luckily it has about $10.5B in gold.

 

[gleem]

while stocks etc. have a price depending on the underlying value of the assets.

I don't think it matters how much stuff a company has that enters into its market price. New stocks are valued on their actual demonstrated growth or even perceived growth potential even as they loose money or go into debt. The value of underlying assets is what you would get if you sold all assets on the open.market which would be useful in bankruptcy. Companies in general are valued for there return on investment real, perceived or anticipated.

 

[FactChecker]

Bitcoin price depends entirely on people's image of it. This is in contrast to money, which depends on the credit of the country issuing it, while stocks etc. have a price depending on the underlying value of the assets.

Although when you look at stock prices versus a business's rate of return, it seems like most of the price is also based on people's image of it. It's almost a pyramid scheme.

 

[Stephen Tashi]

What's the general idea behind "mining" bitcoins. Is it simply to guess a string of data that makes a valid bitcoin that nobody else has guessed before? Or are bitcoins issued as a kind of wage for doing computational work for the bitcoin "community" ?

 

[mfb]

The calculations don't have a practical application. They are just there to be difficult.

 

[Stephen Tashi]

The calculations don't have a practical application. They are just there to be difficult.

So a bitcoin "miner's" computer does some difficult calculation that produce a potentially valid string of data for a bitcoin and then he checks with computers in the community to see if this bitcoin has already been created?

 

[gleem]

Or are bitcoins issued as a kind of wage for doing computational work for the bitcoin "community" ?

As I understand it It's an incentive to carry out the process of validating a transaction of a transfer of bitcoins. Since the validation is not given to anyone particular it is toss out onto the web as "who wants to do this" and if you are successful you will earn a bitcoin. So the so called miners get the benefit of the value appreciation of the bitcoin only risking a certain amount of effort.

Bitcoin buyers,on the other hand , are like currency speculators and risk real money . But bitcoin buyers unlike currency speculators have no rational way, as I see it, how to predict the appreciation of the value of the bitcoin. Example, if a country is heading for some economic or political uncertainly a citizen of the country might acquire US dollars, Euros or gold as a hedge against possible inflation of his currency.

 

[Stephen Tashi]

Since the validation is not given to anyone particular it is toss out onto the web as "who wants to do this" and if you are successful you will earn a bitcoin.

The mechanics of sending a internet message to "anyone listening" would be interesting. Can that actually be done? I'd think that ISP providers would block that type of packet as spam.

 

[FactChecker]

New bitcoins are entered into a blockchain public ledger. Anyone can access it and examine it.

 

[Stephen Tashi]

New bitcoins are entered into a blockchain public ledger. Anyone can access it and examine it.

How is a "public ledger" implemented in a non-centralized way? Does it have a fixed IP address?

 

[FactChecker]

It's one of the advantages of a blockchain. I wish I knew more about it but don't understand the details. https://en.wikipedia.org/wiki/Blockchain .

 

[mathman]

I don't think it matters how much stuff a company has that enters into its market price. New stocks are valued on their actual demonstrated growth or even perceived growth potential even as they loose money or go into debt. The value of underlying assets is what you would get if you sold all assets on the open.market which would be useful in bankruptcy. Companies in general are valued for there return on investment real, perceived or anticipated.

Your analysis is correct. I just didn't want to go into detail, but just contrast with bitcoin, where the price is entirely on perception and nothing underlying.

 

[Vanadium 50]

Money is just a medium of exchange.

Bitcoin, like every other currency, has two elements to its value - what you can buy with it today, and what it is believed you can buy with it tomorrow. Bitcoin's relationship with other currencies is similar to that of the US dollar and other currencies - the Venezuelan Bolivar is doing poorly with respect to the dollar because a) you can't buy much with it today, and b) the consensus is this will only get worse in the future.

Can you buy much with Bitcoin today? Not so much. Newegg takes it. If you need to buy something illegal, I understand those vendors will take it. But Bitcoin transactions tend to be slow and expensive, and that limits the number of places that will ever want to take it. So much of its present value is being driven by its perception of future value. Whether this future value will materialize or not is an area for speculation, and this is why some people call this a bubble.

 

[kith]

I used to be mystified by how the blockchain works. This video by 3Blue1Brown finally led me to understand the basic concept:

 

[Stephen Tashi]

Money is just a medium of exchange.

Bitcoin, like every other currency, has two elements to its value - what you can buy with it today, and what it is believed you can buy with it tomorrow.

There are also properties involving how things are bought. Bitcoin isn't tied to the economic policies of one country and it can be transferred electronically without a designated middleman. Dollars and gold can be transferred electronically (in effect) if the owner has an account with some financial institution ( bank, credit card company etc.) and uses that financial institution to handle the transfer - for which there is an overt cost (e.g. the fees credit card companies charge sellers) and also an overt loss of privacy about transactions.

Bitcoin in the USA could be undercut by a national electronic currency. However, that would require something like a national electronic bank so legislating it would be opposed by credit card companies and private banks. A national electronic currency would incur costs and a loss of privacy. The costs would be "hidden" since they would born by taxpayers. The telling advantage of a national electronic currency is that it would be "legal tender", i.e it could not be refused by USA sellers. (For example, there are still mom-and-pop restaurants in my town that refuse to take credit cards. When there is a run of check frauds, some franchises in my town( like the UPS Store) stop taking checks. ) Private banks would be willing to exchange national electronic currency for physical currency.

 

[Greg Bernhardt]

Anyone seeing a nice payday with their bitcoin investments?

 

[collinsmark]

Anyone seeing a nice payday with their bitcoin investments?

Yep.

 

[gleem]

Yep.

Thinking about cashing in?
Bitcoin is now like other stock in that you can short it so there are market forces pitting the optimists against the pessimists. Bitcoin is currently down about 10% today.

good luck.

 

[Laurie K]

But would the powers that be really let another anonymous money transfer system thrive without having its finger deep down in the pie?

Maybe the real 'anonymous owner' of bitcoin has the goods on all of the global bad guys and is about to pull the rug on all of them?

I wouldn't hold my breath, with Echelon as a precedence, commercial espionage is much more likely.

 

[Vanadium 50]

Bitcoin is now like other stock in that you can short it so there are market forces pitting the optimists against the pessimists.

Bitcoin is difficult to short. They way you short something is to borrow it, sell it, buy it, and return it. The problem with bitcoin is that this borrowing is expensive, so the profit margin is low.

 

[mathman]

It looks like the bitcoin bubble is about to burst - price drop of 30% today!