So, if i understand this right: The more people buy (or earn) bitcoins, the more value one bitcoin has, because the amount of bitcoins is restricted. However there is also the risk that people are outcashing their bitcoins, removing value from all bitcoins.
Is that right?
That's basically right. Price fluctuates depending on demand.... nothing removes the value however, but that's subjective.
Well, isnt Bitcoin (or any other crypto currency) then basically just a cash cow for those who own so many bitcoins that they can manipulate the market? They will just outcash their bitcoins from time to time. Then they wait for the smaller participants panicking and do so too. Until the price is at the bottom. Then they buy the same amount of now cheaper bitcoins, simulating a rise (keeping the leftover money as their "income"). And wait until other small greedy participants have done so too. Then they sell all those bitcoins again, and so on and so on.
This link seems to describe this behaviour:
In the last link a lot of smart (admittedly also some very rich) people, including eight economics Nobel prize laureates call crypto currencies an "Economic Bubble". (However, one says: "There is no bubble for blockchain, but there's a bitcoin bubble")
Some (but not all) even seem to see it as some form of a pyramid scheme. Eg. Warren Buffet gets quoted:
"When you're buying nonproductive assets, all you're counting on is the next person is going to pay you more because they're even more excited about another next person coming along"
What are the arguments against these views, if there are any?
Notice that i was not aware of these links when i wrote my previous post. But i was aware of the posibility i describe in the first paragraph.
Of course the market moves in a pump and dump cycle, but on longer time frames they don't really matter.
Bitcoin has had like 5 bubbles now, each one escalating the price 20x to 100x the former peak, anyone who bought the top only had to wait a maximum of 4 years before they were in around 20x to 100x profits. The bubble cycles of bitcoin clearly follow the supply shock every 4 years... the "halvening".
A lot of people dismiss bitcoin as only being interesting to speculators, but there are a large majority of people on the planet who can't even get bank accounts, as well as people like myself who want the state and its fake economy to crash... but we don't seem to exist to people like Warren Buffet. It's a global phenomenon, people in different countries need it for different reasons considering the draconian and scammy state/corporate controls on finances in many places.
Regarding the "pyramid scheme", that's a laughable claim made by someone who is either heavily biased or just has no understanding of the technology or the open manner in which its produced and distributed. The fiat economy is the biggest pyramid scam on the planet.
One reason I think people like Warren Buffet can't grok it is because they don't see any utility or value in something that exists outside and independent of the regulatory system, and probably wouldn't want to admit it publicly if they did... a permissionless, borderless way to store and transfer value seems fringe or even criminal, not beautiful and amazing to them, and this is a tough bias to get over when you are one of those kind of dudes...
Look at Andreas Antonopoulos work, he understands the technology very deeply as well as its economic implications, and is very good at explaining it. Here is a video of him addressing the "bubble" cycle of crypto as compared to other bubbles and assets classes:
To understand bitcoin, it is necessary to understand some of the fundamental aspects of money generally. For instance, why gold historically has outlasted other forms of money, when you understand this, it starts to give you an understanding of why bitcoin has value... in short because of its properties as a store of value and medium of exchange compared to other materials that could be used as money. When you understand that gold was so powerful in this regard because of its specific properties, then you also understand that bitcoin has these properties, but is even better.
Fiat currencies are enforced monopolies by state violence, highly exploitative to the people that must use them, and they use the force of law to keep people from starting up competing currencies. That's the magic of bitcoin... there is no building to raid, no person or group that can be arrested or killed to shut it down.
No one can stop anyone in the world from sending any amount of value to any other person, cheaply, and relatively privately. (Yes transactions can be tracked, but it is difficult for normal people to do so, and measures can be taken to greatly enhance the privacy from all but the most sophisticated actors.)
There are only 21 million bitcoins ever to be produced, and many of those are lost, it is estimated at this time that the number will be only 17 million or less. There are well over twice that many millionaires in the world, not even enough for each of them to own half a bitcoin. So you can do the math and see that if it goes global and truly mainstream, the price will be at the very least in the hundreds of thousands of dollars, and if it replaces fiat globally, many millions.
I made a list of resources (books, videos, and articles all freely available) to help understand the financial system and how money works, and I think this list is also very educational in regards to understanding bitcoin:
@Klartext It's good that you're skeptical; you're asking the right questions. It's good practice for me as well to provide a reasonable answer.
1) Pump and dumps.
Market manipulation is nothing new. It happens on the stock market as well.
Firstly, there definitely is a cryptocurrency bubble. Everything beside Bitcoin is overvalued and most of them are worthless. Literally thousands of coins, and hundreds of projects that are worth millions without having a working product.
Secondly, have you read those economists' 'arguments'? None of them are grounded on facts or reasoning. Saying "It's bad" doesn't make it so.
Thirdly, you don't see all the economists who *do* have bitcoin.
Fourthly, Jamie Dimon has called Bitcoin a fraud, while simultaneously buying Bitcoin with his company JPMorgan. For all I know all these rich people and economists are privately buying bitcoin while publicly saying people shouldn't, so they can keep buying them cheap. nakamotoinstitute.org/mempool/everyones-a-scammer/
Fifthly, if an economist wins the nobel prize it does not mean he immediately understands the Bitcoin technology and its repercussions on the old forms of money. I'd even say they're more likely not to understand it due to old age and conservatism. Moreover, Bitcoin threatens their vested interests. It's only normal that they're defensive and reluctant to change.
3) Ponzi scheme
"A Ponzi or Pyramid is centralized by nature, with one (or a few) individuals at its center (top) in control, till it collapses when no more new money is coming in.
Bitcoin is decentralized, it's not a useless scheme but a useful new technology, and although some individuals that bought early (like in any other technology that succeeds) have a large number of coins, that doesn't make it 'centralized'. The decentralization lies on the tens of thousands of nodes distributed all around the globe, securing the most powerful computational network in the world and giving Blockchain (Global Ledger)/Bitcoin its main attribute: Immutability. It can't be copied, hacked, altered, duplicated, erased, blocked, etc.
It's very difficult to see the value of Blockchain/Bitcoin for newbies, all you can do is to try to explain and point to useful info. You can take a horse to the lake, but not force it to drink water. But don't sweat it, many people will continue to call Bitcoin a Ponzi/Pyramid/Bubble for many years to come, and that's normal and expected for a new technology that is growing so fast and most don't have a clue what it is. Just ignore those people (you won't convince them anyway) and keep stacking sats and Hodling!" —www.reddit.com/r/Bitcoin/comments/c42zht/please_dispel_the_fud_of_the_ponzi/eruov7r
Blockchain is just one big hype. In 2017 companies who merely mentioned blockchain raised their stock price.
An excerpt from The Bitcoin Standard:
"Having thought of this question for years, in no other avenue of business can I find a similar process that is at once so important as to be worth the extra costs for disintermediation, as well as being so transparently simple, that removing all human discretion would be a massive advantage.
An analogy with the automobile is instructive here. In 1885, when Karl Benz added an internal combustion engine to a carriage to produce the first autonomously powered vehicle, the express purpose of that move was to remove horses from carriages and free people from having to constantly deal with horse excrement. Benz was not trying to make horses faster. Burdening a horse with a heavy metal engine will not make it go faster; it will only slow it down while doing nothing to reduce the amount of excrement it produces. Similarly, as Chapter 8 explained, the colossal processing power needed to make the Bitcoin network operate eliminates the need for a trusted third party to process payments or determine the supply of money. If the third party remains, then all of that processing power is a pointless waste of electricity.
Only time will tell whether this model for Bitcoin will continue to grow in popularity and adoption. It is possible that Bitcoin will grow to displace many financial intermediaries. It is also possible that bitcoin will stagnate or even fail and disappear. What cannot happen is Bitcoin’s blockchain benefiting the intermediation it was specifically designed to replace." —Saifedean Ammous
Here's another answer. Haven't read it myself yet, but Jimmy is usually clear and instructive: medium.com/@jimmysong/why-blockchain-is-not-the-answer-3b7d5f612d11
Bitcoin is not just some runaway code on thousands of computers. A vast community of computer scientists, cryptographers, engineers, etc. are working on it. It's not an experiment anymore like it was 10 years ago. Most skeptics seem to forget to imagine what's happening in the background. Occam's Razor; what's more likely? That all these Bitcoin exchanges and developers just happen to be created all over the world, separately, because of some scam? Or that there actually is something incredibly valuable and disruptive brewing here...
@Priem19 , @xochinla
Im still not buying the Pump and Dump thing. It does not get better because it happens on the stock market too (where it is mainly illegal).
It looks like a bug in the system. Further, it is a point of sabotage. People who dont want Bitcion to succeed, buy tons of it and then constantly sell, buy, sell, buy in order to create absurd fluctuations.
A tool against this would be community coin clusters. They will never sell coins, just buy coins (they will buy products for its users with such coins but they will also sell the same amount of value in form of products provided by its users. The balance must be even). They will NEVER cash out the investment a user did. Instead they will cash out to all participants half of the money new users invested, and will invest the other half into buying new coins. The cash out will be proportional to what a user has invested.
If the Network consists 80% of such community clusters, then it is immune to Pump and Dump. If it consists to 100% of such clusters then its a flat line. We will then have no wins any more, but also the stablest (and most boring) money ever. Possible that clusters then sell a few coins in order to make them free, allowing the net to grow further. This needs to get defined before the cluster starts.
Those community clusters can (and bloody have to) provide the necessary expertise and security to its users to protect the coins. Getting hacked like so many got so far is a NO-OP. They can do insurance but then they need to be recognizable and then they will be topic to taxes. So i guess instead the code needs to be open source. It is a good idea to join forces in that regard. I guess using Haskell and mathematical prove the parts of the code which can be proven, this is a good idea.
If that critical security part can be done then the users need to know nothing about security. They can invest as much as they want, the probability that they will get back more than they invested is relatively high, and at the end we have a no-game (it ends when all Coins are mined and bought by the clusters) but also the most stable money ever.
If we allow community decisions in such clusters then the users and the coins can not be anonymous (because otherwise big players will act as if they are many users). If the cluster identifies itself and its coins, then it will be subject to taxes. So probably such clusters should not provide any democratic tools but define all rules at the start once and forever, guaranteeing that they will not change.
How can we make sure that there will not be clusters which intend to harm the Network? We cant and probably they are already there. But thats no problem as long as there are clusters which just buy bitcoins and dont sell them. Because the only way to harm the Network is to sell lots of Bitcoins. The 'good' community cluster will just slowly buy those coins sold by the 'bad' clusters or by the big players, until there are no free coins left to manipulate the market.
It needs to be defined what happens if the cluster fails because of unforseen events. If he sells all its coins, cashing out to its users, then the rest of the Network will be harmed. The strategy for that case needs to be defined before the cluster starts. An insurance against this is to have many clusters with many code bases. If then one cluster fails and sells all his coins, the other clusters buy its coins. In other words, a big amount of clusters in the Network raises its stability.
Clusters are conserved value. They replace income by selling coins with income by investment through new users. They unify security (which is also a disadvantage --> single point of attack). They dont require its users to be security experts.
Lets once again note that the security part is the single point of failure. If all clusters fail in this regard then this can result in terrible crashes. So make sure the code is bug free and that the admins behind know what they do.
Thats just an idea of mine, not sure if it is correct.
Authored by Omid Malekan via Medium.com, Is the price of Bitcoin manipulated?
Bitcoin Q&A: Why I'm against ETFs
As I already mentioned, I don't give the manipulation argument too much credence because everything is manipulated; knives are used to stab people, that doesn't mean we should create 'stable knives'.
"People who dont want Bitcion to succeed, buy tons of it..." ⟶ "People who don't want knives to succeed, buy tons of it..."
Isn't this a self-fulfilling prophecy? Anyway, stupid or evil people will do stupid or evil things. As for a stable coin: it won't work as it needs continuous human intermediation, the biggest point of failure. It's akin to fighting fire with fire. Bitcoin only needs math and energy. That simple formula has proven to be unhackable for 10 years; growing stronger every day. I trust math, not people.
We'll just have to wait and see for this discussion about manipulation to be resolved.
Those ETFs seem to have not much in common with the community coin clusters i just described, lets call them CCCs. Those CCCs are isolated from outer world markets, unlike ETFs. They will only use the real world money invested by its users to directly pay it out to the other users and then to buy Bitcoins. From then on all they do is working with coins.
Regarding the zerohedge article, lets see if that holds true and the Bitcoin volatility will stabilize long term. This will probably happen when more and more people will start hoarding Bitcoins over a long time. Then it will basically have the same effect. But there will always be the temptation to sell them and that will be the new coin food to be accumulated by the big players. CCCs will prevent that forever.
>Those community clusters can (and bloody have to) provide the
>necessary expertise and security to its users to protect the coins.
I do not and will not trust any third party with my coin. Basic op-sec is not that difficult now, and I rather envision the tools for storing and handling bitcoin to be made much easier for an individual to do so securely.
Sure, third party security and storage (like bitcoin banks) make sense, but I don't see how they will at all prevent market manipulation, which should NOT be prevented as everyone should be free to make the decision when they want to buy and sell and how much, without any third party interference... that's kind of the whole point.
How does selling bitcoin, or even pump and dump market manipulation harm the network? Bitcoin functions as a means of exchange the same regardless of what the price does. As long as we can find a way to agree upon the going rate, we can transact value.
Long term store of value is always an estimation. There is no way to guarantee or enforce that, nor should there be. I think bitcoin is a pretty good bet for long term store of value, as long as the network is able to function, there is no reason to think demand won't increase. High volatility is of course an expectation that should factor heavily into any investor or speculator's risk management profile, not some problem with the way bitcoin functions, that needs to be fixed.