The volatility in the bitcoin price just demonstrates how the majority of the people trading it have no conception of how to value the underlying asset (i.e. demand for a low cost transaction system) and thus it is speculators leading speculators a la the blind leading the blind.
The current sharp price decrease is because people are worried that whoever wins this auction (and the subsequent auction of DPR's coins) will want to exit that position. Thus their will be an oversupply in the market and cause the price to decrease. Expecting this, people are taking that into account and trying to get out before the oversupply, causing a self fulfilling prophecy based on bad underlying analysis.
Why would someone go long bitcoins (i.e. buy them and in such quantity) through such a difficult process as dealing with the US gov't to so quickly exit their position?
My hypothesis is that it will be either rich institutional investors, hedge funds, or similar large investors who see this as an opportunity to acquire bitcoins at an undermarket price.
I think many of those groups would sit on their position (and not sell them). Further, if they were to sell them, they would want to do so in a way that didn't dramatically affect the price (thus over many days, weeks, or months). Given that 30K bitcoins is far less than the total bought/sold on exchanges every day, it should be presumed that they can exit this position over a sufficient timeline in order to not cause negative pressure on the price (if the auction winners even want to sell -- which as I analyzed above, I don't think they would).
It has very limited use as a serious transaction system while there is so much volatility. Prices are therefore pegged to local currencies, and if you want to keep that then it's no longer low cost because conversion to/from local currency costs just as much. The speculation and (eventually) deflationary nature of BTC significantly hinders the chances of it ever stabilising, and therefore a true 'bitcoin economy' emerging (ie. where people do not need to peg to or convert to local currencies).
Then there is the fact that it is not a limited good-- someone could quite easily come along with a BetterCoin making BTC almost useless-- there are various things that could be improved, eg privacy, or the slow confirmation times.
E: also, there will be an 'oversupply'-- Whoever buys these bitcoins won't be buying other BTC because of it -- it's irrational to think that the auction is creating a significant new demand that wouldn't have existed otherwise! Selling over weeks/months would still affect the price, although more in the normal supply/demand manner than causing a crash/panic. But that could be happening before any of these BTC are sold anyway!
The arguments you make (speculation + deflation) have been discussed many times. The answer is always the same. Bitcoin proponents argue that they are not a problem because:
1. As the use of Bitcoin increases over time, as the exchange markets become bigger and deeper, as economic activity is surpassing speculative activity, etc, the effect of speculation are becoming smaller and smaller. There is evidence that this happening right now: graphs showing the volatility level of Bitcoin (at a coarse level: 6 months) is decreasing... I can't find a link at this moment unfortunately.
2. Although deflation is, as of today, "generally" believed to be detrimental, it is disputed. For example the very famous 1939 paper "A Program for Monetary Reform" argues (amongst many things) that deflation is healthy and normal[1]. One thing is certain: our understanding of financial systems is imperfect, and just because more economists think, today, that deflation is generally negative, does not mean it is true. Bitcoin is an experiment that will perhaps disprove it.
Bitcoin proponents tend to have a vested interest and can be.. less than objective.
@1: A trade alone does not help BTC stabilise. We ARE seeing an increase in BTC trade, but all of this is pegged to local currency, and usually traded out for that immediately. As it is held for a very short period, there is no real effect on price, and is essentially the same as cashing out.[1] What might help BTC stabilise would be if there were a true, significant BTC economy, that is, items priced in BTC, rather than pegged to local currency. When I wake up tomorrow I can reasonably expect my loaf of bread is going to cost the same as it did when I went to bed. But that can't happen (yet) with BTC, because pegging goods to BTC carries far too much risk due to the volatility. Frankly, I can't see an attractive way to get to a situation where there is a substantial, viable BTC-first economy-- displacing local currencies as the first-choice isn't going to be easy. The only thing affecting the price of BTC is people buying and continuing to hold BTC (ie, in the absence of a real BTC economy-- speculators).
Further, I’m sure you can paint BTC stability as improving/worsening based simply on altering the time frame involved. The fact is the volatility is way too high (for consistent pricing), and we certainly don't have enough evidence to predict the future. You might have thought it was stabilising in October of last year before all hell broke loose.
@2: Not really a coherent argument there. An upward price trend (existing for whatever reason) encourages hoarding, which reduces liquidity. This creates a feedback loop, resulting in bubbles and crashes. Deflationary + speculation inherently leads to this, and we've seen it over and over already with BTC. Again, there is a chicken/egg problem because only speculators are interested in it, making it volatile, making it no good for non-speculators, which keeps it volatile! I think the best we could hope for is a little worse than gold (as it continues to be mined), which AFAIK still carries a significant amount of instability.
All this is not to say that bitcoin can't, or won't, be a long term success. It may well be; it has first-mover advantage, there is significant vested interest in it succeeding from those who have bought in, and it has a vast computing army. But it could be displaced. Or marginalised by an unlimited number of clones.
1. Ironically it is in a way simply passing half the transaction cost onto the customer.
> I think the best we could hope for is a little worse than gold (as it continues to be mined), which AFAIK still carries a significant amount of instability.
Actually, the best we could hope for has much, much higher volatility than gold: there are vast reserves of gold available and the oceans contain about 9 pounds of gold for each person on earth, 100x the total amount of gold mined throughout human history. There are many old mines that could be reopened in a few months or years if the price would justify it.
On the demand side, there are technical uses of gold, medical and jewelry. So we clearly have demand and supply curves that are pretty flat and a price driven by fundamentals, yet we see significant volatility, especially related to gold's speculative and monetary use.
On the other hand, Bitcoin is a digital asset designed purely for speculative and monetary use. It has NO fundamental demand and an almost vertical supply curve. There's no way to price a Bitcoin on it's fundamentals, the only driving factor is "what other people think". As a future PhD in economics, let me tell you that is not conducive to stabilization, quite the opposite, it's prone to violent and self-sustaining boom and boost cycles.
The fundamental value of bitcoin is the float of all the transactions people want to engage in using the currency. Imagine that nobody speculated on the value of bitcoin, and people only entered into positions for the purpose of buying something from Silk Road. The sum of all of those positions would be the fundamental net market value of bitcoin.
If it continues to become more useful as a payment network, the value will grow and the volatility will go down.
1: I did not explain myself clearly. What I meant is: when more and more bitcoins are being used for regular economic transactions, the proportion of bitcoins used by speculators is, by comparison, decreasing. And the smaller this proportion is, the less volatile the currency is.
2: "encouraging hoarding": no, this is not what was observed in practice with Bitcoin. I can't remember if it was Bitpay or Coinbase, but they have explained in a blog post seeing the exact opposite effect: during a Bitcoin bubble, people tend to spend or sell more bitcoins (to cash in on their newfound fortunes).
The general literature on deflation is that deflation is much much worse in the long run. In particular, borrowing becomes significantly more difficult and those who have loans are trapped with them, as their wages are pushed downwards by deflationary forces but the nominal loan remains the same.
While run-away inflation and run-away deflation are both awful, an economy which slowly inflates is better than one that slowly deflates.
- Japan's GDP grew by 12% between 1990 and 2010, from 430 to 482 billion Yen (the NYT author incorrectly assimilates it to "an economy remaining the same size"?!)
- GDP per capita is 16% higher in Japan in 2010 than it was in 1990 [1]
- The NYT article gives absolutely zero other economic numbers, no objective evidence, nothing (it merely gives annecdotal evidence as in "so and so lost their house")
Why is this NYT article so bad and vague, when economic indicators I quoted above ARE actually (slightly) improving? I am not the only one to criticize it, see this response by the Center for Economic and Policy Research: http://www.cepr.net/index.php/blogs/beat-the-press/deflating...
@2 Not really a coherent argument there. Hoarding due to appreciation is balanced by the wealth effect. You can't just assume catastrophic runaway feedback due to upward price trends. That kind of human behavior is unknowable a priori. One could easily argue that an upward price trend will encourage buying, which increases adoption. This creates a feedback loop, which will help establish a transaction volume large enough to give bitcoin enough stability to appeal to the average person.
> An upward price trend (existing for whatever reason) encourages hoarding, which reduces liquidity. This creates a feedback loop, resulting in bubbles and crashes.
A downward price trend encourages splurging, which provides excessive liquidity. This creates a feedback loop, resulting in Zimbabwe. Bitcoin opponents have a vested interest; the desire to attack something you missed out on due to your own lack of foresight is a known psychological effect. I don't necessarily believe all of the above, but it's a pretty symmetric mirror image of the opposite argument. You could go up a notch and make the case that inflation is worse because at least an upward bubble has to end eventually whereas a downward crash can keep going down forever until the currency is replaced. I'm known for my stance that finite supply cryptocurrency is probably more deflationary than optimal (though my concerns are more about wealth concentration and the potential for use of seignorage revenue for secondary purposes rather than some idea that spending is good), but there are good reasons why one might think otherwise.
As for gold, an important point is that gold's volatility is quite recent. Before 1971, and especially before 1913, it was actually quite stable:
Yes, that's a 6x margin that maintained itself over six centuries. The 18th century fall and the 16th century fall can likely be attributed to the sudden introduction of new supply in North America; that's an uncertainty that cryptocurrencies do not have. I don't know why gold was stable before but is not now; perhaps it's the fact that a fixed-supply commodity is stable if used as a currency but not stable if used as a form of black-swan insurance. The former use case might have more constant demand, or price stickiness might play a role.
I'm honestly not sure what will happen. Maybe cryptocurrencies will die, maybe BTC will die but others succeed, maybe BTC will become gold 2.0 and other currencies will take on other roles (if this happens, environmentalists at least would be quite happy given gold miners' current track record), or maybe something else entirely. I do agree one-world-currency domination is exceedingly unlikely though.
Deflation will PREVENT economic activity from surpassing speculative activity. This is the problem with deflation - people hoard instead of spending, which is why it is "generally" believed to be detrimental. It is detrimental.
Bitcoin's volatility is a direct result of this feature.
>Bitcoin is an experiment that will perhaps disprove it.
The hilarious thing is that the experiment already proved it.
You want a cryptocurrency that isn't absurdly volatile? Make it steadily inflationary, not steadily deflationary.
> You want a cryptocurrency that isn't absurdly volatile? Make it steadily inflationary, not steadily deflationary.
There are cryptocurrencies that do this, PeerCoin and Dogecoin for example, and they don't seem to work out, maybe because there is a lack of incentive to be an early investor if your investment steadily loses value.
There is no significant barrier to entry for creating a cryptocurrency that represents your economic ideals, so far however, only Bitcoin seems to have the right mix of incentives.
Bitcoin got first mover advantage. I don't think its popularity is due to it getting the incentive mix "just right".
Besides, the characteristics of a "good coin" depend entirely on who you are and what your goals are. Some people want to gamble and get rich, others are looking for a reliable store of value, others are looking to transact. The ideal coin will have different properties for each of these people, but no coin will be able to satisfy all three groups completely. They all need one another and they all have competing goals.
Fair point. I don't think that Bitcoin's parameters are necessarily "just right", but I'd argue that they are "close enough". An ideal coin that, as you state yourself, does not exist, but neither does an ideal traditional currency. Every currency and payment system out there has it's flaws, but not every flaw is necessarily fatal.
Particularly the deflation argument does not predict that Bitcoin will fail, it states that if Bitcoin replaces traditional currency, the economy will fail. If you choose to believe it however, it's an argument to hoard Bitcoin from a rational economic perspective.
People looking to criticize Bitcoin should rather focus on the centralized mining problem.
how do you judge that peercoin and dogecoin don't work out?
They seem to have been the "next big" currency for market cap after BTC and LTC for the last 9 months, which would point in the direction of, at least, inflationary nature not being such a big deal.
If your theory is correct, people would hoard any resource that is increasing in value relative to something else. Currency deflation is just a special case. It's not entirely clear why "hoarding" is an inherently bad thing either.
Bitcoin isn't inherently deflationary. It isn't even a fixed supply, it will grow for the foreseeable future. For short periods of time it was deflationary as people speculated that it was actually worth a lot more, but that seems to have stopped.
An inflating currency would never catch on. It's a hot potato situation of "I don't actually want to own it because it's decreasing in value. If I do have some, I want to dump it on the next sucker as fast as possible to minimize my losses."
While the supply will keep growing for quite a while, eventually it will stop growing. And lost coins will ensure that the supply keeps dropping beyond that point. Bitcoin can only avoid being deflationary in the long run if demands drops faster than supply.
> An inflating currency would never catch on.
Like US dollars? Or Euro?
Both of which are not just used where they are legal tender, but are also widely used for international trade, by choice.
> It's a hot potato situation of "I don't actually want to own it because it's decreasing in value. If I do have some, I want to dump it on the next sucker as fast as possible to minimize my losses."
This is an issue if the inflation is rapid. If the inflation is slow and steady, it's a benefit: It means the value of currency that is inactive - because someone put cash in their mattress for example - steadily diminishes, which gives you a reason to ensure your currency holdings are put to use, whether by spending them, investing them, or lending them to someone who will invest them (e.g. in the form of bank deposits). It helps stimulate economic activity.
As long as the rate of inflation is low enough, people are relatively insulated from the negative effects - you won't really notice price changes from day to day or month to month much -, and the yearly inflation can be accommodated when your salary is adjusted.
>While the supply will keep growing for quite a while, eventually it will stop growing. And lost coins will ensure that the supply keeps dropping beyond that point. Bitcoin can only avoid being deflationary in the long run if demands drops faster than supply.
That's a very long time in the future. Some coins may be lost, but not enough to have a significant force on the price.
> An inflating currency would never catch on.
>Like US dollars? Or Euro?
US dollars were backed by gold. I'm not sure about Euros but I believe they were probably initially backed in an established currency.
>This is an issue if the inflation is rapid. If the inflation is slow and steady, it's a benefit: It means the value of currency that is inactive - because someone put cash in their mattress for example - steadily diminishes, which gives you a reason to ensure your currency holdings are put to use, whether by spending them, investing them, or lending them to someone who will invest them (e.g. in the form of bank deposits). It helps stimulate economic activity.
People do save money by putting in the bank. If bitcoin got large enough there would likely be bitcoin banks. There is also nothing preventing people from doing this with other resources. E.g. rich people buying oil rights or something to store their wealth in, just like they hypothetically would with deflating cash. Spending money also isn't inherently good for the economy. See the broken window fallacy. Prices are flexible. If someone takes money out of the economy, prices will just go down by that much to make up for it. Reverse with spending.
>As long as the rate of inflation is low enough, people are relatively insulated from the negative effects - you won't really notice price changes from day to day or month to month much -, and the yearly inflation can be accommodated when your salary is adjusted.
Wages are generally the last price to change in response to inflation. Wages are the least liquid market. (Artificial) inflation hurts the general population to benefit whatever group receives the printed money first, before prices rise.
>If your theory is correct, people would hoard any resource that is increasing in value relative to something else.
People do indeed have a tendency to do exactly that. Take gold hoarders, for instance.
>An inflating currency would never catch on. It's a hot potato situation of "I don't actually want to own it because it's decreasing in value. If I do have some, I want to dump it on the next sucker as fast as possible to minimize my losses."
The point of the inflation would be to offset the natural hoarding instinct with an incentive to actually spend it.
If inflation goes TOO high, you will, of course, end up with everybody trying to dump the currency off on to everybody else.
Most mainstream economists agree with a steady expansion of the money supply (which does not necessarily lead to inflation unless the monetary supply grows faster than demand).
Cryptocoins are an interesting example of rule-based monetary policy, I hope economists will learn a lot from them.
In order to maintain stable prices, the size of the money supply should grow or shrink at the same rate that the economy itself grows or shrinks. Historically, capital and technology improvements have caused a 2-3% increase in productivity, ever since the industrial revolution.
Moneys based upon industrial processes, most notably mining of metals and coin minting, would then naturally increase the money supply at about the right rate, assuming improvements in the relevant disciplines occurred at about the same rate as everything else.
Obviously, Moore's Law pushes certain specific disciplines a lot faster than the rest of the economy. Computing hardware tech advances about 40% every year, over the last 50 years. Kryder's Law and Butters's Law, for hard disks and network bandwidth, goes even faster. Those, in turn, make automation and computerization of other industries cheaper, and they continue to improve in productivity.
When the increase in money supply is tied to increases in productivity, naturally, the people providing the innovations and advances reap the benefits by getting the new money first.
This does not imply that the controller of a fiat currency should set a target inflation rate. That new money is going to the wrong people. It goes to the bankers who happen to be robbing the economy at exactly the same rate that inventors and innovators are adding to it. They are now treading water to stay right where they were before, and everyone else loses ground.
If you have no mechanism to ensure that the growth in the money supply goes directly to the people growing the economy, you are better off establishing a completely fixed money supply. That allows innovators to gain as they should, but with steadily falling prices rather than stable prices. That complicates the business math somewhat, but if everyone just assumes the same 2.5% annual growth in the economy over the same fixed money supply, it isn't that hard to work out.
If people can use Quickbooks to run their business, they can handle a fixed-quantity money supply. What no one likes is a steadily inflating money supply where only the people running like mad on the treadmill can stay in the same place, while fat cats in motorized carts throw pennies at them.
Bitcoin has a bit of a compromise, in that the people reaping the inflation windfall are the ones covering the actual operating costs of the system. But it is unfortunately not tied to the value of goods and services in the Bitcoin economy. Fixing the money supply increase in advance requires that you predict how quickly suppliers and consumers will adopt the medium of exchange. I think the guesser guessed wrong. But even so, the proof of concept is pretty darned good, for the first iteration. The only real danger is that it is good enough that people will never migrate to anything better.
>People do indeed have a tendency to do exactly that. Take gold hoarders, for instance.
So then why aren't all rich people hoarding gold and destroying the economy? The argument can be generalized into "any resource deflating is bad", there is nothing special about currency. It would at most be one more resource which is deflating.
>> An inflating currency would never catch on. It's a hot potato situation of "I don't actually want to own it because it's decreasing in value. If I do have some, I want to dump it on the next sucker as fast as possible to minimize my losses."
That sounds like a great currency. Not a great asset, or investment, but a great currency, one that is useful as a medium of exchange, not something people can just sit on and expect to get rich from.
The volatility is the greatest hindrance to it being a viable transaction system. I'm hopeful that well functioning derivatives (futures, options, etc) will help to stabilize the price (as is the purpose of a futures market); however, that would rely on the traders having effective forecasts on supply and demand which I view as unlikely.
Related to that, I thought of an idea a while ago for a non-profit to create a new cryptocurrency that is by design pegged to the USD. Whenever anyone wants a unit of this currency, they can buy one from the non-profit for $1 and the non-profit will mint a new coin.
Similarly, if you want to sell the currency, the non-profit will always buy it for $1. The non-profit must keep the appropriate reserves (ideally, they would keep 100% of the US dollars bought or have always sufficient credit lines).
With this design, the proposed cryptocurrency will always maintain a $1 peg, removing the insane amounts of volatility. I know that is will be hated by all those in the btc community as it brings in a centralized monetary authority who controls minting coins; however, there is a huge value to an extremely low cost transaction system that is decentralized and pseudo-anonymous (which this would still be).
The central authority would not be capable of destroying coins or changing blockchain history, only minting new coins (and as per their charter, only when they are provided $1USD for the coin).
People would not have any obligation to use this monetary authority to exchange coins, and surely other exchanges which were more user friendly would appear. Simply, by an entity existing which will always buy at a given price or sell at a given price, it will cause the intended effect without having to have any central role in the decentralized transaction system.
Well, wasn't e-gold shut down because it didn't comply with aml laws?
What if there were two separate entities? One for the currency, and another one for the exchanges? Only exchanges would be considered money transmitters in such a case, right?
Liberty reserve was structured similar to your idea, you could get it only via exchanges, not directly. That didn't help to protect from US government.
> transaction system that is decentralized ... (which this would still be).
I'm not so sure about that. The mining process is required for the decentralized consensus over transaction history and ordering. The incentive for investing resources into the mining process is the block reward - without that, people won't mine. If you have a centralized authority that controls minting, you have no block reward to offer.
Using mining for the initial distribution of coins isn't just a way to decentralize the initial distribution - its also a big part of Bitcoin's security model, and without that, pretty much everything breaks.
(At some point, transaction fees should replace the block reward - but that requires significant usage of the currency and is only possible far into the future. Block rewards are required for bootstrapping, until you get to that point.)
a basket of currencies (real-world ones backed by governments, e.g. http://en.wikipedia.org/wiki/Currency_basket , where the US dollar, pound sterling, etc, etc, all have a weighted percentage.)
but what on earth did you have in mind for a mechanism to do a peg without centralization?
I don't have room in this margin (actually, mental-bandwidth constrained right now) but the gist is 1) mechanisms to expand and contract the supply of money in circulation, in response to 2) mechanisms to determine whether money is over- or undervalued. A number of methods for the former should spring to mind. For the latter, my thought is that you add a type of mined block that contains proof of an outstanding bid and offer in each of the products you're pegging against, verified by some exchange/clearinghouse[1]. Such blocks would be accorded "difficulty" according to the tightness of the spread in each of the products and the size of the orders, as well as the subjective trustworthiness of the backing institution (including a penalty for being too common in the chain relative to others).
Of course, if it's known that the currency will correct itself in the long term, market makers would be expected to keep it stable in the short term.
Countless other details, but that's the gist...
[1] Unfortunately, this is not completely trust-free, but a level of decentralization is maintained by encouraging multiple such institutions, and of course people can broadly recognize and react when one becomes untrustworthy, and it should be fairly observable when they do.
What happens if this non-profit vanishes, or becomes insolvent overnight? For example, if the founder of the non-profit takes all the USD and disappears? Your cryptocurrency suddenly becomes entirely worthless, and there doesn't seem to be any way to prevent this scenario from happening.
The only viable way to accomplish this that I can think of is to have a large government run the system, not a non-profit. And since you're tying the value of your cryptocurrency to the USD, perhaps having the United States government run the thing isn't a bad idea. Although it's hard to imagine what the US government would stand to benefit by enabling this system.
Perhaps this centralized non-profit could exist as a DAO[1] on something like Ethereum. Very hard to shut down a decentralized autonomous "central" bank who's purpose is to issue units of cryptocurrency that is pegged to units of traditional currency.
Not really. I bought my lunch in bitcoin today. Bitcoin transactions are usually priced in dollars so the volatility is immaterial to its use in transactions.
> Bitcoin transactions are usually priced in dollars so the volatility is immaterial to its use in transactions.
That then leaves the question of why not simply use the non-volatile currency directly. Bitcoin would still have the advantage of being able to transfer money more easily than a wire transfer, but that wouldn't matter for the use case of paying for lunch.
>>The volatility in the bitcoin price just demonstrates how the majority of the people trading it have no conception of how to value the underlying asset (i.e. demand for a low cost transaction system) and thus it is speculators leading speculators a la the blind leading the blind.
True, but discovering prices for things that otherwise have no price is something markets do routinely every day.
>>The current sharp price decrease is because people are worried that whoever wins this auction (and the subsequent auction of DPR's coins) will want to exit that position. Thus their will be an oversupply in the market and cause the price to decrease. Expecting this, people are taking that into account and trying to get out before the oversupply, causing a self fulfilling prophecy based on bad underlying analysis.
There's nothing unique about this situation from the standpoint of how markets work; the only unique thing is nature of the asset itself. Even so, bitcoins are not fundamentally different from a precious metal like gold. The price of gold isn't based on the value of the products you could make from it; very little gold gets put to any actual use. Gold is valuable primarily as a result of it's being scarce and the fact that people have given it value arbitrarily, just like bitcoin.
What I read in to the price shock is that the U.S. Marshalls probably should have anticipated this result of dumping the entire quantity at once, and they probably should have released it gradually to smooth out the effect on prices. The Marshalls may not have had the right backgrounds and somebody at the top failed to see it coming.
That is not an irrational consideration: a dump of such a large amount would definitely drop the price of bitcoin. So if the bidder for the coins can get a 20% discount on 16 million dollars, and then drop them of on the market gradually, he might make a 5% of the initial investment. If eh discount is larger, so would the profits.
What the market is doing definitely affects the decision to do a bulk purchase and dump.
Addition: I once read that off-shore accounts and hidden illegal USD dollars are estimated in the trillions of dollars. If such amount of money were input into the system immediately, it would definitely tank the dollar in comparison to the EURO. Even worse, it would have way more side effects, like inflation and such ,that bitcoin doesnt have because its not a primary "currency".
It just takes a lot less to tank bitcoin than the dollar.
It does seem an irrational consideration - why is 30k BTC (less than $20m) labeled "such a large amount" instead of "irrelevantly small amount" ?
Even for BTC scale, this amount shouldn't be a big deal by itself. $20m or 30k BTC simply is not big in the financial market sense - it's a big amount for an individual or a single small company; but that's not a significant amount at all for supply/demand of any currency with supposedly millions of BTC in circulation.
If reality matches the published BTC market data, then 30k BTC should be a drop in a bucket with no meaningful change to the market. And if that kind of money actually does mean "a dump of a large amount", then the currently popularized BTC market estimates, capitalization, etc are exaggerating reality thousandfold.
For example, bitstamp traded 16 million dollars in the last 24hs. The sale would mean as much as an entire daily trade!
http://markets.blockchain.info/
To put it in perspective, Apple stock trades 71 million avg daily volume. At 90 dollars, its 6 billion dollars a day.
If someone were to sell 6 billion dollars of apple stock in one day, remain assured that the price would tank quickly as well, regardless of apple sales or cashflow or any of its "intrinsic" value.
http://www.dailyfinance.com/quote/nasdaq/apple/aapl
One of small the altcoins - ReddCoin recently went from a market cap of ca. $600k to ca. $1m in two days, and everyone were inventing reasons for why. Except it was very simple: Someone had bought about $5k worth to pay his staff 1 week of salary in RDD (there was some tax advantage where he is to treating it as a "bonus" in something not recognised as a currency locally so they had an immediate advantage, and his company is crypto coin related).
Even for such a small coin, $5k was well below the typical daily trade volume. But here's the thing: He very rapidly bought off pretty much all the sell orders at 4 satoshi, and everyone started speculating what happened and prices shot through the roof, even though more coin than that enters the supply in no-time through mining still.
Point being that coins worth a typical daily trade volume can be enough to trigger large reactions in markets that are priced so extensively based on speculation about how other speculators will behave (take a look at the chat at various exchanges, and see the amount of chatter about which coin to buy into because they expect a pump or other forms of manipulation - very little of the chat seems to be related to non-speculative uses of the currencies).
> no conception of how to value the underlying asset
They have no conception of how to value the underlying asset because the underlying asset has absolutely no value. Bitcoin is one of the purest scams that has ever been conceived. Even subprime real estate, pets.com stock, dutch Tulip Bulbs etc. had some value. You're buying and selling a hash - a number. It's absolutely worthless. That people are being suckered into buying these, ASICs costing tens of thousands and backordered to make them etc. is a real close-up seat to how a bubble works, how a scam works, and how the luminaries in the tech field can be lined up in a row to endorse the scam. Is there a tech bubble? "Bitcoin" is the word that can answer that question as easily as "pets.com" and "Webvan" did 15 years ago. At least those companies actually performed a valuable service, Bitcoins are worthless.
In all fairness, the paper on which $100 bills are printed is quite worthless as well.
I think ever since people have stopped using gold and silver bullion (after arrowheads and knives) as currency items, there has been this consensus that money has the value that people give to it, not the value of its material (or, in BTC's case, immaterial) representations.
Further to your point: BTC at least has the property that someone cannot arbitrarily create a new unit (without doing the requisite, increasingly difficult, work).
What exists with BTC is 21 million or so unique valid hashes and no others can be created. With money, say USD, there exist trillions and no guarantee that some party (the government) will not create massive amounts of additional units.
It would also depend on the economics of said quantum computing. But yes, I'd expect the value to decline because one could not guarantee their currency anymore. Similarly if someone invented a teleporter that targeted US currency, it'd become worthless because a thief could just teleport it out of your pocket.
Not quite. USD will always be accepted by the United States Government. If you live in the US, you'll probably owe them taxes no matter what you're payed in, and as such, will always have some need for USD, and USD will always have some intrinsic value of "enough of this will keep the IRS from arresting me".
It's ability to be used to make better fake dollar bills would make it worth something, but the years in jail you might be subjected to if caught presumably drive the demand down.
The current sharp price decrease is because people are worried that whoever wins this auction (and the subsequent auction of DPR's coins) will want to exit that position. Thus their will be an oversupply in the market and cause the price to decrease. Expecting this, people are taking that into account and trying to get out before the oversupply, causing a self fulfilling prophecy based on bad underlying analysis.
Why would someone go long bitcoins (i.e. buy them and in such quantity) through such a difficult process as dealing with the US gov't to so quickly exit their position?
My hypothesis is that it will be either rich institutional investors, hedge funds, or similar large investors who see this as an opportunity to acquire bitcoins at an undermarket price.
I think many of those groups would sit on their position (and not sell them). Further, if they were to sell them, they would want to do so in a way that didn't dramatically affect the price (thus over many days, weeks, or months). Given that 30K bitcoins is far less than the total bought/sold on exchanges every day, it should be presumed that they can exit this position over a sufficient timeline in order to not cause negative pressure on the price (if the auction winners even want to sell -- which as I analyzed above, I don't think they would).