Crypto currency bubble?

[Fulcrum29]

I think JP Morgan recently announced that they were beginning development of an inhouse crypto currency which combined some aspects of Ethereum and ZCash.

Yep,

http://www.coindesk.com/zcash-ethereum-how-two-major-blockchains-are-evolving-together/

Zcash + Ethereum = ♥: Why Two Blockchains Are Evolving Together

Ethereum needs to evolve, the DAO attack is hurdling its attractiveness.

I look into cryptocurrencies beyond the investor's pov. That is why I never previously contributed to these threads. Now that it has gained mainstream traction, the potential is starting to lure attention. People need to talk about it.

 

[Fulcrum29]

Correct, though the blockchain will be private and subject to regulation.

It will need to be regulated, smart contracts abiding to conditions need to be within the laws applied regionally. It is going to be damn hard to control these blockchains, it is globalised and to some extent keyless (the privacy). I can only see abuse laws being applied.

 

[Knyro]

You guys are misunderstanding a fundamental concept of fiat currency. The sum total of all dollars or rands in the world is the sum total of the country they represents GDP. This is why if a country prints money without similar growth in their economic output you have more money chasing the same goods and inflation happens. There is something backing those countries, its economic output. There is no such thing for cryptocurrencies. Its a series of one's and zero's on a computer and the value is entirely based on what people are willing to pay for it.

This is an illusion crypto doubters keep telling themselves. Ultimately everything only has value because we say it does.

If tomorrow everyone suddenly refused to accept the US dollar, for no reason at all, its value would crash instantly, irrespective of America's economic output. Same with gold.

It's also ironic that you sneer at it calling it ones and zeros on a computer, when most of the "normal" money supply exists only on hard drives somewhere too.

 

[Ancalagon]

This is an illusion crypto doubters keep telling themselves. Ultimately everything only has value because we say it does.

If tomorrow everyone suddenly refused to accept the US dollar, for no reason at all, its value would crash instantly, irrespective of America's economic output. Same with gold.

It's also ironic that you sneer at it calling it ones and zeros on a computer, when most of the "normal" money supply exists only on hard drives somewhere too.

Money gets even more virtual when you stalking about credit default swaps and that sort of thing.

 

[AlphaBravo]

You guys are misunderstanding a fundamental concept of fiat currency. The sum total of all dollars or rands in the world is the sum total of the country they represents GDP. This is why if a country prints money without similar growth in their economic output you have more money chasing the same goods and inflation happens. There is something backing those countries, its economic output. There is no such thing for cryptocurrencies. Its a series of one's and zero's on a computer and the value is entirely based on what people are willing to pay for it.

I think you are a little misinformed both on fiat currency basis and cryptocurrencies. Go read up a bit and rephrase yourself.

 

[Fulcrum29]

Cryptocurrencies are evolving more into its purpose, more an application than being only a trading medium (or currency). I can understand why regulating these are so hard, it is property.

 

[Cius]

How then can the value of a Rand change without our GDP changing?

Our GDP can be measured in Rands, correct? Let us say our GDP is R1000, and let us suppose that R1000 could buy us $100 US.

Then Jacob Zuma opens his mouth. Our GDP is still R1000, but now that can only buy us $50.

The value of the rand has depreciated - nobody wants to buy it anymore and hence the exchange rate plummets. Yet GDP (in the short term) remains unchanged.

The value of a currency relative to other currencies is influenced by GDP, but is also influenced by a lot more things. Investor confidence, for instance. You could have a country with amazing GDP, then Jacob Zuma takes charge, investor confidence tanks, currency drops, GDP remains as is (when measured in the local currency).



Also pretty sure this is flat out wrong. Influenced by GDP but not equal to it. Otherwise every time JZ opens his mouth, we would have to have a bonfire and burn Rands.

The reason this happens is because the rand is also like the country as a whole's share price. If the CEO is an idiot and makes a public spectacle then investors will expect the company's earnings (in our case our GDP) to drop and hence will sell stock dropping the price. The markets are always trying to predict up's and downs in both countries and companies and forward trade based on the outlook and expectation. That is why Capitec can trade at a PE ratio of 20 where the other banks are half that. People are expecting it to keep growing faster than the other banks and hence will pay a premium for the share price. A similar mechanic happens with currencies. Its why the pound dropped after Brexit. People expected Brexit to lower the UK's GDP through lost trade and business.

Anyways, getting off topic. Like I said there are lots of things to like about crypto currency. It is immune to money printing shenanigans for instance and could become a decent means of exchange but when I see a currency like Etherium suddenly multiply its worth by 20 in 6 month period I see red flags. I am not advising people to abandon crypto, I'm just saying proceed with caution. Its the same as if over a 6m period the dollar quadrupled its value for whatever reason. Would you buy dollars then, or wait for the inevitable correction?

 

[Ancalagon]

The reason this happens is because the rand is also like the country as a whole's share price. If the CEO is an idiot and makes a public spectacle then investors will expect the company's earnings (in our case our GDP) to drop and hence will sell stock dropping the price. The markets are always trying to predict up's and downs in both countries and companies and forward trade based on the outlook and expectation. That is why Capitec can trade at a PE ratio of 20 where the other banks are half that. People are expecting it to keep growing faster than the other banks and hence will pay a premium for the share price. A similar mechanic happens with currencies. Its why the pound dropped after Brexit. People expected Brexit to lower the UK's GDP through lost trade and business.

Anyways, getting off topic. Like I said there are lots of things to like about crypto currency. It is immune to money printing shenanigans for instance and could become a decent means of exchange but when I see a currency like Etherium suddenly multiply its worth by 20 in 6 month period I see red flags. I am not advising people to abandon crypto, I'm just saying proceed with caution. Its the same as if over a 6m period the dollar quadrupled its value for whatever reason. Would you buy dollars then, or wait for the inevitable correction?

Yes, but that doesn't happen immediately.

Let us say that Jacob Zuma announces that the IDC is closing in 3 months time because they are running out of money.

As the IDC provides loans and support to new business, this will have an obvious effect on GDP - it will be lower when it is measured at the end of the year.

But on the day that Zuma makes his announcement, GDP is still the same. Businesses are still trading exactly as they were. Nobody suddenly goes out of business that same day. Only in 3 months time will things change.

However, investors react immediately. They dump their South African investments, they dump their Rand holdings, and the value of the Rand drops.

This happens before the drop in GDP occurs. This happens before industrial output has even started contracting. This happens before GDP is measured.

So no, the sum total of Rand in existence is not exactly equal to the country's GDP. Related, but not equal.

 

[Cius]

This is an illusion crypto doubters keep telling themselves. Ultimately everything only has value because we say it does.

If tomorrow everyone suddenly refused to accept the US dollar, for no reason at all, its value would crash instantly, irrespective of America's economic output. Same with gold.

It's also ironic that you sneer at it calling it ones and zeros on a computer, when most of the "normal" money supply exists only on hard drives somewhere too.

Yes and no, Fiat money is both incredibly simple and incredibly complex. I realise I am taking the simplified approach but that is due to the audience. MYBB is average tech savvy people for the most part, not currency traders and economists (for the most part). The thing is those one's and zero's on people's hdd's that represent fiat currency only exist after the central banking authority creates them. Central banks try ensure there is enough to represent the economic output of a country without leading to deflation (which causes serious mess), or too much inflation (which is also an issue, ask Zim).

Taking your example, the reason the dollar is the price it is, is because people buy US dollars to buy US services and stuff (lets ignore the dollar standard for now and USD based commodity trading, that is a bit more complex). So for instance if everyone said we don't like dollars anymore no one would be able to watch US movies. The whole world would have to literally give up on buying every US service, product, weapon, and entertainment medium as even if you pay your movie ticket for the latest marvel blockbuster in rands at some point someone bought that movie for SA distribution in dollars. It cannot happen as why would demand for one countries product vanish overnight? At its simplest form that is what determines a countries foreign exchange rate, or value to the rest of the world. How high is the demand for your countries output's, and how many people are buying your currency to trade with you? Its closely linked to GDP with a few other factors like international sanctions etc. If you put sanctions on Iran a lot of people can no longer trade with Iran and hence Iran's currency drops. Same thing happened to SA back in the day and it was the reason government started maintaining two versions of the rand. One for international trade and one for local exchange. They tried to manage it.

Anyways, like I said, I do know kinda what you mean, fiat currency is a confidence thing and it can vanish overnight (just as a company's share price can plummet overnight African bank style) but at least the country has its underlying demand for products propping the value up. With Crypto currency that confidence would need to be based on retailers willingness to accept it as a means of exchange. Yes many more people have jumped on board now in accepting it but tell me this, if you are a shop and you decide to be forward thinking and accept bitcoin as a payment method. Say you accept 1 coin today for a R20 000 TV. Before you can dispose of the coin the price of bitcoin drops 10% (fairly possible right now with its volatility levels). How does that impact on your profit margins? Do you decide to keep going with bitcoin? If another major company that also accepted bitcoin had the same thing happen today suddenly backs out of accepting bitcoin starting a run for the door, domino like scenario what do you do? The value of the bitcoin is closely linked to the confidence people have in being able to exchange it for value somewhere. As we saw with the 2008 crash in CDS prices once people start questioning a product's credit worthiness it can collapse fast as everyone stampede's to offload their books.

So yes, I do think Fiat currency is backed by a lot more than crypto currency. In saying that fiat currency can collapse if given the right set of conditions as Venezuela is learning now. Even with their oil propping the currency up people are starting to wonder if they will be able to keep delivering it dropping demand for their currency.

 

[hj007]

I find it interesting regarding the price that:
1. we can hardly buy anything with Bitcoin, or at least nothing that you can't already buy in a local currency
2. we can create an infinite amount of crypto currencies. Bitcoin has brand name value, for now. Post fork, which one of the two do you buy? Will it split again?

I think the reason the price doesn't matter at the moment, is that we've moved from when tech guys thought Bitcoin and Blockchain were cool (and thereby the price was low), to the finance and marketing industry pumping bitcoin. The marketing and media guys are the ones that give exposure to people that don't understand the tech. I'm hearing half the people at work (non-tech) talking about speculating in bitcoin, and teachers talking about bitcoin and ICOs... that is not a good sign to me.

 

[IziWhatNow]

If i'd like to put some cash in Bitcoin and Eth, would it be okay to sign up to Coinbase.com, use their wallet, and buy the currency entirely on their platform? Or am I missing something?

 

[hj007]

If i'd like to put some cash in Bitcoin and Eth, would it be okay to sign up to Coinbase.com, use their wallet, and buy the currency entirely on their platform? Or am I missing something?

I don't think you can buy on Coinbase from SA.

 

[Ancalagon]

If i'd like to put some cash in Bitcoin and Eth, would it be okay to sign up to Coinbase.com, use their wallet, and buy the currency entirely on their platform? Or am I missing something?

Wrong thread.

 

[Knyro]

/snip.

Money is only worth something because you believe that it is. Indicators like GDP/politics/technical analysis only have an effect because you believe that other people care about it, and they care about it because they believe you care about it. A self-fulfilling prophecy that applies to all investments.

You wouldn't have to give up US services/products btw, just refuse to transact using dollars, forcing Americans to buy other currencies instead. A currency being "backed" by something else is still an illusion.

 

[Google space]

Hey guys,

So I'm new to all of this and I've been reading up on all of it for a the past few weeks but I would like to know where you buy Alternative coins?

Is there any websites that I can do this on?

 

[Cius]

Just a bump of this as I feel the bubble is maturing and getting closer to the pop. It may still go on for a year or two if it follows the pattern of the property bubble but it could also go a lot sooner if the regulatory landscape intervenes. Earlier in this thread there was an article about South Korea upping support for Crypto. Well now they are considering banning it altogether. As the 3rd biggest crypto market if that happens the collapse could happen a lot sooner.

Just to re-iterate some of the earlier points. The people buying the coins now are not using the coins for the intended purpose, they are speculating. The less educated investors are now piling in (a bad sign from the history of other bubbles). So proceed with caution.

As is always the case there will be some coins that will survive and thrive just as there where dot com stocks that survived the crash but as a whole I don't see a rosy picture for crypto currencies for a while yet.

Remember, if it sounds too good to be true it probably is too good to be true.

Some facts:
Electricity cost of validating a single bitcoin transaction: 340 KwH
Rand cost of the validation in SA electricity pricing: R510
The person paying the massive fee is not the purchaser or seller of the goods traded via bitcoin, so this can never replace money. It only works as a Ponzi scheme.
Bitcoin mining now uses as much power as the country of New Zealand.

It is not sustainable, and as far as I am aware all crypto currencies suffer the same electricity cost issue. Bitcoin is just further down the road than most of them.

 

[MrGray]

Some facts:
Electricity cost of validating a single bitcoin transaction: 340 KwH
Rand cost of the validation in SA electricity pricing: R510
The person paying the massive fee is not the purchaser or seller of the goods traded via bitcoin, so this can never replace money. It only works as a Ponzi scheme.
Bitcoin mining now uses as much power as the country of New Zealand.

It is not sustainable, and as far as I am aware all crypto currencies suffer the same electricity cost issue. Bitcoin is just further down the road than most of them.

Mining difficulty is self-adjusting. If miners could no longer afford the resource and start withdrawing, the difficulty decreases commensurately. Basically, it's automatically set at the level that covers their expenditure profitably. To put it simplistically - if the cost or scarcity of electricity doubles causing mining output to halve, the difficulty will eventually drop to match. Much of the power used by Chinese miners is sourced from hydro plants anyway, in fact there are some hydro power companies running mining operations themselves! In Iceland there are massive mining centres using geothermal energy, both for electricity and datacenter cooling. Add to this various enhancements in transaction processing like segwit (already implemented) and the imminent lightning network infrastructure and the average transaction fee will likely plummet in 2018. So it's not static either. The technology is rapidly changing. What all of this means to me, is that there is little relation between power consumption and any bubble status in BTC, nor a Ponzi mechanism.

 

[Cius]

So all the fixes are in the future. And that is OK. Got it. Like I said, be warned.

Also not a Ponzi. How has it run till now. If I believed in crypto as a currency and bought a R100 item today using BTC somewhere in the world someone gets paid over R500 to validate that transaction. I don't pay him, neither does the shop I bought my R100 item from. The miner was paid with printed money in essence, and he has to sell it to pay his bill, which means more people need to buy in to roll it on. It is a Ponzi, you are just not seeing it.

 

[Bobbin]

Just a bump of this as I feel the bubble is maturing and getting closer to the pop. It may still go on for a year or two if it follows the pattern of the property bubble but it could also go a lot sooner if the regulatory landscape intervenes. Earlier in this thread there was an article about South Korea upping support for Crypto. Well now they are considering banning it altogether. As the 3rd biggest crypto market if that happens the collapse could happen a lot sooner.

Just to re-iterate some of the earlier points. The people buying the coins now are not using the coins for the intended purpose, they are speculating. The less educated investors are now piling in (a bad sign from the history of other bubbles). So proceed with caution.

As is always the case there will be some coins that will survive and thrive just as there where dot com stocks that survived the crash but as a whole I don't see a rosy picture for crypto currencies for a while yet.

Remember, if it sounds too good to be true it probably is too good to be true.

Some facts:
Electricity cost of validating a single bitcoin transaction: 340 KwH
Rand cost of the validation in SA electricity pricing: R510
The person paying the massive fee is not the purchaser or seller of the goods traded via bitcoin, so this can never replace money. It only works as a Ponzi scheme.
Bitcoin mining now uses as much power as the country of New Zealand.

It is not sustainable, and as far as I am aware all crypto currencies suffer the same electricity cost issue. Bitcoin is just further down the road than most of them.

Not all There are cryptos among the mix that are vastly different in philosophy/purpose, implementation and use case. Some scale better too. The 3rd largest crypto ITO market cap at the moment for example is all "pre-mined" and in existence already (Ripple XRP). It doesn't face the electricity cost issue you raised AFAIK.

IMO BitCoin itself is a waste of time now, but I may eat my words.

 

[Sinbad]

Not all There are cryptos among the mix that are vastly different in philosophy/purpose, implementation and use case. Some scale better too. The 3rd largest crypto ITO market cap at the moment for example is all "pre-mined" and in existence already (Ripple XRP).

IMO BitCoin itself is a waste of time now, but I may eat my words.

Mining doesn't "create" the currency. Nowadays, mining is just calculating the hashes to confirm transactions. Hence the massive cost ...