[AndrewDucker]

It's fascinating to watch this, largely because Bitcoin has no "natural" value. The only utility it has is as a transfer of value from one place to another, and it can do that equally well with a bitcoin being worth $1 or $200.

But it's really interesting to watch the value ratchet up, and easy to see how you can do this - if people will only ever sell a bitcoin for (say) 1% more than they bought it for, and people buying things with bitcoins don't care if the things they're buying with it are priced 1% higher than they might, theoretically have been, then the price of bitcoins can keep increasing indefinitely.

Until, that is, some people decide that they want to get rid of a lot of bitcoins, and thus are willing to accept less than that, to shift them quickly. Then the price drops. And then more people might also decide to sell, so as to convert the bitcoins they have at the value they're now worth.

It's classic sentiment pricing - but without any of the value "stickiness" that you get when there's some utility to be gained from the objects you're trading.

(I'm not trying to talk Bitcoin down here, I find the whole thing fascinating. Just thinking out loud.)

[klipt]

> The only utility it has is as a transfer of value from one place to another

Which is a lot of utility. Consider that in the US we still write physical checks, and paying by credit card costs the vendor a few percent every time.

However that utility is not limited to bitcoin. You can set up a similar algorithm using a slightly difference hash, and voila you have bitcoin2. Some people are worried that bitcoin is deflationary; I'd be more worried about alternatives popping up and inflating the whole supply. Especially since current bitcoin favors those who started mining early (and are now millionaires?) - why adopt a currency that makes other people rich when you can just mine your own new currency?

In the end, it depends what the crowd decides to do with it. The value of fiat money is always subjective (although at least USD is backed by the fact you can use it to pay your taxes.)

[guard-of-terra]

There are a lot of alternative currencies: litecoin, ppcoin, terracoin and so on. You can easily mine your own, but it trades at 1/100 of BTC usually.

"Mine your own new currency" -- pre-mining coins before releasing your coin to general public is considered very improper act.

[jbverschoor]

Actually it's natural value is related with the power usage to mine these things. As the difficulty goes up and payouts go down, the natural value increases. Regardless of demand

[caf]

The mining difficulty is driven by the value of the bitcoin (and the efficiency of mining hardware), not the other way around. If bitcoin's traded value were to drop precipitously, the least efficient miners would become unprofitable and eventually drop out, resulting in the difficulty decreasing.

[lvh]

I'm not sure if it can do so equally well at $1 than at $200, particularly when trying to transfer non-trivial amounts of value, due to Bitcoin's (formerly) quite limited liquidity.

I'm not sure I would have been able to purchase 100k worth of Bitcoin easily, and what would've happened to the price if I had attempted that. If I had been able to, perhaps it would've worked out in my favor.

[AndrewDucker]

True, if you're wanting to transfer £100,000 then you're out of luck unless there's an awful lot of liquidity.

But then people don't seem to be making transfers that large, last I checked.

[tomp]

The alternative possibility is: the amount of bitcoins kept for trade significantly outweighs the amount of bitcoins kept as an investment. Then, the price (in $) would roughly equal to the ratio of the amount of money circulating in the society over some period of time (in $) the number of available bitcoins. Thus, bitcoin would probably be worth somewhere between $100,000 and $1,000,000.

[caf]

It's worth keeping in mind in mind that the equilibrium total mining power consumption is proportional to the price of a bitcoin in terms of the amount of electricity it can purchase.

With the current mining rate of 150 bitcoin per hour, a bitcoin price of $100,000 implies around 100GW of power consumption for bitcoin mining (for comparison, a large thermal power station has around 1GW of output). That's a lot of energy to throw out the window...

[tomp]

Yes, but in time, the mining rate will drop, and the energy loss will be reduced significantly.

[aneth4]

Gold also has no "natural" value as a currency, and make no mistake gold is traded as a currency, not for it's actual usage.

[betterunix]

Where is gold traded as a currency? In what market are weights of gold used as a medium of exchange?

[aneth4]

Gold is traded almost exclusively for its liquidity and role as a value store, not for its intrinsic value. Currency traders don't use currency as a medium of exchange either.

[hollerith]

What grandparent (almost certainly) means is that gold is a "monetary asset": although there are industrial, cosmetic and personal uses for gold, if people were not using gold as a store of economic value, its price would be much lower than it is.

More to the point, even if gold's industrial, cosmetic and personal uses completely disappeared, it would probably continue to be quite valuable because people would probably continue to use it as a place in which to "park" some of their savings.