How To Use Bitcoin – The Most Important Creation In The History Of Man

[remirol]

Why is 2 days out of 1400 so significant to you?

The simplest way to put it is: dice don't have a memory.

Now, bitcoin isn't dice, so the frequency of past occurrences does have a nonzero relation to the possibility of future occurrences; the sample size is very low, however, and to include all 1400 days of bitcoin's existence is not representative of what we really want to know, which is:

* number of crashes bitcoin has had
* number of days when a crash was possible

I was able to find this chart (which on Mar 29 predicts the bust that occurred two weeks later, amusingly):

and i made this one which covers the crash in 2011, and this one which covers 2013:

and what they tell me is that Bitcoin couldn't even have crashed prior to April of 2011 because it didn't have any actual value at all. Since it's April of 2013 right now, that means we're looking at 2 in about 700 days. The last time bitcoin prices rose above $15 per, it dropped back below $15 within two months. The recent spike-and-crash dropped the baseline to around $70-ish, but the trading volume is far more significant: a price spike was triggered in June 2011 by a positive trade volume of about 5M over three days; it was followed by three days of immediate heavy sales totalling around 6M. That difference means there were people in there just _waiting_ to get out. Now look at the volume pattern leading up to April 9 -- small positives for several days followed by big sale spikes, and once the price got above $200 a ton of people cashed out all at once. That's dangerous; that means there are a lot of people in there holding and just waiting for a chance to cash out.

As such, I'm perfectly willing to bet the next crash will be sooner than 2 years (~700 days) from now.

In addition, the severity of these occurrences can be huge. When you can afford to hold, crashes like the last one are only lost opportunities, not actual losses -- but when you need to have Bitcoin working actively for you, a price drop like that can be catastrophic. Think about everything you sold between the 5th and the 10th and were paid in Bitcoins for -- you got rooked hard, because your goods and/or services are gone at a certain rate and now you've effectively been paid only a fraction of that. Now think about having to pay your employees on April 12 (second Friday of the month) or 15th (bimonthly checks).

 

[psionl0]

In addition, the severity of these occurrences can be huge. When you can afford to hold, crashes like the last one are only lost opportunities, not actual losses -- but when you need to have Bitcoin working actively for you, a price drop like that can be catastrophic.

In spite of your cherry picking, the graphs you have displayed don't show bitcoin to be the catastrophe you are desperately trying to prove. Quite the reverse in fact. There is far more green than red on those charts meaning that most of the time it is profitable to use bitcoins.

You don't have to take my word for it. The MtGox site allows you to download the raw data for any time period which I have done for your second chart and summarized in the table below. I have considered two scenarios concerning a person who's bitcoin takings is valued at $100.00 per day (the third column shows how many coins he would have collected at the weighted mean price).

In the first scenario, the person sells those bitcoins the next day for whatever the weighted mean price is (column 2). Column 4 shows how much profit (or loss) he would have made due to the price variations. If you total that column, you will find he still comes out $279.53 ahead compared to what he would have done if he had only dealt with fiat currency. This is in spite of the heavy falls in bitcoin prices recently (and they are recovering).

In the second scenario, the person holds on to the bitcoins and doesn't sell them at all. The sixth column shows the value of his bitcoin holdings for each day this year. By 28 April, the value of his holdings would have been $53,825.85 which is not bad considering that $100 per day for 119 days only totals $11,900.

BTW it is not correct to say that bitcoin prices couldn't have crashed prior to April 2011. As the Bitcoin Chart for Jan to April 2011 shows, the price of bitcoins doubled in the first week of February. Just because the price of bitcoins at that time was in cents rather than dollars doesn't mean that there wasn't a profit to be had.

[table=head]DATE|PRICE|COINS|DAILY PROFIT|CUMULATIVE|VALUE
2012-12-31|$13.48|7.41840|$0.00|7.41840|$100.00
2013-01-01|$13.34|7.49625|-$1.04|14.91465|$198.96
2013-01-02|$13.31|7.51315|-$0.22|22.42780|$298.51
2013-01-03|$13.36|7.48503|$0.38|29.91283|$399.64
2013-01-04|$13.42|7.45156|$0.45|37.36439|$501.43
2013-01-05|$13.45|7.43494|$0.22|44.79934|$602.55
2013-01-06|$13.46|7.42942|$0.07|52.22876|$703.00
2013-01-07|$13.51|7.40192|$0.37|59.63068|$805.61
2013-01-08|$13.72|7.28863|$1.55|66.91931|$918.13
2013-01-09|$13.74|7.27802|$0.15|74.19733|$1,019.47
2013-01-10|$14.05|7.11744|$2.26|81.31477|$1,142.47
2013-01-11|$14.11|7.08717|$0.43|88.40194|$1,247.35
2013-01-12|$14.17|7.05716|$0.43|95.45910|$1,352.66
2013-01-13|$14.11|7.08717|-$0.42|102.54628|$1,446.93
2013-01-14|$14.26|7.01262|$1.06|109.55890|$1,562.31
2013-01-15|$14.20|7.04225|-$0.42|116.60115|$1,655.74
2013-01-16|$14.52|6.88705|$2.25|123.48821|$1,793.05
2013-01-17|$15.17|6.59196|$4.48|130.08016|$1,973.32
2013-01-18|$15.68|6.37755|$3.36|136.45771|$2,139.66
2013-01-19|$15.46|6.46831|-$1.40|142.92602|$2,209.64
2013-01-20|$15.72|6.36132|$1.68|149.28734|$2,346.80
2013-01-21|$16.38|6.10501|$4.20|155.39235|$2,545.33
2013-01-22|$17.15|5.83090|$4.70|161.22325|$2,764.98
2013-01-23|$17.22|5.80720|$0.41|167.03045|$2,876.26
2013-01-24|$17.75|5.63380|$3.08|172.66426|$3,064.79
2013-01-25|$16.66|6.00240|-$6.14|178.66666|$2,976.59
2013-01-26|$17.15|5.83090|$2.94|184.49756|$3,164.13
2013-01-27|$17.65|5.66572|$2.92|190.16328|$3,356.38
2013-01-28|$18.34|5.45256|$3.91|195.61585|$3,587.59
2013-01-29|$19.17|5.21648|$4.53|200.83233|$3,849.96
2013-01-30|$19.48|5.13347|$1.62|205.96580|$4,012.21
2013-01-31|$20.58|4.85909|$5.65|210.82489|$4,338.78
2013-02-01|$20.73|4.82393|$0.73|215.64881|$4,470.40
2013-02-02|$19.47|5.13611|-$6.08|220.78492|$4,298.68
2013-02-03|$20.26|4.93583|$4.06|225.72075|$4,573.10
2013-02-04|$20.42|4.89716|$0.79|230.61791|$4,709.22
2013-02-05|$20.57|4.86145|$0.73|235.47936|$4,843.81
2013-02-06|$21.09|4.74158|$2.53|240.22095|$5,066.26
2013-02-07|$21.61|4.62749|$2.47|244.84843|$5,291.17
2013-02-08|$22.42|4.46030|$3.75|249.30874|$5,589.50
2013-02-09|$23.24|4.30293|$3.66|253.61166|$5,893.94
2013-02-10|$23.42|4.26985|$0.77|257.88152|$6,039.59
2013-02-11|$24.13|4.14422|$3.03|262.02574|$6,322.68
2013-02-12|$25.09|3.98565|$3.98|266.01139|$6,674.23
2013-02-13|$25.48|3.92465|$1.55|269.93604|$6,877.97
2013-02-14|$25.46|3.92773|-$0.08|273.86377|$6,972.57
2013-02-15|$26.99|3.70508|$6.01|277.56884|$7,491.58
2013-02-16|$27.16|3.68189|$0.63|281.25073|$7,638.77
2013-02-17|$26.40|3.78788|-$2.80|285.03860|$7,525.02
2013-02-18|$26.76|3.73692|$1.36|288.77553|$7,727.63
2013-02-19|$28.19|3.54736|$5.34|292.32288|$8,240.58
2013-02-20|$29.47|3.39328|$4.54|295.71616|$8,714.76
2013-02-21|$29.68|3.36927|$0.71|299.08544|$8,876.86
2013-02-22|$30.46|3.28299|$2.63|302.36843|$9,210.14
2013-02-23|$29.05|3.44234|-$4.63|305.81077|$8,883.80
2013-02-24|$29.78|3.35796|$2.51|309.16873|$9,207.04
2013-02-25|$30.07|3.32557|$0.97|312.49430|$9,396.70
2013-02-26|$31.01|3.22477|$3.13|315.71907|$9,790.45
2013-02-27|$31.22|3.20307|$0.68|318.92214|$9,956.75
2013-02-28|$32.69|3.05904|$4.71|321.98118|$10,525.56
2013-03-01|$34.24|2.92056|$4.74|324.90174|$11,124.64
2013-03-02|$33.87|2.95247|-$1.08|327.85421|$11,104.42
2013-03-03|$34.13|2.92997|$0.77|330.78418|$11,289.66
2013-03-04|$35.47|2.81928|$3.93|333.60347|$11,832.91
2013-03-05|$39.35|2.54130|$10.94|336.14476|$13,227.30
2013-03-06|$45.18|2.21337|$14.82|338.35813|$15,287.02
2013-03-07|$40.93|2.44320|-$9.41|340.80133|$13,949.00
2013-03-08|$43.16|2.31696|$5.45|343.11829|$14,808.99
2013-03-09|$45.44|2.20070|$5.28|345.31899|$15,691.30
2013-03-10|$46.84|2.13493|$3.08|347.45392|$16,274.74
2013-03-11|$47.62|2.09996|$1.67|349.55388|$16,645.76
2013-03-12|$43.70|2.28833|-$8.23|351.84221|$15,375.50
2013-03-13|$46.41|2.15471|$6.20|353.99692|$16,429.00
2013-03-14|$47.31|2.11372|$1.94|356.11063|$16,847.59
2013-03-15|$47.03|2.12630|-$0.59|358.23694|$16,847.88
2013-03-16|$46.86|2.13402|-$0.36|360.37095|$16,886.98
2013-03-17|$47.40|2.10970|$1.15|362.48066|$17,181.58
2013-03-18|$48.98|2.04165|$3.33|364.52231|$17,854.30
2013-03-19|$55.39|1.80538|$13.09|366.32769|$20,290.89
2013-03-20|$62.02|1.61238|$11.97|367.94007|$22,819.64
2013-03-21|$69.07|1.44781|$11.37|369.38788|$25,513.62
2013-03-22|$70.65|1.41543|$2.29|370.80330|$26,197.25
2013-03-23|$62.67|1.59566|-$11.30|372.39896|$23,338.24
2013-03-24|$68.92|1.45096|$9.97|373.84992|$25,765.74
2013-03-25|$74.25|1.34680|$7.73|375.19672|$27,858.36
2013-03-26|$77.25|1.29450|$4.04|376.49122|$29,083.95
2013-03-27|$84.87|1.17827|$9.86|377.66949|$32,052.81
2013-03-28|$87.41|1.14403|$2.99|378.81353|$33,112.09
2013-03-29|$88.78|1.12638|$1.57|379.93991|$33,731.07
2013-03-30|$91.72|1.09027|$3.31|381.03018|$34,948.09
2013-03-31|$92.70|1.07875|$1.07|382.10893|$35,421.50
2013-04-01|$100.04|0.99960|$7.92|383.10853|$38,326.18
2013-04-02|$107.61|0.92928|$7.57|384.03781|$41,326.31
2013-04-03|$127.89|0.78192|$18.85|384.81973|$49,214.60
2013-04-04|$131.61|0.75982|$2.91|385.57956|$50,746.13
2013-04-05|$139.22|0.71829|$5.78|386.29784|$53,780.39
2013-04-06|$142.16|0.70343|$2.11|387.00128|$55,016.10
2013-04-07|$154.26|0.64826|$8.51|387.64953|$59,798.82
2013-04-08|$181.49|0.55099|$17.65|388.20053|$70,454.51
2013-04-09|$214.67|0.46583|$18.28|388.66636|$83,435.01
2013-04-10|$184.65|0.54157|-$13.98|389.20792|$71,867.24
2013-04-11|$158.93|0.62921|-$13.93|389.83713|$61,956.82
2013-04-12|$85.57|1.16863|-$46.16|391.00576|$33,458.36
2013-04-13|$110.21|0.90736|$28.80|391.91312|$43,192.75
2013-04-14|$97.41|1.02659|-$11.61|392.93971|$38,276.26
2013-04-15|$87.07|1.14850|-$10.61|394.08821|$34,313.26
2013-04-16|$65.33|1.53069|-$24.97|395.61890|$25,845.78
2013-04-17|$85.27|1.17275|$30.52|396.79165|$33,834.42
2013-04-18|$97.38|1.02690|$14.20|397.81855|$38,739.57
2013-04-19|$119.43|0.83731|$22.64|398.65586|$47,611.47
2013-04-20|$124.02|0.80632|$3.84|399.46219|$49,541.30
2013-04-21|$121.50|0.82305|-$2.03|400.28523|$48,634.66
2013-04-22|$123.23|0.81149|$1.42|401.09672|$49,427.15
2013-04-23|$134.63|0.74278|$9.25|401.83950|$54,099.65
2013-04-24|$152.07|0.65759|$12.95|402.49709|$61,207.73
2013-04-25|$143.07|0.69896|-$5.92|403.19605|$57,685.26
2013-04-26|$132.25|0.75614|-$7.56|403.95219|$53,422.68
2013-04-27|$131.18|0.76231|-$0.81|404.71450|$53,090.45
2013-04-28|$132.75|0.75330|$1.20|405.46780|$53,825.85[/table]

 

[remirol]

In spite of your cherry picking, the graphs you have displayed don't show bitcoin to be the catastrophe you are desperately trying to prove. Quite the reverse in fact. There is far more green than red on those charts meaning that most of the time it is profitable to use bitcoins.

1) What you call "cherry picking" I call "pointing at the two instances of crashes that we were discussing". Cherry picking would have been to only point at the June 2011 crash, where the price dropped back all the way down, and ignoring the current crash, where it didn't.

2) The fact that a bunch of small green increments is followed by a single large red decrement isn't proof of profitability. For another example, let's consider how a martingale works in theory; you bet a given unit at even odds, and keep doubling your bet until you win the original unit back. Repeat until rich.

The reason it fails is that you'll run out of money before the casino will [and casinos instituted betting limits to make sure no Saudi Princes come in just to test this theory out]. Assume you start with $200 and bet $1 -- it only takes seven losses in a row to send you home a big loser because you can't afford the $128 necessary to cover the 1+2+4+8+16+32+64 = $127 you've already invested. How often does seven 'heads' in a row come up? A little less than 1% of the time -- meaning that on average, right about the time you've made $100, you get nailed with the big loss and that's the end of it. But, of course, timing is everything here -- if it comes early you get killed for even more, and if it comes just late enough you've already made your $127 and can either break even or try for one more shot... but remember that dice don't have a memory.

How this applies to Bitcoin is in demonstrating that the volatility is still simply too high to not have a full backup plan in USD in place -- right now, both huge spikes in value have been followed by big crashes, which mean that a rational Bitcoin actor can wait until a spike starts, cash out his Bitcoins for goods, services, and cash, and then leave the sellers of those goods and services holding the bag when the Bitcoin value drops. (We will assume that the people offering cash for Bitcoins near the top of a spike are intending to buy and hold.)

In the first scenario, the person sells those bitcoins the next day for whatever the weighted mean price is (column 2). Column 4 shows how much profit (or loss) he would have made due to the price variations. If you total that column, you will find he still comes out $279.53 ahead compared to what he would have done if he had only dealt with fiat currency.

What if he's broke after the crash because he _had_ to sell his bitcoins to pay his employees... or couldn't pay them and they quit? And THIS is where it ties into the martingale example as well; it's a long series of positives followed by a sudden flop. If the flop comes at the wrong (ie unpredicted) time, doom and despair occurs. Also, your example doesn't account for the fact that he doesn't get to keep all $100 of his bitcoin takings each day; he has to reinvest a great deal of that into his business in order to simply keep it moving.

In the second scenario, the person holds on to the bitcoins and doesn't sell them at all. The sixth column shows the value of his bitcoin holdings for each day this year. By 28 April, the value of his holdings would have been $53,825.85 which is not bad considering that $100 per day for 119 days only totals $11,900.

This is the speculation angle to Bitcoin (hold until saleable at the desired profit) which we agree is currently completely functional... assuming you have plenty of USD to cover keeping your business running while you park the Bitcoin in your $REPOSITORY.

...I considered noting that while Bitcoins are "down" people are going to be less inclined to use them for purchasing as compared to when they're "up", and thus a $100-per-day flat model is not likely to be an accurate representation of how Bitcoin sales will go, but really with that we are just coming back around to "gee, wouldn't it be nice to look at someone's books who's currently taking bitcoins so we can see what it looks like from a worm's eye view?"

BTW it is not correct to say that bitcoin prices couldn't have crashed prior to April 2011. As the Bitcoin Chart for Jan to April 2011 shows, the price of bitcoins doubled in the first week of February. Just because the price of bitcoins at that time was in cents rather than dollars doesn't mean that there wasn't a profit to be had.

Pennies are pennies, man. I blow more money on beer than I could've made with Bitcoin in that timeframe. To have a crash, you have to have somewhere to fall to.

(buy in on Jan 1 at $0.30 per for $100; cash out on April 1 at $0.80 per for, eh, call it $266 repeating? Why did I even waste time buying the equivalent of a penny stock in the first place if I wasn't gonna hold until it did something?)

[table snipped because nobody needs to see that much stuff quoted; scroll up if you want to see it]

 

[psionl0]

Martingdale?

 

[Agatha]

Martingale. The link is given in remirol's post, or you could google.

 

[psionl0]

Martingale. The link is given in remirol's post, or you could google.

I know what the Martingdale system is. I know it well enough to be able to tell the difference between a flat daily wager and doubling up every time you make a loss.

I just couldn't believe that remirol would think that a strawman like that would be an effective rebuttal of a table he didn't bother to look at.

 

[Puppycow]

Are we seeing another roller-coaster day today?

It's below $100 atm.

http://preev.com

 

[psionl0]

Are we seeing another roller-coaster day today?

It's below $100 atm.

http://preev.com

It seems that the more people who get interested in bitcoin, the more volatile its price becomes. The ball game seems to have changed since Cyprus. http://bitcoincharts.com/charts/mtgoxUSD#rg360ztgSzm1g10zm2g25zv

We will probably need a few months more data to see if there is still an upward trend in the mean price.

 

[Belz...]

87$.

 

[The Don]

For anyone who bought in at the peak as a euro hedge - ouch.

Of course if it goes to $1000 then in retrospect they'll have been sensible

 

[Puppycow]

Down to 80 now. It was definitely over 100 earlier today and in the 140s within the last few days.

Might be another fit of panic.

 

[remirol]

Down to 80 now. It was definitely over 100 earlier today and in the 140s within the last few days.

Might be another fit of panic.

Looks more like greed from here (cashing out while the cashing's good).

 

[anduin]

Mt. Gox.

I keep losing interest in Bitcoin, life is too short, but this is quite interesting bit of news. US Homeland security has seized funds belonging to Mt.Gox.

http://arstechnica.com/tech-policy/2013/05/feds-seize-money-from-top-bitcoin-exchange-mt-gox/

Once more, the intermediaries prove to be the weak point of Bitcoin.

Well, that and everything else.

 

[anduin]

No you don't and your phrasing has betrayed this multiple times. I'm now not the only person who is also trying to explain this concept to you.

Will you stop the childish bickering over shorting? It really is an annoying tactic. I have explained exhaustively that I am not interested in becoming involved with Bitcoin, so can we drop this stupid line of argument?

If you're considering whether to do business with me or invest your money with me, and I lie to you about the nature of my business in a manner that would cause you to invest or spend money you otherwise wouldn't, then that is not only dishonest, it is fraud.

As long as you recognize that your accusation is one of not only dishonesty, but fraudulent, shameful and illegal activity, then that's fine. We can have the conversation about the sites themselves, and I'm absolutely sure that some sites that accepted Bitcoin at one point don't accept them any longer, but to proclaim that there is no evidence that any sites ever did anything with them other than speculation is a whole different ballgame. That's what I'm pointing out to you.

I never said that there are no websites that take Bitcoin ever, that is one of the many bizarre misunderstandings about what I said. I made a very specific claim, which I repeated with evidence. Can we let this rest?

Volatility in speculation does not mean that utility doesn't exist. The dotcom bubble was HIGHLY volatile, does that mean no one was using computers or the internet for real work?

Stocks are not a currency, you can't have your cake and eat it too. One of the main claims that me and others have made is that Bitcoin is not suited as a currency, and that volatility has a lot to do with that. Most traders will not be willing to take a gamble on the volatile market. At the moment, BTC behaves mostly as an investment vehicle between some enthusiasts, where the ups and downs are used to make a profit. That is not a currency.

 

[Belz...]

http://preev.com/

Up to over 123 right now.

 

[psionl0]

http://arstechnica.com/tech-policy/2013/05/feds-seize-money-from-top-bitcoin-exchange-mt-gox/

Once more, the intermediaries prove to be the weak point of Bitcoin.

Big centralized intermediaries make an easy target for governments.

However, it won't make any difference to bitcoin in the long run. Shutting down Napster simply meant that P2P file sharing became done via a distributed network and the same thing will happen with bitcoin.

Already there are web sites such as https://localbitcoins.com/ which bring buyers and sellers directly in touch with each other without the need for an intermediary.

 

[mhaze]

Will you stop the childish bickering over shorting? It really is an annoying tactic. I have explained exhaustively that I am not interested in becoming involved with Bitcoin, so can we drop this stupid line of argument?

If you're considering whether to do business with me or invest your money with me, and I lie to you about the nature of my business in a manner that would cause you to invest or spend money you otherwise wouldn't, then that is not only dishonest, it is fraud.



I never said that there are no websites that take Bitcoin ever, that is one of the many bizarre misunderstandings about what I said. I made a very specific claim, which I repeated with evidence. Can we let this rest?



Stocks are not a currency, you can't have your cake and eat it too. One of the main claims that me and others have made is that Bitcoin is not suited as a currency, and that volatility has a lot to do with that. Most traders will not be willing to take a gamble on the volatile market. At the moment, BTC behaves mostly as an investment vehicle between some enthusiasts, where the ups and downs are used to make a profit. That is not a currency.

your opinion, noted and ignored.

since the us government defines bitcoin as a currency, it simply is not a matter of opinion.

 

[Prometheus]

your opinion, noted and ignored.

since the us government defines bitcoin as a currency, it simply is not a matter of opinion.

The US government also defines homeopathy as medicine.
Got anything other than a lame argument from authority?

 

[Puppycow]

I keep losing interest in Bitcoin, life is too short, but this is quite interesting bit of news. US Homeland security has seized funds belonging to Mt.Gox.

http://arstechnica.com/tech-policy/2013/05/feds-seize-money-from-top-bitcoin-exchange-mt-gox/

Once more, the intermediaries prove to be the weak point of Bitcoin.

Well, that and everything else.

This seems to be the issue:

http://www.theverge.com/2013/5/16/4336170/mt-gox-dwolla-account-frozen-due-to-regulatory-issues

The agency froze the Dwolla (a US-based online payments system) account of Mutum Sigillium (aka Mt. Gox) on the grounds that it had lied in an official form. When asked if his company "[accepts] funds from customers and send the funds based on customers' instructions," Mt. Gox CEO Mark Karpeles answered "no." When asked if Mt. Gox "deal in or exchange currency" for its customers," Karpeles again answered "no." In both cases, it seems likely — and ICE asserts — that these answers were incorrect. Mt. Gox is the world's largest Bitcoin exchange, and facilitates a large number of transfers of the virtual currency.

So the government considers bitcoin a currency, but Mt. Gox, at least according to this form, did not.

 

[mhaze]

The US government also defines homeopathy as medicine.
Got anything other than a lame argument from authority?

You're smarter than your response to my assertion would indicate.

Regulatory authority in the US does in fact lay out what is currency. Based on that, various sets of laws and regulation follow lockstep and apply to dealers, traders and users of said currency (or alternately, if it was said to be a commodity, differing interpretations would be enforced).

There's nothing lame about an argument from authority that lays out fines and criminal penalties for your behavior, enforcable from said authority within it's jurisdictions.