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RE: Could bitcoin be a good long term store of value just because we say it is?
I agree that bitcoin, like any other asset, is worth exactly what someone is prepared to pay for it. Much the same as property. It can’t be valued by how much it costs to mine as what will happen when all (or practically all) bitcoin is mined? You just can’t value it that way!
Right, some people have suggested that the bitcoin value should mirror the electricity costs that have gone into mining it. It's a bit the other way around I think, the electricity cost going into mining will eventually grow linearly with whatever the market is willing to pay for the bitcoin.
Although related it’s not directly related. For example, if price drops 50% difficulty won’t drop 50% as most miners have very cheap/ free electricity and have already bought hardware so it’s a sunk cost!
But I agree that if the price continues to grow, so will mining and hence difficult. And if the price drops miners may delay or cancel future investment but will not turn off existing miners!
Well, there are some "market inefficiencies":
With a growing market price, the electricity costs may fall way behind the market value due to a time lag - it takes time time to get new mining equipment online.
With a stable market price, the electricity costs will probably be some levels below the market value, mining equipment represents big investments, investors may shy away from risks and may require a decent return on the investment.
With a stable market price, mining cartels or big centralized mining pools may also decide not to invest too much into mining, as all new mining equipment put online hurts the profitability of existing mining equipment.
However, with a falling market price, we'll actually see equipment being turned off. There is equipment out there that is less efficient than others (i.e. old mining gear), and some miners are having higher electricity costs than others. If the price falls too much, some equipment will become unprofitable to run, and it will be put offline.
To an extent I agree. All the talk is now of a new massive figure that bitcoin will reach, which makes me rather nervous!
And what if the majority of the buyers, only want in because they expect an increase in price.
That has been the case for a long time now. The vast majority of people don’t buy bitcoin for its utility but because it has gone up so much and they want a part of the action. Current price is based on pure speculation!
Yeah. This has been the case for a long time. It’s personally what attracted me to bitcoin at first. I was talking to someone about how to get rich and some random stranger mentioned bitcoin. I looked up the prices and the increases and was impressed. That got me looking into what was behind bitcoin and the other coins. I have learned so much since that time and I believe that one of these coins has to technology to become THE crypto currency. But i dont believe it will be bitcoin in the end. This is why i am invested in other coins, while still riding the price of bitcoin.