The unbearable lightness of Bitcoin, aka deflation

Jim H
By Jim H on Sat, Nov 9, 2013 - 10:47am

Deflation (from Investopedia): A general decline in prices, often caused by a reduction in the supply of money or credit.

While it feels great to be the holder of a currency that is prone to deflation, many monetary commentators still find the concept of a currency that is gaining in buying power to be alien, or somehow unbearable.  What we are seeing in the case of Bitcoin may be hard for people to understand at first... but it's really simple;  it's deflation in action.  The first reason we don't recognize it is this;  many of us have never seen it in our lifetimes with the dollars that we generally hold, as illustrated so clearly in this chart by Douglas Short that depicts the modern era of centrally planned, central bank enforced inflation;

chart link:  http://advisorperspectives.com/dshort/updates/Inflation-Since-1872.php 

What is happening with Bitcoin... the fact that a single Bitcoin now "costs" $390... is that the Bitcoin economy is expanding much, much faster than the population of Bitcoins... i.e. there are fewer Bitcoins chasing more goods and services.. hence we are in a classic deflationary situation, where the buying power of the currency is increasing.  This feeling is so alien that even some of our most vaunted commentators, like CHS, and Andy Hoffman, get flummoxed by it.  Now I give big credit to each of them for seeing the positives in Bitcoin, and IMO correctly reading the situation for what it is;  a wild success story for a free market, non-Gov. currency.

Charles said in a recent piece on his blog;

http://www.oftwominds.com/blognov13/bitcoin-RC11-13.html

If on the other hand skyrocketing demand/scarcity drove the value to the stratosphere, holders of the quatloo would rejoice, but this volatility would present its own set of risks for those seeking to use the quatloo as a reserve against currency volatility in the home-country currency. If a digital currency can leap ten-fold in a short time, then might it not drop with equal volatility?

Volatility is the enemy of reserves; the holder of reserves needs a liquid (meaning it can easily be sold or traded in size) currency that predictably retains its value. A volatile currency poses risks, as do currencies that cannot be traded in size without drastically influencing the market value of the currency.

These conditions pose a steep challenge for any digital currency, but they are not insurmountable. Even as a niche currency, non-state issued digital currencies could play a role in the global economy, especially if government-issued fiat currencies destabilize/ devalue due to massive money creation by desperate central banks and state treasuries.

Is scarcity enough to back a non-state issued currency? Bitcoin offers a real-world experiment.

Again, CHS gets it mostly right in my book, but he accepts that what the central banks do now, i.e. a 10 year moving average 2.4% inflation of the dollar, is "stability", or in his terms "non-volatility", and that deflation, as has been seen in Bitcoin's rapid rise of late, is somehow scary.  It is not scary... we are all, to some extent, programmed to believe that deflation is bad, and scary.. and that is on purpose, to enforce the paradigm now in place whereby bankers and those with first access to the ever inflating money are the ones who benefit.  Throw off the shackles of your propaganda programming and allow yourself to consider the incredible lightness of deflation.. the feeling of holding a currency in your pocket (or digital wallet as the case may be) that has been, and will probably continue to, increase in purchasing power.  

Andy Hoffman is an inveterate Gold commentator.  He is ex-Wall street, so I trust him more than most... like Michael Krieger, he experienced life in the den of vipers and had to leave in order to maintain his own integrity.  Here is a recent piece by Andy (emphasis mine);

http://blog.milesfranklin.com/are-bitcoins-money

Either way, 12 million Bitcoins at the current price of $270/coin only adds up to $3.2 billion – or $5.6 billion if all 21 million coins were “minted.”  Thus, it is difficult to believe Bitcoin could ever become a material global currency, no matter how high the price.  And as for building a track record of protecting purchasing power– as gold and silver have done for 5,000 years – I’m not willing to “bet” Bitcoins will achieve what no man-made “substance” has been able to accomplish throughout history.

Do you see it?  His argument is essentially that there are not enough Bitcoins... that it could not function as a global currency because the price would have to rise... too much?  He can't wrap his mind around this ongoing deflation in Bitcoin, even tough he expects and predicts (correctly I think) that this will happen in the future with Gold, and even though he sees that it must happen if the Bitcoin economy continues to grow.

First off... read the piece by Andy.. it's full of good observation, and is part of a wave of realization amongst some members of the Gold and Silver community as to what is really happening with Bitcoin.. and for this I applaud Andy.  But again, my commentary here is about our internal programming to question deflation... to be reflexively repelled by it... to make the argument that there is not enough Gold, or enough Bitcoin to function like the dollar.  Let me state clearly;  that is utter Bull Shit!  

On Divisibility 

Bitcoin, by design, is divisible over 8-orders of magnitude.  If you are not used to thinking in orders of magnitude... it's simply powers of 10.  A dollar is 2 orders of magnitude larger than a penny;

penny x 10 x 10 = dollar....    see the two 10's there?  That's two orders of magnitude. 

Now while a single Bitcoin, as of this writing, is $390, what we really need to keep in mind is what the smallest possible unit of Bitcoin is.. and that is easy to calculate by mutiplying $390 x 0.00000001.  The answer is;   0.0000039 dollars.  A penny today is 0.01 dollars... and as you know it's worthless, in terms of goods, to the point where we tend to leave our pennies in a tray by the cash register. But we have five orders of magnitude left to go before we stress the design limits of divisibility of this cryptocurrency... plenty of room for the deflation to continue - for the Bitcoin economy to grow faster than the population of whole, 1.00000000 Bitcoins.  There is no fundamental reason why a single Bitcoin cannot be worth the equivalent of $30,000 ten years from now... none at all.  And yes, all of that deflationary benefit would flow to the folks that held their Bitcoins as savings over that period of time.. and there is no reason why that is bad, or should induce guilt.  If you think this is somehow bad, or destabilizing, you are, IMO, letting your deep seated banker programming show.         

Note: If you're reading this and are not yet a member of Peak Prosperity's Bitcoin Interest Group, please consider joining it now. It's where our active community of sound money enthusiasts have follow and debate this emerging form of digital money Simply go here and click the "Join Today" button.

24 Comments

bowskill's picture
bowskill
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Thanks Jim

As always, I love your work Jim. Thanks for bringing bitcoin to our attention early (when it was well under $20) - wish I had traded some dollars for it back then.

Having made the decision to move into this currency I have not found it that straight forward. Moving more than a couple of thousand dollars can take a week from here. Long enough for bitcoin to double in dollar value at its current rate. I would be really interested to hear from others who have found trustworthy exchanges that can handle higher volumes of international currencies (eg $Aussie) in short time frames.

The local bitcoin exchange websites I have tried so far are obviously in their infancy. There is an opportunity there for someone to do it right.

I know the purpose of bitcoin is to be - money - a medium of exchange and not a speculative tulip like mania. But I do feel some urgency at the moment to hurry up and get into it before it doubles again.

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Jim H
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Local Bitcoin exchange

Thank you Bowskill..    One option to explore is the idea of a local, face-to-face exchange of cash for Bitcoins.  Here is an article written by someone who used this method in the US;

http://readwrite.com/2013/10/23/i-bought-bitcoin-in-person-and-heres-wha...

I don't know if any of these dealers are close to you, but there are a number of participants across Australia;

https://localbitcoins.com/buy-bitcoins-online/au/australia/ 

 

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davefairtex
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bitcoins & charts

Looking at the bitcoin chart (leaving aside whether its a tulip bubble or The Next Great Thing), I notice that once bitcoin starts to go vertical, its probably not the best entry point to be acquiring bitcoins.

Were I to think about buying a bitcoin, I'd wait until the next great bitcoin price drop hits, and knocks the price back down to the 200 day moving average.  Or, at the very least, the 50 day MA.

That said, it sure looks like its in an uptrend.  And as long as that uptrend remains in place, the strategy is either buy dips, or buy breakouts.  Buying that breakout at 150 in mid-October sure did work.

marky's picture
marky
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Bit Coin

I'm sure "they" (whoever they are) will find a way to bring Bit Coin down to earth again soon. 

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Bankers Slave
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Bitcoin

now has my attention thanks to you Jim.

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westcoastjan
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bowskill's picture
bowskill
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Made some experimental trades

I have made some experimental trades with a few exchanges just to see how they work. Generally speaking it is a whole lot quicker and easier to convert dollars to bitcoin than bitcoin to dollars. I expect that might have a dampening effect upon a panic stampede out of bitcoin. It should also be a caveat getting into it. If you think you will ever need to convert a large quantity of bitcoin back to dollars in a hurry then make sure you know how you are going to do it before even starting. Mt Gox for example is taking more than a month to settle such transactions. Some exchanges impose monthly total withdrawal limits eg $10,000. So if you bought bitcoin at $10 and now find yourself a $ millionaire, it could take you more than 8 years be able to extract and use your currency to buy a piece of real estate.

mrees999's picture
mrees999
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Answers to your bitcoin questions.

Hello all.  I've purchased bitcoins through several sources but by far the easiest today is through coinbase.com. You can set up a direct deposit link with your bank. Then you can buy and sell at any time and have the funds back in your bank within two business days. Purchases are locked in the moment you "buy" and funds are transferred from your bank within a few days...or instant if you back it up with the credit card backup option. They also do a lot of merchant support directly as a credit card replacement\compliment. - No I don't work for them ;-)

Among the many things that are different with this technology is the ability to move your money to endless amount of wallets you can create at any time. Movement is free - as no banks are involved. It's as easy as sending an email without the post office needing to be involved.

As this is a creative disruptive technology I don't think you can accurately predict by charts the dips. I've seen with China buying in huge rushes and countries worried about their own financial life and national currencies - you don't have typical stock purchasers the financial high frequency trading models. These people want a stable currency and will pay whatever they can to get it - since it's a currency and not a stock or "real" commodity all the fundamentals you no, are no longer valid. This is like the beginning of the internet all over again except for this time it's money.

Bitcoin is really a protocol - a new "language" that couldn't be invented even five years ago. Like the internet speaks TCP/IP - bitcoin should be called ppcp (peer to peer currency protocol) like bittorrent became its own protocol. The packets of information just happen to be currency units. Since there is no company, bank, or country in charge of it, it is proving to be impossible to stop or regulate effectively. Just like bittorrents.

 

 It's increased over 1000% per year for it's four years of existence. Doing the math, the current value of one bitcoin ($400) would be worth more than 4 million dollars in four years unless something unheard of can stop it - or would even try. The governments know that trying is largely fruitless and will just drive innovation to another country. The US can't afford to let the next google\microsoft\facebook\apple start from other countries and loose their last advantage over the rest of the world. The Chinese government now has issued two nation wide documentaries on it and any dips are overwhelmed by a title-wave of new buyers. If you are waiting for a market correction, you might was well start crying a river of regret right now.

Here is a good review on the scope of this trend. It's one in a multi-part series he does for every-man kinds of investors. As this is mostly still mostly underground people, the established big guys haven't gotten their heads around it yet and it's a major threat to their established business models - they are resistant to change or cognitive dissonant to what is happening to their livelihood. - Hence the term "Creative Destruction" as it will leave a body-count of businesses in it's wake just as the internet did.

 

Good luck

 

 

 

 

davefairtex's picture
davefairtex
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classic bubble thinking

If you are waiting for a market correction, you might was well start crying a river of regret right now.

I remember real estate brokers saying the same thing a few years back.  "If you don't buy now, you'll never be able to afford a house."

But I'm sure Bitcoin is different.  In fact, we have proof in this paragraph here:

... with China buying in huge rushes and countries worried about their own financial life and national currencies - you don't have typical stock purchasers the financial high frequency trading models. These people want a stable currency and will pay whatever they can to get it - since it's a currency and not a stock or "real" commodity all the fundamentals you no, are no longer valid. This is like the beginning of the internet all over again except for this time it's money.

Hmm, its not real, so there aren't any fundamentals, so things are different this time!  With that description, its like buying tulips, but the tulips are virtual not real, so it can't possibly be a tulip bubble!

I know, bitcoins aren't tulips - they aren't even virtual tulips.  But, doesn't this description bring a tulip bubble to mind?  It sure does for me.  "I'm buying because its going up, and there is no theoretical limit to how much these things will be worth!"  What percentage of BTC holders are long because of this psychology, rather than using BTC as a store of value, or using it in some difficult to trace online transaction?  The larger percentage of BTC buyers are gamblers, the more vulnerable this is to a big spike up, then down.

Here is something fun.  Overlay a price chart of bitcoin on top of a "google trends" lookup of bitcoin.  From what I can see, once interest in bitcoin peaks, so does the price.

Please understand, I have nothing against bitcoin.  But nothing moves straight up.  Emotions like "fear of missing out" get greater and greater the higher the price moves - which of course parallels the increase in risk of buying right at the top.

The log-frequency algorithm by Didier Sornette suggests that our friendly BTC has one or two more peaks before it breaks in this cycle.  That log-frequency theory is an interesting theory, and it seems to play out pretty well in practice.  I have no position in BTC so I'm just an observer, but whenever I read posts about someone suggesting you buy into one of those hyperbolic up-moves I feel compelled to chime in.

Especially when the poster is clearly long the item he's promoting.

mrees999's picture
mrees999
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bitcoin currency = bandwidth.

In my previous post, I made the off-hand comment that bitcoin isn't a "real" thing. Which is not what I meant to say.  I meant to say that it's is not something you can physically touch and see.  But the same can be said about the data flowing to your computer right now.  It's data flowing on the HTTP protocol over the internet. Is that considered "real"?  Where would this information you are reading be?

When a business that relies on the internet wants to reach the world, it must have a connection to the internet, correct?  The amount of data that can flow to and from the server is measured in "bandwidth". The more bandwidth you have....the more data you can send and receive.  Can you see bandwidth?  Is it not a real thing?  Why would a company pay more for this thing if it isn't real?  Why is it useful? Is it tangible or is it the effects and opportunities that it affords the company useful? Doesn't that give "Bandwidth"  intrinsic value? 

The government issues licenses for Radio Spectrum. Can you touch radio spectrum? Can you see it?  Why would anybody pay for such a thing?  Is there intrinsic value to operate a business using this spectrum that cost a significant amount of money?

If you are a business that transfers money from one country to the next - say Western Union. But you had to use envelops that could only fit ten $100 bills. And you were only allowed to own ten envelops - how much business could you do?  How big could you grow?  How much would you pay to be able to buy envelops that could fit 20 or 50 bills in it instead?

 

Bitcoin is bandwidth.  There is a physical limit and you can use them as envelops to send money.  Price is the equalizer of how much bandwidth you can own.  If you want to send $5,000,000 in funds to China to pay a supplier in 10 minutes verses three days for international bank transfers for almost no cost verses how many thousands a bank would charge to do that same service in three days?  You have to own a lot of bitcoins for the kind of bandwidth to do that. If your a new internet remittance company - you would want those bitcoin "envelops" to be pretty big wouldn't' you?  If you want your business to grow - just like the businesses that bought the radio spectrum early- you'd better do it sooner than later - it's simple logic.

People use the term Tulip mania - um....no. Tulips were never bandwidth and offered nothing truly useful for businesses.  But some of us get stuck in our paradigm and can't see past them. Adapt or die they say.  Save your silver and buy from the person next door, but enter this century you'll have a hard time fitting that silver quarter into their iphone or android phone that is doing currency with bitcoin apps.

Take solace.  Get on your horse and buggy and ride on down to that newfangled moving picture show. That's just silly talk about how people in the future will be riding in them horseless carriages. Things never change do they?

For the rest of you...breath.  It's a whole new world. :-)

 

 

 

 

 

bowskill's picture
bowskill
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Bitcoin is disruptive

Interesting video posted above by mrees999. Changed my perception. Bitcoin may very well falter as it grows due to defensive moves from governments and banks who may feel threatened. But volatility should be expected. Bitcoin is one of those "next greatest things" that is not just an incremental improvement on an existing way of doing things. It is a quantum leap; a new dawn; a revolution. 

Yes it may tank. Temporarily. It may also have a very very very long way to go. So look at it from both angles - one as the gambler and two as the true believer.

As a gambling man I might say for example that if I had $5000 I could afford to lose would for a 50:50 bet would I rather A) hold onto my money and have a certain $5000 or B) gamble it where if I win I multiply my purchasing power by orders of magnitude. Probably I would take B) because the winnings outweigh the risk by such a margin.

As a true believer if I really thought bitcoin was the way of the future I might decide that $5000 was worth putting into it to further my understanding and to become familiar and prepared for what lies ahead. I might also think it is such a great concept that it deserves support and I do so with what I can afford.

I am becoming more and more convinced that JimH and mrees and others are showing us a bit of light here. Bitcoin as a concept is a part of the solution to the economic problems we agonise over on this site all the time. Its there staring us in the face yet we are so preoccupied with bubbles that we can't see it. 

So I say that bitcoin is worth adding to the list of things I would invest in for the future. For about the same amount of money I might consider for a solar hot water system or a modest solar power system or rainwater tank, few ounces of gold - this seems a worthy investment to me.

davefairtex's picture
davefairtex
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definitely different

mrees-

Yes, I can see its definitely different this time.  It's a totally new paradigm.  There's no limit to how high BTC can go.

Right when it goes vertical, you should go borrow some money and go long with a 10% margin.  That's the best time to buy...no possible way to lose, BTC will only ever go up.

I think there IS a time to buy bitcoin.  But now?  Seems too risky to me.

Good news is, I lose no money by watching.  There are NO CALLED STRIKES in investing, as Warren Buffet used to say.

 

bowskill's picture
bowskill
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Different is good

Dave your caution is not without reason and you could very well turn out to be right - if you look at this only as a speculator. But for arguments sake, lets separate the virtues of bitcoin as an investment right now from the virtues of bitcoin as a long term solution.

How many times has the idea of a new world currency been discussed on this site? Well bitcoin is an answer. It's here, now. It hasn't come from any government or central bank. It's evolved all by itself - from the people. JimH can describe its virtues more elegantly than me. Why not just dip your toe in the water? Don't have to go too deep.

And how many times over the last few years have we heard predictions here of precious metals escalating in value to "silly numbers"? I am not being critical of those predictions because the reasoning makes sense. But why would that scenario be ok to believe in for gold (hasn't happened) but not ok for bitcoin (is happening)?

I don't understand why we all here at PP are not celebrating it a little more.

Jim H's picture
Jim H
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disruptive ... yes, that's the right word

Bitcoin is indeed disruptive.  It is disruptive in a way that is surprising people.  It will surprise DaveF too.  It will go up and then down some, but I believe over the long term, it will go up a lot more than down if the Bitcoin economy continues to expand.  Like fiat currency though, and unlike Gold and Silver and Oil, it can go back to zero - I see no reason for that to happen.. but it must be grappled with in terms of anyone's degree of diversification into it.     We are still relatively early in the Bitcoin story.  Most people still don't know what it is. 

To really understand the appeal of Bitcoin, you have to understand the lack of appeal of fiat currency.  If you want to see where the Bitcoins are going.. and validate for yourself that China is indeed sucking up the Bitcoins now, along with the Gold... you can watch this for a while;

http://fiatleak.com/

As our resident paperbug propagandist, it is to be expected that DaveF would liken Bitcoin to tulips...  my recommendation is to ignore him.  Dollars and T-bills are the real tulips of our age. 

davefairtex's picture
davefairtex
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i agree with jim

On the bits where he's not name-calling, that is.

Bitcoin is disruptive, we're in the early stages, it will go up and down with some pretty high volatility, and if the bitcoin economy continues to expand, it will be surprisingly successful.  I agree with all that.

And as I said before, I believe there will be an opportunity to buy bitcoins.  There was a pretty good opportunity a month or so back, when it broke above 150 mid-October, a nice cup & handle breakout.

However, I just can't buy when the chart goes vertical.  Its a timing/discipline thing.  I've just seen vertical price charts end badly too many times.  And when I hear people expressing the tulip bubble thinking - it just reinforces my discipline to avoid buying in at this particular moment.

But who knows, maybe this time really is different.

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TAMWO37101
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Litecoin/ltc-The SILVER of cryptocurrencies

  Thanks for all the invaluable insight everyone. I was doing some investigating into digital currencies and turns out that Litecoin https://litecoin.org/ is second most popular cryptocurrency. Coined the 'silver' to bitcoins 'gold', it was trading last night at 3.28 and this morning its up to 4.15.  84 million litecoins is limit so exactly 4x that of Bitcoin so BTC/LTC ratio around 50/1? (mmm not sure) http://thegenesisblock.com/understanding-the-gold-silver-ratio-and-how-it-may-apply-to-bitcoin-and-litecoin/ .  Right now consumer grade computers able to mine blocks so thinking of becoming a digital silver miner this weekend!  One successfully mined block=50 litecoins. http://mine-litecoin.com/  Also maybe an alternative to investing in bitcoin OR how bout 2/3 bitcoin 1/3 litecoin as I do with my actual precious metal ratio per Chris's recomendation.  I do think we all here need to consider the possibility of BTC/LTC actually bypassing gold/silver as wealth transfer possibility.  LTC can be traded here https://vircurex.com/.  Another senate hearing on Monday....what a revolution!  Have a great day everyone.

TAM

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mrees999
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LTC Fact...Mining for LTC

Yes, I'm invested in LTC as well.  And I have three miners set up currently mining for LTC. It's gone up 62 fold as of right now. It was only .07 in January now ~4.35.  So a small $500 investment back then would be worth over $31,000 today.

I wouldn't recommend mining it though. I have five video cards in three computers of which two I built myself for the purpose of mining. I did this through the least expensive parts I could find. The video cards where about $1200 themselves and the other pc equipment was another $1200 (not including my original). You have to really know what you're doing and be a somewhat technical person as it's not user friendly.  Once you get back all the expense and difficulty - you have to worry about electricity. The monthly bill went up over $200 per month.

There is a website here: that will calculate the profitability of mining various alt-coins including bitcoin and litecoin.  http://dustcoin.com/mining

I joined the pool at "Give Me Coins" which also has a good profibalty calculator and base it's numbers off of your actual machine\equipment\computer power (hashrate). It allows you to enter your electricity cost per KilowattHour,  With all of my equipment, my profit is about $5.00 per day. I spent weeks fine-tuning the settings on the lite-coin miner to get my hashrates that high (combined 2.3 kilohash per second). - This includes the best video cards AMD makes.

The calculator estimates my profit to be $1,832 for the year at the current LTC price.  That leaves me with quite a loss unless LTC goes up in price significantly.  But as more miners join in the mining operation, the difficulty adjusts and you end up winning less LTC per day.  When I started during the early summer I was earning 3 ltc per day, but now it's down to about 2.  I suspect it will be down to about 1 ltc per day by January.  If I had to do it over again, I wouldn't.

I would however just buy LTC outright.  It's got a lot of room to grow and it is being accepted in more places.  Most importantly - the guy who invented it is Charlie Lee - now one of the main people working at "Coinbase.com" which doesn't yet trade\or let you purchase LTC, but you have to figure that's coming since they hired its creator.  And his brother is Bobby Lee - who happens to be the CEO of BTC China. Now the biggest Bitcoin exchange in the world.  You have to wonder how long it will be before Bobby introduces his own brother's creation - LTC for trading on the biggest exchange?  Once it's there and on coinbase - I expect it to rise 20-fold just to catch up with it's 1/4 natural ratio with bitcoin. And at only $4.00 each you can buy a LOT of them to catch that wave.

Plus it makes a good arbitrage opportunity to switch from btc to ltc and back as the spread fluctuates. I use the exchange btc-e.com.

Hope this helps :-)

 

 

 

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TAMWO37101
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mrees99

mrees99-

   Thanks for the heads up/advice on mining/investing in ltc.  Extremely appreciated!!  Im not tech savvy so your advice and experience saved me a lot of trouble (and $).  So....you think Coinbase brought on Charlie lee as process to integrate ltc?  OR.....gave him a super sweet deal/position so they can squash ltc competition?  Bad habit of mine to second guess.  Mt Gox was supposed to bring ltc exchange last july but havent yet.  I DO think LTC is the digital currency with most room to grow ratio wise and as btc increases more and more will get priced out and turn to ltc-my hope!  Thanks again mrees99!

TAM 

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bowskill
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Fractional bitcoin

I hope that ONE crypto currency clearly wins out - and bitcoin is divisible enough that I dont think it can be "priced out".

Heard about Ripple? An attempt at a payment system based on IOU's for bitcoin. I can't see developments like this being helpful if they gain traction.

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TAMWO37101
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mrees999/bowskill

  Thanks bowskill- yes It occurred to me shortly after last post that Bitcoin is divisible-

mrees999-when you get a chance can you tell me best payment method for btc-e as okpay does not work in usa so wondering if you have any advice. (payeer service? visa/mastercard?) Thanks! 

mrees999's picture
mrees999
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Getting money into btc, and btc-e

The easiest way I've used is to set up an account at coinbase.com.  They will need to verify your bank and will allow you to direct deposit right to them.  They will allow you to buy one btc immediately and then more as it takes a few days to get your bank deposit links set up correctly.

 

Once you have your one bitcoin at coinbase, it will set you up a wallet as part of that setup.  If you have an account with btc-e, make sure you have a btc wallet. Do that by clicking on the "finances" link near your login name at the top right of the screen. Choose the "Deposit' option and record the wallet number it generates for you. Copy that wallet info - and "paste" it as the destination wallet on your coinbase.com account that will prompt you when you click "send".

 

Once it as btc-e exchange (it will take a few minutes to show up) you can do you exchanges from bitcoin to ltc (or other alt currencies) if that's what you want.

I track the world-average of all the major currencies at...http://coinmarketcap.com/  it is a running sample connected to most of the top exchanges. Btc-e usually trades to a significant discount to those prices.  Perhaps there is an opportunity for arbitrage between exchanges but I haven't found a good way yet as they seam to off-set each other enought that it hasn't been profitable to do so.

 

I have switched between ltc and btc several times to take advantage of price swings, sometimes btc moves very quickly while ltc doesn't, but as btc levels out - you'll see ltc snap back to the ratio it was before. The trades that happen within btc are pretty quick and you can watch the "buy and sell" numbers and watch for price "walls" that develop.  Don't pay too much attention to the troll box as there are a lot of "pumpers and dumpers" on there trying to trick people into selling so they can buy cheaper.

 

I've done similar with "bitstamp" as well.  One nice thing about bitstamp is that you can get money into the ripple network if you are interested in that as well. I see some potential there and venture capital money is being drawn in. Might be something to research for you.

 

Good luck!

 

 

 

 

 

 

 

 

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 372
Ripple investigation

Hi Bowskill

 

I've looked into ripple some. It's a bit different take on it all. They don't mine coins  but you have to get them out in circulation so they've given some away to charitables...and they plan on keeping a large portion for themselves as part of their business plan.  They attract good programmers and pay them partly in ripples that they hope to increase in value so there is incentive for them.

Unlike the other currencies, this one has a company backing it with a lot of venture capital money so it theoretically could be a target of judgments\governments one day in theory. Some big names in the VC world including Google has thrown money their way.

The very unique thing is that it's more of a transaction only slant in the crypto world. You build "trusts" with friends or people you know in order to send each other money. Then it's a social networking of money. You are supposed to be able to send whatever currency you want to your friends and they can get it on their side as another currency of their choice.  So you (in theory) send USD and they can choose to get paid in EUR - or BTC etc.  The units of exchange of their own is ripple or XRP that carry the value from one end to the other as sort of a VPN of value. 

 

'The set up connections with some of the exchanges to move money in and out to each other, and to your connected network.  Two of the entry\exit points I've tried is bitstamp and kraken.  Bitstamp takes a bit of a fee for the transfer so you don't want to keep going in and out. I can't remember how fee karken charged.

 

Overall, it's a bit confusing. The interworkings aren't user friendly and my buddy and I had a lot of questions about how to transfer money back and forth.  Even the "Trusts" you set up (think "friending" somebody on facebook - they have to accept the invite).  Then you have to set dollar amounts you "trust them" in transferring and you can't go over that limit.  So I had to "trust" bitstamp ...eventually figured out to up that trust to $100 before I could get $100 into ripple... Just one more thing to keep track of.

Then you have a "Friends list" of people you set up trust , but they are organize and tracked in unfriendly looking wallet ids. And you might have several currency wallet ids for each person - and then eacho of those wallets have trust amounts... Overall, I don't recommend it just yet. It seems it is still a work in progress, and I'm not sure about the debt angle that is allowed.  The interesting part is that you can get xrp for under a penny each so I have like 30,000 for something like $150 I put in.  I just put in a little profit money from my gain in btc so I can have a "toe" in many pools - who know which one might take off. Maybe non, but ripple was different enough to throw a few bucks in and I'll check back in a few years.  All in the name of science\discovery. :-)

 

Good luck.

 

 

 

 

 

 

 

 

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 372
Tam- I think Charlie is

Tam-

 

I think Charlie is brilliant. He was a head engineer for Google and attended MIT so he's no dummy. His brother used to run the Walmart operations of Asia - so he's no dummy either.  It's easy to connect those dots.

These kinds of deals usually go down in private before companies go public and the fortunes are really made (Read Facebook and Twitter). Because bitcoin and litecoin are not companies - we can get glimpses of what is going on behind closed doors and connect dots before most people in the world have a clue.  My guess is that people in the know are buying and collecting as many ltc as they can without raising suspicion of their plan so they can get it as cheaply as possible.  You know they must have a huge stock to sell people on day one of the announcements as people will flock to it and they will need inventory to sell.

As bitcoin\litecoin is not a stock, it's not insider-trading. It's a world-wide currency and there are no laws in the world (that I know of) that govern it.  The entire concept is light-years ahead of any former currency or commodities and whole new systems of regulation will have to built from the ground up before they can build those roads.  Their advanced scouts haven't even come back from scouting or mapping the country yet.  They are the modern day Rockefellers who saw the potential and bought up the railroads before they were widely used.  Visionary.

So my suggestion to think about is to buy them while the price is artificially low as they are likely doing right now and preparing for their "big announcement" and watch the hurricane of money fly in.  I know some "Lee Brothers" about to become super-rich and I want to hang on for that ride.  The question is when?  Will bitcoin keep rising and bring my purchasing power with it?  I don't want to buy to early and miss out on the continued bitcoin rise.  They may be thinking the same thing.  Wait until this rocket starts to stall, then make your move.  Bitcoin will likely equalize down in a sharp collection while Litecoin races to find its own place. That's what happened a few weeks back as it remained steady for a while when Bitcoin made its first big moves from 125 to 200.  Hovered there for a while and people with toes in both camps piled into the litecoin side and it snapped back like a rubber band.  It's now getting stretched again.

Good luck!

 

 

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 372
Easiest OnRamp from US Dollars to Bitcoin.

Hi TAM

I suggest using Coinbase.com.  They will link directly to your bank and use wire transfer - direct deposits.

 

I think their policy now is to allow new users to buy one bitcoin instantly while they work on the bank stuff which takes a few days.   If you give them a credit card backup - you can continue to make fast purchases without the days wait for the transfer to make its way through the banking system.

 

Then transfer that bitcoin that is in your coinbase wallet to a btc-e wallet that you've created.  Once it's on btc-e you can make the trades into litecoin or other altcoins that btc-e has available. I'm not super-comfortable it's in an former soviet block country. I never leave a big dollar amount on any exchange, and I have a little on several of them so I've never got all of my eggs in one basket.

My own suggestion is to not leave any money on any of the exchanges longer than you have to.  Move the money into your own control wallets you've created at your own computer or a reputable on-line wallet like blockchain.info.  I keep mine on my own pc and encrypt them \ make several backups so I feel pretty safe about it.  I could take a step further and move it to a usb drive and put that in a safe, but too much hassle if I want to trade it again.

 

Coinbase is by far the easiest on-ramp from USD to Bitcoin.

 

 

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