"The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services."
Well, it is. As more people hold some BTC "for the future", they are more than willing to accept them as payment for their services. Imagine you are surrounded by people who have "hoarded" some BTC. Suddenly they can just trade in BTC without going to a bank (unless they have some spare cash which they haven't allocated to other purchases yet).
But that is only one side of the coin. If people are hoarding BTC, then they aren't spending them on goods / services.
IE: Deflationary Spiral. It becomes hard to be a merchant who accepts bitcoins, because everyone expects BTC to keep rising in prices.
People who bought a domain name for 1 BTC a few weeks ago from Namecheap lost a lot of money. They should have instead "saved" that BTC. Therefore, people are discouraged from using BTC as a transaction vehicle.
Currently, hoarders are the ones benefiting from BTC, but no one else is. No merchant knows how to value their services in BTC, not when there is this much volatility around.
But that is only one side of the coin. If people are hoarding BTC, then they aren't spending them on goods / services.
Sure they are. BitPay reports 2 million dollars in sale this month. The rate of transaction is accelerating too.
What you meant is "they will horde more and spend less on goods / services", but sales and transactions are clearly accelerating. How do you account for this?
Is $2 million really significant? BTC famously passed $1 billion in the money supply recently. That means that about 0.2% of the money supply is turning over each month, and 99.8% being hoarded from month to month.
The US GDP is about $15 trillion, so about $1.25 trillion in transactions happen in a month. If you take M2 of about $10 trillion as the US money supply, about 12.5% of the US money supply turns over each month and 87.5% is being hoarded. If you take M1 of about $2 trillion as the money supply, about 62.5% of the US money supply is used in a transaction each month, with only 37.5% being hoarded.
Compared to 62.5% or even 12.5%, 0.2% seems pretty unhealthy.
$2M and growing is significant, although it's only one of many companies. Every other day another business sets up with Bitcoin as a medium of exchange that is a low-fee, no-chargeback transactional currency. The fundamental value of such a currency, with a quasi-fixed money supply, scales as some multiple of real circulation. The momentary value is proportional to that fundamental value multiplied by short-term expectations of the BTC as an asset, which is driven by growth in usage and hype.
It's entirely possible that 99% of the value of a bitcoin is a self-reinforcing set of asset-bubble expectations, but this is something that really didn't exist before, that we don't have great paradigms to explain, that is undergoing massive daily shifts in its usage. It is explicitly not a stable national floating fiat currency with people who circulate the money their banking system provides & pay their taxes in those notes & denominate their salaries and grocery bills in sticky quantities of those notes, and so it's not directly comparable.
It's one company's business. I didn't cite any other businesses such as silk road, transactions on bitmit, and businesses that's outside bitpay's sphere of influence.
I don't have to. The fact is, no one prices their goods in BTC. Its absolutely ludicrous to price goods in BTC in the current market.
I think BTC has utility as a currency for exchange however. But on that side, you don't want to be in the position of hoarding BTC. You hoard dollars, and then use BTC to transfer dollars between people. Services like Bitpay allow you to keep most of your money in hard cash.
The size of the Bitcoin economy in general is growing, so both hoarding and spending will increase. By the time spending actually starts going down it's too late.
"Currently, hoarders are the ones benefiting from BTC, but no one else is."
That's not true, BTC has many benefits to bitcoin users. There's plenty of bitcoin-only services, but more importantly, it provides freedom for many people who are facing government regulation. In the long run, bitcoin enables all kinds of innovation (good example is reddit's bitcointip service, which wouldn't really exist without bitcoins).
1BTC used to be a decent tip at $5. Today that is a $100 tip I'm giving someone. Anyone who gave money to Bitcointip is suffering from the volatility in the marketplace.
A true BTC enthusiast will be happy when BTC stops moving. It doesn't matter what value BTC has, as long as it is constant. Only hoarders want BTC to keep going up and up in value.
If it were to stop moving in the near future, BTC would be stuck at minor-currency status with a $1 billion valuation. I'll be happier if it stops moving with a $1 trillion valuation, so lots of people can use it instead of just a few geeks and druggies.
> . It doesn't matter what value BTC has, as long as it is constant.
That'll never happen, bitcoin is doomed by math and economics to be forever a deflationary currency, worth ever more and more over time as the economy grows while the supply of bitcoins doesn't.
Huh? Just... don't tip 1 BTC? For example, the bitcointip bot on reddit will take USD values, use the current mtgox price and then tip the equivalent amount in BTC. Of course the person receiving the tip is affected by volatility compared to USD. For now, it's certainly in their favor, and again, it's no different than other currency except BTC's high current volatility.
The volatility of a currency is one of the most important metrics.
It really doesn't matter if a currency is inflating or deflating. It just shouldn't change that much over time. The less it changes, the better. (or, if it is changing, then it should at least change consistently. IE: People expect USD to inflate at 3% so it should).
Since no one can predict the value of BTC next week, or hell... even tomorrow's price of BTC... it becomes a very hard to use currency.
Well, it is. As more people hold some BTC "for the future", they are more than willing to accept them as payment for their services. Imagine you are surrounded by people who have "hoarded" some BTC. Suddenly they can just trade in BTC without going to a bank (unless they have some spare cash which they haven't allocated to other purchases yet).