moneymarketing wrote on 29
th Nov, 2013 at 6:23pm:
Yes, you are right. Timing is difficult (not impossible) probabilities are a better trade (that is actually how I structure my trades as an active trader). That said, one of the most predictable drivers of the market is the euphoria/ fear of the crowd and mass psychology. This is essentially where the trade is for bitcoin right now. It is in its early euphoric stage. Figuring out how long this will last is where the money can be made (and lost).
You also need to understand that bitcoins are a finite entity at this point. As far as we know now they are limiting the supply. Not even gold has that benefit(due to us not knowing how much is truly out there and the paper gold trading market that counterfeits gold in a pseudo market). With that understanding, bitcoin pricing should be a direct reflection of central bank monetary printing which is also going on at a parabolic rate (just google a chart of the Fed's balance sheet or the $15 trillion that the Chinese central bank recently created in order to support their banks).
The only thing I think that could make the bitcoin price crash over the long term (short term we could see volatility) is if the bitcoin creators decide to increase the supply of bitcoins. At that moment, the confidence game that is bitcoin is broken and it will be every person for himself
The main issue I have with bitcoin is precisely that short-term volatility. Some good news can make it crash or rise 100%. Could you really stomach having lost 99% of your capital at one point in time?
It takes a stomach of steel not to sell it.
As for the long term, being something virtual there is indeed a risk supply can be increased beyond what is planned.
We never got alchemists that could turn lead into gold. But consider the speed at wich information technologies have progressed. I wouldn't be surprised at all if we got some "virtual alchemists" some years down the line. It's a lot easier to go beyond the "impossible" in the virtual word than in the real world.
But of course that this may never come to pass.
It's the short term that's really bugging me.