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Comment by potatolicious | Hacker News Reader

Is a wildly fluctuating valuation supposed to be a good thing for a currency?

Generally no, it's why one half of the Federal Reserve's mandate is price stability. Wildly fluctuating prices make it very difficult for businesses to plan expenditures - hiring, production levels, R&D, etc., resulting in more conservative spending and investment.

But bitcoin is still new, not fully understood, in limited supply, relatively illiquid (compared to other currencies and financial assets), and coming onto the scene right in the middle of a banking system and sovereign debt crisis unlike anything ever seen and most of its early adopters see it as a hedge against that.

So, volatility is going to be norm for bitcoin's foreseeable future.

Do you really believe "most of Bitcoin's early adopters" see it as a hedge against monetary crises? I know some fairly successful Bitcoin speculators, and none of them see it as anything other than a way to make a quick buck.

Probably shouldn't have used 'most', since I haven't done a survey or anything. But from reading the bitcointalk forums the past year, there's a clear contingent of people who believe money should be deflationary and see btc as an option for hedging against possible dollar hyperinflation. Many of them also tend to be gold bugs and sound money types as well, and btc is just another basket for some of their eggs.

Calling bitcoin a "currency" seems a bit off to me. I think of currency as the thing you use to buy a gallon of milk or buy a movie ticket. It's for facilitating day-to-day transactions. But nobody (or almost nobody) is using bitcoins to buy groceries or fill up their car with gas.

Bitcoins are more like stocks in my opinion. People don't use stocks to buy day to day items either. They're investments, some riskier than others. And that risk, which would be catastrophic to a currency such as the US dollar, is much more easy to tolerate if it's just another non-currency investment vehicle that you can choose to participate in or not.

This doesn't seem to make sense to me - BTC as an investment implies that there is some external value to BTCs beyond merely an investment vehicle (see: houses, which are useful for living in, power companies that produce electricity, etc).

If BTCs are not useful as an actual currency, then isn't it purely an investment vehicle that isn't backed up by any sort of real value, present or future?

Investments just require an expectation that they will rise in cost. Think baseball cards - they don't "do" anything or really have any value, but there's a pattern that rare commodities rise in cost over time. Bitcoin was engineered to stay a relatively rare commodity.

Stocks are the same. The value of a stock is really only it's dividend, and many stocks don't (or can't) pay much. The cost has little to do with the value.

With your definition, I guess I would consider bitcoin to be a currency in embryo. It will take some time to build up the infrastructure and adoption for people to use it for every day expenditures.

No, it's not a good thing beyond perhaps raising awareness of it and maybe temporarily increasing demand for it. The stability it had was a great sign and it was seeing some solid use for transactions (especially for virtual goods). The sudden increase is going to add risk to day to day transactions and thus make people shy again from using BTC for purchases.

Its pretty obviously a good thing if you bought some at 7 a week ago. 30% increase in a week is not bad.

But there's no reason to believe it won't go down 30% next week. Fluctuations of this magnitude are terrible for something that purports to be a usable currency; more like what you'd expect from penny stocks.

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