stability

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ambar33n

New member
Jun 11, 2018
18
4
3
#1
Bitcoin is legal in many countries and also is a part of trade for some, but I wanted to ask that it can lose or gain value of 10%-20% within a day, ups and downs are very common for this so how can this be stable for trading? I mean if I buy something from this for, let's assume 20,000 and next day it's of 15,000, won't it be loss for me?
Ignore my mistakes I'm a new member so...
 
Likes: Kevin Huggins

Adriaan Admin

Administrator
Staff member
Jan 30, 2018
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www.bitcoinforbeginners.io
#2
Hey ambar33n, thanks for asking and it is a good question that a lot of people struggle with. It is true that currently the huge price swings in the value of Bitcoin is a problem for adoption in trade. Compared to many of the large stable (but slow but steady inflating) fiat currencies (for example dollar and euro) the volume of Bitcoin exchange trade is still relatively low, which means not much money is needed to push the price massively up or down. A lot more money is needed to push the price up or down for the dollar. The expectation is that once the market capitalization and daily trading volume of Bitcoin go into the trillions, it will be much harder to move the price so much as Bitcoin currently does and it should become much more stable.

Another thing to look at is that for most Western countries that have relatively stable governments and economies that are reasonably well managed, not all usecases for cryptocurrency are directly visible yet, but for people living in poor countries, that have no easy access to the traditional finance or banking, and their government truly mismanages their local fiat currency (Venezuela, Zimbabwe are 2 extremes in terms of hyperinflation), Bitcoin is actually a better alternative: their local currency inflates hundreds or thousands procents each year, while looking at longer term Bitcoin's value has only gone up with hundreds procents still, despite huge intermediate price swings. Those people much more prefer a store of value and medium of exchange that is volatile but longer term goes up, instead of only going straight down like their local fiat.

By the way, due to the inflationary nature of most of the larger fiat currencies, long term they systematically lose value due to steady inflation, while Bitcoin is a non-inflationary currency which at least theoretically long term should outperform fiat currencies despite intermediary price swings. For perspective: the dollar has lost around 33% of its value (purchasing power) between 2000 and 2017 and even MORE THAN 50% of its value in the last 30 years; and that with the guarantee it will NEVER go up EVER! There is a funny infographic going around on internet that visualizes this issue:

bitcoin inflation deflation.jpg

Another value proposition for Bitcoin is that it replaces cash money which is systematically being abolished in many countries. This puts way too much power in the hands of banks and governments and since power corrupts, many believe that it can lead to all sorts of undesired side effects like negative interest rates, unlimited censorship and no way to opt out of the system if the system turns against any- or everyone. At least Bitcoin provides a system that gives an alternative to opt out of the traditional system. It provides people with a leverage against banks and governments so they can't abuse their power after all cash has been disappeared from public life.

Having said all that, still short term the huge price volatility is huge barrier for mainstream user and merchant adoption. However the more Bitcoin grows in value and exchange trading volume and the more merchants worldwide will accept Bitcoin (or even better price their products/services in Bitcoin), the stabler it should become and the more useful it becomes. Currently most of the users and holders are people that are true believers in the technology, the benefits it brings to the table and that bitcoin/cryptocurrency will play a major role in finance and economy in the future. These people also are less worried about short term price swings.

I hope this pretty long answer gives you some insights, to come back to your direct question if it is a loss for you if you'd buy at 20k and next day it is 15k. It is true that at that point you personally have a PAPER loss, however as long as you don't sell it is not a REALIZED loss in fiat currency value AND you still have the same amount of Bitcoin "units". As long as you have good reason to believe that the value will grow over time at least higher than your purchase price it doesn't have to become a loss. The other side of the coin is that in a situation where the value has gone up from the purchase price, you are at a PAPER gain in fiat currency, which is only a real gain if you sell and lock in that profit OR buy products/services for it with the Bitcoin itself (which is ultimately the goal: spending bitcoin for products and services instead of or alongside of fiat currencies).

(btw we are Bitcoin for Beginners, so it is alright if you don't understand everything yet; we try to provide access to the best resources and have a trusted platform for expanding knowledge and education in the crypto space)
 

ambar33n

New member
Jun 11, 2018
18
4
3
#4
How will BTC be a traceable and taxable income? If I pay a merchant with cash, there is of course a loop hole (here in the UK at least) that the merchant can not declare the cash and have tax free profit.
Will this be the same with bitcoin?
Will tax on bitcoin have to be paid in bitcoin?
Will there be VAT on bitcoin purchases?
All these questions, that, although BTC shows potential and is migrating more and more into every day lives, will it cause another "credit bubble" of sorts and end up causing the next inflationary crash cycle?
If BTC is a unified currency and I can trade in China paying for my items in BTC, this will also remove the need for currency exchanging (across some of the minors anyway) and would then effect the economy as a whole. How would interest rates work if we are unified in paying with BTC?
Interesting stages are to come with this and it could be very great or be a massive downfall in global economy. It could make redundant all of the Central Banks's efforts of QE...
Just a thought.
Can you please clear this to me?
 

Adriaan Admin

Administrator
Staff member
Jan 30, 2018
231
56
28
www.bitcoinforbeginners.io
#5
How will BTC be a traceable and taxable income? If I pay a merchant with cash, there is of course a loop hole (here in the UK at least) that the merchant can not declare the cash and have tax free profit.
Will this be the same with bitcoin?
Will tax on bitcoin have to be paid in bitcoin?
Will there be VAT on bitcoin purchases?
All these questions, that, although BTC shows potential and is migrating more and more into every day lives, will it cause another "credit bubble" of sorts and end up causing the next inflationary crash cycle?
If BTC is a unified currency and I can trade in China paying for my items in BTC, this will also remove the need for currency exchanging (across some of the minors anyway) and would then effect the economy as a whole. How would interest rates work if we are unified in paying with BTC?
Interesting stages are to come with this and it could be very great or be a massive downfall in global economy. It could make redundant all of the Central Banks's efforts of QE...
Just a thought.
Can you please clear this to me?
These are a lot of questions; I will try my best to address them as good as I can with my understanding and opinion:

How will BTC be a traceable and taxable income? If I pay a merchant with cash, there is of course a loop hole (here in the UK at least) that the merchant can not declare the cash and have tax free profit. Will this be the same with bitcoin?
A merchant could technically be able to not declare received payments in Bitcoin for his revenue calculation if he indeed uses separated wallet addresses and is able to keep those wallet addresses separated from all his other registered received personal and business payments. However an important significant difference between cash and Bitcoin is that the payments to the undeclared wallet address are eternally registered in the immutable ledger of the bitcoin blockchain that is publicly accessible. If the tax agency is able (by means of data analysis or future AI tech) to link the undeclared payment to the merchant, he might get in trouble after all.

Will tax on bitcoin have to be paid in bitcoin?
It depends on tax regulation per jurisdiction obviously, but tax on bitcoin revenue, profits etc usually need to be calculated in the rate of the legal tender/fiat currency of any particular country and the tax agency will need to be paid in fiat for the equivalent value, because most tax agencies in countries not yet accept Bitcoin. At least in Japan (and maybe soon more countries to follow), it is already allowed to pay taxes in Bitcoin, however that is a voluntary option.

Will there be VAT on bitcoin purchases?
For the purchase of bitcoin in most tax jurisdictions (with a few exceptions) no VAT has to be paid. If you buy goods or services with bitcoin that would be VAT taxable if purchased with fiat, then VAT needs to be added. The merchant will then have to calculate the fiat value of the VAT amount in BTC at the time of sale to determine how much he needs to account for in fiat in his bookkeeping.

All these questions, that, although BTC shows potential and is migrating more and more into every day lives, will it cause another "credit bubble" of sorts and end up causing the next inflationary crash cycle?
Most likely not, because BTC is not credit based but "commodity based" and is deflationary by nature instead of inflationary. In fact, in theory BTC should be a solid protection against credit bubbles and inflation cycles.


If BTC is a unified currency and I can trade in China paying for my items in BTC, this will also remove the need for currency exchanging (across some of the minors anyway) and would then effect the economy as a whole.
If in theory BTC is globally used on large scale to pay for goods and services AND many of those goods and services would be priced in BTC instead of fiat currency, in those cases that people pay in BTC, the necessity for traditional currency exchange would lose a lot of its importance indeed or in fact the role of fiat currency would become less dominant. This could affect the economy, because central banks and governments would have less control compared to now.

How would interest rates work if we are unified in paying with BTC?
The whole system of credit based central bank money does not apply to BTC, so in that theoretical scenario interest rates would have less effect on the economy i presume. Of course it could be theoretically possible to lend out BTC (I would expect systems to be developed to enable a secure environment for this, because lending out BTC is higher risk because there is no way to seize back the bitcoin in case of non payment), for which an interest could be calculated. However BTC in and out of itself is an interest free asset. Currently, for example, at some crypto exchanges users can earn a small interest on their crypto deposits if they make it available for lending to other traders for margin trading.

Interesting stages are to come with this and it could be very great or be a massive downfall in global economy. It could make redundant all of the Central Banks's efforts of QE...
Actually there is a recent IMF report that describes about all this as well, I made another post about it where i linked the report: https://www.imf.org/external/pubs/f...k-monetary-policy-and-cryptocurrencies/he.pdf
 

ambar33n

New member
Jun 11, 2018
18
4
3
#6
will tax be applied on price from which I bought or on price that is after a year?
if government have less control and its affecting economy, would it be banned?
Interest free asset which makes it dangerous for citizens too, no?
and thankyou over all...
 
Jun 12, 2018
70
8
8
#7
Bitcoin is actually a better alternative: their local currency inflates hundreds or thousands procents each year, while looking at longer term Bitcoin's value has only gone up with hundreds procents still, despite huge intermediate price swings.
 

Adriaan Admin

Administrator
Staff member
Jan 30, 2018
231
56
28
www.bitcoinforbeginners.io
#8
will tax be applied on price from which I bought or on price that is after a year?
if government have less control and its affecting economy, would it be banned?
Interest free asset which makes it dangerous for citizens too, no?
and thankyou over all...
will tax be applied on price from which I bought or on price that is after a year?
Taxation on cryptocurrency trading and/or holding totally depends on the tax jurisdiction that you are in, so this question is hard to answer; you would need to inform yourself with your tax authorities to have clarity for your situation.

if government have less control and its affecting economy, would it be banned?
Some governments may wanna try to ban it from their country (although the effectiveness of such bans is to be questioned), most other countries will try to find a way to have some reasonable regulation, so that it can co-exist within the regular economy without directly threatening it.

Interest free asset which makes it dangerous for citizens too, no?
I do not understand this question.
 
#9
Without a stable value, Bitcoin can't really be a currency. Rather it is a commodity asset that one trades, similar to gold or silver, with the expectation that its value will rise and return a trading profit. One of the most important factors in the 5% to 10% gains across many of the leading digital currencies was trading volume. As of July 3, bitcoin's trading volume remained above $4.6 billion.
 

Adriaan Admin

Administrator
Staff member
Jan 30, 2018
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www.bitcoinforbeginners.io
#10
It is true that Bitcoin currently has the most use as a store of value (like a commodity asset), more than a currency. To be more widely used as a currency its value indeed would need to become more stable, transaction speed needs to be fast and reliable and transaction fees need to remain reasonable. A more stable value could be expected if its market cap and trade volume become so big that it is not so easy anymore for the market to make huge moves in short amounts of time.

What also would help is if more merchants denominate their products and services in bitcoin instead of fiat, which would make sense in a global, more and more virtual market place. If that eco system is large enough it means that the price is pegged to the value of products and services that can be bought with it.

This relationship is reflexive with the stability of the price obviously, bc as long as bitcoin is volatile, less merchants will be willing to price their products in bitcoin instead of fiat. Hopefully we will someday reach critical mass in bitcoin prices products to achieve this.

The other point reliable, fast, cheap transactions will be hopefully ensured by the success of Lightning Network.
 

ambar33n

New member
Jun 11, 2018
18
4
3
#11
will tax be applied on price from which I bought or on price that is after a year?
Taxation on cryptocurrency trading and/or holding totally depends on the tax jurisdiction that you are in, so this question is hard to answer; you would need to inform yourself with your tax authorities to have clarity for your situation.

if government have less control and its affecting economy, would it be banned?
Some governments may wanna try to ban it from their country (although the effectiveness of such bans is to be questioned), most other countries will try to find a way to have some reasonable regulation, so that it can co-exist within the regular economy without directly threatening it.

Interest free asset which makes it dangerous for citizens too, no?
I do not understand this question.
I meant that it is dangerous as it has no interest, interest is good for economy, am I right?
 

Adriaan Admin

Administrator
Staff member
Jan 30, 2018
231
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www.bitcoinforbeginners.io
#12
I meant that it is dangerous as it has no interest, interest is good for economy, am I right?
Bitcoin is designed to digitally reflect the properties of gold, so it can be used as sound money and store of value. Both Gold and Bitcoin in and out of themselves don't generate interest. Banks and governments would not be able to print Bitcoin and/or lend out more than they have like they can do with fiat currency. Peer-to-peer lending would be possible however, and interest could be charged by the person who lends bitcoin to someone else. On the other hand, I am also assuming and quite confident that fiat currency, banks and government will continue to play a significant role in the economy in reality, cryptocurrency will just be an extra element that will take a larger and larger role, but not replace fiat as a whole. The credit cycle performed by banks and governments, using interest as an economic tool, would still coexist, but hopefully kept in check better with crypto as competition.
 

ambar33n

New member
Jun 11, 2018
18
4
3
#13
Yes but as many things are now being purchased for BTC instead of fiat money, maybe in coming future it will totally take over fiat money?
 

Adriaan Admin

Administrator
Staff member
Jan 30, 2018
231
56
28
www.bitcoinforbeginners.io
#14
Yes but as many things are now being purchased for BTC instead of fiat money, maybe in coming future it will totally take over fiat money?
I honestly don't think Bitcoin will take over ALL fiat money payments. I am sure governments are going to have some fiat currency as cryptocurrency too, which can be inflated and deflated but at least with more transparency. Also other cryptocurrencies may emerge with specific properties that could include inflation or interest and there are the project that apply Proof of Stake (where holders receive cryptocurrency by holding a certain crypto asset). Lending and banking services that provide capital against interest and that keep money/crypto on behalf of customers might continue to play a role in economies. But banks and governments may be held more in check and cannot inflate irresponsibly anymore because now they may have to compete with cryptocurrencies; this might theoretically stabilize the whole economy because Booms and Busts in the credit cycles in the economy might become less extreme.