Re: Tulip Trading
@boltar
"Well its certainly more of an investment vehicle than a true currency due to its deliberately limited supply day to day and ultimately."
BTC has only two uses: investment and exchange.
Some people, prompted by libertarian, small-government ideologies see Bitcoin as an alternative to the fiat currencies prevalent in the world today. The value they see in Bitcoin is that it is not and can not be (directly) controlled by any government.
Well and good, but simply being free from direct government interference is not enough. For a currency - any currency - to work, it must provide a faith that the money you have now will be worth more-or-less the same in the near future as it is today and that you will be able to exchange it for the goods and services you need and want.
Money is a token of value and so it relies on the value that the receiver puts on it.
Thus the only real options are to use something that is widely agreed to be valuable or to use something that is legally defined to have value.
Bitcoin is neither. It has no use outside of the currency itself; one cannot melt down a bitcoin (generally) to make a piece of attractive jewelery that you might be able to to trade. Nor can one make a corrosion-resistant cup or, getting more technical, contacts for an electrical device. If some kind of technological disaster happened - something that rendered the Internet inoperable - then Bitcoin would be useless for anything. Indeed the currency would essentially vanish.
And clearly, it has no legal definition of value as fiat currency does. That's the two-edged sword of being immune to government control: it is also not supported by government and so there is no one to guarantee the value.
So we are back to the start and its use for temporary exchange, where I exchange my (fiat) currency for BTC for the purpose of transferring value anonymously. The Important bit is that the price to me is effectively still in my local currency.
Now we must consider its use as an investment device and here's where the true volatility and therefore unsuitability for use as a currency comes in because the value of Bitcoin is linked purely to the supply and demand of the currency itself - without any other factors.
To explain, consider something like iron ore. The price of iron ore is based on the demand for iron ore, obviously. But, crucially, the demand for iron ore is based on it's use for manufacturing steel and the demand for steel can be linked to other factors like economic growth in (e.g. in China) that sees construction projects being undertaken.
Bitcoin has no such chain of dependency on which any independent value can reasonably be based, which means the value of a bitcoin is determined by whether investors think that other investors will invest or divest.
Hence the insane levels of volatility and hence is utter lack of suitability as a 'real' currency.