Re: Oompa Loompa Dollars!
Erika G,
How many people are buying them though?
Say that 20 Mt Gox are only processing 1,000 transactions per day from currencies to BTC. That might theoretically mean that my stock of 1,000 Bitcoin would now be worth 1 million. But if I tried to sell them all at once - that would double the daily transactions from Mt Gox. It's rather unlikely that the price would remain the same if I chose to sell. That would probably collapse it for a few days.
Valuing illiquid assets is always harder than liquid ones. Just because liquid ones trade more frequently so it's both easier to find someone to buy them, and the market is more stable becuase people are less likey to be in a desperate hurry to either buy or sell - and so willing to pay/take silly prices.
I spent £10,000 on an only slightly nicer flat last year because of this. One was in a popular estate with relatively steady prices and regular sales. The other in a small development mostly owned by corporate property investors. None had been sold since building in 2005 - so there was no possible way to know the reasonable price - and if one company decided to sell 4 at once just as you needed to sell yours, you'd have to take a big loss or give up on moving.
This is the risk you take with Bitcoin. If you were to take your salary in it, and rely on it for all your needs then at the moment you'd be a very happy bunny. Something (possibly that malware that ransoms people's data?) has caused a spike in value. So you're quids in. But if there's a halving in value, as happened overnight a couple of months ago, you've still got to eat, pay your rent/mortgage and bills each month. So you're going to have to make your exchange at crap rates, or starve.
As someone who worked in Europe during the conversion to the Euro, but was paid in sterling, I can tell you about this. My salary dropped by 18% over about 3 months, as the Euro appreciated against the Pound. I was expecting it, but it still didn't stop me from feeling sad - and put a severe dent in my beer and restaurant funds.