Like most posts critical of Bitcoin it ignores that
- Bitcoin becomes less volatile over time
- Bitcoin was less volatile than TLSA, AMZN or AAPL in 2020 (3-month realised volatility) [0]
- Bitcoin becomes less risky over time (since despite increased incentives to "hack" it, no exploits happened)
It also repeats typical nocoiner fallacies like "it has no intrinsic value" and "gold is used for jewelry", ignoring that the ability to independently verify the money supply and being able to transfer money across political boundaries without censorship is probably the most important intrinsic value one could hope for in a MoE/SoV.
New in this post was the author's stance to trust the Fed to keep inflation predictable:
"as long as the Fed isn’t run by spider monkeys stacked in a trench coat, the inflation is likely to be within reasonable bounds"
"well-run currencies like the USD, GBP, CAD, EUR, etc. all lose their value at a low and most importantly fairly predictible rate"
However, the Fed increased M1 money supply by ~20% just in the 2 months following that blog post and by ~70% in the total of 2020 - an increase unprecedented in the history of the US dollar. 2 of the 3 dollars in your pocket have been created out of thin air in 2020.
Believing that inflation rates in the next years won't spike as a result requires an amount of trust even more artificially inflated than the USD today.
> 2 of the 3 dollars in your pocket have been created out of thin air in 2020.
Dollars in your pocket (not 70%, but 100% of them) have been created out of paper, after a swap of figures on a balance sheet (that you call “thin air”). The number of paper dollar didn't increase by ~70% this year, what did is an economic aggregate called M1 which is a conventional (since the sixties) way of counting certain things. It ISN'T some fundamental value of what-money-is®. Most of the dollar every American own (their bank account, and their savings) have never been part of M1, so this money wasn't affected either.
The monetary system is a complex thing, and the landscape is changing at a fast pace since 2008, which makes it even harder to graps. Unfortunately, most cryptofans didn't even try to understand it, and they keep parroting the almost 100 years-old Autrian critique of central-banking without any kind of cognitive effort: “It's obviously broken, so I'm not going to try understanding it”.
For people without prejudices, interested in understanding the subject, I strongly recommend Perry G Mehrling's lecture on the Economics of Money and banking on coursera: https://www.coursera.org/learn/money-banking
> M1 is the money supply that is composed of physical currency and coin, demand deposits, travelers' checks, other checkable deposits, and negotiable order of withdrawal (NOW) accounts.
Naming something tells you what to look for in the academic literature (or even Wikipedia), where you will find in this case that the academic consensus has mostly moved on from the view named here
Economics is not a very difficult subject. Most people intuitively grasp supply and demand and other basics.
What mainstream economics has tried to convince us is that hard work is meaningless and infinite money can be printed. Scarcity is a myth. I don't need complex graphs to explain away why printing shitloads of money causes inflation and warps incentives. It's hilarious that Keynesians keep pushing the same garbage and being surprised when people respond by purchasing scarce assets like Bitcoin. What did you expect would happen?
Economics is not complicated. It is people who try to confuse us by wrapping mismanagement in the veneer of econometrics and "science" that try and make confusing what is actually relatively simple.
Both the US and Japan have ran enormous fiscal surpluses for decades with low inflation. How does your plain, simple intuition account for this gap between what you say must happen and what has happened?
The idea conveyed here is that scarcity being the foundation of value is a myth. No economist believes that just because something happens to be rare makes it inherently valuable. I dont think any real economist really believes that. I think it was a pop culture, snake oil salesman thing that brought it into the zeitgeist. Yet to this day, the myth still prevails and bitcoin is mostly based on that concept.
Just because something is "limited" doesn't mean it already has value.
Scarcity is necessary but not sufficient for something to have value. There are plenty of rare things that are worthless. Various forms of toxic waste, for example, aren't particularly common and have negative value.
> ignoring that the ability to independently verify the money supply and being able to transfer money across political boundaries without censorship is probably the most important intrinsic value one could hope for in a MoE/SoV.
That BTC is not (yet?) money should again be non-controversial, since the vast majority of economic agents anywhere won't accept it directly (so you need to exchange BTC for cash first). It does have a decent claim at "store of value". But, where is the "intrinsic value"? You claim two of them:
1. ability to independently verify the money supply
2. being able to transfer money across political boundaries without censorship
I don't understand either, to be honest:
1. You can verify the supply of other things (e.g. company shares) at an independent body. I'm pretty sure that's true for "money in circulation", too. Ok, the verification is not distributed, but is that distribution so valuable? Or do you actually mean "The supply is naturally-limited and nobody can easily produce tons of BTC out of thin air"? Then, yes, BTC has that property... but, tons of other things do! E.g. why not invest in amber, it's probably one of the rarest things in the universe.
2. Transfer across political boundaries: is there ANY inherent guarantee? Say US decides tomorrow that trading BTC is illegal, how would BTC protect you from that? Using existing anti-money-laundering laws & global institutions, you'd be effectively banned from getting back any value from your BTCs (or, doing so would expose you to all the associated risks).
If you are living in the US or EU then being able to hide assets and transfer without censorship is mostly a bug, not a feature. And eventually the governments will have to do something about it in order to preserve the rule of law.
What happens if you are disabled in a horrible negligent accident or defrauded in some conventional transaction and defendant hides all assets and transactions in BTC?
I can't imagine a long term equilibrium where [Americans, at least] store trillions and trillions of dollars in BTC without substantial additional regulation.
Edit: for those in relatively more corrupt, tenuous circumstances then BTC is a net positive, of course.
>Edit: for those in relatively more corrupt, tenuous circumstances then BTC is a net positive, of course.
Even that I'm not sold on. You could argue that it gives incentives for the rich and powerful to maintain the status quo since their own riches become out of reach from the corrupt government.
Meanwhile the commoners are still very much under threat since most of their assets will be physical (their house, their clothes, their belongings, their bodies etc...).
The idea that cryptocurrencies are empowering the poor makes about as much sense to me as trickle down economics. If you are in a position to benefit from Bitcoin it means that you already have a significant amount of disposable income you can convert into bitcoin and afford to "HODL" in your wallet for a while. "Being able to transfer money across political boundaries without censorship" is completely irrelevant if you're a poor farmer in Buthan or an elderly shoemaker in rural Pakistan. Transfer what money, to whom and for what purpose?
This whole concept is just social-washing cryptocurrencies to obfuscate that it's profoundly libertarian (the USA flavor) at the core. If you consider that the government is always the enemy and it can't be fixed and should instead be thoroughly destroyed, then and only then do cryptocurrencies make sense. It's not about good vs. bad government, it's about no government.
> If you consider that the government is always the enemy and it can't be fixed and should instead be thoroughly destroyed, then and only then do cryptocurrencies make sense. It's not about good vs. bad government, it's about no government.
Certainly not. As I keep telling people here, cryptos are property, not currency. Why should governments be in the business of telling people what type of property they can and can't own?
A coin is nothing but a couple of large numbers that are easy to multiply together but very difficult to factor...that's it. If the people of earth want to assign large fiat currency values to complicated key-pairs, then why shouldn't they have the right to do that?
Of course crypto-traders need government...like we need libraries and schools and police and all that, just like everyone else, right?
> Certainly not. As I keep telling people here, cryptos are property, not currency. Why should governments be in the business of telling people what type of property they can and can't own?
Uh what? That's like the second biggest thing the government does after, you know, army.
You can't own a dead lobster shorter than 6 3/4 inches in the United States without committing a felony, even if the lobster met its untimely end without your assistance.
Of course that's what the government should be in the business of doing otherwise we'd likely all be dead, and separately, there wouldn't be any more lobsters.
Not all property rights no, of course not, however it's fairly obvious that the government has the freedom and/or duty to impose restrictions on property as necessary.
Bitcoin is regressive and would be harmful to the economy if it obtained widespread adoption, and therefore, the government has the right to curtail its use and ownership.
Are you claiming that if instead of sending millions of dollars to ISIS (currency) I send them millions of dollars worth of food (property), the government has no business telling me that I can't do that?
I mean, maybe you're claiming that I can't transfer the property, but that I have the right to own the property as long as the government approves of where it's going. Sure. That certainly reduces people's willingness to assign a large fiat currency value to my pantry.
I don't see anything particularly hard about regulating bitcoins.
You're registering your wallets with your government and that's about it. Bitcoin is fully transparent, so government can track every transaction and if you're doing transaction to some non-verified wallet, you have to explain it to your government.
I would argue that bitcoins are even easier to track than bank accounts.
What government can't do is to steal your money or block your access to your money.
If the entire world will bend under US regulations and will respect their white-lists and black-lists, it might be an issue. But that means losing independence (because surely US won't respect Russian blacklists) and plenty of countries won't agree with that. So there will always be escape routes as long as you're physically outside of the US.
Come on. It also takes a couple of USD cents (per operation) for the government to automatically blacklist all wallets that "touched" (received any amount of transfer from) a blacklisted walled. The great advantage of BTC is that the ledger is public...
Blacklisting addresses based on where they received money from doesn't make any sense. Blacklisted wallets can just send microcents (dust) to whitelisted wallets, which would now have to be blacklisted as well.
You can make it illegal to use Bitcoin, but it was designed to make it practically impossible to enforce such a ban.
"If you transact with these blacklisted wallets, your wallet also automatically becomes blacklisted, and if we find you then you go to jail. As an exception - if you receive any amount of BTC from a blacklisted walled, you have 7 days to send the same amount (or greater) to [this government wallet] and that will erase all your legal liability and make your wallet whitelisted again. We can even automate the process for you if you trust us enough to give us your wallet keys. Alternatively, register email/phone numbers with us and we'll notify you when your wallet is blacklisted, and tell you how much BTC you should pay us"
So people need to watch all their wallets every 7 days? What if it's a cold storage wallet that is 2of3 signature protected and signatories are in different countries? What if you go on several weeks vacation? What if it's in a vault along with your gold, are you going to walk to the bank every week, open the vault, load the keys, then export them to some other cold storage? What if you have a virus that makes you have to restore large chunks of your infrastructure from backups that takes longer than a week? This is simply ridiculous. What you propose is just not realistic, no one who deals with crypto often will ever think that this is a solution.
> We can even automate the process for you if you trust us enough to give us your wallet keys.
Haha seriously? Your solution is that people give their private keys to the government? You must have no experience with crypto or what it's about it all. Nor really experience with how the government works and how often it gets corrupt. A corrupt clerk now is a small nuissance, a corrupt clerk in your proposed scenario means that thousands of addresses get stolen of all of their tokens. There is zero chance that this scenario will ever be implemented in any meaningful way.
So it would be enough to send any amount to any public wallet to make it blacklisted and additionally also make SWAT teams come to the owners of those accounts? Yeah "good idea" /s. You know there is no way to prevent receiving bitcoins right?
You can receive every time with a new address generated by HD Wallet.
But transmission can only happen from an address which has positive balance. And after receiving the money, destination balance becomes positive, and you are bound to use that destination address as a source to transfer assets further.
> If you are living in the US or EU then being able to hide assets and transfer without censorship is mostly a bug
If you completely ignore how big corporations and ultrarich are able to hide their assets behind shell corporations and various other structures, then yes maybe your vision is correct. But that it not what happens in reality.
In reality right now the rich can hide whatever they can, and the poor have no recourse against frivolous seizures, lawsuits etc. What crypto does is levels the playing field.
But then surely - if you take the position that generally some kind of government and law is a good thing, and generally they're not out to hurt the everyman - the idea that anyone should be hiding anything (away from taxes) is destructive to the detriment of the things that hold society together (laws, roads, having the rubbish collected, etc?)?
Yes there are useful things that the government does. But I believe there are ways to tax for things which are more fair than what is being used today, and crypto is not a detriment to that.
(Roads and rubbish can easily by taxed by usage, from the people who clearly use those services, but there are other central commons that should be taxed on state or federal level.)
Your point about a personal liability suit is interesting, but there are many ways to hide money before an incident occurs, Bitcoin is just one possibility that has its own risks. If you’re trying to hide money after an accident then it will be obvious so you will still be on the hook.
> Then, yes, BTC has that property... but, tons of other things do! E.g. why not invest in amber, it's probably one of the rarest things in the universe.
Yes but the amount of amber, gold, silver, etc. on Earth is a known unknown. There are presumably deposits of gold that we don't yet know about. The amount of BTC is known. You seem to be conflating rarity with fixed scarcity.
> Using existing anti-money-laundering laws & global institutions, you'd be effectively banned from getting back any value from your BTCs (or, doing so would expose you to all the associated risks).
While this is true, this is sort of the whole point of bitcoin. Like, it's a currency that is independent of any nation-state and acts as a sort of systemic-hedge against governmental incompetence/malfeasance. So the fact that it could even be banned by any particular country is kind of part of its value proposition. And, similar to VPN's, just because an IP-based technology is banned doesn't mean that it'd become impossible to use.
The total amount of Bitcoin in circulation is an unknown as lost wallets are a huge thing. At most you can say Bitcoin is less than X, but that’s true of many many other man made things.
Aka any movement of Satoshi Nakamoto’s Bitcoins would have a huge impact on the number of Bitcoins estimated to be in circulation.
Like Retric says below, it's easy to put an upper bound to all of the other commodities on earth (and especially so to amber, since no amount of asteroid mining is going to increase that). I think the appeal of BTC is that it's a commodity [+] that's easily transferable across large distances & incurs very low storage costs. I get that. However, that alone does not necessarily make it a good store of value in my eyes; for that to be true, there'd have to be an extremely low risk of the value suddenly degrading to less than 1% essentially overnight(e.g. in less than a week). I guess here is where I disagree with lots of BTC proponents - I don't see it as "independent" of anything, certainly not of big nation-states. I don't see what would persuade people to continue to assign value to BTC in the face of events like those presented in the article.
[+] Do note that I do not accept it is "currency" - because it has low acceptability, by design.
I would add that it’s also extremely unlikely that all countries in the world would ban bitcoin. For example I read somewhere that Iran is using Bitcoin to avoid some of the sanctions the US out on Iran.
> Yes but the amount of amber, gold, silver, etc. on Earth is a known unknown. There are presumably deposits of gold that we don't yet know about.
There's a difference between known unknown with high variance and known unknown with low variance. As I understand it, astrophysicists have a non-controversial model for how much gold is present on earth. Geologists probably have a reasonable model for how much gold is easily accessible.
The last time I looked into this, the mined gold supply seemed to be increasing at a fairly steady 2% per year, over the last N decades I was able to find good data for.
First, it does seem like it's a form of money. You can trade it for all sorts of things. Some of them directly. Some you make a trade. But it's super liquid; accepted more widely than a lot of country-specific currencies (e.g. I could pay my friends in BTC because they can use BTC, but they're not going to take rubles).
To your questions:
1. You can't know how many shares there are going to be for companies. Even if you choose to use some company's stock as a long term store of value, that company will eventually fail at making profit and will issue new shares.
2. If the US banned BTC, it's easy to move overseas with it; memorize the key (not easy, but possible) and just spend the money when you get overseas. Or if you're going to stay in the US, you could just use it the way the dark web already does (not totally clear on how all that works, but clearly it does).
> Transfer across political boundaries: is there ANY inherent guarantee?
Yes, there is some guarantee. The guarantee is that government already have had numerous motivations to ban bitcoin already, and yet most governments have not seriously attempted to do so, likely due to the very significant efforts that would be required to do that.
I have been hearing "The government is going to ban bitcoin!!!" For 10 years now. And for 10 years, no government has been successful, and most countries simply been dismotivated from doing so.
BTC now is only 0.6T. When it approaches M3 money supply, expect an attempted government action. Whether it's successful or not, is a separate question: it would have to be coordinated across G20 to be "successful".
Do note that I don't claim (or think) that it's very likely for this to happen. But the comment I replied to made a strong claim: that (technologically?) BTC offers this ability. This is not just some nice property that it currently has, it's part of the "intrinsic value" of BTC. This to me sounded like a claim of "guarantee", not just a claim that "nobody banned it yet, and maybe they won't ban it in the future, either".
there is no such thing. not in bitcoin, not in usd, not in gold. all value is extrinsic and assigned by market.
> tons of other things do! E.g. why not invest in amber, it's probably one of the rarest things in the universe
and tons of other things are invested into: precious metals, commodities, etc. bitcoin is the first digital commodity, which can't be inlated by some centralized authority.
> is there ANY inherent guarantee
yes, bitcoin transaction is finite and irreversible as soon as signature is published via any possible information channel and sufficient number of blocks are found on top of the one that includes the transaction. you can morse-code it into ionosphere to be picked up by the receiver or you can flashlight it across north korean border, no internet required.
US regulation may prevent you from interacting within US jurisdiction, but that's a different issue and precludes bitcoin being money about as much as US ban of certain drugs precludes them from getting people high.
> there is no such thing. not in bitcoin, not in usd, not in gold. all value is extrinsic and assigned by market.
Just as a nit, there absolutely is. Food provides value in that you can eat it to survive. Housing provides value in that it provides shelter from the elements. A goat provides milk and you can eat it. Barter systems typically involve the trade of two such goods. The problem is that such goods typically spoil with time, which is a primary advantage of fiat currency -- it is not subject to physical constraints.
Historically, people also used things like salt, which had intrinsic value (for preserving and flavoring food) but didn't spoil. But the use becomes so abstract that its pointless to haul salt around. Eventually you transition to precious metals, which also have some intrinsic value (for engineering various goods) but much less concrete. Then you transition to effective "gold IOUs" (gold-backend currency).
The idea of having a currency completed untethered to anything of value is relatively new. One of the most interesting aspects of bitcoin is proponents fervently advocate for one element of the gold standard (a fixed supply), but not the other (something physical of utility).
The value to a particular consumer of food and housing can be zero, presuming they have enough and are not in the market for those goods.
That's what it means to say that goods lack intrinsic value.
The exception is of course money, whatever good it is that is winning the Keynesian beauty contest of "good which I think everyone else will want as much of as they can get".
i didn't express myself correctly. the use-value exists, definitely, but it's effect on exchange-value of the commodity is diminished as that commodity becomes widely used medium of exchange/store of value. gold's use-value in tech and jewelery is a small fraction of gold's exchange-value.
> One of the most interesting aspects of bitcoin is proponents fervently advocate for one element of the gold standard (a fixed supply), but not the other (something physical of utility).
if gold became useless for exchange purpose and only it's use-value was relevant, market price would go down to pretty much nothing, the scammiest cryptocurrency exit-scams would be brought to shame by that drop. so physical utility of gold has absolutely no relevance to gold-standard. even jewelery use-value was mostly driven by exchange-value, so that would become irrelevant as well and the market would be flooded by worthless golden trinkets and rings.
> gold's use-value in tech and jewelery is a small fraction of gold's exchange-value
According to Wikipedia: "The world consumption of new gold produced is about 50% in jewelry, 40% in investments, and 10% in industry.".
Now, there are ETFs, futures, options, etc, that inflate the speculative portion, but the valuation due to physical properties is still likely within an order of magnitude of its total market value.
jewelery produced and stored is not necessarily jewelery used. jewelery inflates speculative portion as much if not more as other instruments you listed and if gold was stripped of it's exchange value, most of the jewelery in the world would be up for sale to recover at least some of the "investment" (even if that investment was inherited, which it is in vast majority of cases).
Sorry if this seems even more nitpicky; I spent about a year in grad school thinking I wanted to do monetary theory for the rest of my life, and the main thing I got out of it was that "intrinsic value" is a bad concept that runs cover for muddy thinking and ultimately confuses everyone much more.
> Food provides value in that you can eat it to survive.
People value food (in many cases) because they can eat it. It doesn't mean that the value is intrinsic to the food. In fact, in many cases the value of the food is zero (or even negative! -- it still needs to be disposed-of) because no one wants it.
> Housing provides value in that it provides shelter from the elements.
People value housing for that reason, but housing doesn't have that value on its own. It has value because people want to use it for something. There are many abandoned houses that show this value is not inherent, but rather conditional and context-dependent (like all other value).
> A goat provides milk and you can eat it.
Yes, some people value goats for that reason. If you put one in my house, it will immediately have negative value, because not only do I not want it, the time it will take me to find a good way to get rid of it will dwarf the amount I can sell it for.
> Historically, people also used things like salt, which had intrinsic value (for preserving and flavoring food)
Again, people value it for that reason, but the value isn't in the thing (intrinsic). The value is imputed to the salt by people.
> Eventually you transition to precious metals, which also have some intrinsic value (for engineering various goods)
Again, no, but this one is perhaps the easiest to understand -- the value is imputed by people because of what they can do with it. In situations where they can't do anything with it, it has no value, revealing that the value was never intrinsic in the first place.
> The idea of having a currency completed untethered to anything of value is relatively new.
I would argue that this is not the case, and comes from a narrow way of looking at value. Say I'm a nerd (this may or may not be a true story). In early 2012, I find out about a thing called Bitcoin. I don't understand it very well, but it sounds cool, and I mine some just to say I have it, and then tell people I have it. I value it. I can't do anything with it physically, but that's true of a lot of things. I own a number of pieces of art that I value, even though I can't really do anything with them other than know they're there, sitting in my closet or storage unit. It doesn't make the value somehow not-real, because all value (in this sense of the word) is imputed to things by people; it's not in the things themselves.
I am pretty confident that negentropy has inherent value. Relative to a particular person or entity on short timescales it may have negative economic value but averaged over all possible economic transactions it's almost always the case that available energy can be transformed into something that someone/something wants.
You just have to look at natural ecosystems to see the reality of this; almost anywhere there's an energy gradient creating a niche there's some lifeform taking advantage of the situation.
To clarify my position: I 100% agree that bitcoin is the first digital commodity. I disagree that it's appropriate to call it "money" (based on the fact that, by design, it has low acceptability - if enough people would use it for their daily transactions, the entire network would break down). I'm also really uncertain that it's an appropriate store of value, and lean on the side of "it's not".
WRT guarantee... yes, let's say I accept that you can send BTC to somebody regardless what laws the US passes. The question is, can you receive something in exchange? Because if you can't then it means that the technology is not offering you any guarantee. So that guarantee can't be the "intrinsic value". (you don't claim that it is - you just claim intrinsic value does not exist, which is a completely new discussion that I don't want to get into right now)
I know where you're getting at, but I think investment vehicle is a better term than commodity. Bitcoin is traded around as bitcoin to speculate that it'll have future value upon a traded upon nationalized currency. Commodities, while do get traded, are eventually consumed outside the investment market. You might trade and hold corn on the market, its end goal is to end up (consumed) as doritos or cornbread. Or iron gets consumed as steel for a car. The end goal of trading bitcoin ends up to be continously traded for a direct return on investment in the future. This is partially the issue with the housing crisis. Houses were constantly market traded without being consumed. Both in home investment speculators, folks that just bought the house to flip it the next week without ever living in it (a paper in florida at the time did an article showing a lot of homes in neighborhoods would go through about 6 owners in 2 or 3 years before someone lived in it right before the bubble burst) then there was the investment vehicle constant trading of the mortgages themselves. That was a twofer of shit hitting the fan.
Anyways yea, not harping on you too much for semantics but the rabid crypto fanboys(not calling you one) really fuck up their terminology and understanding of basic economics.
Hey, wait a second, isnt McAfee supposed to eat his dick since bitcoin didnt hit the million mark?
that is quite the goalpost shift. bitcoin allows you to send and receive bitcoin securely and without asking permission. it is not bitcoin's purpose to ensure whatever the contract you're trying to realize entails. there are escrow services and what not for that.
the guarantee bitcoin gives you is that once transaction was finalized:
- you are the sole owner of assigned bitcoin
- only you can change that record in the ledger
- nobody can stop you from doing that
- nobody can dilute your share of the asset beyond the normal issuance schedule
Again, the claim I objected to is "transfer money[+] across political boundaries without censorship". That's what I'm objecting to. Yes - you can make a transfer of bitcoin/ it's very hard for the state to stop or reverse that transfer. But is that what we mean when we say "without censorship", really? We're getting into the joke territory here, this sounds very much like "USSR had freedom of speech, what it didn't have was freedom after speech".
[+] BTC is not money, but I'm going to let that slide for this part of the argument.
> But is that what we mean when we say "without censorship", really?
yes it is. no technology will suddenly make censorhip go away. but technology can allow one to circumvent censorship. bitcoin doesn't solve censorship, corruption, fascism, genocide and whatever else you may want to throw in to justify your skepticism, but it doesn't have to. it solves a very specific problem: non-debaseable digital money and permission-less transacting of it. that comes with a set of compromises and great deal of responsibility for your actions, but it's a useful and valuable tool, first of it's kind and certainly the biggest revolution in finance since gold standard.
> there is no such thing. not in bitcoin, not in usd, not in gold. all value is extrinsic and assigned by market.
Exactly! It also is interesting how people were berating USDT for not having their coins backed in USD. Does it matter? As long as people are amicably agreeing to trade it at 1 USD, it's working as designed.
- Bitcoin becomes less volatile over time
- Bitcoin was less volatile than AMZN or AAPL in 2020 (3-month realised volatility)
- Bitcoin becomes less risky over time (since despite increased incentives to "hack" it, no exploits happened)
My dude bitcoin dropped 20% last night. I'd run those numbers again if I were you.
Also - I'm not sure I see the point being made - if my company had $400M lying around, I wouldn't want them to throw it all into ONE other company's stock, exactly because of the volatility.
Its a fair view to have, but Microstrategy did disclose the plan to shareholders and offered to buy them out with a premium to the market before buying. So you had the chance to get out if you didn't agree with the decision.
The 1-day price chart via Google shows a drop from ~33,700 @ 4:00 am UTC to ~28,900 @ 10:30 am UTC
So, about 14%.
It is also disingenuous to compare its volatility to stocks when it is supposed to be a currency.
I want a heck of a lot less volatility in what I use to pay my bills and buy things than I'm willing to accept in my investment portfolio. Unless bitcoin and other coins demonstrate such stability, they aren't going to become a major form of payment.
And I don't see how it will become one without stability, which leaves it the nominal role of "currency" but a defacto role of "security" or "commodity" that doesn't happen to be backed by assets as such things tend to be.
I suppose if it remains consistently deflationary over medium-long term periods, that could still be useful, but doesn't really fulfill the role most crypto advocates envision.
Come on, you can do better than that. Volatility isn't measured exclusively on a, what is that, weekly chart? Did you really need me to zoom in for you?
To be fair, that's a 10% drop for the day, but for me at least the argument still holds. 10% in one day is a pretty big swing, doubly so if that's a regular occurrence.
I'm not familiar with stock market, but looking at a daily AMZN stock price [1], I honestly can't see a huge difference with Bitcoin. Could it be that BTC is slightly more volatile because of the nature of the market? a) it's open 24/7 b) it's much more accessible.
I can't buy my groceries with AMZN shares, and they're not intended to be able to do that. No one is pretending AMZN shares are going to be a peer to peer currency.
I can't buy my groceries with BTC either, but that's because no store will trust a payment method where within an hour the value of what I've paid them declines 10%.
Nobody is arguing about that. The idea that BTC is a currency is long gone. Bitcoin is a store of value, similar to gold (which you also can't use to buy your groceries).
You absolutely could use gold to back your personal economy. Put dollars into an InteractiveBrokers account, buy GLD. Use your IBKR debit card to borrow against your GLD on margin. Pay it off at the end of the month. You can back your personal economy with literally anything you want that way.
Nobody would keep all of their liquid assets in AMZN stock either.
Put it another way, where'd you get that $400M from? Did you earn it, or get it from venture capitalists? If the asset is such a sure bet, why did the VC give you the money to sit on instead of investing it directly themselves?
And why is it that companies that pay dividends tend to do better in the stock market and be more stable? Essentially a dividend is admitting you have more money than you know what to do with, so you give it back to the shareholders rather than getting distracted from your core competency.
Here is a chart[0] of the daily changes showing BTC, AMZN, AAPL, NFLX, TSLA from January to November. Can you tell me which one is BTC (hint: the green one is TSLA)?
BTC has higher volatility than other assets on short timescales (e.g. < monthly and particularly, daily). But once you calculate over >3 months you get volatility comparable to stocks. And an investment in the size of $400M doesn't feel like they are worrying about daily volatility a lot.
And if you don't cherry pick a time period which contains a market crash? I'd also point out that stocks represent a real stake in a real company which may generate real cash. Crypto is thin air and trades on the greater fool theory alone.
> And if you don't cherry pick a time period which contains a market crash?
This chart covers January - November and includes an almost 50% drop in march. And it is still not as volatile as e.g. TSLA.
>stocks represent a real stake in a real company which may generate real cash. Crypto is thin air and trades on the greater fool theory alone.
There is no such thing as "real cash" - you can exchange Bitcoin for dollars like you would with stocks.
The reason Bitcoin is worth as much as it is, is precisely that many Bitcoin "hodlers" are not selling, because they understand that Bitcoin has a fixed supply while the USD continues to inflate, which increases wealth inequalities and enables government to spend money with less democratic oversight. The rich get bailouts they use to buy up stocks and real estate in order to protect themselves. Poor people who can't afford this and who are sick of this are the ones buying Bitcoin.
>This chart covers January - November and includes an almost 50% drop in march. And it is still not as volatile as e.g. TSLA.
...and if you don't cherry pick one of the most volatile, well known stocks in the market? We can keep doing this, but TSLA is not "the market", it's a single company and trades completely on hopes and dreams. It's not a good surrogate for every other company.
>There is no such thing as "real cash" - you can exchange Bitcoin for dollars like you would with stocks
Yes, you can trade fake currency for real currency so that you can actually use it. And companies represent real assets; BTC is thin air. This is not a difficult concept to understand. BTC has _zero_ intrinsic value as an asset.
>The reason Bitcoin is worth as much as it is, is precisely that many Bitcoin "hodlers" are not selling, because they understand that Bitcoin has a fixed supply while the USD continues to inflate, which increases wealth inequalities and enables government to spend money with less democratic oversight.
Stocks hedge against inflation as well, so do many other asset classes. BTC trades like it does because a whole lot of people want to get rich quick. Of course some people share your opinion, but we're talking about something that provides no actual value.
If you have to trade it in for a currency you can actually use and it goes up with inflation then... it's no different than stock in a good company from that perspective. It goes up more because it trades 100% on speculation and the greater fool theory.
Bitcoin is Schrödinger’s program. Whenever it’s deficiencies are pointed out, it suddenly becomes something else.
Bad transaction rate? It’s not a currency, it’s a store of value! Why does it have value? Because it’s more stable than fiat! What about the volatility? Ignore daily volatility, it’s going to the moon! But why is it worth more? Because you can buy stuff with it, like a currency!
10/10 best explanation of Bitcoin I have heard yet.
The argument for bitcoins price from even bitcoins advocates usually seems to ultimately boil down to “It’s valuable because the price of it is going up”. If you ask why the price is what it is, the answer is basically that it’s high because it’s going to be even higher in the future!
It might be even higher in the future, but this has no economic fundamentals behind it.
It's psychological anchoring and a mixture of greed combined with a technical innovation which isn't terrible per se, but which does not in fact solve the problem it was originally designed to do. Made artificially inefficient to compute to stop the evil governments and organizations which were apparently making life impossible before the existence of cryptocurrencies. Now it has become inevitability because its price is going up and therefore by induction it has become more valuable and necessary for the whole society.
With all the free money that is currently floating around bitcoin is again slowly moving towards its saturation point where the pool of potential buyers is exhausted and the prices have become unsustainably high. The psychology of the market will reverse causing a "run on the bank" (which apparently is a good thing by some gold standard advocates in this thread) and it will again sink like a stone without anything to stop its fall. A good thing to remember is that bitcoin has yet to face a real depression akin to dotcom bubble. If and when it falls to levels so unfathomably low that it would incur losses so heavy that would shake the whole industry to its core, then it might forever lose its status as a digital store of value which price increases forever to infinity.
One thing I must say and what most people forget is that bitcoin is also a form of gambling and which actually explains some of its success. It has the characteristics of a sport which is fun to discuss, interesting to research and easy to bet on with a lot of volatility that can be as addicting as gambling in a casino (which again shares a lot of similarities to traditional stock investing or the collection of art pieces). Can we explain why gambling or sports are so addicting or necessary to the whole society? We humans are emotional creatures that believe in the most silliest of things that defy normal logic yet which we can not unravel like the people living in a cave in Plato's allegory. What in the end is real? God is dead said Nietzsche and therefore we are constantly seeking something "valuable" to cling onto.
BTC has already been legally ruled as property, not currency, I believe if I read the ruling correctly.
Not digital gold, but pharmaceutical grade gold as Saylor put it in a recent Odd Lots pod, and it's hard to argue that...also quoted from the same pod..[not a perfect transcript]
"...so that took us to cryptos and we looked at 6500 cryptos and we found that BTC is the dominant network. its 25x bigger than the next closest thing that looks like it, and has more than $200bil monetary energy in it. it is basically Facebook or Google for money.
and this is the nuance that most people haven't realized yet..what you have is a dominant digital network that has been engineered to host a safe haven treasury reserve asset superior to gold in all respects.
it's pharmaceutical grade gold [love this line]. if God [blurb] gold as a treasury reserve asset to hold for 100 years, he would create 21mil gold coins, he'd make it impossible to make any more, he would make it possible to audit it from anywhere on earth from any node every 10 minutes, make it unhackable and make it an open architecture where you could build it into an iphone or into Square or paypal or any other exchange without permission, and he would distribute it everywhere on earth with these crypto SHA256 miners so hat no company controls it, no CEO controls it, no country controls it, and no regulators control it..."[0]
But given the dynamics of PoW mining, isn't bitcoin defacto controlled by a handful of Chinese mining cartels, which are themselves controlled by the CCP?
I feel like this whole pitch makes sense until you get to that part.
Cryptocoins are subject to majority attacks and rules that can change at any time based on the miners preference. Who mines it is very important.
You would also care about who owned some real estate before you buy it if it was some company known for dumping toxic wast into land and then selling it. Those things are not as apolitical as they look like in an organized society.
Your straw-man argument hardly settles our debate.
If I decided that I could profitably use toxic-waste laden land, then yes of course I would still buy it and, yes of course, still not care because that's what due diligence is about.
Your liquor store sells alcohol that kills more people under the age of 30 than any other way...why aren't you standing in front of it demanding it shut down?
It's not about who created the coins, obviously. It's about the fact that more than 65% of the hashpower securing the network is in the hands of a small group of mining pools in the PRC. Adopting BTC is de facto handing over sovereignty of your currency to the PRC [1].
They get to censor transactions, they get to decide what makes it and what doesn't, they get to double-spend if they want to. That's how authoritarian government works.
This is a natural consequence of the proof-of-waste system employed. The hashpower goes to the place where waste would be the cheapest, and that's China.
The first sentence of the bitcoin whitepaper is literally "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
It doesn't matter what it was marketed as. It matters what it is.
But they made it deflationary and a good currency needs to be inflationary otherwise you just hold onto it instead of spending it. Which had made it more like a digital gold.
It has totally failed as a system for payments for this and other reasons. It is also too slow and too expensive per transaction.
Contrary to what many people who only recently discovered Bitcoin probably believe, it was not created in a vacuum as some Ponzi scheme. Instead it was a concept that had been iterated on for decades until Satoshi discovered the right combination of cryptographic technologies and economic incentives to make a so-far-unstoppable decentralized digital currency.
Well, Satoshi was more than likely Paul Calder Le Roux who wanted a way to launder the proceeds of his crime network.
> Instead it was a concept that had been iterated on for decades until Satoshi discovered the right combination of cryptographic technologies and economic incentives to make a so-far-unstoppable decentralized digital currency.
You know how that sounds right? Like religion, not clear-headed thinking.
I expect Bitcoin to affect monetary systems in a way similar to how FOSS changed software.
My opinion is neither of those is a religion. The development of Bitcoin in particular sounds more like following the scientific method to me, but you're entitled to your own interpretation.
It says in the title of the paper, Digital CASH. But, ever since Blockstream (Adam Back and Greg Maxwell) hijacked the GitHub repo years ago Bitcoin (BTC) has purposefully failed at this central use case. However, the project and White Paper live on in projects like Monero, Bitcoin Cash and Ethereum.
Bitcoin (capital B) still is! The Bitcoin Core project (BTC) was hijacked years ago by corporate interests (Adam Back's Blockstream) and crippled to push their "second layer" solutions to the problem they themselves created.
The Bitcoin project lives on and most real users and developers moved to other projects like Ethereum, Bitcoin Cash and Monero the same time Blockstream wrestled control of the Bitcoin Core GitHub repo.
What is this a chart of? bitcoin nearly tripled from jan to nov, and has had daily volatility, both pos and neg, that doesnt seem representable by a flat line.
So, your statement of "it has higher volatility" is based on observing the colors of the graph (i.e. not a calculation of the underlying data)?
Jeesh...I don't know where to start...
I know this is against HN guidelines to say this, but your top level comment needs to get downvoted into oblivion. This is not grounded in any evidence worth of value.
While I am very bullish on Bitcoin, this just isn't fair. Both anti-coiners and pro-coiners spend a lot of time on research to find out the truth, and the truth is that either group could be proven wrong long term. These are uncharted waters. Lastly, they did not miss the boat, there is still plenty of time to buy in and use bitcoin the way it was meant to be: a savings account.
2) I am saying, they think they missed the boat. Bitcoin (capital B) is here to stay.
3) The Bitcoin Core chain was long ago hijacked by corporate interests and failed to live up to the White Paper. Bitcoin Cash, Ethereum and Monero have been around a long time and have real use cases.
Volatility should not be measured on one time events or short-time events. Short time-frames, bitcoin is still very volatile comparing to the most used currencies.
To a first order approximation, nobody. But it was supposed to function as a currency, so if everything had worked as planned it (daily volatility) would matter on a regular basis.
But even as a “store of value”, that’s an issue. Ignoring the fact that everyone values BTC in USD (or a local fiat currency of your choice), a “value” that you never access is meaningless. One day you will want to do something with it, and on that day the risk of a 20% fluctuation is a big problem you’ll have to deal with.
Currency isn’t supposed to appreciate. If currency does appreciate, everyone has the tendency to stop spending as much as possible because it’ll be worth more tomorrow. This causes the money supply to drop, reinforcing the deflation, and dropping the demand for labor as the real cost of wages rises, triggering more savings as consumers worry about losing their jobs. Oh, and if you have any debt denominated in BTC, it’ll bankrupt you. There’s that too.
This is a classic example of there being no free lunch; you can’t have an economy based on a currency like Bitcoin deflating rapidly without there being serious side effects. The idea that currency could become 1,000% more valuable in a year without those side effects being disastrous is just laughable.
Secondarily, one has to ask why is Bitcoin going up 1000% year over year. Bitcoin isn’t a stock, it can’t generate revenue. It’s a pretty awful currency at 4 transactions a second. So what’s the underlying thing that makes it worth so much in USD? Usually the answer is “something something finite”, but rarity doesn’t confer value, it sure doesn’t look like anyone is actually using it for anything other than speculation.
When you get down to it, it sure looks like the value prop is “it went up a lot in value last year, maybe it’ll do it again”, which sounds extremely bubble like to me.
BTC is mainly appreciating against fiat currencies whose values is being driven down the toilet by their own governments, printing billions day in day out. There's no such thing as intrinsic value, everything is relative.
Oh no, Bitcoin has "crashed" to where it was at the start of the year! That is only double what it was a month before, and only 10x what it was a year ago!
No, like gold, the more it is used as a savings asset, the more it gets tied to the real economy, the more it becomes unstable.
When gold had too much ties to the real economy, it became unstable enough to cause the great depression.
This happens because, people, businesses and banks start hording tokens instead of investing in building and maintaining production capacity of consumables and the ratio of value of tokens meant to buy consumables vs actual production of consumables gets out of wack.
When the music stops, people realize that people are sitting on tons of seemingly valuable tokens but stuff to buy with them is getting scarce because capacity is not being maintained, they reverse their trade, prices of stuff go up, volatility ensues, and the destructive cycle resets.
Savings being tied to too popular tokens instead of assets that create real value results in a massive coordination failure, a terrible Nash equilibrium, a prisoner's dilemma where the first to invest in production are disadvantaged so everyone hoards tokens instead. Companies hoarding Bitcoin is the first sign that this might be happening now.
This is what central banks and sound currencies are designed to prevent.
I'm not an economist but David Beckworth's blog, especially posts during and after the global financial crisis is a good starting point: https://macromarketmusings.blogspot.com/
> ..., ignoring that the ability to independently verify the money supply and being able to transfer money across political boundaries without censorship is probably the most important intrinsic value one could hope for in a MoE/SoV.
So, here's what I don't get about Bitcoin. Those capabilities are great. But those capabilities exist whether a Bitcoin is priced at $1 or $25,000. Why are those capabilities enough to drive the price of a Bitcoin up?
To me the "value" and the "price" of Bitcoin seem to be completely unrelated, and that makes me skeptical that it is an investment.
It feels like investing in a hammer -- I love what a hammer can do for me when I want to hit a nail, but that doesn't mean that the price of a hammer should be related to the house I can build with it.
> But those capabilities exist whether a Bitcoin is priced at $1 or $25,000
This is simply false. If the value of Bitcoin was $1, you would not be able to store or transfer large amounts of wealth with it. Based on current circulating supply (not accounting for lost coins) the market cap at $1 per Bitcoin would be $18,590,606. At that market cap, there's simply no way to store/move a billion dollars, because there just isn't enough value in the network.
Price going up makes the network more valuable, which allows you to store and transfer more money. Since money storage and transfer is the whole point of bitcoin, price is actually a very important feature, and a proxy for the usefulness of the network. Currently you can store and move billions using the Bitcoin network, and I believe within the next 5-10 years you'll be able to store and move trillions.
> So, here's what I don't get about Bitcoin. Those capabilities are great. But those capabilities exist whether a Bitcoin is priced at $1 or $25,000. Why are those capabilities enough to drive the price of a Bitcoin up?
Higher prices means Bitcoin is capable of moving bigger capital. At $1, you can't move around $10m worth of bitcoin (that's like half of the possible supply). At $35k, moving $10m and trading it is a piece of cake. $10m liquidity is available in many markets now and do no move the price.
Since the supply is limited, the price is just a gauge for demand.
But BTC will never be the best or only way to do that, so once it actually is priced to a real function (transfer capability) it won't be scarce or unique. You can print an infinite amount of alternative coins or stable coins (or even other services without crypto at all) to do transfers including intl transfers.
"BTC will always go up as demand for it will always go up" is nicely self reinforcing as long as it is believed by enough to be true, but the price can go to $1 without issue once it is not.
But since it seems quite likely to at least 3x or 10x or who knows before that sad end occurs, I'm not exactly recommending you short it.
> Those capabilities are great. But those capabilities exist whether a Bitcoin is priced at $1 or $25,000. Why are those capabilities enough to drive the price of a Bitcoin up?
Isn’t that just because there is a limited supply of bitcoins and lots of people want to buy them? Just the same as saying that an expensive fast sports car is great, but would be just as great if it cost $1.
But is there really a limited supply? A second bitcoin chain with the same rules but a new genesis block would provide the same technical capabilities. The limiting factor is just the willingness of people to spend compute mining original bitcoin vs this hypothetical second chain. If we collectively wanted to, we could create an arbitrarily large number of bitcoin-like tokens
You'd have to convince the whole ecosystem - miners, exchanges, wallets, buyers, sellers, etc. - to switch over. It's the same network effect that protects Microsoft or Google or Facebook or even Nike: changing peoples' behavior is hard, and in general beyond the resources of new entrants unless the incumbent really screws up.
(Arguably, Bitcoin's rise is precisely because of the incumbent really screwing up. If someone created a new currency in the 1970s or 1990s - and people did - folks would laugh at them. It's only because trust in the government and mainstream financial system is so low - and the Fed continues to print trillions of dollars to paper that over - that Bitcoin has gained a foothold.)
"If we collectively wanted to..." is never an answer. People don't make collective decisions, they make individual ones. Adoption requires convincing lots of people, individually, that your new solution is better. You can get a boost from peer pressure, but you have to start the flywheel going yourself.
You don't need to convince miners at all. If BTCs future is in using it, it has to convince the future companies and stores to not use other coins or services. Or to a buyer today to still have as much demand even after the speculation is gone (which is currently its main/only function).
Wallets, miners, etc won't really matter at all if Square and Amazon etc have a plugin that uses a stable coin of each currency along with BTC. The world will have infinite transfer capabilities of other "scarce" non-fiat and fiat pegged coins without BTC (including other electronic currency based services).
> You'd have to convince the whole ecosystem - miners, exchanges, wallets, buyers, sellers, etc. - to switch over. It's the same network effect that protects Microsoft or Google or Facebook or even Nike: changing peoples' behavior is hard, and in general beyond the resources of new entrants unless the incumbent really screws up.
Quite a few projects have tried exactly this, and none of them have succeeded. What makes you think your attempt would succeed?
That's my point - the thing that makes bitcoin "scarce" is not that there is a fundamental limit to the number of bitcoin-like tokens that exist, it's just that there's inertia against creating more.
I don't mean "if we collectively wanted to" to suggest that people will just up and choose to do so tomorrow, only to say that it's that lack of collective will, rather than true scarcity, that restricts the number of bitcoins.
And not only that. Once the last block is mined, the only revenue for the miners will be transaction fees. If anyone insists on a large future valuation of BTC, it follows there will be massive future transaction fees. Massive transaction fees dissolve any advantages stemming from network effects.
Indeed there are already many forks of bitcoin and alternate cryptocurrencies like monero, ether, etc. It's fascinating how people assign value to an asset created out of nothing that will never show revenue.
Makes you wonder if you could get people to buy shares in a company that promises no revenue but markets itself as "exchange traded gold".
> It's fascinating how people assign value to an asset created out of nothing that will never show revenue.
The USD is created out of nothing currently and does not show revenue (if anything, the US government only creates massive debts that will have to be paid in the future thru massive taxes hikes, or inflation, or both). The only reason why the USD has any value is because it's the single piece of paper that is authorized as a currency in the US, and that people 'trust' it somehow (especially outside of the US). The day the trust is gone, it will be worth absolutely nothing.
Well as a citizen of the US I also have to pay taxes with it, giving it at least a small amount of utility that other objects do not have. But in general this is true, yes.
There are tons of crypto forks that have essentially no market value. How do you explain that, if anyone can simply create more value out of nothing? It seems clear that this is not what is happening.
People have created hundreds of “bitcoin-like” tokens. Go look at coinmarketcap.com. They aren’t fungible with Bitcoin though. It seems Bitcoin has maintained much higher demand due to its first mover advantage and network effects. The other coins don’t seem to offer a compelling reason to pay the very high costs of having everyone switch over.
I think it is sort of similar to why gold stands alone among the precious metals as the biggest one that people hold onto purely as a token.
I don’t really know what the long term picture is though. Or whether Bitcoin and friends are a “good thing” at all.
Indeed, the value of actual bitcoins relies not just on the theoretical capabilities of the software, but also the fact that lots of computers are actually running that software. I don’t see that as surprising or paradoxical at all.
> Why are those capabilities enough to drive the price of a Bitcoin up?
The market values those capabilities because it is the only asset in the entire universe of fungible assets that has that feature.
A) Bitcoin's ability to support that assurance is tied to the consensus model of bitcoin. The harder or more expensive it is to change anything at all let alone contentiously, the greater amounts that people will want to store as bitcoin.
B) Other market participants value other things about bitcoin, or at least demand it. So there simply is a market.
It's only scarce when it isn't very useful and the market has little real adoption, as now, where the only real reason 99% of people have it is speculation.
If we actually needed a lot of cross border transfers, you can print an infinite amount of different coins/systems to duplicate that function (this is ignoring BTC actually has more money printing via Tether than any other "currency"). This isn't even including just having new systems for moving electronic US dollars around in Apple wallets etc, and cashing into local currency as needed through other services.
Bitcoins "real" value is a storage of value, which is currently based on speculation desires of holders, which in theory could hold forever (or at least longer than you can remain solvent as a short or long enough for you to 10x or 100x so who cares) but could also disappear forever and not be missed once gone.
The only moat is belief, which really who knows if that is sticky or not. There is no tangible functional moat.
>you can print an infinite amount of different coins/systems to duplicate that function
But what does it take to bootstrap trust? The idea of conjuring instruments to move money has a long history. I found value in knowing that such a system already exists: Hawala[0] which means "transfer" or "trust". Its existence clamps, in my mind, the possibilities of the "how do we make value transfer systems" question. The Bitcoin network with its proof of work clamps the other side of that question. In some way, the altcoins and other various systems of payments exist somewhere between these two systems.
Bitcoin's current speculation is based on the theoretical "it'll replace fiat", otherwise what other utility does it have?
Gold technically can be melted down to be used for jewelry, wiring, etc. so in theory it would never go zero. If BTC doesn't work out and no one ever uses it to transact, then in theory it can go to zero.
Hammers should cost $10, but it is new invention and not everybody is convinced yet. Early adopters are selling hammers for 0.03$ waiting for more people to want to buy hammers.
Also, there are multiple factories producing hammers and there is no one entity to tell others what hammer price is/should be.
Bitcoin is deflationary (fixed supply) and cyclic.
If the world economy were held in fully minted bitcoin, each bitcoin would be worth ~$4.2 million USD.
Investing in bitcoin is like investing in abstract gold without an industrial or art use fallback. Rather, the transfer across boundaries piece is the fallback, the actual goal is to claim a deflationary estate and then get the world to use the medium to drive up value. Of course when popularity really increases fees will have to counter the rate of deflation, which will roughly equal economic growth, or nobody would ever trade out of it, and at the point it's the real collapse.
It's inflationary, since more bitcoin are mined every ten minutes or so.
Sure, the code says that it will stop when 21 million are mined, but there's no real guarantee that the code won't change before we reach that point. Or, the blockchain might fork (again) and now there are double the coins.
If you don't trust a coin to operate according to your expectations (e.g. a 21M limit), you can verify the source code and/or run a node yourself. This way you can yourself guarantee that all transactions happening on the network (that your node is part of) operate according to rules that you agree with.
There are already multiple forks of Bitcoin, yet it doesn't seem to change market's perception and valuation of the original Bitcoin.
It's inflationary, since more bitcoin are mined every ten minutes or so.
That's not how it works… think about it.
How can bitcoin be inflationary when the number of coins being produced decreases every 4 years?
There's a fixed supply—over 88% of all the bitcoin that'll ever exist have already been mined.
Yes, every 10 minutes or so, 6.25 new bitcoin come into existence but every 4 years, the block subsidy is cut in half and will continue to be cut in half until the final block is mined. The next halving is May 7, 2024.
Sure, the code says that it will stop when 21 million are mined, but there's no real guarantee that the code won't change before we reach that point.
There's over $500 billion (and growing) in market capitalization that is based on the limit being 21 million bitcoin and not ever changing. This was already litigated by the bitcoin community.
Or, the blockchain might fork (again) and now there are double the coins.
Again, this isn't how it works.
There could be dozens of forks; that doesn't matter. Only the longest chain with the most work on it matters. All of the hashing power would continue on the one true bitcoin chain while the forks languish.
Bitcoin is open source; anyone can download the source code, make a few changes and launch a new chain. But it would get virtually zero support.
You may not be aware of the number of bitcoin forks that have been attempted and failed… Bitcoin Cash, Bitcoin XT… you might want to do some reading: https://www.exodus.io/blog/bitcoin-fork/
The limit could only be changed through consensus. It‘s s democratic process. People holding BTC would have no incentive to devalue their own holdings, so they are unlikely to agree with raising the limit. This is why people treat the 21M cap as fixed.
> Believing that inflation rates in the next years won't spike as a result requires an amount of trust even more artificially inflated than the USD today.
Or just a basic understanding of monetary economics... the Fed's actions aren't an exogenous variable, they were taken precisely because of deflationary expectations in the market.
It's really just this. All the crypto maximalism comes from people who forgot to attend ECON-101.
They see the big scary market, they don't understand it, and are trying to re-invent it from first principals. As such they're just speedrunning the history of finance, and quickly finding themselves exactly where they started.
Asset price inflation was actually close to 30% this year...meaning real inflation is much higher than the bogus CPI formula the US government uses.
"...people who forgot to attend ECON-101."
The real problem is people that think the neokeynsian and econometrics nonsense they learned at school is valid in the real world. Easy to detect members of that crowd, they are generally clueless about scarcity value, bitcoin/hard-money and will inevitably end up poorer than the less ignorant.
> Asset price inflation was actually close to 30% this year...meaning real inflation is much higher than the bogus CPI formula the US government uses.
You don't even have to be a neo-keynesian, you really just have to recognize that not all price changes are "secret inflation." The markets (ie. the "real world") tend to agree with me [0].
Keynesian/neo-keynesian "soft money thinking" kills enough brain cells that people start to believe the CPI formula (that was altered 2-3 times since we closed the gold window to hide rampant inflation) is valid...that is the primary purpose of fiat education and fiat propaganda.
Anybody buying the 2% inflation number doesn't recognize the actual 15-20% hurdle they have to jump over every (non-covid) year and will inevitably get poorer unless they are directly tied to a "cantillon channel"... in which case they will only stay rich thanks to what amounts to fraud.
You're telling me prices double ever 4 years or so? I don't think so.
Chapwood "Index" is produced by the same person behind many of the conspiracy theories around Seth Rich's murder [0], not really a brilliant objective source of inflation metrics. I'm not claiming the CPI is perfect, but taking a look at market expectations of inflation also gives you a pretty good picture of what is going on, and it's not a 4 year doubling of prices.
> Anybody buying the 2% inflation number doesn't recognize the actual 15-20% hurdle they have to jump over every (non-covid) year and will inevitably get poorer unless they are directly tied to a "cantillon channel"... in which case they will only stay rich thanks to what amounts to fraud.
You have absolutely no evidence to support this.
The only reason the cost of living goes up in the major metros listed there is because housing went up there, and that's not inflation or the cantillon effect (which I concede exists but is nowhere near as big as you make it out to be) -- that's because city councils aren't permitting new construction.
Your comment is a manifestation of proportionality bias. You think a big change in the affordability of housing in SF has to have a big cause like the global economy string pulling illuminati cantillon magic. The reality is far more banal. It's straight-up simple supply and demand. Strong economy in and around SF creates demand for living in SF. The city council doesn't permit new construction. This limits supply. Low supply, high demand, big prices - which the well paid tech workers can afford. That's it and that's all man.
Naturally when demand fell as a result of the pandemic prices went with it.
One of CPI's big limitations is that it only considers consumer goods and services (the "consumer" part of "consumer price index"). But "consumers" themselves spend a good deal of money on other things, namely health, education, and housing. SlateStarCodex had an article about that: https://slatestarcodex.com/2017/02/09/considerations-on-cost...
Do I think those who stay wealthy in real terms are able to do so via "what amounts to fraud?" No. Nor do I buy your 15-20% hurdle assertion: if your annual salary of say $100,000 was worth just 10% less each year (as in, real inflation of 15% minus 5% worth of nominal income growth, a generous income growth assumption) $100,000, over just five years, it would be worth the equivalent of ~$60,000 in year 0. It seems like a stretch to suggest that everybody but the rich are seeing their real incomes almost sliced in half every five years. Use the 20% number or a more conservative assumption for income growth and the numbers start to square even less with reality.
Asset price inflation is such a weird metric to rail on because that's the whole point of investing. Literally the point of assets is they go up in price over time. If you bought AAPL at $50 and it hits $300 is that "asset price inflation"? No! It's a good return on investment.
There's no personal need for affordable AAPL stock is there? Are you going to die if you can't afford AAPL? Of course not.
You know what's gone down though? Housing. Which, by the way, costs exactly the same amount now on an inflation adjusted dollars per square foot basis as it did in the 1970s across the whole of the United States according to the BLS. [1] Certain major metros are of course higher but that's simply because the city councils stopped permitting new construction to benefit existing landowners while demand increased due to the booming economy in and around these metros.
Inflation is literally defined as CPI and it factors in the necessities of life. AAPL stock is not a necessity. It doesn't matter how far up it goes if bread costs the same.
Wanna stop the inequality it leads to? Bring in a wealth tax.
If there were any greater signal that bitcoin is not a safe bet right now, my dad has started buying it. He keeps saying thinks like "if I'd have put in £100 4 years ago".
I keep trying to tell him that if he'd tell me tomorrow's lottery numbers we'd be much better off but alas I think he's a lost cause.
I personally found it more convincing to think of what I would have done the first time the asset doubled. There is no way I'd 'let it ride'. At some point you rebalance your portfolio and you 'miss out' on some of the upside by hedging your bets against an isolated downside.
I bought my first AAPL stock at ~$40 a share the first time, which I believe was about a year before their previous stock split. If I'd held it continuously I'd have 8x as many shares and a basis of $5 a share, which would mean I'd have 25x as much money as I started with.
But my portfolio would be unbalanced as hell, and I would have missed out on a lot of run-ups for WWDC and such. So I sold some, did profit taking on the rest, and occasionally bought back in, not always at the best times. So instead I have about 5x as many shares, and my basis is more like $45 a share, but now with some dividends on top, which is nice. If anything, my portfolio still has too much AAPL in it (I sold about 10% a few weeks ago)
I disagree with most of this thread but this is a common sign that you have missed the boat for entering a market.
By the time you see a thread on Bitcoin going up 10% this week, you have failed to secure a position.
I've made some decent cash by shifting some money into Bitcoin on a Monday and cashing out my positions by Friday during these rallies to the tune of 30-70% profits but it's not for the faint of heart.
> I've made some decent cash by shifting some money into Bitcoin on a Monday and cashing out my positions by Friday during these rallies to the tune of 30-70% profits but it's not for the faint of heart.
All of this is gambling, not some rational modeling of how the bitcoin price will move.
Of course it's gambling... just like putting money in Tesla, Zoom or any other stock that made cash during Covid.
Bitcoin's price is irrelevant if you're planning on using it as a deflation countering method but if you're looking at pricing, you're basically gambling on you not being the bigger fool.
As long as you can find someone willing to trade something for Bitcoin, your Bitcoins are safe from USD printing.
Whether it's a pizza that later on is worth billions, or a car or something else. Your bitcoin is worth something, and is just another method of payment.
Literally every asset is safe from USD printing. Each and every one. As soon as you don't hold literal physical dollars in your possession what matters isn't inflation but the performance of the asset. Beanie babies, shoes, bitcoin, bond funds, stocks. All of them.
Thankfully he has a guitar collection that means more to me than any amount of money could! (one Les Paul he has owned for over 30 years and some guitars he has built by hand).
What about people who use bitcoin but don't believe in crypto maximalism? Can you share some information with those people that would convince them not to use bitcoin?
The parallel I was drawing was that anti-vaxxers don't understand vaccines and have gotten it into their heads that they are bad. The same is true of a lot of the arguments that bitcoin maximalists make, about inflation, about the central bank, about fiscal and monetary policy, about how their magic beans can save the Venezuelans.
In current popular fashion everything is political.
But also, anti-vaxx is an obviously denigrating term that’s part of the whole liberal orthodoxy. You’re drawing very broad characterizations between disparate topics.
Even the vocabulary you use is odd and one-sided. Should I call you a credit expansion maximalist?
Doesn't monetary economics also point out that various goods, services and assets have differing rates of inflation/deflation?
Is there any danger of a K-shaped recovery in which the fed is forced to accept massive inflation in parts of the economy in order to prevent deflation in others?
Has the wealth gap and ensuing social unrest caused by this bifurcated inflation historically caused nations to fall?
> Doesn't monetary economics also point out that various goods, services and assets have differing rates of inflation/deflation?
Inflation is an increase in prices as money becomes worth less. "Differing rates of inflation/deflation" are just the price system at work.
Since during Covid, velocity decreased, inflation dropped substantially, which required an increase in base in order to prop back up inflation.
> Has the wealth gap and ensuing social unrest caused by this bifurcated inflation historically caused nations to fall?
The wealth gap is not caused by "bifurcated inflation." It is caused by rapidly rising equity prices, among other things, but that is not the same thing as inflation.
The fed generally uses PCE to measure inflation which does not include equities.
Suppose that for every dollar the fed prints, 95 cents ends up in equities and 5 cents ends up in PCE. We can argue about what to call it but that doesn't change the outcome.
> the ability to independently verify the money supply and being able to transfer money across political boundaries without censorship is probably the most important intrinsic value one could hope for in a MoE/SoV.
This is opinion, not a fact.
The problem with bitcoin as a currency (and arguably all currencies) is that its value isn't stable, and can never be, because value is arbitrary and subject to opinion.
But if you don't agree, just look at how it's deflationary. Most don't realize it, but deflationary currencies are equally problematic to inflationary currencies in that both deflation and inflation are natural drivers of inequality.
Generally speaking, with inflationary currencies, the rich who get richer are those who own assets, and/or those who control the money printer. Those who are at a disadvantage, are people without a money printer who hold onto the devalued currency, and those who have fewer or no assets.
With deflationary currencies it's the opposite. The rich who get richer are the hoarders and earlier adopters of the currency. Those at a disadvantage are those who own other things, and those with fewer or no amounts of the currency.
As so, if the world mass adopted bitcoin, society would be no better off in terms of the problems people behold to inflationary fiat... (problems regarding inequality). But that's not to say, it wouldn't solve some problems as your statement suggests, but it also introduces new problems. As an example, your very argument above could be changed to "the inability to exchange money without a computer is probably amongst the worst intrinsic value one could hope for". Is it worse/better - again, that's subject to opinion.
In short, the only reason to grab bitcoin, is so you can trade it to someone else later who thinks it has value, which means it only has or holds value because people thinks it does or will - same as anything else.
With deflationary currencies it's the opposite. The rich who get richer are the hoarders and earlier adopters of the currency. Those at a disadvantage are those who own other things, and those with fewer or no amounts of the currency.
I don't follow; how does real estate and stock become less valuable in a Bitcoin world? Or do you just mean relative to the returns on owning Bitcoin?
In a deflationary economy, holding money becomes more valuable over time, so why would anyone spend it or invest it if you're guaranteed 5% - 20% more per year by leaving it in the bank?
One way to think of the economy is by money flowing between people and industries. The more the money flows the healthier the economy, as it becomes easier to create companies, get a job, etc.
When the money is stagnant, it becomes harder to convince people to spend it.
Imagine this hypothetic scenario just to demonstrate the point: Bitcoin becomes mass adopted, but not after 30 institutions end up hoarding ~60% of bitcoin in existence by some time in the next decade or two. Then by the year 2147, bitcoin is mined out, with the majority of those 30 institutions still holding the majority of their bitcoin stashes. The population is 17 billion with more being born into the world without any bitcoin to inherit...
Economically speaking, goods and assets will HAVE to become cheaper if no more bitcoin is to be made. Why? Well, if all the bitcoin has come into existence and is already owned by members of society, how will new born people who come to exist in the world - come to acquire bitcoin to do trade with? Especially considering that those 30 people/institutions had hoarded so much of it, and as the number of goods and people in society grows, there are fewer and fewer bitcoins available for everyone else to do trade with as time goes on?
Thus, in order to prevent liquidity crises - the price of wages, goods, and assets (even stocks) MUST become cheaper relative to bitcoin as more people and goods enter the world. Eventually, the price of things will eventually no longer be measured in bitcoins, but fractions of a bitcoin (satoshis).
One day a house may cost 700,000 satoshis. Decades later, as more houses and people come to in existence, a house may cost 70,000 satoshis. Those who held onto their bitcoin in their digital wallet, over the that timeframe, would be able to buy 10x more house simply because of the deflationary nature of the currency. Those who bought a house decades earlier would not be able to buy 9x more house just as easily...
Again, the numbers and scenario here I made up, but hopefully demonstrates the point. The hoarders and early adopters of the currency will be the rich who get relatively richer as time goes on, as more goods and people come to in existence forcing the cost of goods, assets, and wages to become cheaper. Those who don't own the currency (such as those yet to be born into the world) or those who have fewer amounts of it, would be at a relative wealth disadvantage as time goes on.
Mind you, I'm not arguing that bitcoin couldn't work. Just that it's inherently no better/less problematic than the inflationary currencies we already have (economically speaking), despite many proponents claiming otherwise.
For deflationary currencies, debt becomes a serious issue, since the rate of deflation is effectively tacked onto the interest rate of the debt, rather than subtracted.
It also benefits those who can spend less and defer spending, since any money not spent will become more valuable rather than less.
> the ability to independently verify the money supply and being able to transfer money across political boundaries without censorship is probably the most important intrinsic value one could hope for in a MoE/SoV
This is the (imo) fundamental intrinsic value of Bitcoin, and something that very few people seem to understand (or understand the value of).
Let’s say Xi wakes up cranky (maybe somebody embeds criticism of him in the blockchain) and bans BTC throughout China. It is now illegal to operate an exchange, buy or sell Bitcoin, or run a Bitcoin node anywhere in China.
... now what? How do you “transfer money across political boundaries without censorship” into or out of China?
> Believing that inflation rates in the next years won't spike as a result requires an amount of trust even more artificially inflated than the USD today.
I think I've been hearing this for the last 11 years, and haven't seen any spikes in inflation.
There's a handy set of compounded effects at play. The inflation is pretty evident in the stock market and real-estate, which are the assets being bought up. Consumerism and efficiency in delivering consumer goods has kept pace with inflation. It's there (from QE), just not where you're measuring. It will seep into others over time (like agri) as food supply needs to increase. Luckily, with global warming, land that was good for farming and living has been affected negatively (floods, droughts, etc) allowing people, farmers and meat to move farther north. eg The cattle that now sit on the California central valley land instead of southern CA like the city of Corona. The land is relatively cheap north, much to the chagrin of Idaho natives and such, who face a deluge of immigrants with relatively vast wealth.
Food subsidies and the aforementioned weather have kept food prices relatively low...although you might notice that non-McDonalds food will cost you about 10$ a meal, as food prices have doubled in 11 years. Give it a bit more time.
Now that the QE has ramped up to ridiculous levels, you can sit back and watch the inflation continue at 4x instead of 2x for the most affected verticals.
So inflation is usually used to describe how the reduced purchasing power of a dollar with respect to goods and services.
The stock market and real estate aren't goods and services, they are assets. The price of assets can vary quite wildly based on the interest rates (Looking at a net present value calculation explains why). But these fluctuations are unrelated to fluctuations in the prices of goods and services.(i.e. inflation)
Food prices definitely haven't doubled in the last 10 years.
People complaining about inflation are usually asking us to trade a very real current harm-underemployment for a hypothetical harm that hasn't materialized in the last 13 years despite repeated warnings-inflation. This seems like a bad trade especially since mainstream macro theory says the risks of rampant surprise inflation are low.
> Food prices definitely haven't doubled in the last 10 years.
Not all foods. Again, food has a number of factors that's countering the inflationary forces.
> The price of assets can vary quite wildly based on the interest rates
That's irrelevant to the spike in value that has occurred while the rate has sat at 0. The inflation of the prices of stocks and property assets are evident and the realization of no other way to invest wealth - bond returns are less than 1% now, which is why they are basically useless.
- Bitcoin was less volatile than AMZN or AAPL in 2020 (3-month realised volatility)
He discusses volatility when it comes to currencies, and the impact a volatile currency has. It doesn't really have anything to do with the stock market.
What can't be ignored is the ludicrous energy waste that goes into bitcoin and its speculative nature. The energy cost may go down over time as the block reward decays, but the economics of transaction fees taking over isn't totally clear yet. Block difficulty still hasn't reached stability.
The speculative bubbles are a bigger problem. Bitcoin looks like at best a $5K-$10K thing in the long term (just look at the 2018 bubble). The argument was always "with limited supply bitcoin price will go to infinity!" but there isn't limited supply because bitcoin isn't the only cryptocurrency. The Bitcoin-cash split doubled the supply. Every new cryptocurrency product increases the available supply. Smart investors will diversify cryptocurrency holdings and bitcoin will eventually be priced accordingly; the cryptocurrencies that can grow appropriately with the economy will have the most stable prices. At least difficulty adjusts more frequently than the block reward decays so that it's very unlikely to have a giant crash where over-invested miners all go bankrupt on a downturn and no one bothers to mine the next block.
Energy "waste" is in the eye of the beholder. The energy is doing useful work by making the system more secure (at a rough rate of 50%, which is actually rather efficient as energy consumption goes). Of course, having some better solution that doesn't need energy as its source of trust would be great, and perhaps proof-of-stake will one day work. But the fact of the matter is that there is no better alternative today, and the traditional governmental currencies don't count.
> But the fact of the matter is that there is no better alternative today, and the traditional governmental currencies don't count.
I can spend USD almost anywhere I want at maybe a 1.5% transaction fee depending on merchant, with 1%-2% cash back (I calculated a 1.67% rebate for 2019). Technically this is only nominally government currency since it's just bank credit denominated in USD.
Bitcoin's blockchain does around ~100K BTC in volume a day at ~100 BTC in fees and ~1000 BTC mined (since May) which both are effectively costs going to the miners' electricity. 1.1% vs 1.5% with cash back isn't a huge argument for bitcoin. If transaction fees stay around .1% until the block reward hits .05% then the efficiency argument eventually goes away because miners will be competing on transaction efficiency and not block rewards any more.
I like the technology; it's cool and the fact that it works at all is amazing. If overall costs were closer to .1% and speculators were not the primary users it would be revolutionary.
That link has no description of the consensus algorithm they are using, and links to a youtube video, not a paper. Not that I feel like reading new crypto papers, there are dozens of unproven claims around. When something gains actual traction, I’ll read its paper to see how rigorous and secure it is.
It's not gold that gives fiat currency value. It's the courts and their enforcement arm, the US military, that do.
The reason the US dollar is valuable worldwide is because if you run into trouble, you can use the US courts to be made whole, and if that doesn't work, assuming the dollar amount is high enough, the US military or Secret Service will use violence to make you whole again.
Same thing with the Euro and all the other major currencies (and even a lot of the minor ones). They have the threat of legal recourse and military violence back them.
Bitcoin does not have that. If someone takes your Bitcoin, there is little recourse to be made whole again. Now maybe if the US government decided to buy up a significant amount of bitcoin, they would have an interest in using the courts and military to enforce it. But the US government doesn't like competition, so most likely they would be buying up bitcoin to get people to exchange bitcoin for dollars, making the dollar even stronger.
> The reason the US dollar is valuable worldwide is because if you run into trouble, you can use the US courts to be made whole, and if that doesn't work, assuming the dollar amount is high enough, the US military or Secret Service will use violence to make you whole again.
I have heard dollars are popular with crime orgs all the world over, who are unlikely to use or be able to use the dollars in US courts. Dollars are valued by people (and they exchange goods/services for it), and Americans need them to pay their taxes.
> If someone takes your Bitcoin
This is one big if, and it will still be prosecutable by courts, as evidenced by all the current legal cases about crypto theft.
> Same thing with the Euro and all the other major currencies (and even a lot of the minor ones). They have the threat of legal recourse and military violence back them.
Military might matters only so far as it defends the country and makes it possible to produce stuff that other people want. A lot of countries with good military might (e.g., North Korea) don't have valuable currencies.
> I have heard dollars are popular with crime orgs all the world over, who are unlikely to use or be able to use the dollars in US courts.
I think once you've laundered drug money into dollars, it's spendable just like dollars are spendable. But it also makes sense they want dollars because dollars can pretty much be spent on anything anywhere.
>> If someone takes your Bitcoin
> This is one big if, and it will still be prosecutable by courts, as evidenced by all the current legal cases about crypto theft.
Well first you have to find the perpetrator -- then you have to find the money. Do enough transfers and mixing currencies together and it becomes near impossible to trace. This gets worse if it's state sponsored hacking (Russia or China, say)
> A lot of countries with good military might (e.g., North Korea) don't have valuable currencies.
That's because NK doesn't have a lot of trust. Saddam Hussein hoarded US dollars [1] even though he could have used Iraqi currency instead (since afterall he was the leader of Iraq and the currency had his face on it). That's because nobody really trusted Iraq's currency -- not even the leader himself.
Bitcoin does have a source of value: money laundering. That could be enough to prop up the value as new crime generates new dirty money which ensures new demand (you can include "evading capital controls" as "crime" but that won't generate dollars). That would peg the value of bitcoin with the general "dark economy", making bitcoin sort of Stripe-for-crime.
The speculative and tech aspects of it provide enough of a veneer to keep authorities from entirely cracking down (though banks really really don't like touching it!).
I dunno how long that can go on, it seems like eventually someone will start making stricter KYC rules and the whole thing will come tumbling down. The feds are currently sniffing around Tether, which might be the start. That or the bitcoin system invents another part of traditional finanical systems, the bank run (tether is already backed by loans and crypto neither of which will assuage depositors looking for dollars).
Specifically it’s the requirement that taxes be paid in the local fiat currency, with the police there to back it up. The fact that you are obligated to get your hand on USD to pay taxes has an effect of tying USD to the real economy, giving it value.
For USD it’s also the fact that oil is sold in USD, which is why a lot of foreign debt is also denominated in USD.
>It also repeats typical nocoiner fallacies like "it has no intrinsic value" and "gold is used for jewelry", ignoring that the ability to independently verify the money supply and being able to transfer money across political boundaries without censorship is probably the most important intrinsic value one could hope for in a MoE/SoV.
They're not fallacies; you _hope_ that someday it will be able to accomplish the goal you've described, but it certainly doesn't today, and it's price is completely based on the greater fool theory. Gold is desirable; crypto is not. It's a "currency" that isn't one and has ZERO intrinsic value.
No, it's not. People desire it for what it can be used for. It has some intrinsic value. Crypto has exactly zero value outside of being a store of value, and because it cannot be used as currency, it's value is determined by what it can be exchanged for in actual currency.
By your logic I would think everything trades on the greater fool theory because it's only worth what someone will pay. Well, yeah, that's true across the board, but people pay for things because they see value in it. Crypto's value is only what it can be sold for.
Not to mention, if you look at inflation rates by decade, the Fed has historically done a terrible job of keeping inflation rates at the 2% target level since Bretton Woods [0]. That isn't even considering that most government inflation figures don't include investment vehicles, which certainly can absorb inflation. Take the 2020 stock market for example, after the Fed injected trillions directly. Eventually some of that will trickle out into more expensive food, materials, etc. (and it already is to some extent) but for now their policy is still assuming there has only been a small amount of inflation this year. And because of the fascinating link between the mortgage market and the Fed Funds rate, commercial interest rates are shockingly low, resulting in a tremendous increase in borrowing which will further increase inflation over the next couple years.
Other than inflation I’m not sure how the U.S. maintains let alone pays off their > $27.5 trillion in debt. Considering total tax revenue is about $3.5 trillion per year, even at ridiculously low interest rates we are spending 10% of total revenue on interest.
If interest rates come anywhere near historical norms we will be spending all revenue just to pay interest.
"Can the US pay it's debt?" is the wrong question. The US can pay off any amount of debt, because their debt is measured in USD and congress can issue new USD as needed.
"How does the debt actually effect the economy? (Does it?)" and "What is the long-term impact of various debt-maintenance strategies?" and "Will political deadlocks prevent effective management of the debt?" (among many others) are better questions.
The US Gov will never have an issue paying their debt because they are sovereign over the currency they use (USD). Furthermore, they have an extra advantage because the USD is the most popular reserve currency and because of this demand around the world, it's easier to maintain its value or relative strength to other currencies. That being said, long term it's not looking good for the USD. If you check the DXY index, the USD has been trending lower against a basket of currencies, and the FED had to buy a lot of treasury bills in 2020, because of lower demand from other entities. Another bad thing for the USD is the long term liabilities of the US Gov, which will only be able to be satisfied by printing dollars. (https://www.youtube.com/watch?v=YpgfIfD_cRs)
The huge risk that I see with Bitcoin is the introduction of capital controls. The United States, if we have a crisis may not allow capital flight. It could move against companies such as coinbase, that provide a means to move capital out of the country. These ideas are already being discussed with limits on how much and to whom you may send bitcoin to from coinbase.
I think a lot of people very fond of crypto for its more anarchist features overestimate the mainstream's willingness to break from "the system". If regulations come down on exchanges or the crypto space more broadly, it will send prices into a catastrophic downward spiral. This is likely to happen earliest in vulnerable developing nations like Venezuela.
Let's see what happens when there are less people who want to buy bitcoin than people who want to sell bitcoin. Sellers without buyers will end up holding a bag of excrement. Almost no one buys it to use as a currency (except criminals) but because of fear of missing out and desire to make a quick buck.
> since despite increased incentives to "hack" it, no exploits happened
Bitcoin really has been absurdly resistant to security flaws given the immense and growing incentive to break it. How is it this good when every other major software vendor in the world has to issue weekly security patches?
I don't think the comparison to TSLA et al makes sense. Companies don't move their cash into stocks like that so it isn't something that was an alternative for this use case.
Less liquid investments tend to be a lot more volatile, because there are fewer people with orders in the order book and fewer people paying attention to take advantage of market inefficiencies. With some altcoins you can cause a 10x increase in price with a few thousand dollars. Why? Because with a few thousand dollars, you've bought up all the supply in the order book, become the monopoly provider, and can name your price for anyone that comes around after you wanting to buy.
With more participants, there's going to be someone out there that undercuts your 10x ask and offers a more reasonable price.
For the statistically inclined, you could look at this as an application of the central limit theorem. One random variable (the price you're asking for an asset) could be all over the place. A million random variables (each a market participant) added together tend toward a normal distribution with the sample mean converging to the population mean.
When the price of bitcoin goes up, it becomes harder for smaller amounts of money to move the market. I like to think of seeing the water rise when I step in to a bathtub versus stepping into a lake.
Agreed, it's quite ridiculous seeing people who need a store of value using corporate stocks as a store of value... It's like if you need to sit and decide to use a table as a chair.
If Bitcoin is supposed to be a currency like the dollar, its volatility is ridiculous. If it is supposed to be a store of value, like gold, its volatility is ridiculous.
Now you are retreating to stocks for a comparison. Indeed, if Bitcoin is supposed to be treated like individual stock, volatility of Bitcoin becomes reasonable, but it is still very high. That is why you do not put all your money into a single stock. You diversify, like in an index fund. Compared to an index fund, Bitcoin volatility is ridiculous.
Unlike with stock, there is no index fund for cryptocurrency that is substantially less volatile than Bitcoin itself.
What is with all those articles on HN front page about bitcoin?
Is this because BTC price has risen sharply recently?
You don’t have to be genius to understand what is going on: USA printed trillions and gave most of it to already rich people. What are they supposed to do with that money? Only option is buying more real estate, buying stock of their companies, or investing in BTC.
Keep in mind that these trillions hasn’t flow into these assets yet but it will keep flowing and you will see these asset prices increasing.
In essence, if you don’t own any real estate, company stock or BTC then you will essentially own nothing because thieves already sucked all the fiat to its own end.
Exactly. Every time there is any kind of mania there is always a slew of articles on how much people are making on it, there is a remarkable dearth of articles on how much is lost when the mania ends. (Credit to Reddit's Wall Street bets group for breaking that one a little though.)
The $3 trillion+ of money printing behind all this? As you say, completely lost in the wind. But for the record here it is:
You never really own real estate (almost never the land since it remains the property of the government so it's a lease at best, you own buildings and that's it) - and ownership of real estate means being taxed on it forever for the privilege of having it (with increased levels of taxes over time, of course) which is not really compatible with the concept of 'property' - when you buy an object you don't keep paying for it forever.
And don't even get me started on the fact that most countries will steal that property back at death with outrageous taxation levels. That's some kind of a property all right.
Natural rights become a social construct the minute you stop enforcing them yourself. You pay taxes to support the system that maintains the property fiction for you.
Can you describe what it would look like to "own" land in your view? Are you suggesting people should be able to buy land in a community and then sit on it forever without contributing anything back to said community?
> Can you describe what it would look like to "own" land in your view?
Not paying taxes forever on it would be a start to call it "ownership". As far as I know, on about everything else you buy, you never end up paying x years for possessing them.
I think the rise in BTC is also attributable to the fact that the Fed _hasn't_ been buying BTC, and therefore hasn't artificially propped up its price. The same can't be said for stocks, real estate, or anything else available on equity markets. Couple that with the fact that bitcoin has no 'intrinsic value' and therefore isn't capped at the top or bottom, and you've got an asset that:
1) May survive inflation intact.
2) Cannot really be overpriced (or underpriced) since it is not tied to anything except itself.
This makes for a pretty juicy opportunity for those who don't want to invest in assets the fed has been propping up. Of course there are downsides. The lack of intrinsic value means there is no real price cap at the top... or the bottom. Hence volatility. It can also simply be banned from being purchased with fiat currency.
> the Fed _hasn't_ been buying BTC, and therefore hasn't artificially propped up its price. The same can't be said for stocks, real estate, or anything else available on equity markets.
The Fed isn’t buying most equities. The monetary transmission channel for equities is exactly the same as Bitcoin’s.
> The monetary transmission channel for equities is exactly the same as Bitcoin’s.
Can you explain what you mean by this? From my understanding the fed has been buying corporate bonds and ETFs directly. I shouldn't have said the Fed is buying 'anything else available on equity markets'.
> Can you explain what you mean by this? From my understanding the fed has been buying corporate bonds and ETFs directly
The Fed has been buying bond ETFs as a way to buy bonds. (Bonds are illiquid, and a whale like the Fed buying them individually can create artefacts.)
When the Fed buys it puts the asset on its balance sheet and gives the seller money. That money can then be spent or re-invested. Spoiler: it's been getting re-invested. That is the transmission channel from the Fed's buying to other asset prices, e.g. stocks and non-target bonds and Bitcoin and beanie babies.
> You don’t have to be genius to understand what is going on: USA printed trillions and gave most of it to already rich people.
It's also a good time to understand "The Cantillion Effect"
> Namely, when you print money, it causes more pounds to chase fewer goods, pushing up the average cost resulting in inflation. His theory has been dubbed ‘The Cantillion effect’, and is a lesson to us all on the effects of inflation ‘financing the financiers’.
I have heard that technology has a very large deflationary effect on consumables, and you can see the inflationary effects of money printing in the prices of non-consumables like stocks and real estate. For example, check out the nasdaq composite index: https://finance.yahoo.com/quote/%5EIXIC/
Sadly asset inflation is not part of the inflation calculation.
Also there's a reason besides the technology's deflationary effect - it's the wealth inequality. If the printed money doesn't end up in the hands of the majority of people (i keep hearing real wages are stagnant), then there won't be inflation in the common goods that make the large chunk of CPI.
I have heard this before. I would like to see some an inflation penetration metric for various economic actions whether those actions come from the Fed or some other group. For example, I think about the 5 billion (or more?) in bond purchases the fed recently made. How does that kind of monetary inflation penetrate into the economy? Groups that don't own stocks won't get those dollars. However, for groups that do own stocks, they will have extra money to spend and therefore push the prices of common goods up.
> if you don’t own any real estate, company stock or BTC then you will essentially own nothing because thieves already sucked all the fiat to its own end.
In all likelihood, if you own none of these you probably don't have much wealth in the first place.
(No offense to anybody, I fall in this category. Aside from my down payment savings fund, I have no wealth to speak of)
1. The exchange rate between USD and other currencies fluctuates about as much as USD/BTC.
2. The exchange rate between BTC and other currencies is relatively stable, or at least uncorrelated to the USD/BTC rate.
But in fact you see neither of these. So either (1) all developed-market currencies are seeing massive fluctuations that are all somehow perfectly correlated with each other, or (2) BTC is the one that's fluctuating, not USD.
Exactly. Bitcoin has been heavily criticized on HN by some, but we're seeing its value proposition come to fruition: an asset that is resistant to artificial government fueled inflation. Perhaps also easier to get into than stocks (no need for a brokerage account, and you can buy in almost arbitrary amounts), and definitely easier than getting into property.
Yeah... I bought about $250 worth of bitcoins two years ago on an exchange. The exchange went bankrupt and the bitcoins are gone. At least with a stock broker your account is insured by the government up to a certain amount.
Yes, I know, run your own wallet, don't leave your bitcoins on the exchange... Except again, with stocks, you don't have to worry about that. I was personally hoping that a bitcoin exchange would have better security and backups than my home PC. As far as I'm concerned, storing bitcoins on your machine, with no insurance, is not much safer than storing gold bullion in your closet.
I'm just happy what I was wise enough not to put more money in bitcoin than I could afford to lose.
It would be wonderful to have a BTC bank account with an insurance policy denominated in BTC, but that doesn't exist yet (AFAIK). Until then... Not your keys not your coins.
Also, you don't need to store them on your PC. There are also paper wallets, hardware wallets, or you could put your wallet files on a flash drive.
> I'm just happy what I was wise enough not to put more money in bitcoin than I could afford to lose.
It is so much easier than stocks. In the US it is relatively easy but in most countries you can't just download an app and start trading. Anyone can buy a bitcoin with a credit card.
If I'm understanding correctly, what you are saying is that Bitcoin is fundamentally different than say a share of Amazon because inflationary activity could actually damage Amazon as a company and therefore lower the price of Amazon shares long term whereas Bitcoin cannot be damaged in such a way because it's value is not based on any real economic activity?
> whereas Bitcoin cannot be damaged in such a way because it is not based on any real economic activity
No, Bitcoin has economic activity from transactions on the Blockchain (peer-peer) and mining activity (system-miner). This activity cannot often by disrupted by another currency minting a lot of other currency.
The dollar printer went crazy in 2020: https://fred.stlouisfed.org/series/M2. This definitely had an effect on stock and property prices, and seemingly some cryptocurrencies as well.
That would be a nice theory, but inflation in terms of producer and consumer goods is lower than in previous years (PPI inflation of 0.8% for the 12 months ending on 31 November, CPI inflation of 1.2% for the same period, compared to an average of more like 2% over the previous few years).
"As of December 21, 2020, the Company holds an aggregate of approximately 70,470 bitcoins, which were acquired at an aggregate purchase price of approximately $1.125 billion"
You have to drop the idea that scarce/finite assets can, should or need to be used as "currency".
Currencies are necessarily able to be increased in supply easily.
Even though there are debates about the actual description of central banks expanding their balance sheets as literal "money printing", this is mostly a debate about where this liquidity flows. For the wealthy and corporations who can borrow at extremely low rates, of course this means they have access to this "printing" and will then inject this liquidity into assets.
>The gains can be explained by nothing else than mania and speculation.
Sure, sort of.
But finite assets are doing their job if they rise in price (in reference to fiat currency units of account) as fiat quantities increase, and the people who have access to this fiat look for a place to put it.
This is literally the use case of Bitcoin, and so it is absolutely "being used".
But since the expansion of BTC has no flexibility (strict supply schedule regardless of economic conditions or price), unlike gold mining or central bank open market operations, it makes BTC very volatile both on the way up and on the way down.
But long term (so far) it is doing its job (of absorbing expanding fiat liquidity and supply).
> You have to drop the idea that scarce/finite assets can, should or need to be used as "currency".
Sure, but the whole premise that Bitcoin is an asset is that it has theoretical use as currency. There are plenty of other things which are limited in quantity and fungible which nobody is paying $30k for because nobody believes that they are future of money.
From a podcast I listened to, Michael Saylor does not have "future of money" in his investment thesis at all. He doesn't see this as currency. Instead, he sees bitcoin as something more like gold, but much easier to move around (and across borders), easier to audit, easier to liquidate, etc.
That this is not what was in the original bitcoin whitepaper doesn't seem to have stopped him.
Why does the supply need to increase? Bitcoin can be subdivided to 100,000,000 times. If the value of one satoshi gets too high to be a practicable then a change can be introduced to make smaller units possible. This is like a stock split.
BTC has no intrinsic use as a commodity; its value is as much on faith as any fiat. Perhaps more so, since it lacks the force of a state to support it and defend its use as a currency.
Sure, some folks purchase narcotics and other folks send money to Venezuela with it, but the vast majority of BTC holdings are playing their part in a multi-level marketing scheme for tech nerds. Every schmo who pumps the price with their fractional purchases pads the value of the whales' holdings.
Could you expand on this? I've heard many times that tether is what underlies a lot of the infrastructure of bitcoin trading on exchanges and that the company responsible for backing them is particularly unclear about what's going on and likely engaging in fraud.
As someone who is an amateur looking in, could you help fill in the holes in this picture? Why do we need tether? Why does it matter if tether is not backed 1:1 by USD? If the fraud really is so obvious and impactful, why 1) isn't BTC tanking and 2) why aren't there charges filed against the company?
>why aren't there charges filed against the company?
There are, it's currently under investigation, lookup tether/bitfinex new york court case.
Tether is needed as many exchanges cannot trade in USD so need a crypto-substitute in a form of a 1:1 dollar equivalent stable coin.
Not being backed matters because it means a single company can essentially print infinite money and buy up crypto, leading to fast price increases, just like the one we are seeing right now. When you see $30000 price tag on a bitcoin you don't know what percentage of it is actually fake USDT dollars. Right now it doesn't mater as you can exchange usdt for usd 1:1, but one day the music will stop and a "bank run" will happen, which will expose a giant hole and a real price of btc, collapsing the whole scheme.
>why 1) isn't BTC tanking
My current theory is that they co-opted a lot of exchanges, if you read their website https://tether.to/ they admit that they are not backed by USD and mention "loans made by Tether to third parties" which sounds like they give exchanges billions of dollars for IOUs. So exchanges get free billion dollar loans and in turn tether can print more billions and trade it for real money on bitfinex which they own.
The Gist is that Tether is a cryptocurrency that is supposed to trade at 1:1 USDT:USD. Every tether (their currency denomination) issued is theoretically backed by 1 USD. In 2017, Bitcoin prices soared in large part to the fact that so many people were trading tether for Bitcoin. It turns out that Tether may have arbitrarily issued more USDT than USD they have on hand. Therefore, the buys of bitcoin were essentially fake - trading $0.75 USD worth of tether for $1 of Bitcoin (a Tether lawyer said that Tether only had 75% of the cash necessary to back their supply of USDT).
I'm not sure how it's supposed to affect current prices, however. Tethers are still around, and as far as I know, they have not submitted to an audit, but 1 USDT is still trading for 1 USD.
> Tethers are still around, and as far as I know, they have not submitted to an audit
They promised to produce documentation that should shed significant light on the situation by January 15 of this year [0]. In recent days, they have issued up to $800M tokens a day [1].
Which either means that everything is going just swimmingly, or that somebody is stuffing a few more suitcases with cash while heading for the airport. We may soon find out.
For the first question, it depends if you bought the fifty cars for $100 each, or if your basis is less than that. Cost basis is key here. And no to the second question.
The IRS has designed crypto as a property, so you are subject to paying capital gains (or claiming capital losses) whenever you sell, convert, pay or earn. Converting one crypto to another (or to USD) is a taxable event, while transferring BTC in one wallet to another wallet is not (since you keep the same property). Further details at https://www.coinbase.com/bitcoin-taxes#paytaxes.
It's considered the same as an in-kind transfer for stocks from one broker to another.
Again, the understanding of "property" is evolving in this environment, and there are areas of regulatory uncertainty (such as synthetic assets from staking collateral in money markets). However, transferring from one wallet to another is pretty safe territory.
That's an implementation detail in service to controlling value on the ledger. Moving it around does not change that it represents ownership of a quantifiable amount of BTC, unless you sell it or trade it.
My guess is you have no idea of the underlying dynamics because you haven't done your research before deciding for yourself and stating confidently "can be explained by nothing else than..."
Here are a couple of threads describing the dynamics in play. Feel free to agree or disagree after reading but, contrary to your statement above, these can explain the price increase:
Here's Lyn Alden, regarded by many to be one of the best macroeconomic thinkers working today (who is now very bullish on BTC), playfully echoing the same idea from above:
And, just in case the tone of Lyn Alden's tweet confuses you about the caliber of thinker you're encountering here, this is a recent article of hers with relevance to BTC macroeconomically:
As I started: I believe you have not done your research to understand what you're looking at. This would be an excusable situation 5 years ago, but the BTC space is now teeming with high quality, pre-digested material that you can use to build a foundation of knowledge and understanding.
I believe you'll regret your hubris...sooner rather than later.
I follow a lot of macroeconomic and investment personas on Twitter and in the past 2 years Lyn Alden has been a rising star. But she is still young and fairly new so it will take a while before you see her more often on CNBC.
Seriously... this out paced Microstraegy's core business now in just the last year's investment, and who knows how much Saylor put in of his own money without the need to disclose it. Personally, I think Saylor doesn't understand the tech very well and is more focused on selling the news to his investment Corpo class friends sitting on piles of cheap and depreciating fiat, which has it use but is waste of time as he should be using his gains to focus on development in the ecosystem in things like LN, Schnoor and other critical things like micro loan systems in Africa to really make full use of this tech.
Jack Dorsey, by contrast, has done most and all of those things and more, was actually on his way to Africa prior to COVID to embark on that.
'Badeconomics' should be what we call the advent of central bank based fiat currencies, as that has untold amounts of blood on its collective hands.
It reflects pretty badly on Microstrategy that a speculative investment of theirs outpaced their core business. Publicly traded software companies aren't hedge funds, they're not supposed to be making the kind of investments that can do that.
> It reflects pretty badly on Microstrategy that a speculative investment of theirs outpaced their core business. Publicly traded software companies aren't hedge funds, they're not supposed to be making the kind of investments that can do that.
We have a different vision of what traded companies do.
For me, a traded company gives either a dividen, or shows a pattern of growth that is reflected in the share price - in either case, it will give me profits in the end, which is all I care about. I do not care about the "how" - that's the CEO and board job. I care about the profits. And so do you if you are not retired, because without profit, you won't be employed by this company for long.
A company that can adapt to a new trend, cut out bad lines of business, and give me more profit is a company I can consider for investment.
All that matters is the bottomline! Unfortunately many people here focus on useless things like technical debt or CICD pipelines, while they are just tools.
> in either case, it will give me profits in the end, which is all I care about. I do not care about the "how"
This is perhaps the most telling aspect of the investment class that explains how people so many are starving, being evicted and dying from COIVD in the World'd richest country while people keep pouring into Airbnb and Doordash IPOs.
It's so absurd to me how oblivious some people are about things that will lead to inevitable consequences to Society as a while while justifying any and all practices (not least of which slave labour) because their fake paper wealth number increases--all while the currency its denominated in loses more and more purchasing power.
> many are starving, being evicted and dying from COIVD in the World'd richest country
Like every human being, you are entitled to an opinion - however, I fear you are turning that into an emotional argument, instead of logically looking at it. Your emotions are tainting your perceptions.
Most people on HN have a negative view of crypto because of sour grapes. That's fine if you can afford the missed opportunity caused by this kind of luddism.
> fake paper wealth number increases--all while the currency its denominated in loses more and more purchasing power.
Personally, the only "wealth" I believe in is the one that's in a FDIC insured bank, under your name.
As for the purchasing power, it doesn't really matter in isolation: as long as your wealth can increase more in nominal terms than the purchasing power can decrease, it means your wealth increase in real terms.
So what's the problem exactly?
Purchasing power, like everything else, is just one of the "tools" - like CICD or your favorite editor, it's a nice thing to talk about with your friends, but that's not the bottom line.
>> I do not care about the "how" - that's the CEO and board job. I care about the profits.
One element is diversification. Consider a hypothetical investor that holds 50% bitcoin 50% stocks may think he's somewhat diversified, but if underneath, his stocks just hold bitcoin on their books, then he's just 100% bitcoin and completely undiversified.
It's also a risk, since, at least in the UK, after you cross a certain threshold (off the top of my head, obviously not advice, I think it's actually 20% rather than the perhaps more intuitive 50%) it's considered to be your core activity, i.e. you become an investment company that for whatever reason dabbles in <whatever you consider to be your core business> which of course comes with tax implications (or it would be an easy way to avoid tax on your personal investments) and potentially an unwanted regulatory burden.
not an expert (in anything else either), but in the US, bitcoin is not a financial instrument. they might as well be buying tulips or beanie babies (no slam intended), as far as the authorities are concerned.
Ah true, and certainly that varies in different jurisdictions, I was just responding in general to the 'what are they doing investing when they're a software engineering company' point I suppose.
> 'what are they doing investing when they're a software engineering company'
Did it ever occur to you they may be accumulating a token that is required to operate on the most secure network devised by Man? And are you so immersed in your own narrative (echo chamber) that the potential value of building systems with this infrastructure at it's core never entered your mind? (Someone on a tech related community tried to relate it to Beanie Babies should say it all, FFS.)
Especially with the endless amounts of leaked information that is seen on a daily basis coupled with a situation where Nation-states (and Corps like Ticketmaster and likely larger ones with valuations that rival many country's GDP) are engaging in ever more Cyber warfare than conventional kinetic warfare, just for context: the International arm's trading racket is ~$100 billion/year Industry. Not to mention the ever expanding amount of Surveillance Capitalism tools that will eventually make it into the hands the blackhats and Cyber Military groups.
I highly doubt Saylor is doing that myself, he seems too short sighted on the media to think otherwise but it may be a facade; large institutional players are now coming with a bunch of inflated fiat holdings wanting to get in and are exploring so many more business models that it won't be long before this happens in my view. IBM certainly tried, failed and lost a lot of its potential because it tried to make its own blockchain while disparaging Bitcoin only to see Ripple (a token it focused on for its Hyperledger ecosystem) get sued by the SEC for selling unsecured securities and BTC sits at greater ATHs.
> Most people on HN have a negative view of crypto because of sour grapes. That's fine if you can afford the missed opportunity caused by this kind of luddism.
I get the sourgrapes, we all went through same regretful delays in buying in when we first heard of it as no one 'get's it' right away; but you make it seem like you can't just onboard right now and what irks me the most is the realization that it's the indignation of not having the astronomical gains from being early adopters that prevents you from doing so. It's fine to accept that mistake, we won't judge you (too much) as we've all been there to some degree and will be entirely if you just admit that mistake when you join in and try to do more than just make it a part of your portfolio and hopefully apply your skill set to earning BTC for your services rather than simply buying it.
That's when it all really sinks in and is the best watershed moment that I know of that makes everything click.
I don't understand why people keep trying to compare Bitcoin to traditional fiat money when it is an entirely new asset class that we have never seen. It is sorta like money (or can easily be converted to "real" money), an asset, store of value, protocol, and secure network all at once. Trying to simplify it into a narrower definition of currency is like trying to fit a tesseract shaped object through a sphere shaped hole.
At the end of the day it is being traded and speculated on like any normal asset though.
The people buying bitcoin as an investment don't need to care about the asset or secure network, in fact bitcoin's technical details have actually created negatives when exchanges/vaults/services break and assets are lost.
To most buyers it's just like buying and selling stocks, currency, gold, oil futures, whatever.
Exactly! The biggest arguments I have around Bitcoin are
1: Even if you can treat it like an asset, it's an unproductive one.
2: It's too easy to have some sort of problem and lose it.
At the end of the day, I see the long term value of BTC going to zero.
I feel lucky to have had some at one point, just to have that experience. One day, I saw that Bitcoin sitting in my wallet, and realised I didn't really care anymore. It didn't solve any problems I was having, and I couldn't do anything with it other than look at the balance or send it somewhere.
I'd rather have my future wealth come from value I create, than some asset I happen to hold.
If a tanker sinks, that means nothing about the value of oil. Similarly, when there's an exchange hack, that means nothing about the value or security of bitcoin. It just means they had poor security standards.
I agree that most buyers are investing as a speculation; all investing is speculation. Bitcoin is a new type of asset that has properties never seen before. That is what my point is, that they new properties are being discounted heavily by the author as they try to force it into a traditional asset to make a shaky comparison.
But are any of those new properties at all related to its value or why it is being traded? At the end of the chain of speculation, eventually oil gets sold to a customer who wants to burn it and real estate gets sold to someone who wants to live there. If they didn't, those markets would collapse (and housing has done just that in the past).
I do agree that bitcoin (well, blockchain in general) has useful properties for certain types of transactions or record keeping.
But I think the points of the article stand. If a currency isn't useful to buy things, or is subject to wild value swings due to speculation, then it isn't a great currency. If an asset doesn't have any real value to any customers, then it's not a great asset. Bitcoin combines both of those into, a mediocre currency and a speculative asset?
Are you kidding? Tulip bulbs make an outstanding protocol: they are self-propagating and they come in 10+ different colors, making them more information-dense than a conventional binary protocol.
There are two aspects of "money" - store of value and medium of exchange.
> Trying to simplify it into a narrower definition of currency is like trying to fit a tesseract shaped object through a sphere shaped hole.
Which is funny because that's exactly what you did. You only compared it to store of value ("asset class") and ignored the "medium of exchange" part...which is the characteristic people are using for the comparison to fiat currency.
You can accept that BTC has a store of value and still be critical that its use for a medium of exchange is limited.
The author is saying it's lack of ability to be medium of exchange is reason for it's failure and their decision to short it, I am saying that you need to consider all facets of the technology. It might fail as currency today, but that doesn't mean it won't in the future or that it has other useful properties today
> I am saying that you need to consider all facets of the technology.
And to your point the author did assess it as a medium of exchange and deemed it a failure.
> but that doesn't mean it won't in the future or that it has other useful properties today
Just as you think it has a future, the author thinks it doesn't - hence the short position. But saying that the author didn't consider all aspects is disingenuous - they literally did, they just don't agree with you.
Also, you talked about other uses like "protocol and secure network". Aren't these just features of the technology that powers BTC (e.g. blockchain)?
Good point, a lot of the value prop is simply blockchain, which there are many "crypto" versions. Bitcoin's real value prop today is the network effect (growing in users/wallets/network hash etc).
But in the markets, it is not about the technical definition of Bitcoin, it is about how the average market participant interprets what Bitcoin is... Being technically novel does not protect Bitcoin from being treated like currency, and it doesn't alleviate the negative impact of people's (erroneous) conceptualization of it.
Anything that a person finds useful (or, more strictly, that a person can trade) can be an asset. Bitcoin is a new type of asset that has properties never seen before. That is what my point is, that they new properties are being discounted heavily by the author as they try to force it into a traditional asset to make a shaky comparison.
Institutional investors have to (and personal investors should) have some concrete understanding of what an asset is and why it's valuable before investing in it. If there's a better understanding than "just a currency", sure, that's worth discussing. But if it's an entirely new asset class and can't be simplified into any narrower definition, how do I figure out what a reasonable price is or what numbers I should put on my accounting statements?
> But if it's an entirely new asset class and can't be simplified into any narrower definition, how do I figure out what a reasonable price is or what numbers I should put on my accounting statements?
Markets determine which price is reasonable. It's a collective decision about how much something is worth. Is it reasonable to say bitcoin should be worth less than $10K, $1000, $100 etc...? No, because the price today is not that.
You're misunderstanding something here. It's reasonable and very common to say that the true value of a financial asset is different than its market price; anyone who makes an investment in something is expressing the thesis that the current market price is lower than it will be in the future.
No, I don't misunderstand, I agree with you. Just saying that a market price is the best guess for whatever the "true" price is / should be. Because cyrpto markets are easily accessible across the world to everyone, it will be closer to the "true" value than other markets that are less accessible.
Bitcoin should not be viewed as a currency (for the reasons outlined in the article), but the libertarian-types who were claiming it was going to replace fiat currency early on continue to peddle that about Bitcoin and other cryptocurrencies today. And the idea that BTC = money ("coin" is in the name and "currency" is in "cryptocurrency") has stuck in many people's minds, so this stuff is unfortunately necessary since the general public's understanding of Bitcoin is "obscure digital money that goes from cheap to expensive and back real quick".
And the media, being generally too lazy to do critical investigative work into obscure tech stuff, have actually reported on BTC as if it is a real currency in the past.
Futures, stocks, etc never had the public image of a potential future currency, which is why you don't see blog posts about how "High-yield debt will Replace Fiat in a few years" or other such nonsense. The same cannot be said for Bitcoin.
- that BTC is volatile is, hopefully, non-controversial. Do you want your stock to be volatile? (if you have large BTC assets, it should be...)
- I won't comment on deflationary/inefficient, I feel the article didn't focus too much on that. But it's a questionable store of value because it doesn't have intrinsic value - this, again, should be uncontroversial. The article lists multiple events that might absolutely destroy BTC (the section "BTC is really risky"). It's easy to imagine more (e.g. war or other catastrophic events that would make the BTC network "less interesting" and would make it really easy for a committed player to do a 51% attack, destroying all remaining trust).
It definitely feels like a fancy ponzi scheme - at the very least, BTC ticks a lot of boxes for "how to identify a ponzi scheme" (definitely 1 & 5; arguably most others, except for 2):
1. Abnormally high investment returns. The most obvious sign of any investment skulduggery is the promise of an abnormally high investment return. ...
2. Guaranteed returns. ...
3. Consistently high performance. ...
4. Vague business model. ...
5. The need for more investors. ...
6. Pressure to reinvest. ...
7. The pressure to act now. ...
8. Credibility through association.
---
Note that I'm not claiming that BTC was created with the intention of being a Ponzi scheme!!! I'm just saying it appears to have many such characteristics, and one may reasonably assume that a similar eventual outcome is not unlikely.
I never claimed that. The point is that for most hn readers, these arguments would have been brought up already and therefore as a whole the article as a whole isn't really interesting. It's like being in 2020 reading a "mongodb is bad because it's not ACID compliant" article.
That's actually a worse argument, if I understand it correctly (are you claiming that the article is not interesting for HN readers?? It's frontpage position - currently at #3 - seems to be a pretty convincing counter-argument. The article might not be interesting for you personally, but... that's not very relevant)
>That's actually a worse argument, if I understand it correctly (are you claiming that the article is not interesting for HN readers??
Yes? Not every comment has to be pigeon holed into "This article is right" and "This article is wrong".
>It's frontpage position - currently at #3 - seems to be a pretty convincing counter-argument
A long time hn reader such as yourself must know about the phenomena of "upvoted not because of article content, but because of discussion"?
>The article might not be interesting for you personally, but... that's not very relevant)
It's not only that, the article doesn't even bother going into the most basic of rebuttals (as evidenced by the replies here). Overall it's a very shallow article. It might be fine for 2013 but not for 2021.
1. Abnormally high investment returns. The most obvious sign of any investment skulduggery is the promise of an abnormally high investment return. ...
I'd argue there's no promise of any investment return. Bitcoin just allows the transfer of money nearly instantly.
2. Guaranteed returns. ...
There are no returns since it just a currency to be used.
3. Consistently high performance. ...
Bitcoin isn't a stock, it's a currency. If you're using it to invest, you're gonna have a bad time.
4. Vague business model. ...
Not a business, just a currency.
5. The need for more investors. ...
There is no need for anyone to invest in Bitcoin, there are plenty of hedge funds putting their money into it.
6. Pressure to reinvest. ...
You can go in and out of Bitcoin as you please.
7. The pressure to act now. ...
This is probably FOMO, noone's forcing you to purchase Bitcoin and I would not purchase Bitcoin during a rally unless I was doing a Monday-Friday trading run (buy Monday, sell Friday)
8. Credibility through association.
Noone is associated to Bitcoin, it's an anonymous currency.
It's not a currency. It lacks "acceptability", by design - you can never pay for your subway trips with BTC, it just wouldn't scale not even to a city like NY.
... by changing the BTC offline into fiat currency. Doesn't change anything, using the same mechanisms you could create a similar card backed by any commodity. A coinbase card transaction is not actually a BTC transaction.
Unless the entire market switches to BTC, it's not gonna be possible to do a full BTC transaction. Even if your coffee shop accepts it, it's not likely their bean providers might.
anyone throwing those critics at bitcoin needs to provide criteria for when their critic is no longer valid.
They need to provide:
- vol metric thresholds
- price targets
- adoption %
- etc...
We've had over 10 years of shifting the goalposts with bitcoin. At this point it's starting to sound like denial. Every meaningful metric has continued to improve in bitcoins favor yet we keep hearing the same critics.
Technically gold isn't impossible to manufacture as there are scientists and labs fully capable of making it, but it costs more energy to make than its value... For now... Let's remember that episode of the Twilight Zone when the gold thief goes into the future only to find out gold is manufactured and worthless.
Gold lasts forever, it doesn't tarnish, rust, or corrode, that much is true. But it still could be stolen, or potentially damaged (like a big house fire). I suppose bitcoin could be stolen or lost as well though, but as it's not actually physical it should be easier to protect.
Gold is beautiful so that's an excellent point as well. It can be turned into jewelry and such.
Bitcoin isn't really the opposite though in every regard. It may not be physical but it's very difficult to "mine" and it gets harder every year. Plus there will come a day when it can no longer be mined at all, making it even more rare than gold, and impossible to produce more of.
Yeah, what?? Is the author worried his BTC will rust? Does he think BTC is easier to fake than gold? Do governments buy gold for the economic tourism produced via tours of their vault?
Maybe the author is close to solving P=NP and knows something we don’t
The year is 2150 or whatever -- bitcoin is fully mined. There is a metric asston of mining hardware out there that needs to be running to secure the chain -- presumably all coming from transaction fees.
Not only to transaction fees have to scale to cover the entirety of block rewards but they must continue to grow over time to compete with increased hardware efficiency in hashing.
Does it not follow that:
a) transaction fees rise to recoup not only current cost of mining hardware, but R&D and deployment of new hardware over time to keep the chain secure. As people realize this they convert their bitcoin to something else to avoid bag holding.
OR
b) transaction fees cannot support the mining hardware as is, miners sell of their hardware to recoup their costs and the chain becomes vulnerable.
I confess I might be missing something but I don't see how a fully mined coin is stable.
You are right, the security of the chain should always be proportional to fees paid.
The security of any given transaction is a little different. In practice we haven't seen that many double spends against chains that are defacto vulnerable (e.g. any chain that uses the same PoW as bitcoin is always vulnerable to an attack).
Assuming that PoS goes well for ETH it might make sense to start moving away from PoW coins before the fees drop to worrying levels.
As of right now yes, but when there are more stakeholders and clear/imminent threats to the chain there will likely be more discussion. All proposed forks thus far have been unnecessary for the short-term success of the chain.
Yeah, I think this is a strong reason why bitcoin as a 'store of value' makes little sense over long time periods. If ultimately you need to burn a substantial fraction of the value of the pot to keep someone from running away with it, in the limit where no more bitcoin is being created then you basically have an asset which has large maintenance costs but no productivity. If a cryptocurrency is being used to transact reasonably efficiently (which bitcoin absolutely is not), then there's value being created by this which makes the costs worthwhile. But if it's not and the idea is people mostly sit on it, it's hard to see how it works out in the long term. (I mean, gold is the same to some extent, it costs some money to run a vault, but what's the relative costs? certainly it doesn't cost as much to keep the entire world's supply of gold secure as it does to run the bitcoin network, and gold's market cap is 20x that of bitcoin)
Unfortunately I think there's a lot of supply of coin and cheap electricity left to keep fueling it for far longer than it makes sense.
If BTC is not dead by then, it will likely have some sort of active user base, meaning non-zero fees.
If the fees are low, verifiers will stop verifying.
If enough stop verifying, the prize pool grows (more network congestion leads to higher fees). This eventually stabilizes at some equilibrium (likely leading to a weaker chain, if profit is the only motivator).
It's also worth noting that if BTC has seen enough adoption to be sustainable for the next 100 years, there are likely many many stakeholders who could/would mine for "altruistic" reasons. E.g. financial institutions and other large holders have incentives to keep the network stable.
Hell, maybe by then they get enough people on board for a BTC 2 that's some weird Ethereum competitor. It's really hard to theorize on that long of a time horizon.
As transaction fees increase to cover the cost of security (even an "altruistic" (self-interested) financial system needs to pay for energy) users are less likely to transact which is positive feedback on the transaction fee.
If deflation cannot outpace this then Bitcoin effectively dies. The longer you leave funds on the chain the more you will pay to pull them out. If deflation does outpace security cost you have runaway infinite deflation that is no longer tied to a from of scarcity but instead the cost of securing the chain. That doesn't seem great either.
> Hell, maybe by then they get enough people on board for a BTC 2 that's some weird Ethereum competitor. It's really hard to theorize on that long of a time horizon.
Possible, but I don't know if I'm optimistic about humanity's ability to generate collective consensus in the face of crisis.
Surely there is no tinge of jealousy on missing out on an asset class that has 10xd this year because "it has no value".
So many people are quick to call this out as a bubble as if it's a predetermined outcome, because, have you ever heard of tulip mania and this one time tech stocks, blah blah blah. Call it a bubble after it crashes, not before.
Well, Saylor just made a billion dollars on his convictions (seems like a bad economic outcome to me). The future could prove the bears right but so far the present says they're dead wrong.
One of the funniest things to me is that very few mainstream economists could articulate the value proposition and missed out on the absurd gains of the last 10 years although assessing the value of something like this is exactly what they claim their advanced degrees should give them an advantage in doing. If they truly had a deeper understanding they wouldn't be writing angry rants because the missed the train.
The awesome thing about markets is that they separate the talkers from the doers, so go write another editorial if it makes you feel better. A bunch of kids in their 20's have made more money than this author will make in his whole life because they called it better than this "expert"
> The awesome thing about markets is that they separate the talkers from the doers, so go write another editorial if it makes you feel better. A bunch of kids in their 20's have made more money than this author will make in his whole life because they called it better than this "expert"
You can be an expert and still be poor. Your argument seems to imply if the author was an expert he would be filthy rich.
I am an expert on roulette. I know it is a losing proposition and I can give you the expected value of your bets. I choose not to play because of negative expected value. Yet there are kids in their 20's that have made fortune with roulette.
Laundry lists of reasons have begun to have the opposite effect on me than what their authors were probably intending.
Idk how to explain it. Scott Adams puts it this way - you would probably use the very best reason if you felt strongly about it, rather than a laundry list.
I have observed that they are ineffective whenever I have used them. As I think I have only ever used them when an argument is completely wrong in every regard, it’s good to know why they are ineffective, so thank you for that suggestion.
Thanks for the info, would be curious to know by what practical means you're shorting BTC.
Also, it is traditional (and a good self-preservation move), when posting financial opinion - positive or negative - about an asset or instrument to disclose one's position if any.
I got into the short position after writing this article, someone happened to post this and make the front page of HN and now my site is down because WP caching was misconfigured.
;) Two consecutive flash crashes notwithstnading and the fact that we're all really enjoying our view at 30k+, I'd say says its all. I want more so let it dip longer, please!
You've got bigger balls than me. Cryptocurrencies, Tesla, and penny stocks are the assets I absolutely won't short, no matter how much I think they're overvalued, because the low liquidity in them means that they can easily shoot up 10x and wreck your margin position even if you're right.
(Disclaimer: Long Bitcoin, got in at prices between $6.5-8K in 2018. Previously sold @$11K in Dec 2017, after having bought in 2014 at $800. It tends to rise 10-40x from peak to trough each time, which means we could see $100-150K Bitcoin this cycle. There's also the chance that this is "the big one" - the cycle where the dollar collapses entirely and cryptocurrency becomes the new global unit of account and medium of exchange. IMHO the tail risks facing the dollar and the U.S's hegemonic position have never been higher.)
Careful, there's only one story for Bitcoin: "the price goes up" (I hear the kids today have shortened that to "NgU"). This story is very sustainable when Bitcoin's 1% ("decentralized") have been holding coins since $1.
You can always count on the market cap being inflated any time this story is endangered, both to make life difficult for critics and trigger a flood of free advertising in the form of low-effort stories by the fintech blogosphere.
An unregulated global lotto game camouflaged in slippery futurist memery, with zero accountability by its puppet masters as a primary design feature, may well turn out to be a safer play than, say, TSLA or anything starting with a dollar sign. What this implies for us as a species is probably best left unexamined.
Decentralization of anything other than leverage over liquidity and thus price, which is what the Bitcoin 1% (more like 0.01%) holds, is nothing more than a misdirection story to furnish prospective Joe 99% Bitcoiners with the illusion that once they switch to BTC, their wealth will be placed outside interference or control by undesirable, presumably centralized forces.
When Bitcoiners say decentralized they mean, in fact, that its value (through some gating mechanic like issue or "censorship") is not controlled by a government, as if this is somehow any better than the value of one's wallet being controlled by unknown parties, front running exchange operators or mining cartels.
Bitcoin proponents pretend that government centralization of money supply is the only kind of centralization of money that needs fixing, and its mechanisms are thus designed to make an elaborate show of diffusing operational accountability while doing nothing to counteract a pathological concentration of leverage.
As a result, it doesn't actually decentralize anything, it instead relocates all of the centralization under obfuscated cover. This in itself isn't a problem, if promoters would upfront about it. But then no decentralization meme would certainly mean no Bitcoin at $30k, and what's the fun in that?
he also says "...as a whole" so depending on how you interpret this it could be as simple as not holding any bitcoin. eg. if you held stocks in every S&P 500 company except GOOG, then you could probably say you were short google "as a whole".
This bull market may just be getting started, see the recent OCC news for some very positive legislative action. How much are you willing to bleed to try and make a point. Even if you don't believe in Bitcoin, shorting it at this point in time is complete lunacy. There are far better plays to make with your money.
I don’t know what to say. Or the person behind this is 150 years old and was living under a stone, or is someone that obviously has 0 knowledge about Blockchain
this is hilarious: having control over supply of your currency is a good thing, as long as it’s well run.
well run? how and by whom?
“According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. Twenty percent failed through hyperinflation, 21% were destroyed by war, 12% destroyed by independence, 24% were monetarily reformed, and 23% are still in circulation approaching one of the other outcomes.
The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month. Founded in 1694, the British pound Sterling is the oldest fiat currency in existence. At a ripe old age of 317 years it must be considered a highly successful fiat currency. However, success is relative. The British pound was defined as 12 ounces of silver, so it’s worth less than 1/200 or 0.5% of its original value. In other words, the most successful long standing currency in existence has lost 99.5% of its value.”
> 23% are still in circulation approaching one of the other outcomes
Begging the question a bit
It's also been quite easy to predict which currencies are going to be in in that 23% and have stable value ("hard currencies") and which aren't. Traders and investors typically don't keep assets denominated in Egyptian Pounds or Colombian Pesos, they gravitate to Euros, US Dollars, Yen, and Pounds.
> In other words, the most successful long standing currency in existence has lost 99.5% of its value.”
The Pound Sterling hasn't been successful as an investment asset. That's a very different thing from being successful as a currency.
The problem is that the person doesn’t even understand the principles of BTC , why it came to be and why is there. He could just post a tweet , I don’t like BTC and spend the rest of his time brewing coffee
He started in another comment that he has a short position. I theorize that he knows what he's saying is nonsense and it's just trying to misinform the less educated by playing on common (and actively disproven) misconceptions.
I am not expert in economics, but form what I see:
- Not being able to print money might sound really good first, but this could be the reason COVID haven't done the havoc it would have without that money. Stopping businesses from collapse is crucial, no mater at what cost. Why? You really want your local super market to be totally empty? And scavenge for food? No. We just need a way to be able to prevent it. This is what helped in 2008, and currently trying to help.
What this money printing is going to cause, we don't know, but its better than dieing because of not having the ability to intervene when we have to.
- We always need some way of policing this society as a whole. We cant really have nice things. There is a reason we have locks, and fences. Wouldn't it be good if we were are just one happy family(I just laughed myself to death saying this)? No crimes, no anything. Everybody just live a happy life without any crime. That would be wonderful. But we all know that is not really what is happening.
I feel like that's the fairy tale crypto currency is selling, and that's why it sells really good, as always, we always thrive some easy way to make a living, make money, whatever. And crypto currency checks a lot of boxes we are all want.
Ability to print money can be good and useful, but governments have a long history of going overboard. The benefits of printing money are immediate and tangible and the pain tends to lag and are widely distributed (hurting everyone that holds the currency worldwide).
Fiat currencies definitely have their place, but so do hard assets. And it may turn out to be useful to have a hard asset that is much more easily divisible, transferrable, and more resistant to seizure than gold.
If you're looking to compare Bitcoin to something, it should be the (free banking) gold standard (before the Federal Reserve 'changed' it), which was similarly inflexible. In the era of the gold standard , there were depressions, but they were quite brief (usually a few months); there were no great depressions or great recessions
Before that Great Depression, the term 'Great Depression' referred to the 23 years of economic crisis which started in 1873 and ended only when gold was found in the Yukon...
Tying economic growth to the availability of gold was a disaster.
> In the era of the gold standard (before the Federal Reserve 'changed' it), there were depressions, but they were quite brief (usually a few months); there were no great depressions or great recessions
You mean The Great Depression of 1929 wasn’t a great depression?
Before the establishment of the Fed in 1913, you had the Panic of 1893, which caused a depression until ~1897; before that the Depression of 1882-1885; and before that the Long Depression of 1873 to ~1878.
All of those times also overlap with the so-called 'gilded age' when "rapid expansion of industrialization led to real wage growth of 60% between 1860 and 1890, spread across the ever-increasing labor force.[56] Real wages (adjusting for inflation) rose steadily, with the exact percentage increase depending on the dates and the specific work force."
There were definitely issues, but nothing like the Great Depression of the 1930s.
I use the example of forest fires. Small forest fires keep large forest fires at bay. But if you prevent small forest fires then it just leads to large forest fires.
System's problems were regularly removed from the economy when we were on Gold standard (like run on the banks etc). Then Federal reserve gets a hold and they start putting out these 'small fires' and it just leads to large uncontrollable depressions.
There are more ways to give food to citizens in an emergency than printing trillions of dollars. There are more ways for the government to acquire money than conjuring it out of thin air. There are more ways to prevent local businesses collapsing than inflating the stock market.
As someone who has never been particularly interested in cryptocurrency: what happened?
I remember it being a novelty in news articles around 2012, something you could use in very select cases to buy things. Idea of an online currency was interesting, but not something I spent too much time thinking about. PayPal already served much the same purpose.
Flash forwards to 2017 and the popularity of bitcoin is to the point where it's affecting supplies of computer hardware. Yet, it's not being treated as a currency at all, instead it's an investment. Again, what happened? I don't understand why it shifted like this, and I haven't found any particularly convincing explanations.
I love that Lyn Alden get's referenced more and more on HN. She manages to break down macro-economic thoughts and analysis in a clear and concise way. +1 for reading and listening to her materials.
This is not exactly what I was looking for. Bitcoin is being treated as a risky investment, not as a reserve currency. I do not understand what led to Bitcoin becoming that instead of serving its stated goal as an online currency.
Go look into the amount of btc being held by corporations as a treasury asset. There's a provable number and it says large financial interests are interested in hold large amounts of bitcoin as a reserve.
So companies are holding some amount of bitcoin, as the article above says. Reserve currencies are used by central banks. From a quick search, the two main reserve currencies worldwide are the US dollar and the Euro. Not sure how Bitcoin plays a role.
Meanwhile, what I see when Bitcoin comes up is about speculation. That is what I am most surprised by, and I still cannot find information explaining why it happened.
This argues that BTC is not money based on the big 3 properties, without considering that BTC has been running only for 11 years.
BTC/Gold is probably the best way to store wealth across time on a 10+ year time horizon without losing much "energy".
Historically fiat currency has been an anomaly, we don't know yet how long it will last. Only time will tell if this is the best form of money. Either way, it's always good we have alternatives.
So was the Gold standard, which didn't become a thing before the end of the 19th century. Before that, the standard money system (at least in Europe & Islamic territories) for the previous 2000 years was the combination of Gold and Silver with a fixed exchange rate. It ended up not being well suited to the beginning industrial civilization and was replaced by Gold+paper money around 1870. And then, when industrialized countries grew in number and in development, gold+paper was progressively abandoned in favor of paper-only money (the US were the last, but pretty much everybody had abandoned it after WWI and WWII).
The industrial civilization itself is also an historical anomaly, and if it ends, maybe gold (or gold + silver) will come back. But in that event, I'm not optimistic about bitcoin's chances of survival…
Arguably silver sterling standard of England can be considered equivalent to modern fiat money, too - a critical component of its value at one point became the fact that tax payment was defined in pounds of sterling silver. It was just a bit easier to convert without special exchange accounts ;)
My one big issue with thinking about BTC as gold/commodity, is at least at the end of the day gold has actual uses. I can make jewlery, or use it in components. BTC has no inherit value at all. My only reason to own BTC is because other people also want it.
That just establishes a price floor. Gold's "inherent" value is substantially below the current price. It is, like BTC, a largely speculative asset that holds the majority of its value "because other people also want it."
gold use case is only 5-10% of it's actual market cap
- if gold price were to go up because of currency debasement, it's industrial use will decline
- if gold price were to go down because of let's say BTC, it's industrial use case will increase. Can even replace copper use cases if cheap enough
problem with gold is that there's a consistent 2% supply inflation per year and if gold price shoots up, Miners mine more and i'm technical innovation will inflate supply further(asteroid mining or atleast cheaper mining techniques). So if you're a gold holder, gold miners go against your value. in the long run gold is not a great investment but it is still better than most of the other stuff that can be produced easily with machines etc.
Bitcoin supply issuance is predictable and mathematically known and provable. If prices goes up, more people mining only increases the security and decentralization of the network. So if you are BTC holder, BTC miners are your friends not enemies unlike gold.
> Where the demand comes from does not enter the conversation
Econ 102: Where the demand comes from matters. Aka "substitute goods".
Gold has no convenient substitutes for the combination of ductility, corrosion resistance and electric conductance it offers, hence demand has a (high) floor.
BTC has an infinite number of convenient substitutes for its fundamental properties -- anyone can make a BTC substitute in half an hour, and there are hundreds you can buy already. So the floor on demand is the psychological buy-in -- which is not any better than the demand floor for tulip bulbs.
> at least at the end of the day gold has actual uses
TBF gold doesn't really have uses outside of industrial societies.
Sure it's shiny so you can make pretty out of it (jewelry and other decorations), but for the most part it has properties: it's ridiculously stable, it's easy to work with, and it's rare enough that the supply is rather limited but not so rare that it's essentially nonexistent (unlike the platinum-group metals).
In economies which are static or very slow to grow (aka preindustrial) this makes it a convenient store of value, because it's a slowly but ever-increasing (to the approximation of your supply sinking with a ship) supply.
Outside of a few incredibly niche industrial uses that have only emerged in recent years, no one has had any need of gold except as a means of storing and exchanging value. It has been used as a store of value and as a currency throughout history and across cultures for a number of reasons, such as its recognizability (few things in nature are the same color), its difficulty in counterfeiting (gold has a number of unique properties like its density that would make it very obvious if you were trying to pull one over on a merchant), it's ease-of-use (gold is highly malleable and has a very low melting point, meaning it can easily be made into coins or bars), its rarity (supply is reasonably constrained by the difficulty of mining), its permanence (gold will not tarnish except under extreme conditions, so it's okay to leave in a vault for years on end). However an important property that also contributed is specifically gold's lack of utility - steel was very valuable in pre-industrial societies, but a pound of raw steel is worth less than the tools that could be made from that same pound of steel, so if anyone made steel coins, they wouldn't remain coins for long. If anything, the development of real uses of gold make it less desirable as a store of value - speculation artificially drives up the cost of consumer goods like electronic devices.
People need to be able to store and transfer wealth. Tools which facilitate this are valuable for being able to serve that purpose. Gold is one such tool, and a pretty good one at that.
I wonder how much "inherent" value gold actually has vs how much value we ascribe to it though. I.e. nobody is holding onto a 2 inch cube of gold instead of a house because at the end of the day they could make some jewelry out of it if it comes to it.
On the flipside any currency-like concept that could come to be worth more as the raw commodity than the currency seems inherently unstable as you'd be better off using it than keeping it.
You'd have to look at a lot more than that. What are the demand/supply curves and how will the change in supply affect the value, what's the actual inherent value in the jewelry vs the value from gold having ascribed value and being used in jewelry, once you have that how much of the value in jewelry is itself an investment of gold vs other value. Repeat for each remaining sector. All that graph tells you is the demand for gold would be non-zero if its utility as a form of currency/investment went away, it says nothing of how much inherent vs ascribed value we put in it.
I don't have answers to the above, I think they'd be extremely hard to get, which is why I used the house vs 2 inch block of gold to illustrate there is at least a significant amount (likely the majority) of the value is ascribed rather than try to put a quantitative number on it.
None of the perks are beneficial to the consumer. The consumer just sees the onerous process of converting btc to usd, and sees the currency as speculative like a penny stock and nothing more. The only people who are long interner are the same people as they were 10 years ago. For most people, btc is a slot machine.
Censorship resistant is not useful to the consumer? If a vendor has been financially censored then bitcoin is surely useful. For instance, if you want to purchase a 4chan pass, its crypto only baby.
If you ever send a gold bar across the world, I'll send you a beer.
I won't pay the beer with bitcoin though, to expensive for normal use, that includes conversion to euro back and forth in USD/EUR to actually use it :)
Bitcoin is an impetus for democratic governments to implement a better system that will align us all via trust, decision making, and not be rallied through a financial system that has an MLM/pyramid scheme structure - financially incentivized to join/promote it, unnecessarily, unreasonably transferring wealth weighted towards earlier adopters from later adopters.
"Bitcoin is almost as bs as fiat money" - Elon Musk; slightly better bs than fiat money isn't the answer.
Things I wished someone had told me about Bitcoin years ago (disclaimers, I own some and I haven't read the article but most comments are tangential anyway):
- Your takeaway from the comments may be that Bitcoin is still controversial but what if Paul Graham, Sam Altam, Naval Ravikant, Chamath, Peter Thiel, Nassim Taleb, etc all joined the chat to tell you it's a good asymmetric bet. It's an appeal to authority, sure, but sometimes, you need the right person to tell you the truth. It was at the price they bought and it very well may be today.
- The current narrative is it's digital gold (but easier to transfer, verify, hide, no inflation, etc). It's very easy to fall for arguments that it's useless because it's hard to transact, too public, that it's going to get replaced by something better, but as of today, there is product-market fit, regardless of whether it only works for the rich.
- This fall saw a lot of financial adoption, Druckenmiller, Guggenheim, Mass Mutual, off the top of my head. In May, it was Paul Tudor Jones. Everytime these people come, they bring hundreds of millions. These sometimes start with financial disclosures that prevent them from buying before announcing it. Microstrategy publicly asked the bond market $400M to buy BTC, got $650M within a week when price was $18k but got to buy at $23k IIRC. This frontrunning is a recipe to pump the price.
- There are 19M BTC in circulation, the next 2M are already somewhat owned by mining companies and their investors, past buyers were either flushed out by past crashes or are battle-hardened and convinced it can go a lot higher.
What I'm trying to say is that Bitcoin could go to $100k with today's fundamentals alone. I missed out much of it because of endless ideological, semantic and technological debates, but financially, it's makes complete sense and honestly I'm also in it for the money.
This is not financial advice but I feel compeled to end with a few disclaimers: Bitcoin is here to fight inflation, but if deflation occurs, it could hurt; Tether may collapse (this is a shady company selling blockchain dollars which may or may not hold billions of dollars worth of BTC on one side and $20B of liabilities on the other side); investing too much may cloud one's judgement, the market is out to get your money.
This is a great, well-balanced summary that covers a lot of the complexity and nuance.
I'm also somewhat skeptical of the ethical aspects of bitcoin but I can easily see it going much higher.
The aggregate value of all BTC is currently around 5% of that of all gold holdings (~$10 trillion). If the "digital gold" narrative is partially true, perhaps it could reach 20% to 30% (or more?) of that number in next few years.
I've adopted Bitcoin as my preferred money and use it for savings. I noticed that usd and all other currencies are very volatile, but 1btc is always equal to 1btc. For me, Bitcoin is the least volatile option.
This website is currently returning 500, so I'm unable to read the article. This is because it is configured as a server-side rendered website, as opposed to a static website which can be delivered by a CDN. I wish people would stop doing this. The core functionality of a web page (including "blog post" type content) should be entirely static assets delivered by a CDN. Auxiliary functionality can be delivered by a server, an the webpage should gracefully degrade when the server breaks down.
"Before money we had to barter, which led to the double coincidence of wants problem. When everyone accepts the same money you can buy something from someone even if they don’t like the stuff you own."
Stopped reading right here. Anthropologists have widely discredited any ideas that "before money we had barter", but it's just shyly asserted as absolute fact.
If you're going to argue something isn't money, you should first have a correct idea of what is money.
When I was researching this subject, what I found out is that the path was:
1. Gift based economy. Where people aren't really giving gifts... this still exists in some parts of the world, basically if you accept the "gift", you are now in debt, and is expected to do something in return, not necessarily immediately. In small villages it makes sense, for example the hunter "gifts" everyone with the meat he hunted, increasing his social standing, so when he needs medical attention, the medic will take care of him, because he is socially in debt to the hunter. In a modern economy this instead can be disastrous, for example I have a cousin that visited France, and was horrified when african immigrants kept following him and his wife, hugging him forcefully, and trying to put random crap (it was some beads to wear around the wrist) on his hands and saying it is a gift, meanwhile when a nearby tourist did take the object, they demanded a 50 euro "gift" back.
2. When society is too big to be "social standing based", currency shows up rather quickly, when you can't remember everyone or use everyone's fame as currency, you need something easier to track, can be objects (rocks, salt, gold, whatever) or a ledger (numbers on a piece of clay, bank account, bitcoin, whatever), or both.
3. Barter shows up AFTER currency, because people use the currency to know the value of what they are bartering, for example a guy wants to buy a house, and doesn't have 3 tons of salt required, so he says he will offer you this gold bar worth 1 ton of salt, his horses worth the other ton of salt, and 5 years of his work worth the last ton of salt.
Here is a reasonable article on the subject, I remember vaguely it was one of my sources at the time, it is not the best source, but is the one that pointed me in the right direction.
In short, while bartering likely did exist in some forms, it was not the primary means of commerce. Within a tribe or group of people, a 'gift economy' was generally used. This makes sense, as an average pre-historic tribe had like 50 people, making a complicated economic system unnecessary.
When civilization started to form, primitive forms of money came along with it. There was never a time when you went to the market with a handful of wheat and some furs, and hoped to trade them for some salt and fruit. That idea was popularized by Adam Smith in the 1700s, who was an economist, not an anthropologist.
The book "Debt: The 5000 Years" laboriously debunks the idea that early cultures bartered, then realized they needed money. I don't have more details unfortunately because it's been a while since I read it (and it's quite dense). I remember being convinced of the logic though!
I think we're actually on the cusp of some sort of hyperinflation/stagflation this decade, so BTC is a fantastic hedge against that.
You can't float the entire US economy along, shutter all of the businesses but keep people employed on government loans without ramifications. We should be in a terrible recession right now, but of course the government stepped in to prevent that from happening (mostly).
A functioning economy has a healthy level of financial inputs and outputs: you go to work, you spend X amount of your dollars on entertainment, food, home improvement etc. and you save Y amount.
The problem is when you shutter all of the businesses that just creates a massive surplus of money. That doesn't even get into things like stimulus checks, PPP loans, etc. People don't necessarily need more cash, people really need to produce more and start spending money again.
Too much economic input without enough output.
Needless to say the MicroStrategy investment was really smart and the author doesn't know what he's talking about. 51% attack? Really? So an individual actor is going to spin up computational power eclipsing the country of Switzerland just to take down bitcoin?
I'm not the biggest Bitcoin fan, but this article is dumb.
I'm not a Bitcoin "believer" in that I don't believe the modern Bitcoiner's dogma. But many newcomers don't know the history: a significant number of early Bitcoin engineers have moved on to other projects (like Ethereum) that better align with some of Bitcoin's early goals, such as a cash alternative and an accessible economic cypherpunk system.
There are many cryptocurrency projects that are less dogmatic and more pragmatic.
>"Is Bitcoin money? No."
While I appreciate the upfrontness, the problem with this mentality is failing to conceive how the technology itself can easily overcome these minor criticism.
>"1. Medium of Exchange."
Even if Bitcoin isn't, which you'd need a very narrow definition, Eth easily overcomes this argument. Eth has functional, successful, trustless, and distributed stable assets that serve as stable priced mediums of exchange. I don't see how other cryptocurrencies aren't money even if Bitcoin isn't, which also undermines the intent of the article.
>"2. Unit of Account. ... We denominate BTC in terms of how many USD they’re worth, so BTC is not a unit of account presently."
That is severely ignorant and makes it obvious that the author has spent superficial time in the space. I cannot think of a charting tool that doesn't allow denomination in at least one other cryptocurrency. The Eth community refers to "the ratio" (denomination in Bitcoin or other assets) constantly.
Bitcoin is voluntary! Investing in MicroStrategy is voluntary! There is absolute no coercion to buy bitcoin or invest in MicroStrategy.
If you are so certain that bitcoin is toxic, short it on one of the many platforms that allow this, or if you don't have the guts, just ignore it. No one makes you use it. That bitcoin continues to grow and gain value relative to fiat currencies is an organic decision by market participants.
The title is inverted, it should say "Putting $400M of your company [balance sheet] into Bitcoin". And it's no different than any other corporate management decision: makes sense if your company is supposed to do such things. Almost all companies aren't supposed to trade cryptocurrency.
>> Having control over supply of your currency is a good thing, as long as it’s well run.
Depends whose control we're referring to. The people who control the currency control the dynamics of the economy and society. That's all good if the dynamics work in your favor (e.g. your friends are central bankers and billionaires) but otherwise it's terrible.
Also, what does it mean "well run"? Well run from whose perspective? Monetary policy does not create economic value; it can only help those in charge to decide who are the winners and who are the losers.
My personal values don't align at all with the current monetary system. It doesn't work for me. It works against me. I'd rather accept a currency which cannot be controlled by anyone than one which is controlled by my enemies.
I think bitcoin is the new politics, we won’t be able to talk about it in work soon.
It’s ok to disagree with someone, but to just attack the author is ridiculous.
examples:
“I work in this space and can confirm this guy is talking out his ass and has no idea what he's talking about”
“Yeah, this author has no idea what he's talking about and it's stuck in a cognitive dissonance bubble”
“I don’t know what to say. Or the person behind this is 150 years old and was living under a stone, or is someone that obviously has 0 knowledge about Blockchain”
“maybe try to properly host an html page before advising multi billion businesses...”
“I feel like these analyses are always very well researched and set-out, but the authors lack any formal qualifications at all. Why read this when there are Nobel prize winners with polemics on Bitcoin?”
"A single transaction takes as much electricity as 800,000 VISA transactions, or watching 50,000 hours of youtube videos."
Respectfully, I'd like to call BS on those points. I'm surprised to find these assertions in a post this highly ranked on HN.
Seems low TBH. Bitcoin is astonishingly, ridiculously inefficient and people's minds just seem to bounce off the numbers because they're so ludicrous. and before you try to say 'well the financial industry also uses a lot of energy', consider that the bitcoin network uses about as much energy as the entire financial industry (the servers, people, offices, everything). One basically runs the world's economy, the other can do 7 transactions a second.
Yeah really depends on how deep your effect tree is. I made this point in another post but the human-hours/waste required to keep VISA running should be taken into account. Also the power put into BTC is used to secure the network- it isn't exactly "wasted."
- Fixed supply is not a "problem built-in", it a a feature
- Yes, it can be used as a medium of exchange using the lightning network
- The blockckain is inefficient but it was not built for efficiency but to solve the trust problem in a trust-less network.
The author may be right in that MSTR putting the surplus capital towards BTC was a somewhat strange and potentially reckless move.
He got a lot of things wrong with what Bitcoin is and how it works. For instance he claims Bitcoin to be anonymous and a criminals' haven when all BTC transactions are publicly and permanently recorded on the blockchain. While also criticising it's inefficiencies he offers no other alternatives nor any solutions for them.
Unrelated though; There is no fighting against Bitcoin as the future of digital currency. The fast dinosaurs like PayPal have already started seeing the mass extinction ahead.
> There is no fighting against Bitcoin as the future of digital currency. The fast dinosaurs like PayPal have already started seeing the mass extinction ahead.
My experience in the past 9 months is that shopify is winning online payments for small vendors with websites, venmo is winning for individuals selling peer-to-peer (e.g. facebook marketplace), and anyone bigger has their own credit card management front-end. I've purchased from many small operations for my hobby (houseplants), and in the past 9 months only 1 of them has advertised accepting bitcoin. YMMV
That is why I said future . Bitcoin is not ready today or even tomorrow for merchant or even peer to peer payments. Takes forever to confirm transactions and is not exactly intuitive to use.
However it is a no-brainer once it matures to be robust, faster, and have cheaper fees to use. Btw doesn't have to be the winner here since Bitcoin has competitors in this space. Might take 5-7 decades for this to be fully achieved but it will eventually replace most middlemen we have today for payments.
I often encounter arguments that conflate the volatile price of Bitcoin with its utility. Price is a meeting of supply and demand, and we're discussing an asset that is roughly only a decade old. Of course the price is volatile, but that does not reflect anything intrinsic about the utility of Bitcoin itself. If gold never existed, and just suddenly starting raining from the sky occasionally, we would also have trouble meeting minds on the effective price of this sky rock.
Bitcoin is money, of course. I can buy a pizza or whatever for bitcoins (it will be rather inefficient though, so there is a great way of doing this indirectly -- Bitcoin-backed credit cards). In my country, I can pay taxes with cryptocurrencies (on municipal and cantonal levels). It is volatile, of course, but there were (and are) quite a lot of currencies no less volatile, and nobody have argued that these are not money.
This article is like those from 2017, all over again.
Given the current state of the market, this seems implausible to succeed.
Total BTC in circulation: 18.6m
Current BTC price: $31,697
51% of 18.6m: 9,486,000
to outright buy that would cost ~$300bn.
not accounting for lost coins, the fact that such a supply is inherently distributed throughout the market and such an attempt would almost certainly move the price much higher.
Zuckerberg and Bezos should pool their cash and take a stab at it, though.
51% attack does not correlate at all with owning 51% of the coins, it is about having 51% of the network hashrate. If you were to round up the current network hashrate from 145 million TH/s to 150 million TH/s, and use the Nicehash price of ~$219 per PH per hour as a price, it would cost around $15B to run a 51% attack for an hour. Obviously the price per PH would go up as you buy up that much hashpower (which wouldn't even be for sale), so this is a low end estimate, but your $300bn number is completely out of the park.
Bitcoin is first and foremost about power and control. You can receive and spend it without anyone's permission and even without anyone knowing that you have it. It's value increases as those in power are trying to impose greater and greater controls over our lives.
I think the article misses the point completely: this is bad practice because the company has no business buying up random assets using other people’s money. That would be equally true if they bought $400M of fine wine, real estate, or gratitude crystals.
This was actually an incredibly incompetent post that misunderstands WHAT Bitcoin actually is, while at the same time spewing word salad to make it sound like a well-researched opinion.
And the most awful thing is that they now have $900M of Bitcoins on their company balance sheet. Bitcoin does that: you invest 5% of your portfolio and boom its now 80%. Real creepy.
Would anyone have written this article if it was $400M of TSLA? The company made a risky investment with its spare capital. That's not a crazy thing for a company to do.
It has been a very good strategy so far. Stock is up 3x in a few months. Hopefully MicroStrategy can spin off the software part of the business and just buy bitcoin.
It looks like an algorithmic stablecoin pegged to the price of Bitcoin instead of USD like most others.
Those are interesting because the economics are set up to turn greed into a stable value. If the price of the token gets too high or too low, people can make money bringing it back to the peg.
I feel like these analyses are always very well researched and set-out, but the authors lack any formal qualifications at all. Why read this when there are Nobel prize winners with polemics on Bitcoin? It ends up reading like man-waves-fist-at-cloud on how economics aught to be, rather than how it is.
Because nobel prize winners polemics against Bitcoin (ie Krugman) are even less well argued than this.
Bottom line, Bitcoin is a very different beast than everything that's existed before in finance, and "experts" poorly reasoned opinion carry barely more weight than this article.
The truth is, no one knows what Bitcoin will become, because it's the first of its kind.
When the dust settles, the survivor opinion will - of course - write a book and become famous selling the bedazzled masses a lengthy, sophisticated "I told you so".
Ugh Krugman, has there ever been an economist that's been more consistently wrong about the economy? I'm seriously tempted to do the opposite of whatever this guy says.
It's indeed very hard to take Krugman seriously (e.g. [1]).
But unfortunately, some people in power have been doing just that, especially on the topic of (to make it simple) govt taking on more debt because it's "good for the economy long term".
Krugman is the worst kind of evildoer : someone promoting a radical left wing agenda disguised as an academic.
Even though the seams of the disguise are blatantly obvious, people in power are either too blind to see, or too happy to find an "expert" voice backing up their demagogue agenda as long as gets them re-elected for a second term.
I've been a mod of r/economics for half a decade, I work as a data scientist and I have a Msc. in econometrics for what its worth on formal qualifications.
I mainly wrote this one as a go-to to point people on my thoughts of the economics of BTC as pointed out in the TLDR box
BTC is Money, perhaps even more than USD , I don’t know how old are you , but currently there are things(pure physical and digital things) that are only possible to be purchased with BTC, no other payment accepted. So yes , BTC is money , I’m close to people that only use BTC as a main exchange point for value , so BTC is money , weather you want to accept it or not is up to you
Oh nice - I actually quite like the article. Probably shouldn't have come after it so hard. I like level headed people pouring cold-water on bitcoin occasionally as it can get a bit loony.
Is any of these large amounts of money someone's individual money they've earned that they're putting into these schemes, or is it part of financial complex/capture - where decision making has trickled up to a small few - so few people to manipulate/convince into such decisions?
"Bitcoin is almost as bs as fiat money" - Elon Musk; I haven't seen any pro-Bitcoiner try to spin this quote as a positive yet, though I'm sure I'll laugh at whatever mental gymnastics are presented. Good luck betting against Elon's understanding of the holistic, exponentials.
Satoshi Nakamoto (whoever he/she/they) would not believe what he/she/they see today:
- Bitcoin is not used for transaction, due to it is not scalable
- But used for store of value, which plenty of people find reason 1 is not a bug but a feature
Suddenly Covid19 hits. People go crazy over masks, lockdown, trust in government at all time low. Government attempt to fix the damage done by pumping more money. Economy destroyed, money printer go brrr makes all asset class bubbles. Institutions are out of asset class to invest and "hey we got too much money, where should we throw this? look there is this thing called Bitcoin we forgot about it, let's just gamble it away, 5% of our portfolio, if we lose it we lose it, but if we made it we gonna go to the moon"
Institutions then joining in, prompting more retail skeptics to reason "if institutions join then this gonna go to Jupiter, and at best land on the moon, I'll join up, I need to pay my mortgage/student debt, or get out of whatever screwed economic situation that happens in this 2020 pandemic just like most millennials out there, I have no other choice, go big or go home".
Welcome to the (USA only) Circus. Soon there will be Bitcoin Mining Employment Act because all of us will only mine Bitcoin, no other economic activity matters.
New in this post was the author's stance to trust the Fed to keep inflation predictable:
However, the Fed increased M1 money supply by ~20% just in the 2 months following that blog post and by ~70% in the total of 2020 - an increase unprecedented in the history of the US dollar. 2 of the 3 dollars in your pocket have been created out of thin air in 2020.Believing that inflation rates in the next years won't spike as a result requires an amount of trust even more artificially inflated than the USD today.
[0]: Daily %-change of TSLA,BTC,NFLX,AAPL,AMZN: https://imgur.com/a/mE7bSI4 (TSLA is green)