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Comment by Analemma_ | Hacker News Reader

Yup. Any "currency" that can plummet in value by 25% because of a minor SEC ruling is not ready to be a store of value.

It's not minor. If the ETF were approved, billions of dollars would flow into bitcoin through the retirement funds, which now can't. So that +25% was baked in, that was the expectation of the appoval. Lots of people were hoping for it. Oh well.

I am not sure why you put the word currency in quotes. There have also been many state issued currencies that have done similar - see Thai Baht, Argentine Peso, Russian Ruble, Venezuelan Bolivar etc.

Pound sterling...

Woah wait when did the pound lose 25% of its value due to a SEC ruling?

There were two separate events, adding up to 25%. The first happened instantly as the Brexit result became known. The second happened on Oct 7 at the opening of trading when there was nobody around who wanted to buy...

I find that Bitcoins are an effective hedge against conventional wisdom.

I wouldn't call Brexit a "minor ruling".

Could be a reference to Brexit? The pound suffered pretty severely after the referendum.

To be fair, sec ruling is a much smaller measure than country-wide referendum on economicy policy

Read about Soros breaking the Bank of England sometime, it's great stuff. Black Wednesday I think is the name of the event in popular culture

Great stuff in the sense that one person can directly profit to the tune of a billion dollars, by manipulating currency markets, at the cost of the taxpayers of an entire nation. So, not great stuff at all.

He did not manipulate pound. UK government manipulated it by locking the exchange rate that did not reflect the fundamentals. Pound was doomed, Soros just profited from the crash. So, yes, great stuff - government should pay for its stupidity. Unfortunately they pay with our money...

He shorted the pound enough to move the market significantly, and his buyback strategy deliberately prevented any stabilisation. The crash wouldn't have happened or at least wouldn't have been as bad without his involvement.

https://www.youtube.com/watch?v=K_oET45GzMI

a good overview of the origins of the crisis. how politicians for their own shortsighted gains made one poor decision after another and led the country into financial crisis.

Volatility isn't the issue. Bitcoin isn't technically a currency because it can't currently be used directly to pay public debts or taxes in any nation state. Bitcoin is just another commodity like copper or crude oil.

I understand the quoting now, thanks. I agree with you that its not technically a currency since it's not issued and circulated by a government but I disagree with the OP that it is not ready to be a "store of value" because of a single volatility event.

There are many who would argue it is a good store of value since it can't be manipulated by the issuing state's monetary policy or susceptible to the poor fiscal management of the issuing state.

There have been many volatility events. Given that governments have the ability to practically outlaw it if they choose, that makes it quite risky as a store of value.

Several of the major volatility events in the past of bitcoin were related to Chinese government announcements or rumors regarding regulation/legality.

Sure one can transfer bitcoin without governmental approval (or against restriction), but that annoying need to convert to and from fiat in order to trade for other goods and services means that the governments still have a great deal of influence over bitcoin.

>"There have been many volatility events."

Sure but I was speaking to the OPs assertion that this particular event is proof that it is not suitable as a store of value.

>"Several of the major volatility events in the past of bitcoin were related to Chinese government announcements or rumors regarding regulation/legality."

Right but this is to be expected given that China recently has been the largest market for Bitcoin by volume no? [1]

>" but that annoying need to convert to and from fiat in order to trade for other goods and services means that the governments still have a great deal of influence over bitcoin"

Is that any more annoying or any more inconvenient than having your hard-earned savings devalued by your government?

[1]http://www.coindesk.com/estimating-data-china-real-bitcoin-t...

> Is that any more annoying or any more inconvenient than having your hard-earned savings devalued by your government?

I wouldn't recommend holding fiat currency as savings, except for perhaps 2-3 months of salary equivalent in case of emergencies. The rest should be stored in other assets based on your risk profile.

But it is currently a fact of life that we must exchange our cryptocurrency for fiat if we want to buy goods and services most places. While the number of merchants accepting bitcoin is growing, it's still quite small compared to the number of merchants who take local currency.

Just to expand on the point: there's two models of currency: fiat and commodity. Commodity money is obviously linked to an existing commodity, and suffers from massive swings since there's no way to insulate it from "news". BitCoin, of course, isn't backed by a commodity, so the natural thing is to assume it's a commodity in an of itself. The "mining" terminology supports this view, obviously. As a commodity, it most closely resembles Gold, in that its value doesn't seem closely correlated to the value one can extract from it through industrial use.

Fiat money has its plusses, though. Directly related to the fact that governments _can_ manipulate them is the possibility of reputational currencies. Here, a state has managed its fluctuations and taken actions when prompted for sufficiently often that "news" affects them much less than commodities, since the markets assume the state will act well before it becomes an issue (this also damps good news, since to a certain effect the good news was "expected").

A good study in this phenomenon, and how to break it, is what's happened to Britain since the referendum. It has lost a lot of value, obviously, but also its volatility has gone sky-high.

Going back to OP's point, a well-managed fiat currency can be a better store of value than any commodity. Entertainingly, Sterling has lost a similar amount of value to BitCoin, but it took much longer and is regarded as a disaster. Although, like BitCoin, you'll be able to find fans swearing the exact opposite.

You're describing fiat currency, a subset of currency. Historically, a nation state is not a prerequisite for currencies to exist.

Actually, GP is discussing legal tender, which is not the same thing as fiat currency. Commodity (both specie or representational) currencies have historically been legal tender, in addition to fiat money (which is the modern norm for legal tender.)

Agreed, I actually checked investoepdia and a government issue seems to be part of the agreed upon "modern" definition it seems.

You have to tell that to the European Court of Justice:

http://www.ibtimes.co.uk/european-court-justice-ruling-bitco...

Not a public debt or tax, and it's noted that this doesn't "legitimize" Bitcoin in the minds of the authorities, but looks like Norwegian prosecutors recently demanded the penalty for one criminal act to be partially paid in Bitcoin:

https://cointelegraph.com/news/pay-up-in-bitcoins-norway-pro...

Has happened in USA too in at least one civil case, with a contract denominated in Bitcoin

Well, it can't compete with the USD. But plenty of nations like Venezuela have citizens that would happily take a >25% haircut to escape their governments capital controls. When Greece went bankrupt, life was much easier for anyone with Bitcoin than for anyone without it.

As many issues as Bitcoin has today, it has clear use cases.

>When Greece went bankrupt, life was much easier for anyone with Bitcoin than for anyone without it.

How? Bitcoin atms were basically non-existent there and from what I read on /r/bitcoin at the time from Greeks no one there was accepting it in stores.

There were capital controls restricting more than 100 euro worth of withdrawals from banks per day. Sure it's not helping you if you are buying a coffee but if it's saving parts of your pension that you worked your whole life to earn then it becomes very important.

This is a non-answer.

>There were capital controls restricting more than 100 euro worth of withdrawals from banks per day.

Yes and bitcoin didn't help this since the ways to get cash for your bitcoin involved international transfers which exposed you to those restrictions.

>Sure it's not helping you if you are buying a coffee but if it's saving parts of your pension that you worked your whole life to earn then it becomes very important.

I'm not sure what this has to do with the question above. Could you expand on it some more?

Not the parent, but what's going on right now in Venezuela speaks to this nicely: http://www.econtalk.org/archives/2017/02/turning_sociali.htm...

First up the government there have already started arresting the mining operators so probably no longer looking like that wise of an investment on their parts.

Other than that it's a much safer bet in Venezuela to buy USD than bitcoin though and that is generally what happens.

If you're poor in a country with a government like the Venezuelan one betting your limited funds on a speculative investment that requires an active internet connection to use doesn't seem wise or helpful.

> Other than that it's a much safer bet in Venezuela to buy USD than bitcoin though and that is generally what happens.

How?

Black market currency exchanges if you need to convert otherwise you just take payment in USD only and basically treat it as your currency instead of the Bolivar.

I sent someone in Venezuela about USD 40 in Bitcoin in October or November. They were able to convert half of it into more local currency (Bolivares?) than they made in a month at their full-time job.

He said physical US currency was at a huge premium in the country because there wasn't nearly enough of it to go around, and the official exchange rate was clown shoes.

995 is the lowest price it was sold for, not the bottom of averaged price. If you look at graphs now, you'll see that price is considered not having been under ~ 1050.

Those kind of statistical anomalies happen all the time, you must be aware of them if you look at real time chart. The bottom line is that you can't really know what the price is before a 30min period ends.

That being say, I expect the price to go down further after a bounce (disclaimer : I'm not a financial adviser, this is an opinion). Bitcoin was already at its all time high, and then there was the rumor of ETF, promising it will go even higher and will reach the moon. That's a big red flag to me. What seems the most plausible to me is that it will now enter a downtrend until it finds its support, then only start a new uptrend. I may be wrong, but at least I won't loose money.

I totally agree we can't use btc as a currency, though. I have a prepaid visa card that I can load with btc, but I only use it very rarely because it's annoying to have to look at chart to know when is the good time to load my card for this week's grocery. Things are settled, now, bitcoin is a speculative asset. It would be more interesting if cryptocurrencies like tether, which provide USDTether and EURTether, crypto currencies always indexed against their fiat counterpart, were finally available at scale.

You must be unfamiliar with financial markets. Many assets have lost 25% in minutes and still considered perfectly acceptable store of value: stocks, commodities, etc.

Don't forget the euro a couple years ago reached parity with dollars in a couple months and people like ma that were saving to emigrate got thousands dollars in flames.

The Indian Rupee ha lost ~40% of its value after 2011.

Few viable currencies do so.

Eehhh, I've been skeptical of Bitcoin in the past because of its volatility, but this is very unusual. It's been rather stable on a week-to-week basis for a long time.

The SEC declining to approve some investment vehicle is not unusual at all. Compare that to the USD, where nothing short of global nuclear war is going to cause a 10-minute 25% swing.

"This is unusual" is "the 25% drop." Over the past year, it's been pretty boring.

On 2001-09-11 gasoline tripled, food doubled, and bottled water as much as quadrupled or quintupled in dollar pricing in parts of the US in less than a day.

Yes, there were in fact $4/gallon, $5/gallon, and even $8/gallon gasoline and diesel prices posted, many by noon. This also increased the price of everything shipped by truck for a while, too.

Prices came off that peak quickly, but took months to years to revert completely.

I don't think storing value in diesel fuel is a good idea either.

you'll be surprised to find out where your pension fund stores your money.

Gas prices actually dropped in the months after 9/11 [1]. Any place that was charging $8 per gallon day of was guilty of price gouging. Either way, you are comparing an SEC decision to the aftermath of the largest terrorist attack in history. Don't you think the scale of these two events is a little different?

[1] - https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=E...

Parent post said "nothing short of a global nuclear war". Don't you think that's yet another difference in scale?

That wasn't a swing in the value of the dollar, that was a swing in the value of those goods.

The price of a christmas tree drops precipitously the ~9PM on christmas eve every year, that says nothing about the value of a dollar.

Well, to be fair, the value of the dollar is determined by its buying power. If goods widely increased in cost, then the effective value of the dollar has decreased.

Not saying that's what did or didn't happen on 9/11, though.

Yes, if all goods widely increased in cost (or at least, most). If it's only the goods that people buy in anticipation of (e.g.) a catastrophe, or goods that rely on those aforementioned goods to be manufactured and/or delivered, then the above comment is correct.

There is a difference between localized price gouging and the value globally of a dollar.

If I charge $1000 to eat a cracker from my cupboard, the value of a dollar didn't suddenly decrease by 99.99%.

Not to mention the relative consolidation of players in China. Some reports have suggested that well over 51% of mining hash power is consolidated amongst three organizations in China. My last look didn't agree with that number, but still it appears that it may be much easier to control consensus than was intended.

Thus, "anything can happen" if a few key players agree behind closed doors and change the rules.

I think bitcoin is a quite useful transfer platform, but I think it would be foolish to store much of one's assets in BTC.

Note that pools != miners. A pool might set the policy for their blocks, but miners can swap pools whenever they feel like it. Large pools have had individual miners abandon them in masses before.

True. Actually I was referring to the manufacturers of ASICs who are running huge mining operations. I'm not sure if they operate in their own pools or if they distribute their efforts across multiple pools. But they do have a critical mass of hash power.

Generally speaking, it's a bad idea to use currency as a store of value. The unwavering stability of the almighty US Dollar is a massive historical outlier. For most of history the wealthy didn't keep Scrooge McDuckian piles of cash around, they converted their cash into hard goods and investments like loans, which won't evaporate if hyperinflation occurs. Even today, the smart thing to do is to store most of your value in liquid and semi-liquid assets.

>investments like loans, which won't evaporate if hyperinflation occurs.

Loans absolutely will evaporate if hyperinflation occurs. Lets say you give a $1000 loan that pays out $2000 after two years and the value of the dollar drops 50% over the first year. You will still get $2000 in 1 year. Assuming the value of the dollar holds, you won't have made an actual profit. But what if the value of the dollar continues to drop? If you think its going to drop another 50%, you'd be better off selling your loan for $1000 now, in which case you've already lost half your value, assuming you can find a buyer.

Except it's not stable at all. If you hold USD long term, because of the inflation target of the FED, you'll be able to buy less and less. USD lost a massive amount of value in the previous century alone, despite the massive advances in every field of human activity.

https://www.measuringworth.com/uscompare/relativevalue.php

Warning: Division by zero in /home2/sam/public_html/m/calculators/uscompare/relativevalue.php on line 156

You actually want https://www.measuringworth.com/uscompare/ for the index – as https://www.measuringworth.com/uscompare/relativevalue.php which is the calculator results page. (And it was coded by an Ohio State University college student when it was on EH.Net, before being maintained by me as a college student, before being transferred over to Sam Williamson's personal-business site about ten years ago where it is now – a transfer which I always thought was weird but that's academia for you apparently... regardless, it explains the code quality.)

Yes it is stable, inflation is a small steady largely predictable thing, that's what stability is, predictability. By contrast, Bitcoin is highly unstable, no one has any idea what it's value will be in a week, let alone 30 years down the road, but due to the dollars stability you'll have no problem finding 30 years loans denominated in USD. The USD is the very definition of a stable currency. Stable doesn't mean never losing value, it means being predictable enough to plan for the future.

Therese Weiss currency siden something simulator a few years ago. Increased 25 % against the dollar. http://www.cnbc.com/2015/01/15/swiss-franc-sours-stocks-tank...

Those who stored some value when it was below $1 are not doing too bad...

Unless they were storing that value on MtGox or one of the many other early exchanges that were robbed. Or if they themselves got hacked as happened in many cases.

I suspect you could probably put all the people in the world that got rich from buying at $1 and holding in a school classroom together for a chat and not be very crowded.

This is an irrational argument.

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