How can Bitcoin stabilize if it's a Keynesian Beauty Contest?
tonysheng.com
tonysheng.com
It would have been easy to make the article more clear. Simply explain what aspect of Bitcoin is supposed to stabilize.
Given the unending fascination with the USD/BTC exchange rate, it can be assumed that the author is referring to this metric. The inclusion of the heading "Does the price of Bitcoin have a Nash equilibrium?" also supports this idea.
However, if this is the case, why does the author include the following quote the middle of the article:
Why has Amazon stabilized, and will bitcoin do the same? When Amazon shares debuted back in 1997, earnings were non-existent. […]
The USD price of AMZN has in no way stabilized:
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?s...
As you can see, it's a concave-upward curve, punctuated by various declines, all the way back to 2003.
This may sound like hair-splitting, but I think there's a real possibility the author is actually talking about USD/BTC exchange rate volatility. This is an animal of a completely different stripe.
For example, the US Dollar loses purchasing power over time, but that is OK, since it is mostly at a predictable rate. But when something has wild swings up and down, and random times, then it is less suitable to either use as a currency (the stock person with the price gun will be working overtime correcting prices on everything several times a day), and it isn't that good of a store of value if there isn't any reason for it to not lose all of its value over a given period of time.
The Amazon graph you linked to does look fairly stable, a nice exponential function that has very good reasons to remain so for a good period of time (not saying this or anything else is guaranteed, but at least there is something tangible behind that price).
I think you'd see more traditional bartering than money being introduced again in its earliest stages.
Jewelry demand wouldn't help, either. If the price of gold went to 0, how much would be used in jewelry? Sure, it's pretty, but being expensive is part of the point.
Gold is directly useful for a huge range of things and the use in industry provides a very real price floor.
Bitcoin, on the other hand, is still firmly in KBC territory.
That outcome will likely also result in a further 50x return from here, or a further decline.
Money is a commodity whose goal is to transport value through space and time. We are living through -- in human-species scale -- a brief 90-year experiment in the artificial elimination of a free market of monies by violence of the state (until bitcoin was invented).
Artificially increasing and decreasing the supply of money in an economy has about just as much utility as artificially increasing and decreasing the supply of any other good -- which is none.
Bitcoin's success narrative doesn't depend on the amount of non-scarce dollars the market is willing to trade for it ceasing to change ('stabilize'). The success narrative is: an increasing set of people understanding that the hardest money always wins. Bitcoin is one halvening away from being harder than gold and is _the_ hardest money ever in existance. Those who have taken exposure to bitcoin will have more wealth preserved than those who denominate their value in inflatable dollars. As more people see bitcoin improving the quality of life of individuals they also take exposure to bitcoin. This process doesn't need a planner nor intelligent agents, it just needs bricolage.
http://images.woobull.com/2016/10/volatility-btc-vs-fiat.png (from https://woobull.com/bitcoin-volatility-will-match-major-fiat...)
The long-term trend is that BTC is becoming less and less volatile.
[0] https://1nodld1ltmqu3jimmy2xsgcu-wpengine.netdna-ssl.com/wp-...
P.S. Dear downvoters, this is not a financial advice!
That's a different chart. It's closer to being accurate because it's been modified to fit more recent data.
Bitcoin isn't.
No. The Fed puts its thumb on the scales. We've known since about the 19th century that growing economies and fixed-supply currencies don't play well together.
Can you give some examples? I don't know much about 19th century economics.
The problem with fixed-supply currencies is that if the economy is growing, and the supply of currency stays constant, currency is worth more.
If your debt is measured in that currency, your debt just increased, and you might no longer be able to pay it. Large numbers of foreclosures are bad.
Incidentally, one of the biggest political movements in response to these panics was a push to put the US onto the silver standard. Silver is more common, so it's easier for the supply of currency to increase (read: inflation) as the economy increases. A guy named William Jennings Bryan made a rather famous speech[1] about it.
Today, we eschew a metallic standard entirely and just focus on achieving a constant rate of inflation. Zero inflation would be fine, but it's hard to achieve, and any missteps might lead to deflation. So, the Fed aims for 2% inflation - low enough for the value of the dollar to be pretty stable, but high enough that if the economy does something weird, we don't enter a deflationary state.
Humorous summary of price fluctuations since 2010: https://www.youtube.com/watch?v=XbZ8zDpX2Mg
A few corrections to some possible misconceptions:
(1) Fed is short for Federal Reserve. It's not an acronym.
(2) The goal of the Fed is not 0% inflation. Because downside risks are worse than upside risks, the Fed's explicit long-term target is 2%
(3) House prices aren't great to use as a metric of inflation. A house built today is far, far better than house built in 1913. According to the consumer price index, $3,400 in 1913 has the rough buying power of $88,000 today.
In my opinion, if you want to make a serious argument against the Fed, you should (a) do more work than rhetorically asking how the past century has gone for us, and (b) at least be familiar enough with the thing to spell its name correctly.
I think a currency that has $1.00 worth of purchasing power when I am given it should not lose 99% of its value over the next 100 years if I do not spend it. I am aware that that is impossible due to inflation, and that is why things like gold are much better stores of value than the dollar.
Until or unless agreement is reached on that, debating other points is kind of a waste of time. You're not going to agree if you disagree on the fundamental goal of money.
I've personally gone over to the Keynesian/Monetarist side. IMHO the most important idea of Keynes by far is monetary velocity: that wealth is a verb, not a noun. To be wealthy is to have much activity. The desire for idle stores of wealth reflects a very deep and very ancient wish for a stability that does not exist in this world. In this world things are either alive, moving, and changing, or dead.
Austrians want "hard money" that can act as an inert store of value for the same reason the Egyptians elaborately mummified their dead and piled vast stores of wealth in tombs. It's a very ancient and unfortunately very misguided quest for immortality through stopping of avoiding time. It doesn't work. The mummies were just corpses, the tombs were raided, and with enough time the pyramids will be dust.
If there is ever any kind of immortality to be had, it will be by embracing change and using science and technology to modify our biology or even transfer consciousness and intelligence itself into another medium ("mind uploading"). Those kinds of sci-fi things would require immense technological progress, and that's far more likely to occur in a world of dynamic economic systems biased toward investment rather than stuffing money into mattresses.
I’m going to just try to stay out of it from now on. Not worth the time or energy. Especially when my view is the minority view.
FWIW I don’t believe it is any sort of quest towards immortality. My biggest problem is how Keynesian economics tends to favor the central banks who are able to create money out of nothing.
This is a separate point from the "what should money be?" debate.
There are other potential ways of introducing new money, especially in the digital age. I'm a fan of a smart version of the "money from helicopters" idea-- introduce money across the entire economy rather than just to the state (via bond purchases) or banks (via fed lending-to-lend).
That said, when you consider the way inflation actually works most of the new money pumped into the system disproportionately benefits big businesses and banks at the expense of the rest of the population. It is essentially a hidden tax on the rest of us.
Central banks pumping more money into the economy actually helps them because it equates to more interest payments they can collect and puts more people and governments in their debt. Also they don’t have to do any work to create the money so could you explain how that is considered a fair system?
Some elite bankers are able to just summon new money out of thin air to serve their interests but money that I worked hard to earn is going to lose its value if I hold onto it for too long?
Why do you think there is such a huge gap in income inequality that began as soon as we broke off completely from the gold standard in 1971?
"When they measure themselves by themselves and compare themselves with themselves, they are not wise." - 2 Corinthians 10:12 (NIV)
Fiat currency is at its best second degree KBC because other countries decide on accepting or rejecting US economical indicators by temporarily betting on their short term future and set currency exchange point for the next 24 hours or so. Nobody buys US dollar because american flag is pretty or english is second broadest language in the world or some other “pretty face” indicator, as currency exhange dollar versus everything for the last 25 years clearly shows USD strenghtening +500% and weakening even 50% all the time.
No, Feds do not decide on this beauty contest. May be suprise to you but only 20% of printed dollar remains in usa. 80% is being shipped out for all sorts of purposes such as balancing countries oil wallets (aka petrodolar) to aiding other countries ending on fact that many countries prefer intra-use of greenbacks to its own currency. So Feds at its best control pretty face of dollar on its local playground aka USA, but in reality they dont because again dollar strength comes from evonomical indicators, not from how much feds prints.