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Comment by selectodude | Hacker News Reader

Because, to use a technical term, the fuck is Saudi Arabia going to do with $400bn worth of bitcoin? After 1 year, assuming Saudi Arabia was able to procure every bitcoin that can ever be mined, past present and future, they would be worth $20,000 each. And then they have all the bitcoin that nobody wants.

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Whatever anyone would do with $400bn worth of an asset?

If Saudi Arabia started buying Bitcoin in bulk, then the price of Bitcoin would go up. This would create demand for the asset that is increasing in value and other people would start buying and holding. Saudi Arabia would not be able to acquire all the Bitcoin, but it doesn't really matter anymore, because now everybody wants it, because it has increased in value.

And voila! You’ve created an enormous speculative bubble. That hasn’t ever gone wrong.

Bitcoin has had several big moons/busts now, but the software and network has persisted and grown dramatically in size. The long term trend is up. I think it is really hard at this point to make the case that this is a bubble.

Bitcoin is an “asset”, not an intermediary. Saudi doesn’t just sit on their dollars, they buy stuff with it, either actual goods and services or fixed incomes. Since nobody wants bitcoin for their labor and it’s a highly speculative asset that isn’t a particularly good store of value, it doesn’t accomplish either of the key things that are needed.

Bitcoin is both an asset and an intermediary. I don't think it is a good intermediary due to its volatility and tax treatment, but it certainly has and can be used as such.

If you had bought a hundred dollars worth of Bitcoin back in April of 2011 and sold it at it's most recent all time low on December 16th 2018 you would have $320,000. If you sold it today you would have $681,800. Volatile? yes. Good long term store of value? All available data indicates yes.

It's speculative in so far as the software and the network are speculative. The speculative risk of both of these attributes has reduced over time. (i.e. The more time that goes by the more likely that bugs in the protocol will be discovered and the network size and volume has dramatically increased)

The real danger to Bitcoin is probably another cryptocurrency that comes along and does it's job better. This will be very hard though as Bitcoin is essentially the Facebook of the cryptocurrency world. I think that it is possible that this will happen, but it will likely be a process more than an event. Offering holders of Bitcoin to diversify overtime should other cryptocurrencies come into being.

Whether Saudi Arabia should buy it or not is an entirely different matter. IMHO if they have some reserves that they don't think they will likely need to touch for a 5 to 10 year period then I would invest some in it. It would be akin to trading in some of their dollars for Gold. (https://tradingeconomics.com/saudi-arabia/gold-reserves)

The fact that cryptocurrency is prone to such fluctuations is a significant part of the reason it's a bad currency. Nobody wants to have a bank account that can halve or double in a few months.

I think most people view Bitcoin as digital gold nowadays. (with the added benefit that the supply is known) I would not use it for short term cash needs, but from a long term store of value it has provided real benefit over a 10 year period. If the monetary supply is going to be dramatically expanded by the Fed, then it is a great way to hedge against the dollar. Couple that with the recession and the likelihood that the effects of the global pandemic is seemingly going to be here for a while, I can't think of a better place to put my money right now.

I doubt "most people" think anything of the kind. Digital pyrite, perhaps. Considering that btc has tanked along with the market (only more so) why would it make a good hedge? BTC is for gambling, and everyone knows it, so when the world gets scary the bottom falls out of cryptocurrency first.

There is no reason to believe BTC will not crash that's more solid than people smiling knowingly and saying "it can't, it's the future". It's not, though.

A global pandemic is a pretty extraordinary event. All markets are going to react poorly. BTC is by its nature more volatile, so it has a tendency to experience more dramatic corrections

It acts as a hedge, because the dollar gets devalued every time the Fed expands its balance sheet. If nothing else happens, then the value of Bitcoin will increase relative to the dollar. This is the same reason why people buy gold. Only with Bitcoin the amount of the commodity that can exist is well known and finite. (i.e. there are not new discoveries of Bitcoin repositories that will suddenly increase the global supply)

Bitcoin is unlike most other cryptocurrency assets (except for maybe Ethereum?), because it has been around for more than 10 years and has become well integrated into the traditional economy. BTC crashing is pretty unlikely at this point. Maybe it gets replaced over the long term by some other asset, but that will take time and not be a sudden event.

BTC is absolutely not well integrated into the traditional economy. Getting it is difficult compared with any real currency, spending is difficult compared with any real currency.

> BTC crashing is pretty unlikely at this point.

BTC just crashed in the last month. It's extremely likely to happen, which you can observe easily because it keeps happening. It's value is not stable. It never has been.

You can buy BTC using USD via exchanges, you can buy BTC futures, you can buy funds that contain BTC along with a mix of other assets. This is what I mean by the traditional economy, NOT you can go down to your neighborhood grocery store and pay for your groceries. The point is that major financial firms have integrated fiat economies and the Bitcoin ecosystem, which makes Bitcoin much more valuable compared to other cryptocurrencies.

When I talk of BTC crashing I'm speaking of the price of BTC going to 0 and never recovering. What you are observing is the volatility of Bitcoin. Bitcoin is a highly volatile asset, but that doesn't mean it still can't provide good long term value. Plotting a linear regression on the price of BTC will show an upward trend and that's over a 10 year period even with all of its ups and downs.

Keep in mind that basically nobody else uses the word "crash" to mean "goes to zero and stays there". Traditional economy is generally a reference to the act of exchanging money for goods and services.

You can use words however you want, but if you want to be understood it's helpful to use the common definition.

I was trying to stay in context with how you originally phrased your response of..

   "There is no reason to believe BTC will not crash that's more solid than people smiling knowingly and saying "it can't, it's the future". It's not, though."

This quote implies that BTC lacks long term value, which again I argue that BTC does have long term value for reasons previously stated. Certainly, I understand that sharp declines in value are often described as crashes.

In regards to the term "traditional economy", I actually meant to insert the words "integrated with", so the start of the sentence should have read "This is what I mean by integrated with the traditional economy..."; just an error on my part. The point I'm making is that the integration with the traditional economy is occurring on the backend finance side and adds legitimate value and use to Bitcoin over many other cryptocurrencies.

Dollars are similarly useless in Saudi Arabia. They use the riyal there. Outside of the US, dollars are really just government bonds that people hold as a store of savings. They have to be sold before you can do local transactions or pay local taxes.

Saudi needs dollars to buy everything else since they make nothing and import everything. Everybody else will take their dollars, so it’s a worthwhile thing to have around for them. Sure, you can’t buy a kebab on the streets of Jeddah with them, but the chicken that kebab was made with was almost certainly bought in some way using those aforementioned petrodollars.

How does the seller selling the kebabs in riyal get the chicken given they only earn riyal?

You need somebody who wants riyal for dollars. Why would the chicken seller not take the riyal since that helps his customers and do the FX magic themselves? "Local currency sales" is what marketing men recommend. It's just the latest form of vendor financing.

Who wants riyal for dollars. People who buy kebabs in Saudi. Those who live and work there.

As I said the dollars are useless in Saudi, because that's not the local currency stuff you need day to day is priced in.

The point again is that in aggregate you can buy things in the currency you have and you can sell things for the currency you want. The financial system smooths the path to that deal - for a price.

As anybody with a Paypal account and who trades internationally understands.

>How does the seller selling the kebabs in riyal get the chicken given they only earn riyal?

They buy the dollars they need to buy the chicken off the Saudi national bank for Riyal. That’s their job. Controlling that rate is a primary way the SA government manages their domestic economy.

Can always buy US weapons and politicians with dollars

He's talking about Saudi Arabia, not random people in Saudi Arabia...

Saudi is random people in Saudi. Countries aren't sentient on their own.

Well no, in this particular case it’s the house of saud.

What is countries? I mean it's just atoms, man... This is all so trivial!

Currency is slightly more fungible than this. Not enough to invalidate your point, but worth noting that I've purchased food, transportation, lodging, and knickknacks in Saudi/Bahrain/UAE and Oman using USD. All of the above items, in each country. It's certainly not a universal currency though, I'd say the vast majority of vendors were not interested in taking USD. Even then though, generally you could find a private citizen/local expats from many other continents that would be willing to perform currency exchange to/from popular currencies at a rate profitable for them.

Vendors/citizens of some other countries - Jamaica, many parts of Mexico, many parts of Canada, also are happy to deal in USD as a customary business practice, at least in my experience.

Sure. It's the same here. I can buy stuff with Euros in York rather than the usual GBP. But generally people want the local currency because they have fixed liabilities in the local currency - taxes and debts. Chances are they'll take your money and then swap it out for the local version rather than hold it.

> Dollars are similarly useless in Saudi Arabia.

This is simply outright wrong.

According to Wikipedia, the last arms deal that Saudi Arabia struck with the US was, that alone, around $350 billion.

That's more than most of the nation's GDPs.

Trying to put a Ponzi scheme such as Bitcoin on par with the US dollar is either an entirely clueless assertion or a disingenuous claim made in line with all the other pump-and-dump schemes that plague the so called crypto currencies.

The point of the article is that around the world very large amounts of loans have been denominated in US dollars, even in countries that don't use USD. That means there is always a constant and large demand for USD to repay those loans.

So outside of the US, no USD is not just a store of savings, it's a means of repaying debt. Hence why people want it and will accept it as a first preference over most other currencies when international transactions need to be made.

Repaying debt is the same as an increase in the store of savings.

Your personal balance sheet moves in the same direction from a lower value to a higher one.

Not in USD it doesn't. You got your loan in USD, spent it to buy whatever you needed, you have assets, not USD. You need USD to repay the loan, where do you get them from?

The price of bitcoin would probably grow way way way way higher than 20k if Saudi Arabia decided they were only going to sell only for bitcoin, as in “add a large number of zeros” higher.

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