Here is Ross Stevens, CEO of Stone Ridge Asset Management, describing "the point" for an hour:
https://www.microstrategy.com/en/bitcoin/videos/bitcoin-macr...
It sounds like you've made up your mind about Bitcoin, but I believe you've missed the big picture. The above video, if you watch it with an open mind, will help you to glimpse it. Hint: it's not about cappuccino, it's about living in a world of competitively devaluing currencies and resulting asset inflation.
Humorously enough, the same is roughly true of Tesla, a car company which sells 5% as many cars at Toyota while valued about twice what the entire rest of the car market put together is worth.
Their only source of profit is selling carbon credits to traditional automakers who won't need them anymore as they're all moving electric too. One more Hail Mary distraction to maintain the one thousand three hundred P/E ratio. In a manufacturing business. Not software with zero marginal cost. Manufacturing. The industry average P/E is right around 15.
> ...it's about living in a world of competitively devaluing currencies and resulting asset inflation.
Currency is an intentionally-lossy temporary store of value. It only needs to hold its value for as long as it takes you to buy assets with them. At 2% inflation it does. Anything else is a straw-man you'd recognize if you attended ECON 101.
Asset inflation isn't inflation, it's an ROI. CPI is inflation.
This is a typical set of r/Bitcoin talking points that are easily debunked.
[1] https://qz.com/1659246/the-fbi-wants-more-information-about-...
Lol
Healthcare is a social policy matter, not monetary policy, and nothing to do with increase in the money supply. You take that up with your representatives not the Fed.
Housing is a function of city council zoning policy. You take that up with your city council not the Fed, or with the federal government it you want Japanese style zoning rules. [1]
Childcare is social policy, not monetary policy, and you take that up with your representatives not the Fed.
You can't just point to anything you don't like and say the Fed Did It or is responsible for it. All they do is control the money supply. Nothing more.
A reduction in your welfare isn't inflation. Necessities can outpace inflation. It's bad social policy, but it happens. What you fail to understand is that these prices will continue to outstrip a platonic ideal even if denominated in Bitcoin because the increase in pricing has nothing to do with monetary policy. Any temporary reprieve is due to speculative mania.
[1] http://urbankchoze.blogspot.com/2014/04/japanese-zoning.html
This is incorrect.
I admit I misspoke, because of course, monetary policy controls interest rates, but I maintain that a change in affordability is not dominated by inflation but rather other social policies. Houses are twice is big and families are 20% smaller.
Happy to debate more but [citation needed].
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
> Inflation adjusted
Inflation is a result of monetary policy. So when you’ve adjusted the price for the monetary policy, you see that 50 years of capital accumulation and efficiency has been soaked up by monetary policy.
> I admit I misspoke, because of course, monetary policy controls interest rates, but I maintain that a change in affordability is not dominated by inflation but rather other social policies. Houses are twice is big and families are 20% smaller.
Things are supposed to get cheaper as capital accumulates. Social policies undoubtedly have an effect. So does increasing the money supply. An increase in the number of currency units necessarily causes each unit to be worth less, ceteris paribus.
> Happy to debate more but [citation needed].
I’m not sure how to proceed. The notion that one could print money and have each currency unit correspond to the same amount of physical goods is prima facie false.
No, it's not, you're looking at half the equation. Value of money is a function of both supply and velocity. If velocity drops but supply increases commensurately, each unit of currency corresponds to the same amount of physical goods. [1]
This should be dead obvious to you, as the money supply doubled last year but the price of Apples went up 2%. Not 100%. Same with the entire CPI basket. Housing actually got cheaper. Rent went down a ton.
> Inflation is a result of monetary policy. So when you’ve adjusted the price for the monetary policy, you see that 50 years of capital accumulation and efficiency has been soaked up by monetary policy.
We are talking in constant dollars that have a 0% notional rate of inflation. That's what inflation-adjusted means in this context.
What do you mean by "50 years of capital accumulation"? People don't accumulate or hold dollars for exactly this reason. They accumulate and hold assets and value, whose performance matches or exceeds inflation.
> Things are supposed to get cheaper as capital accumulates. Social policies undoubtedly have an effect. So does increasing the money supply. An increase in the number of currency units necessarily causes each unit to be worth less, ceteris paribus.
I'm not sure what that means. Things aren't supposed to get anything as capital accumulates.
An increase in number of currency units may or may not cause each unit to be worth less, as velocity is the missing half of the equation. With that in mind the goal is each unit to be worth 2% less each year, to incentivize higher velocity of money and investment.
It's a straw man to say that your buying power drops 2% each year as a result of inflation. You're only penalized for inflation for the period between you receiving the dollars and using them to purchase assets whose performance exceeds inflation.
for consumer goods, “velocity” is the rate at which those goods are consumed. People aren’t generally choosing to starve themselves or pay rent on 4 apartments according to economic conditions.
i should have included “ceteris paribus” with my statement but I thought it was obviously implied.
> This should be dead obvious to you, as the money supply doubled last year but the price of Apples went up 2%. Not 100%. Same with the entire CPI basket. Housing actually got cheaper. Rent went down a ton.
Ceteris is not paribus. The increase in money supply soaked up all the decrease in prices people ‘should’ have experienced.
> We are talking in constant dollars that have a 0% notional rate of inflation. That's what inflation-adjusted means in this context.
I understand what “inflation-adjusted” means. Once you adjust for the price increase due to people’s dollars being worth less, the commodity costs the same. Of course people aren’t paying in notional inflation-adjusted dollars, they are paying in the actual dollars that have depreciated, so they end up paying more for less, because of monetary policy. The value they miss out on accrues to people who get the new money earlier.
> What do you mean by "50 years of capital accumulation"?
I mean that the capital stock of the economy has increased over the past 50 years as a result of people investing their surplus in capital goods. This results in increased productivity and (ceteris paribus) a lower real cost of goods and services.
> People don't accumulate or hold dollars for exactly this reason. They accumulate and hold assets and value, whose performance matches or exceeds inflation.
Yes, because monetary policy results in depreciation of fiat currency.
> I'm not sure what that means. Things aren't supposed to get anything as capital accumulates.
Things are supposed to get cheaper as capital accumulates because labor is more efficient when combined with tools, resulting in more outputs and the subsequent decrease in real price.
> An increase in number of currency units may or may not cause each unit to be worth less, as velocity is the missing half of the equation.
You’re missing the part where I said “ceteris paribus”, a commonly specified requirement for assertions about the connection between theory and economic reality.
> It's a straw man to say that your buying power drops 2% each year as a result of inflation. You're only penalized for inflation for the period between you receiving the dollars and using them to purchase assets whose performance exceeds inflation.
It’s not a strawman, its literally the case.
Additionally this requirement to invest dollars before they depreciate leads to asset prices skyrocketing without support from the underlying fundamentals. This leads to people who are already invested (the rich, the wealthy, the established old money, the upper class) gaining disproportionately, and new investors being priced out. Hence monetary policy is directly responsible for the rich getting richer and the poor being left behind.
The entire problem is that it's not false at all. There are various ways to produce more physical goods without employing more domestic workers. Every time the fed is printing money that money gets invested in a way that does not result in decreased unemployment. It's being used to produce more physical goods which keeps the price of physical goods constant.
Ultimately the only truly scarce "good" is labor. Everything derives from it. If prices are not rising that means labor is not scare at all, which is idiotic because there are lots of ways to productively deploy that labor.
I was unclear and I should have included ceteris paribus, but you’re correct. The fed keeps the price of goods constant when it should be decreasing.
> Ultimately the only truly scarce "good" is labor. Everything derives from it. If prices are not rising that means labor is not scare at all, which is idiotic because there are lots of ways to productively deploy that labor.
Raw materials are also truly scarce, and you’ve neglected to apply the same level of analysis here as you did above.
This is the laughably reductionist take that predictably appears on HN when folks think the dynamics of San Francisco apply everywhere.
Housing costs have nothing to do with the Fed? Really? You don’t believe record low mortgage rates are driving demand at all?
Nah, it must be city council zoning policy that is sending home prices soaring all over the country—-even in rural and unincorporated areas.
On average, the price per square foot of housing in the US is exactly the same now as it was in the 1970s, on an inflation adjusted basis. [1] In major metros, that number is higher, because of city policy, but on average, the number is flat. That means on an inflation adjusted basis in rural areas houses are cheaper per square foot.
Once you take into account that interest rates are about 1/5th of what they were back then, it's clear, housing is actually more affordable now than it ever was (per square foot).
Yes, zoning matters in rural areas. Minimum size rules, minimum setback rules -- all sorts of code changes -- have conspired alongside the 20% decrease in average family size and the changing tastes for more space, to make houses twice as big. Same price per square foot -- or lower! -- Twice as big. Twice as expensive.
I was wrong to say it has "nothing" to do with it, but it is by far not the dominant force as evidenced by the numbers.
If you're unhappy about poor folks not being able to afford the houses that's again social policy not monetary policy. I am too. But inflation isn't why.
By all means have at those windmills though, and please, cite your sources so we can have a debate on facts.
[edit] You're missing my point. Pricing in metros is more expensive because of council policy. Pricing outside the city is higher because they're twice as big. End of story. Please CITE YOUR SOURCES. This. Is. Not. Inflation.
You having a worse quality of life is not inflation.
Yes, white flight may or may not contribute to it. That's not Fed policy. That's social policy. And that's my point.
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
That doesn't negate the fact that people are still paying higher prices. If the fed is mandated with controlling the increase in prices then it is still upon them to address it, no? The fact that monetary policy is not a primary cause of the good/service specific inflation is irrelevant.
If 'everything is going up the same amount' then sure. If one particular contributor makes an outsized move in the wrong direction what's the fed to do? Fire up the printer at the cost of all of the other areas of life that aren't going up?
Healthcare contributes to inflation, sure, but if government passes a 50% tax on all healthcare procedures overnight, that's not the Fed's job to rectify. It's not their job to fight Congress on how relatively expensive certain things are. If the government decides healthcare should only be for the rich (...er) then it's not the Fed's job to change that.
They would account for what the newly more expensive healthcare cost does to inflation as a whole, and increase or decrease the money supply to match.
Their job is systemic, not targeted. Want cheaper healthcare? Talk to congress, not Janet Yellen.
Imagine if you are a bathroom remodeling company and people are building new bathrooms for $5k. You can build a bathroom for $4K. Suddenly the fed is loosening its monetary policy and people are building bathrooms like crazy with their bathroom mortgages. They are willing to pay $10k per bathroom but your costs didn't change. It's now extremely profitable to build bathrooms and that's exactly what you are going to do. You're going to hire lots of workers so that everyone can get their bathrooms. Turns out, a competitor does the exact same thing but they sell their bathrooms for $9k. Add more competitors and the price will be very close to the cost of construction.
Now replace the bathroom with the entire house. Suddenly you realize something. It's very difficult to find land to build your new house and even if you did you would have to upzone the property by tearing an existing property down and building a 2-3 story multifamily home there. Unfortunately, doing this is illegal in many places and where it is legal permits are being denied for arbitrary reasons.
You can't tell me that construction companies can't make money off new construction because the cost of housing is too low.
https://www.investopedia.com/articles/07/consumerpriceindex....
If 25% of circulating USD were created last year, and our economic value is the same or even diminished, wouldn't it follow that there must be significant inflation?
Not necessarily, no. The value of money is a function of supply and velocity. If the velocity went down and the supply went up 25% the fed can still nail its 2% target. [1, 2, 3] If the velocity increases next year the fed can shrink the supply commensurately to maintain its targets.
[1] https://www.investopedia.com/terms/v/velocity.asp
[2] https://www.stlouisfed.org/on-the-economy/2014/september/wha...
[3] https://www.investopedia.com/ask/answers/042015/how-does-mon...
It still seems to me that velocity can vary depending on the underlying entity. So unless every asset has the same velocity measure as the items in the CPI basket, it seems that there has to be some amount of inflation somewhere like possibly US equities.
How this interacts with assets is in my opinion not super clear. Pricing of assets is supply and demand, unlike the CPI basket. The CPI basket is based on human need. There's no human need for AAPL shares. However, there's a ton of stimulus money, and folks who remember 2008's V-shaped recovery, and a bunch of people stuck at home day trading. I think that's much more likely to be driving asset prices than supply. After all supply is enacted by changing lending parameters.
To the extent asset prices don't put pressure on CPI, they reflect an increase in welfare, not an increase in inflation.
>An accurate measure of inflation is important for both the U.S. federal government and the Federal Reserve's Federal Open Market Committee (FOMC), but they focus on different measures. For example, the federal government uses the CPI to make inflation adjustments to certain kinds of benefits, such as Social Security.[3] In contrast, the FOMC focuses on PCE inflation in its quarterly economic projections and also states its longer-run inflation goal in terms of headline PCE.
[1] https://www.stlouisfed.org/publications/regional-economist/j...
People are buying TSLA because they want to do something about climate change. Or maybe cause they worship Musk. This is probably holding for other companies in other industries. Bitcoin is definitely not only being bought because it’s digital gold. It’s being bought because people are emotionally attached to resetting the system. A bunch of middle fingers to the dollar rich (Bitcoin poor) by a bunch dollar poor (Bitcoin rich). This is why people are buying BTC.
Whether it is TSLA or BTC — value itself is being disrupted.
I hope given Tesla's new affinity with Bitcoin that what they want to do is "make it worse" lol. Tesla is literally selling its green energy credits to dirty car companies, then throwing it at Chinese coal miners.
The market goes through particularly bubblicious periods of pricing mania from time to time. It's happening now, it's happened before, and it'll happen again. I wouldn't read too much into it.
"..in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company." - Benjamin Graham
The whole run up there were trillions on the side-line, and folks who remember 2008 weren't about to let another V shaped recovery pass them by. They plowed money into whatever they could. Literally everything exploded in value last year. My personal trading account is up almost 14X on a 1-year basis today.
It's nothing to do with fundamentals, just a bubble. It'll revert in time, and then it'll grow again.
Yes, this time could be different. Past performance is not an indication of future performance. That said, it would be the first time something's gone parabolic upward (while lacking the fundamentals) without retracing, and I don't see any reason this time would be different.
[edit: Check this out: (1) https://imgur.com/a/HATGeWr (2) https://imgur.com/a/umQLsnK]
Will it eventually retrace? Probably. Almost surely. But it will probably not matter at that point relative to today.
I think we are in an era where stocks are mostly detached from fundamentals. Ask yourself who truly cares about fundamentals? It’s the uber wealthy who are trying to preserve their capital. Wealth disparity is huge so those numbers are fewer.
The Robinhood investors aren’t pouring over spreadsheets to decide where the best PE ratio tradeoff is most favorable. They aren’t trying to balance growth and income. They are literally buying whatever hyped them the most.
Now regarding the AMD chart. You should consider it in context of their defeat by Intel and subsequent turnaround. That, I think, drove the price movements shown in the chart. Did profit taking from amazing runs also matter? Probably. But you can’t ignore that AMD was nearly bankrupt and had to reinvent itself because it lost so much ground to Intel.
Once they have their peak production capacity and have surplus stock across all markets we will get a better idea of their true value.
The most that the price of TSLA and BTC have in common is that both their values can be represented on a graph.
> The most that the price of TSLA and BTC have in common is that both their values can be represented on a graph.
Well, that and one holds a chunk of the other. They're also surprisingly heavily correlated from a price action POV. I suspect there's a bit more going on than meets the eye. Burry tweeted the crazy level of correlation a few days ago.
Are you aware that a large portion of the population is unable to purchase assets? What do you say to these people? What do you say as the dollars they earn pay less of their rent? Less of their healthcare? Soon...less of their groceries?
I would tell those people that if their government is broken they have bigger problems than their currency and once they solve their leadership problems the currency won’t be an issue anymore. Tough but true. Nothing there changes with Bitcoin and it’s $20 transaction fees.
ArcticBull below me shows up in EVERY single Bitcoin thread to trash talk Bitcoin. Here's where we are at; some love Bitcoin, and others show up just to talk trash. Bitcoin is only going to grow beyond $100k the next couple years regardless of how sourly "ArcticBull" wants to astroturf.
It becomes actually more expensive to buy anything in the present, as a result, consumers stop purchasing, and as a result economic activity decreases.
DigitalGold is also non-sensical, because that is simply designed to track against inflation, to prevent the loss of today's buying power tomorrow because of inflation. But when something appreciates 10,000x it's not really a hedge against inflation anymore, but a different speculative instrument entirely.
So what? My argument has never been about price but about fundamentals. The fundamentals are crap. I don't care if gets to $100K in the "next couple of years" and neither should you. The price going up doesn't make it good, the price going down doesn't make it bad.
Spending an Argentina of power for 7 tx/sec makes it horrifyingly bad.
Wanna make a 100% ROI? That's not that hard. Risky, but you can make one overnight if you spend some time on r/WallStreetBets.
Unless fiat is abolished, the price of something in BTC will always be pegged to USD. As USD devalues as a result of inflation, the price of a product in BTC decreases.
I don't see the difference between someone in Venezuela choosing to hold their net worth in BTC (which could halve at any moment), versus their native, rapid inflationary currency. Both are risky, but if the central bank sorted itself out and fixed the currency issue, no one will have any reason to hold BTC any more.
Either there is an incredible amount of criminal fraud behind this or... this is perfectly reasonable?
Except nobody can really explain or confirm why.
Daily volumes of tether trades are consistently a high multiple of the total supply. (Today it's 130bln vs 30bln.) So I don't know if it's safe to even trust that number.
As per Steins law, anything that cannot go on forever must eventually stop. Question is how long?