The result is that the number 1 way people get into Bitcoin is through a mechanism that has none of the attributes of Bitcoin.
Sure, but 95% of people don't care about that. They just want an asset they will go up. Everything else is just a story people tell themselves so they're not putting 20% of their net worth in trading cards.
Gold was the best portable and fungible speculative bet for a very long time.
Bonds are speculation that a country will continue to be productive and well managed enough to pay their debts without resorting to massive inflation.
Stocks are a speculation that a company will continue to be competitive and profitable for long enough to recoup your investment.
Real estate is a speculation that an area will continue to be a desirable place to live or useful for some industry.
Rare art is a speculation that people will still be willing to pay millions for your original Picasso and that we won't be able to produce undetectable copies with better technology.
Bitcoin is a speculation that people want a digital, neutral store of value like gold was that they can park excess money in that they don't have a better use for right now.
Namely Bitcoin generates no returns but everyone expects it to. Since everything is speculation we are still allowed to rate the speculation by how risky it is. Surviving long enough to finish writing this comment has a 99.9999% chance or more. So this type of speculation isn't risky at all. Meanwhile betting that Bitcoin will go up or down is inherently risky since there is no driving force behind Bitcoin other than human behavior itself.
That human behavior is more reliable than anything else when you're working with a Nash equilibrium
My ultimate point with the comment above, is that dismissing bitcoin as nothing more that a rampant speculative bubble is not a good argument against it.
Everything we value is a speculative bubble that can eventually pop if conditions that cause us to value it change. The bitcoin bubble can pop (and has many times) but so can the 'trust in the US government' bubble.
You've reduced his argument to ridiculousness. That's kind of low-effort, so in that spirit: It's true, nothing is in fact certain. Telling yourself otherwise is a convention that makes it easier to live and be resilient.
> Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
> Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
> ...
> A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
--Warren Buffett https://www.berkshirehathaway.com/letters/2011ltr.pdf
(emphasis added in the final paragraph)
Exxon Mobile is a speculation that they'll be able to pivot their business out of carbon fuel long term. Even monster companies falter and fail. Exxon in particular is down 50% from its peak in 2014.
Income generating assets are fantastic, but owning them requires work to constantly re-assess the landscape that makes them capable of generating income. Some people like Buffett are really good at that game. Winners like him start to win even more when they have hundreds of billions of wealth to slosh around which gives them the power to create self fulfilling prophecies with their investments that you and I don't have individually.
This is why people have started using passive index funds as savings accounts, which seems to be starting to distort the market and has a lot of people worried that it will lead to a housing bubble like crash, especially with Boomers withdrawing their retirement savings from the market while Millennials and Gen X might not earn enough to outpace the withdrawals. A demographic bomb.
Do we really want a world where doctors feel compelled to waste valuable time and attention playing the stock market game because a savings account doesn't even pretend to protect your money from inflation anymore? People from all walks of life with money to protect are increasingly riddled with anxiety that the wealth they've worked hard to save is getting washed out from under them, and it's making us all a neurotic mess of a society.
That merely reduces the potential return, it doesn't eliminate the potential for return entirely, which is something Bitcoin suffers from.
>Exxon Mobile is a speculation that they'll be able to pivot their business out of carbon fuel long term. Even monster companies falter and fail. Exxon in particular is down 50% from its peak in 2014.
Or I can just buy their stock with the expectation that they pay dividends or engage in stock buyback programs that return value to investors. Bitcoin has no potential for returns.
>Income generating assets are fantastic, but owning them requires work to constantly re-assess the landscape that makes them capable of generating income.
The inability to generate a return reduces the potential for gains significantly.
>This is why people have started using passive index funds as savings accounts, which seems to be starting to distort the market
There are thousands of index funds using completely different strategies. I don't know how you expect that to distort the market. The reason why small retail investors should just stick with a standard index is that they simply do not have high enough capital and thus returns to justify spending money or time on complex analysis or engage in manual rebalancing of their portfolio which involves taxes and order fees. Index replicating ETF are just a cost saving strategy for small investors. If you believe that small investors are distorting the market then institutional funds would rejoice and take advantage of the greater volatility and deploy more capital because of the almost risk free return that such a "distortion" would bring with itself. Since the return of a managed fund exceeds the return of an algorithmic fund people would switch their strategy until both strategies have an equal return on investment.
>and has a lot of people worried that it will lead to a housing bubble like crash
If a lot of people are worried about a crash then why are they investing in a way that perpetuates a crash? They would have to blame themselves for their risky strategies. Stop getting interest only mortgages. Stop buying GME. Stop buying Bitcoin and so on.
>especially with Boomers withdrawing their retirement savings from the market while Millennials and Gen X might not earn enough to outpace the withdrawals. A demographic bomb.
You mean well deserved inflation and full employment? Who is going to shed a tear because of that? Are Millenials going to complain to Boomers that they gave them too many jobs and too much pay?
>Do we really want a world where doctors feel compelled to waste valuable time and attention playing the stock market game because a savings account doesn't even pretend to protect your money from inflation anymore? People from all walks of life with money to protect are increasingly riddled with anxiety that the wealth they've worked hard to save is getting washed out from under them, and it's making us all a neurotic mess of a society.
You can send your complaints to your central bank. They are following a pretty stupid strategy that is counterproductive to their own declared goals. It's pretty simple, if the supply side is saturated simply stimulate the demand side (fiscal policy). Supply and demand have to be kept in balance. It's pretty ironic how Bitcoin anti inflation warriors complain how inflation erodes savings yet they are eroding even faster in a low inflation economy.
It's a useful commodity resource. It can be use for industry, science, dentistry, jewelry, etc.
But I do think the store of value use case where you arbitrarily hoard this useful commodity in a vault so you can sell it later is starting to die. Nation states and companies that need it for it's actual utility will still hoard it as a strategic reserve, like we do with crude oil, helium, uranium, water, grain, maple syrup, etc. But that's a complex risk assessment decision that depends on a lot of variables from predictions of future supply flow to geopolitics that individuals won't be able to evaluate.
I think bitcoin will replace gold as the long term money battery, where you can arbitrarily store value that you don't know what to do with yet for a long time. It might take decades of continued volatility and growth to get to that steady state.
Bitcoin as a working system has a value.
It won't inflate aways like fiat.
It requires no upkeep like buildings and other property.
It requires less intuition and research than fine art.
It is more portable and storable than gold.
It is more readily accessible than most things.
It is less dependent on products, market fit and changes, executive changes, etc. than companies.
It will take some value from each of the other stores of value based on investors' preferences and abilities.
I suspect the physical footprint required to keep the Bitcoin network running is actually quite significant. Considering estimated power usage of all the "mining" operations.
The inflation/deflation curve of US fiat has been much more predictable than BTC. You're statement "just another store of value" is almost a tautology, as any tangible or intangible item in the universe can potentially fit that definition. What matters for a useful currency is that it is a stable store of value.
As long as you admit that BTC is a speculative commodity rather than a currency, we're fine. But this isn't how it was marketed to all of us for the past 10 years. "coin" == "item of currency". Now the narrative has changed to "digital gold" because that's what's selling right now.
And you should further admit that for the past 10 years we've been promised a decentralized currency with lower transaction fees than mastercard/visa/escrow/forex-fees and faster transaction times, and none of those things have happened.
There is risk involved in both, but they aren't identical.
Bitcoin by contrast isn't a productive asset, has no fundamental property like gold does, that exists outside of its original purpose, and its maintenance requires constant usage of energy just to jog in place. Switch off the BTC network, and value goes to zero, which isn't true for gold.
An electronics manufacturer that uses gold is an income generating asset. Gold is a commodity that does nothing on its own.
Some even have better features (think Ethereum or Monero or Zcash).
Nothing is stopping people from launching bitcoin2,bitcoin3, etc and having the same technology available - yet BTC is the major player skyrocketing.
This is an example of the market being irrational longer than expected, in my book.
The problem with Facebook is that it's not exclusive - there are tons of alternatives.
Some even have better features (think Twitter or TikTok or Discord).
Nothing is stopping people from launching Facebook2, Facebook3, etc and having the same technology available - yet Facebook is the major player skyrocketing.
This is an example of the market being irrational longer than expected, in my book.
Not so. They still allow speculation on BTC price volatility and "get rich quick" gambles is what drove most of Bitcoin growth in the past few years. If anything, the big exchanges make Bitcoin even more suitable for speculation than if it was on the blockchain, since you can trade way more if you don't have to wait several blocks for your trade to be confirmed.
> It is not at all clear to me that having more (relatively uninformed) speculators will lead to less volatility for such an instrument.
I am not sure how we can judge the informedness of the speculators or what we are comparing them against. But, each additional speculator improves the informedness of the market overall.
I don't think that can be true. Leaving bitcoin aside for a moment, if a new speculator comes into the stock market who truly believes (perhaps due to misleading marketing) that "stocks only go up". This is clearly not the case from an objective standpoint. How would the entrance of such a speculator improve the informedness of the market as a whole?
Do Swiss Franks pay dividends or other types of cashflows? If I have 50,000 CHF in a box in my cupboard, what value is it beyond a small amount of fuel to burn? At some point I will hope someone (perhaps someone in Switzerland) will exchange something I want for those pieces of paper.
On the other hand the Swiss Government could decide to make the money almost worthless, practically overnight (India did this with Rupees), by removing the main purpose of having the notes.
There is consistent demand by the Swiss government, in the form of tax collection.
You are so close to understanding the true value of bitcoin.
1. You mentioned loans, and I mentioned debts. Debts matter at least as much as taxes as a source of demand for fiat currency, since the government can "reassign" the ownership of property if debts are not repaid and the government will always determine debt payments in terms of its fiat currency.
2. Suppose the money is only distributed to citizens in the form of salaries. What do they do with it? Why does anyone they do business with -- merchants, landlords, whoever -- want it? One of the reasons why taxes and debt laws work well is that they are immediately relevant to almost everyone in a country (anyone who owns property owes property tax; anyone with a business loan must make their loan payments; etc.).
3. Suppose a country relies on resource wealth to stimulate demand for its currency. That country will compete in the global market for those resources and the demand for its currency, and thus the value of the currency, will fluctuate according to market forces. The price volatility would be a huge problem for the citizens of the country as they tried to use the currency in their daily lives.
So while in theory, under very particular circumstances, such a thing would be possible, in practice it would probably not last long. Volatility, weird distortions in demand, and other issues would render the currency hard to use and reduce its value in the local market.
My actual investments are in economically productive assets.
>At some point I will hope someone (perhaps someone in Switzerland) will exchange something I want for those pieces of paper.
The amount of businesses accepting Bitcoin as a means of payment is very small. The incentives to do so are almost nonexistent. Everyone is converting it back to a valuable currency, this is why the price of Bitcoin is highly volatile. There is no minimum demand for the currency. There is no economic system that is dependent on Bitcoin being less volatile.
The Swiss government creates minimum demand for the currency through taxation. The people living in Switzerland decide to adopt the currency and thus there is an economic system that needs the Swiss Frank to roughly maintain its value. Heck, small amounts of inflation are necessary because a currency that is generating a return is highly undesirable as a means of payment. Since it's losing value over time you are discouraged from using it as a store of value. The existence of an economy that is constantly exchanging currency for goods is thus ensured.
>On the other hand the Swiss Government could decide to make the money almost worthless, practically overnight (India did this with Rupees), by removing the main purpose of having the notes.
Yes and the beauty is that everyone would consider the currency worthless. With Bitcoin there would be extremists clinging to the belief that it would retain its value.
They are (foreign currency reserves), hence the swiss banks charging to store swiss franks. Indeed Hedge Funds (darlings of HN) make a killing out of currency speculation -- Black Wednesday and Brexit in the UK for example.
There's 61 currency funds listed here, I'm sure some are betting on swiss franks.
This is of course true, but it's also true for oil, buildings, pork bellies, and any other kind of property.
When everyone's prospecting for gold, sell shovels.
The way I look at it: people create things, these things have certain effects. That's all there's to it. I don't mind that it's almost 100% against the idealism of Bitcoin, the fact that centralized exchanges were created and used is interesting in itself. Moreover, it's not necessarily incompatible with decentralization since trading Bitcoin on an exchange (centralized) is something else than exchanging Bitcoin via the blockchain (decentralized).
Of course. All of that is kind of unavoidable if you want to interface with fiat.
Once there are enough people buying and selling for cash, you'll just need to find an old payphone, or some other known meeting place, if popular technical means are legislated away.
https://kelman.law/blog/money-transmitter-licensing-for-u-s-...
The same for selling bitcoins. You can do it a few times but if you make it a business you become a MSB.
Inheritance. Donations.
So, you do not have to spend everything while alive.
Not unless all economic growth stops, too. More people in the world + fixed number of bitcoins = deflation. More cars/computers/thingys made + fixed number of bitcoins = deflation.
As more goods get made relative to bitcoin, and more people come to exist, the prices of goods & services must come down relative to bitcoin in order to avoid liquidity crises - especially since the number of bitcoin is set to be capped (while population and goods aren't). Bitcoin instead was designed to handle this problem via trading in fractions such as satoshi's.
What are you talking about? When you purchase coins on Coinbase, they go into a wallet that you can easily deposit to through another means or withdraw to another wallet. This is the same with Binance, Kraken, CashApp, and so on. Exceptions would be Paypal or Rob-in-'hood where they have total custody, which has advantages if the user doesn't care about actually owning the coins themselves.
Don't like the centralization of Coinbase? Then just don't use it. There's plenty of other options for purchasing bitcoins. Buying them P2P is easy as hell. Local Coin Swap and Local Bitcoins allow you to buy crypto directly from individuals with an escrow system.
By the way, not everyone is interested in the same advantages of Bitcoin. One of the reasons Bitcoin has been on he rise the last year is that it has far greater potential than a savings account to grow in value and, unlike gold or silver, doesn't take up physical space. Not everyone cares about decentralization or is averse to risk.
Its potential may be offset by its environmental impact and lack of any fundamental value.
But if you want to interact with legacy banking systems then of course you need an exchange that's hooked into all that. I don't see why that should surprise anyone.
What are the other options? Using an exchange is risky (or at least seems risky to me, a person with almost zero crypto experience). Bitcoin ATMs? I know they exist, I've never personally seen one. Handing cash to a stranger? Definitely risky.
But once you have your cyrpto, you can move it to your own wallet, or anywhere else you'd like. I can't do that with fiat currency.