What Happens to Stocks and Cryptocurrencies When the Fed Stops Raining Money?
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The Fed and SEC etc all claim they want to make things safe for retail investors, but we are seeing the manifestation of a malicious bubble right before our eyes and they are all doing nothing. Zero. Zilch.
Lots of people are going to lose a lot of money when this is over. And please remember that the government agencies that are supposed to be helping us are doing absolutely nothing.
And then, once the dust settles, just like after the dotcom bust, you will see a ton of regulations coming down like SOX to “protect” investors when we could have been protected RIGHT NOW, May 2021. It’s utter bullshit.
When people say conspiracies like the government is using covid to control us and try to take away our freedom, I would normally laugh. But after 9-11 and the “Patriot” act, the dotcom bust and SOX, and whatever regulations come from the fallout of crypto, I’m starting to wonder if they have a point.
What's happening is not specific to dogecoin/crypto in my opinion.
If you can get a low interest mortgage right now you’re in a good spot.
If you plan on staying there 10-15+ years and aren’t stretching financially I would buy.
In any case, the thing is that cannot be priced into the rates of loans, because the same factor that will contribute to a rising inflation (increasing the monetary mass faster than real economic productivity) makes the loans very cheap by definition.
I for sure would get into all the long term fixed low rate debt I can handle to acquire assets that I think will not depreciate as fast
So, any scenario were you bet (correctly) that inflation will rise at a higher rate than a fixed interest rate is very attractive
It’s like the house that went for $1M over list. Sold at $2.1M, just like the other comps in the neighborhood. The list price was $1M below comp.
Why not?
Please no one-liner strawman explanations :)
The majority of the western world's economic output is collecting rents
Would love to read more about this, do you have any links?
Watch a YouTube video about 'Capital in the 21st century'
There isn’t any demand, it’s all spent on necessities. So demand for necessities.
Majority of economic output is collect rents. Huh?
Please familiarize yourself with reality. Wages haven't been up in my lifetime. Capital has been beating labor for five decades, and now that there's a slight chance that labor might claw back a small portion of its massive losses, all the temporarily embarrassed billionaires are eager to cry about it.
https://www.census.gov/library/publications/2020/demo/p60-27...
The 2019 real median incomes of White, Black, Asian, and Hispanic households all increased from their 2018 medians [between 5.7% (Blacks) and 10.6% (Asians)] Percentage change in share of aggregate income was highest for the lowest income quintile (+1.8%). High income quintile saw decrease in share of aggregate income (-0.6%)
What's the hold-up?
You're describing what's been the case for quite some time, it doesn't explain why nothing's been done about it when just about anyone with a brain can see where it's headed.
The hold up is the mass manufacturing of consent by the media oligopoly.
I don't think anyone knows where it's heading. My bet is neo-feudalism
Everyone knows DOGE is a joke - so if you assume we're all capable of independent thought, what would you propose that is not a paternalistic view of the world?
We don't need more bullshit like accredited investor credentials which create huge differences in access to investments - that is real economic inequality justified by protecting the poor from their own stupidity.
I'm in the UK which isn't in a hugely different place. I'd quite like to invest my pension fund into residential property run with an ethical approach through a co-op. I was actually laughed at by a financial advisor, who explained that ethics (other than ESG) aren't something he can help with, and that residential property investment is for the big boys - eg, institutional investors.
My bank can invest in property and be morally awful in the process, but I can't do it without losing tax relief on my pension.
As for ethical investing, there are plenty of options in the pension market: https://www.youinvest.co.uk/articles/investmentarticles/8684...
Personally, I've shifted away from etfs and buy actual shares with voting rights. Everyone can be an activist investor with a SIPP.
By ethical, I mean no-eviction tenancies, long tenancies, no rent increases, etc. The fact is that lower income families have no hope whatsoever in the UK of buying a house because low incomes are now a signifier of insecure work. There's a section of the population that rotate through housing regularly enough through no fault of their own (because of landlords) that their kids can't go to the same school each year etc. Shelter has an introduction to the idea here: https://blog.shelter.org.uk/2012/11/a-return-to-revolving-do...
I'm aware of many of the other 'ethical' schemes on the market, but mostly, they're not actually that ethical once you scratch the surface. The genuinely interesting ethical stuff does carry some risk, but also accomplishes a lot. See the kinds of things listed here for what I mean: https://www.ethex.org.uk/investments
What I'd really like in my pension is freedom to take some risks, and representative democracy. It boils my blood to know that fund managers don't have to respect my values when they've investing my money. Likewise when the government says I can't invest in things I understand and approve of.
The government gives you a tax advantaged account specifically to encourage saving for retirement. It sounds like you want to use that money to do something else, and are complaining that you need to loose your tax advantage to do so.
[1] https://www.sec.gov/smallbusiness/exemptofferings/regcrowdfu...
Do they, though? Even if they know DOGE is a joke, do they have the rest of the knowledge on cryptocurrency to quite understand what they're putting their money into? The risks? The issues of things like time delay and transaction fees which may inhibit pulling funds out quickly? Etc.
The first result on Google for Dogecoin currently auto-completes to "Dogecoin stock". This indicates the degree of ignorance some people are coming into it with.
Large-scale price instability is a general negative. As is lack of wealth among the middle class. For an individual, losing a bunch of wealth on DOGE would just be a silly, or tragic, story. And I tend to agree that fools should be parted from their money...
But if a significant number of ordinary middle class and working class people are vaporizing their savings, that's a social and institutional problem to some degree. It would have ramifications that go beyond those individuals. See when large banks fail. One can wash their hands of it and say they should have chosen a better bank. But you still have mass unemployment and lack of liquidity issues to deal with, from a policymaker's perspective.
And as you say, wealth inequality is a problem. And chances are it's not the 19 year old college student who bought 100,000 of a DOGE a year ago who is cleaning house, on average. Much of this is flowing into investors who have six to eight $ figures locked in DEX exchange contracts raking in fees. For all the democraticizing potential of cryptocurrencies, a lot the wealth is flowing from the gullible to the already-rich.
I disagree with this. Fools have a hard enough life without permitting predators to take their money. Nobody chooses to be a fool.
I don't know what a good solution is, or how to stop something like dogecoin without being too paternalistic, but it also feels wrong to me to just ignore this game of musical money even though the most likely outcome is many people losing and a small number gaining, in a zero-sum gambling game designed to look a bit like investing.
Also I'd like to add that the only thing speculative investing has in common with gambling is that risk is being taken, it isn't gambling, and speculation in cryptocurrencies is certainly not a zero sum game.
Chris Sacca, who went on to become a billionaire investor in companies like Twitter, tells a funny story [1] about how he made foolish decisions in the stock market and lost a ton of money. Over the course of his career he reverses his fortune and becomes rich. The message of the story is something like "Don't stop grinding or hustling" or something like that. I think he's a good example of the ignorant fool that I imagine you are thinking of.
There's another class of fool though that basically cannot know better. This could include a wide variety of people, mentally unwell, gambling addicts, desperate people, elderly, people with an IQ of 80, etc. These people flat out are not going to read books on investing, or whatever mitigation path you would recommend to the ignorant fool, and if they did, they might not understand them or be able to use what they learned effectively. This is something like an "inherent fool" that I was thinking of.
What proportion of people who are going to lose money on dogecoin are ignorant fools, for whom this will be a valuable lesson and a stepping stone on their way to better living, versus inherent fools for whom this will be a setback in an already challenging life?
I can't speak for all cryptocurrencies in general, and I can only share my opinion, but I'm pretty confident that coins like dogecoin are certainly zero sum games. The best argument I can make for this is that zero value is being produced from dogecoin. Money is being put in, eventually people will want to take money out, but with no value being produced all the money that comes out of the system will come at the expense of those who put money in. It's kind of the quintessential example of a zero sum game.
I'd compare it to the company Coke. I can buy a share of Coke like I can put money into dogecoin. Coke is going to produce cans of sugar water. People are going to buy that sugar water, putting their money into the system, and, crucially, never expecting to get it back. They put their money in so that they can consume the value that is the can of sugar water.
This addition of money to the system, and the consumption of value, are what makes owning Coke not a zero sum game. Money games into the system from participants who do not expect their money back. As a shareholder of Coke, some of that money will come to me. I can own my share of Coke and benefit from the increased value that comes from the value Coke produces and the money of people who consume that value.
Conversely, dogecoin doesn't produce any value. You can move dogecoins around, but nothing is getting made and nothing is getting consumed. Every participant who is putting money in expects money back. There is nobody analogous to the person buying and drinking the Coke. Worse, everyone is hoping for MORE than the money they put in to come back.
As a simple matter of math, there is no real way for this to work so that everyone, or even most people, can benefit. If someone makes money, then someone else loses it. In this way, dogecoin is not at all investment. You aren't putting money towards a company or a venture, you are just buying lottery tickets that may or may not be worth more later. It's a gambling game of musical chairs.
Some speculative vehicles are not zero sum games because they have one or more of the following characteristics: they are an experiment in some technology or tool that can benefit all people, or the simple fact that they exist is useful, or they enable capital to be allocated more efficiently. Almost all speculative assets have the last trait, all currencies have the second trait, and right now as far as speculative assets go, only cryptocurrencies have the first trait.
When you say "benefit" you mean to get profit. But "benefit" can mean much more than that. The benefit of the invention of electricity cannot simply be attributed to the amount of profit made from it, or the amount used by the purchaser. It has a myriad of less tangible yet more impactful benefits, such as it helped humanity understand electromagnetism and it helped humanity get out of the mud. The same applies to new ways to abstract value. Would you say the concept of money has value beyond simply who has how much?
One idea might be some kind of test. Can you pass a basic financial literacy test? If so, then maybe you should be allowed to gamble even on high risk things. If not, maybe finance isn't for you right now. When you pass the test you get a license and need to provide that license when doing KYC checks with financial institutions.
I think we'll just have to agree to disagree on the question of whether all people have sufficient mental equipment to handle risky financial decisions.
I do think the concept of money is valuable. To put it in my earlier framework, I think the people who are consuming the value are the people who use money to exchange it for goods or services.
I don't think dogecoin innovates on money though. In many ways, I think dogecoin is a step back from money. For example, our current systems have vastly greater throughput.
While true, it takes people filling roles using the system to increase adoption and a killer use case (watching videos) creates a new market in which those roles will expand.
A killer use case is not a cool system, it’s the USE of the system by the role holders.
I've been following since near the beginning, and my circle's rather techy so they largely get it. But I'm not sure what the average person today understands about something like Bitcoin and similar, technically or financially. I've struggled to inform myself before. I looked into the protocols for some decentralized exchanges and I noticed that it's hard to find much about them because in-depth or neutral discussion is buried under a pile of buzz and hype. The biggest advocates promise the Moon, sometimes literally.
Perhaps public education of some kind could help, so that more people understand risks and unknowns? When everything that comes up on cryptocurrency is from the biggest stakeholders in the game, people will not be getting a fair understanding.
Unfortunately, the implementation is absolute bullshit. Proficiency is exclusively measured in experience, leading to a textbook example of Catch-22: You can trade precisely whatever you've already been trading in the past.
I do believe that some basic level of understanding of the mechanics of markets and various asset classes should be a pre-requirement, and I like the driver's license analogy: Just like in road traffic, with investment decisions, your actions don't only endanger yourself.
Unfortunately I don't know how that could be implemented without being yet another driver of inequality or being extremely easy to bypass.
The test could be definitely done better though, perhaps closer to the new tests for basic drone piloting.
For basic drone piloting, in Poland at least, you have to take an online course, and then take a test with I think 40 knowledge questions selected randomly from a pool of 90 or so.
You have 90 sec to answer each question, so if you're a good Googler, you can cheat, but really after taking the online course you don't need to.
Took me 2-3h to get my basic permissions to fly a drone. Advanced permissions require a weekend in-person training and a more complicated exam. Still pretty accessible.
I think we could have the same thing with investor qualification - a good test, and also a single "license", instead of each bank implementing their own testing scheme to answer 10 basic questions.
Dogecoin is at least honest, so many other "jokes" including Bitcoin, contemporary art, some stocks etc...
If people want to play a game of musical chairs, I rather prefer this game to be called exactly what it is.
It surprises me to see so many warnings about Dogecoin and so few about Bitcoin for instance. People actually believe there's any relevant difference?
Just look at how the U.S. IRS is starting to get a subpoena process off the ground with regards to identities of wallet holders from exchanges. Even though the glacier doesn't appear to move, I assure you, it most certainly does.
Never make the mistake of assuming just because something is new meaning it will always remain that way, and if your nation state is cracking down on political people non grata, they may have no compunction with figuring out who was behind those transactions with or without your help.
This is ironically why cash not in a bank vault is the king of anonymous, difficult to trace financial activity. No paper trail.
Note: Of course banks and regulators know that too, and capital markets will do anything to make sure the maximum number of people entrust their finances to an institution to a loanmaking institution. People don't realize that ease of transaction and traceability is in and of itself a populational control mechanism.
I haven't looked too much into it, so maybe I'm wrong about the useful program thing, but to my knowledge smart contracts are mainly used for creating digital tokens and things like that. Maybe Ethereum could be a useful way to conduct raffles, lotteries, or sports betting.
If you know more about Ethereum could you point out any useful applications that use it?
And yet, it will always happen. Some of us are fools, some of us will be fools, and some of us will never know how much of a fool we really were. Those will be the lucky ones.
Nature works this way for a reason.
Misguided compassion is a big part of why we are even having this discussion in the first place: people wanting to help wholeheartedly without realizing they are being fools themselves.
Were our previous best intentions not good enough? or maybe were they the cause of it all? Who can tell, who can tell...
In fact, perhaps a law that prohibits you to get mugged in the first place is in order.
A law against fraud is like a law against mugging, you cannot commit fraud and you cannot mug. Both pretty clear and reasonable. But a law against trading because you might get scammed is like a law against getting mugged: YOU ARE NOW FORBIDDEN TO GET MUGGED, problem solved!
Of course people, because they are good hearted and their intentions are so pure, often fail to see the difference. After all, how can anyone be against a law prohibiting mugging?!
"dumb money" IRA? By default you can only invest in index ETFs, but you you can contribute up to 5% of your income per year to a "dumb money" account that allows you to do whatever you want with it.
And, while most of the consequences of poor investment strategies do fall on individuals - at least superficially, both the hyper-social nature of our species and the political/economic structure of our societies ensure that those consequences frequently extend far beyond them.
If you risk more than you can afford to lose an anarcho-capitalist free market economy, then yes, you choose to be a fool. You're choosing to opt out of a regulated financial system with insurance and legal protections into a system whose only rule is "caveat emptor, lol. Git gud noob" because you think it's easy money.
There's a rule in poker - if you look around the table and can't tell who the mark is, it's you.
If enough people lose their life savings, it will be regulated.
If there is a place where no light or monitoring shines, the question I would ask is how frothily the waters teem with predators.
I felt like accepting your rightish narrative and then you drop this asocial bomb?
The criteria for accredited investors is a very crude way to address this problem by reducing blast radius; we could come up with something more convoluted like requiring a minimum amount of bond posted to act as a floor (similar to how non-insured people driving cars works in some states) but the effect would be roughly the same.
A Keystone Cops level of professionalism displayed by the central bankers at the time.
Lords of Finance - https://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/...
the reason these early institutional investors of pre-IPO stock gets massive gains is because there are few of them compared to retail. A startup that needs the capital is in a less commanding position, and thus, the institutional investors can demand a better price.
If a lot of retail investors invest in pre-IPO like you describe, it would push the price higher earlier, and thus, there will not be a price pop _at_ IPO, and the gains that make pre-IPO allocation so attractive to retail investors will not happen.
Should we not have speed limits because traffic accidents still exist in spite of traffic regulation?
But as an extension, I wonder why we ever stopped using Tulips as a source of value.
If people wish to be part of a bubble, let them?
Perhaps the obvious counter is that this causes harm to the greater good, is bit valid or insufficient ?
The problem with any economic disruption that's large enough is that "the economy" includes both you and them. A concrete example is how "people" lost their homes in mortgages they shouldn't have taken in the first place: it didn't just affect them, the whole market crashed because everyone had an overvalued home. These things will cause rings on the water.
Dogecoin, Bitcoin, the TINA symptoms in the general equity market are all symptoms of a bubble. I just pray that it will peter out and not blow, because an economy where everybody's grasping their savings for dear life is not a very enjoyable economy to live in.
My gf didn't. She found it on Robinhood and keeps calling it a "stock." The main reason she bought it was because of something Elon Musk tweeted and a bunch of her friends did too. I've always been pro cyrpto currency but this freaks me out.
They were emphasizing the returns being impressive without the expected caveat "past performance is no guarantee of future results" stock brokers must make to ensure people think before chugging the hype.
Crypto exchanges have a duty to educate and make sure people aren't putting their life savings and taking out loans to buy crypto. That's not happening right now.
Yes, and people who lose all their money in casinos also need to be protected. I would be in favor of anyone who loses the equivalent of a mortgage payment at a casino and then misses said payment being forbidden from gambling for five years, as an example.
> Everyone knows DOGE is a joke
You know DOGE is a joke. Some people really are investing in it to make money. They are taking savings, not entertainment, funds and putting them in DOGE.
> if you assume we're all capable of independent thought, what would you propose that is not a paternalistic view of the world?
I'm not convinced that people are capable of being purely rational economic actors if that's what you're asking. Even if they were, they're overworked and don't understand the risks. It's not a coincidence that cigarette smoking trailed off once the surgeon general started putting warnings on packs as opposed to the previous few decades when he just announced it in statements.
> We don't need more bullshit like accredited investor credentials which create huge differences in access to investments
Well, we could just outlaw things like DogeCoin. We outlaw snakeoil and chain letter pyramid schemes for the same reason.
The gambler can get their mortgage money back, automatically gets banned from casinos, and maybe the casino would try to prevent the situation from arising in the first place.
Maybe you are just wrong in your assessment, ever considered that option?
Good for you that you are certain of the outcome. You can make a lot of money knowing something that others don't. :D
Do they? What’s different between DOGE and Bitcoin other than that someone said DOGE was a joke.
Absolutely correct. The SEC will make this as another argument for crypto regulations and are waiting for another disaster after this mania ends in tears and lost money designed to 'help' and 'protect' the retail investor.
Then we'll see a 'real' pull back from crypto and a repeat of 2018.
To the late comers buying DOGE from Robinhood, welcome to crypto.
https://news.bitcoin.com/new-sec-chairman-policies-cryptocur...
> SEC Chair Gary Gensler talked about cryptocurrency policies and bitcoin in an interview with CNBC Friday. Gensler taught classes at the Massachusetts Institute of Technology (MIT) in financial technology, cryptocurrency, and blockchain technology. He was confirmed as the new SEC chairman last month.
> Replying to a question about how he would regulate cryptocurrencies, the chairman replied, “To the extent that something is a security, the SEC has a lot of authority.” Noting he will refer to cryptocurrencies as “crypto tokens,” the former MIT professor emphasized that “a lot of crypto tokens … are indeed securities.”
> We will be working with Congress, and if they see fit, to try to bring some protection for people that want to invest in this speculative asset class.
https://www.sec.gov/spotlight/cybersecurity-enforcement-acti... ("SEC Digital Asset/ICO enforcement actions")
https://www.ropesgray.com/en/newsroom/alerts/2021/March/The-... ("The CFTC Signals New Era in Enforcement of Cryptocurrency Trading with Action Against Antivirus Software Pioneer John McAfee")
https://www.natlawreview.com/article/cftc-s-approach-to-virt... (The CFTC has taken the position to apply “robust enforcement” to “prosecute fraud, abuse, manipulation, or false solicitation in markets for virtual currency derivatives and underlying spot trading.”)
Spot cryptocurrencies are not a complex product, so very little need to protect retail from it. The risk is first order and easily understandable by retail investor. At least as much as going to a casino.
What requires regation are sophisticated products where the risk/reward is more complex, such as (inverse) futures, which require understanding margining, leverage, liquiditation, etc and would be really deceptive for a retail investor.
AFAIK crypto futures are already forbidden for retail in US & UK and require to be institutional/HNW with KYC.
As for the token themselves, regulation is there too, there are clear distinctions for most regulator on utility, security, commodity tokens, etc.
This is certainly not true. The highest ranking economists would have a month long debate on if there is intrinsic value or not and how to value their network effects and still come out with no consensus. It couldn't actually be further from the truth that these are simple instruments. The risk and utility of those are totally unknown. At least in a startup that makes EV cars you know that if they sell X cars you will get Y money.
But I'm not talking about valuation here, but risk profile.
If a token value is at $100 and drops to $95, you lost 5%. This is intuitive and simple, there is no surprise or hidden risk. Everyone is able to understand the direct relationship between the price of the token and your portfolio valuation.
For derivatives, this is not the case. Depending on your leverage, maintenance margin, etc, a 10% drop in price of the contract can mean game over you lost 100% of your stake. This is the kind of complexity that you want retail investors to be protected against.
I agree, but I think the difficult question here is determining when somebody understands a risk profile.
If a person, at some rational level, understands that a casino is a zero-sum game, that their real return will rapidly approach the expected return of zero the more often you bet etc., but at the same time has a pathological gambling problem, should they still be allowed to play?
> The risk is first order and easily understandable by retail investor. At least as much as going to a casino.
Casinos are heavily regulated in some jurisdictions for precisely these reasons.
Also, I feel like in a democracy (yes, maybe US isn't but I am talking about your vision now), institutions are owned by the public. It's the public (i.e. you) that needs to take initiative about what their government should do. Otherwise it just runs on autopilot (which has benefits, too), or is overtaken by business interests.
My feeling is that people are actually happy in the bubble. Yes, some if not most are going to be unhappy, eventually, when it blows up. But who should tell them better?
Why? it doesn't matter. People decided to speculate over the money of Dogecoin, that's it. It doesn't matter that it is a cryptocurrency or that it is based on doge. People will speculate over anything if it's profitable. Frozen concentrated orange juice? Gamestop? Whatever, it doesn't matter.
Is this a movie reference? It reminds me of something, but I can’t say exactly what.
Actually, looking for a good clip from the movie it's depressing how many people are actually referencing that movie in context of this bubble.
The Fed makes no such claim and has no such mandate.
The SEC does, though it's hampered by its jurisdiction over securities and little else. Cryptocurrencies have succeeded, in part, by branding as and behaving like currencies more than securities. They operate in a space that likely requires legislation to be regulated.
> you will see a ton of regulations coming down like SOX to “protect” investors when we could have been protected RIGHT NOW, May 2021. It’s utter bullshit.
Rulemaking has a cost, economically and politically. For better or for worse, the most effective rule making tends to be reactionary. Regulating cryptocurrencies now would be political suicide. There isn't a clear cut, broadly comprehensible case for it.
That seems like a stretch. Most people wouldn't care, and the institutions that own it haven't bet that heavily on it. It's a fear-of-missing-out trade for the most part.
But a rich minority would. A rich, motivated group of single-issue activists is political white phosphorous. To say nothing of the fact that the main beneficiaries of such regulation would said minority. The disinterested majority doesn't have much downside if cryptocurrencies go to zero.
If they were rich before cryptocurrencies, they shouldn't care (unless they unwisely bet the farm on it); and if they're rich because of cryptocurrencies, no one else should care, because if cryptocurrencies crash, they wouldn't be rich anymore.
Everyone knows. No one is buying it because it's worth anything. They are buying it because they think there's someone more ignorant behind them to believe the lies.
But this situation is no different from any fiat currency, or even commodity backed currency if the commodity has no utilitarian value. Here is a fact: eventually the US dollar is going to become worthless and everyone left holding dollars is going to be broke. The game with anything like this is kicking the can down the road. Anything that is valuable solely because someone else wants it is going to be worthless eventually. That doesn't mean that in the meantime it has no utility.
[1] https://www.weforum.org/agenda/2019/04/50-years-of-us-wages-...
Also, you are measuring wage growth vs consumer price infation so ~2%. The article talks about asset price inflation which depending on how you measure it is closer to 15%.
All of them. You said wages were "falling behind" and I showed that was not the case. Now you say wages are "falling behind asset price growth" which is a meaningless statement because there will always be some asset prices that have increased more that wages have, just like there will always be some asset prices that have increased less than wages.
Based on your experience which of the following have increased in price less than wages have increased over the past N years?
- Housing / residential real estate
- Commercial/Industrial real estate
- Stocks
- Cryptocurrencies
- Healthcare
- Higher Education
Exploring this might help you understand what I'm saying better: when people buy dogecoin, say, with dollars, they're not actually just trading dollars for dogecoin. They're using dollars as a medium through which to trade their wealth (again, not money, similar to the value vs price thing) which could be their labor, land, other property, intellect they've sold for dollars, for dogecoin. In both instances, they're trading real wealth for something that is valuable because other people want it.
It isn't about the return. It is about the fact that both liquid storage mechanisms, dollars and dogecoin, have a "value" that is only valuable because at some point someone else will wind up with it when it inevitably becomes worth nothing. For both systems, the value is solely that people want it for now, and when they no longer want it, the people left holding it are broke, and the people that traded it to them for real wealth benefit. This is a pyramid scheme.
Then you argue that the dollar is a pyramid scheme because people only want dollars to buy things that have real value. It's true that people only want dollars to trade them for other stuff, but, again this is not what a pyramid scheme is. All mediums of exchange that have no intrinsic value are only wanted in order to exchange them for other stuff. A pyramid scheme is not that, a pyramid scheme is an investment scheme in which all revenues come from the investors themselves. [2]
Cash cannot be a pyramid scheme for the simple reason that the revenue streams of an investment in cash add up to zero, and therefore it's not something that an investor would consider investing in in order to earn a profit. Therefore cash is not an investment scheme, and something that is not an investment scheme can't be a pyramid scheme.
[1] https://en.wikipedia.org/wiki/Real_versus_nominal_value_(eco... [2] https://en.wikipedia.org/wiki/Pyramid_scheme
Nominal terms amount to how much of your investment in dollars you lost (or gained) while holding dollars, in real terms. Real terms are all that matter.
Cryptocurrencies are also used to trade for other stuff, as is their stated purpose.
They both have the same characteristic that makes one a pyramid scheme, but somehow not the other. They're fundamentally similar assets, but for some reason one is given a special category carved out specifically for it that actually does not exist. When you take away this special status that is only ascribed to fiat currency to differentiate it for the sake of discussions like this, they're interchangeable assets that share all fundamental characteristics. All fiat currencies are speculative assets.
When contractors demand to get paid in crypto, or offer a discount, governments will move towards crypto just like any other party in the system.
https://www.bloomberg.com/news/articles/2021-02-11/miami-may...
Secondly, the entity that collects and spends taxes, is not the entity that prints the money (also for good reason). So in the end your government is just a user like any other user in the fiat system.
If most IT consultants demand to get paid in crypto, and government wants to hire IT consultants, then government will try to get their hands on crypto. Same deal but reversed.
There is no point in a government collecting taxes when they cannot spend it.
Armies in this case are a stand-in for state power.
The entities that collect money and who decides how much money is printed are in reality the same persons.
Some already allow it: https://www.govtech.com/policy/two-governments-charge-ahead-...
So what you said is already proven wrong: They do not demand to be paid in the state currency.
> are in reality the same persons
I'm from Belgium.... how so? I'm sure the ones who collect taxes here (=Country, region Flanders, province and town) are different than the European Central Bank.
The EU is a bit different, but broadly the director of the ECB is chosen by the European Council, which is part of the EU government, which your government is part of, and also spends some of the money collected directly, and instructs national governments to implement and collect quite a few taxes
So now you are saying that the whole economy could run on crypto: Pay taxes in crypto, getting paid by government in crypto.
So the only user of fiat would be the government, because somehow they want to convert first to dollars to go back to crypto.
I think you just made my point, that government has no control over what we will use as currency.
Just compare against a different strong currency to see how fragil the USD is
I just did. What are you talking about? Please link me to graphs.
> My USD loses value every day, while my crypto just grow.
I have a good amount invested in crypto, but look at the chart man. We are in-or-approaching bubble gain% levels.
Meanwhile the value of ETH doubled since Bidens tax raise.
Sure it's going to crash, but I'd be stupid to invest money in something that is already crashing for months and years
If I keep my money in a stock, the worst that can happen is its value craters tomorrow.
If I keep my money in a cryptocurrency, the worst that can happen is the wallet site gets hacked, the value craters tomorrow, or the government outlaws converting it back to something you can actually exchange for non-darknet goods and services.
Interestingly my stance is the complete opposite: the only markets where retailers have by far the best opportunity of making a buck are decentralized unregulated markets.
Why do I say this? Regulations of the "normal" (US) financial markets have rigged the game in a completely unfair way at the expense of retail investors and pension funds. They are referred to by institutions as "dumb money". Not so much because retail is dumb at investing, but because they are forced to play by different rules that guarantee that retail loses most of the time compared to the institutions they trade against.
If you don't know what I'm talking about or think that I'm a conspiracy theorist, you might want to google: "wash trading" (deliberate illegal price manipulation by trading back and forth between large firms on "the same team"), share rehypothecation / short selling more than 100% of the float, illegal naked short selling, selling of order flow (Robinghood), market makers like Citadel scalping off every single retail and pension fund trade for their own benefit, complex order types at various exchanges that retail doesn't have access too that have been designed specifically to benefit certain trading institutions, metals price market manipulation and so on and so forth: https://www.nasdaq.com/articles/jpmorgan-to-pay-%24920-mln-f...
One of the main root causes of this all (including the 2008 crash and the flash crash) is that hedge funds and other institutions have been in bed with the SEC. AKA: corruption and conflicts of interest. In the many cases where the SEC takes action, the fines are completely disproportional (way way lower) than whatever the institutional criminals made with their behavior. Example: the almost 1 billion USD fine that JP Morgan paid in the link above is a fraction of what they made on metals market price manipulation. This means that retailers (the poor and middle class) are essentially paying a "tax" to the rich through the money they lose on trading against big firms. All of the above is almost certainly still ongoing, because: why wouldn't it be? Nothing changed. The fines for cheating are still tiny compared to the gains.
Here's an interesting interview with an ex-high-frequency-trader (Citadel) about the types of conflicts of interest (and cheating) in that type of trading. In case you're curious for more substantiation of my weird opinion: https://www.youtube.com/watch?v=AYct0XX0uTU
Besides. IMO the adequate article title should be "What Happens to Stocks and Cryptocurrencies When the Fed NEVER Stops Raining Money?". For the past 20 years the trend was clear: lower interest rates, negative interest rates and now helicopter money. Why would the FED stop now? or in the future? I don't see how they could? Assuming I'm right this means that a guaranteed way to lose buying power is to keep your savings in USD.
Do you know that joke about the FED raising interest rates? Right. They didn't and won't. (just my opinion)
All of the above is why companies like Tesla starting buying crypto (Tesla was almost shorted into bankruptcy. Likely by Citadel and the Bill Gates family fund among others) and this is why Elon Tweeted something like "Bitcoin, in retrospect it will seem inevitable". I believe he's just venting his frustration about the rigged unfair markets that almost cost him his company. To me personally those Tweets made a lot of sense instantly.
I no longer believe in pretending in the good faith of posters here on HN. This kind of anti-social clap-trap is dangerous and stupid.
As far as anyone currently knows, free markets have cycles and there isn't anything you can do about that. Central planning historically goes a lot worse. Perhaps just assume that the winners in the market cycle will on average be more productive deployers of capital than the losers, and that all the losers participated willingly in something they knew was a meme?
I don't see how they're meant to be "helping". That'd be like if the government swooped in to save your companies stocks from falling. What conspiracy is there here? Value has always been what we believe it to be, or what an authority says it is. There is no inherent value to anything. Gold/silver are just as valuable as some doge hashes.
, no protection against collusion, no rules against "insider" trading (as in, people acting before publishing token information, groups orchestrating pump&dumps), no rules about publishing false information about companies/projects, etc.
This is already covered by slander and fraud laws
On what grounds should we (not they) do more, and wouldn't that fuel even wilder conspiracy and self-victimization?
/Devil's advocate
Completely wrong. There is no "safe", risk/reward is always balanced. The SEC is supposed to prevent people form being mislead, tricked, scammed whatever you wanna call it. That's absolutely not the same as making it "safe".
If you buy crypto today you are either uninformed or you know the risk exactly. Both ways its your fault and not the SECs task to prevent you from buying stuff.
As I understand it, the dogecoin creator tried to show us how it basically has no value since anyone can create a cryptocoin.
We surely proved him wrong :D.
I have a rock based currency worth 1$ per rockcoin. Not anything impressive about that at all.
What is impressive about Dogecoin currently isn't the exchange rate, it's the $78 Billion market cap and the fact that the market has liquidity at that market cap. The unit price of something you can almost arbitrarily subdivide isn't really worthwhile mentioning on it's own. Without additional information, it might just be another rockcoin isolated with a hypothetical or low total value.
Bitcoin was not the first electronic currency or even first cryptocurrency but it was the first one decentralized and with open transparent database of all transactions not anonymous, criminal and anarchist let's destroy government thing.
Egold and DigiCash failed because of the things aforementioned but cryptocoins will fail because of the wild "pump and dump" schemes going on over and over again. And I hate to see celebs and CEOs like Elon Musk jumping on it only because it is fun. Musk could talk about technology behind Bitcoin but he chooses to promote DogeCoin/s because of the memes and lolz.
I would personally prefer US banning cryptocoins and then bringing some act and approving them one by one.
This is nothing Satoshi envisioned for Bitcoin; wild market speculation and manipulation construct it was meant to be "A Peer-to-Peer Electronic Cash System".
I call it a conspiracy of boredom. If the average person knew all the details of how our monetary system worked, they'd be in the streets throwing molotov cocktails. The problem is that the details are just too boring and complicated for a vast majority of people to be interested in so nobody cares.
The Matt Taibbi articles of the 2008 era attempted to get people interested but covering it in sex drugs and rock n roll and putting it in rolling stone wasn't enough to get anybody interested.
A few greedy people get lucky and pull out of the bubble with returns. Most greedy people get burned by their get- rich-quick gambling.
This is not anything new or terrible. Of course, all of this craziness can be used to mask genuine scams or scamish-marketed "investments". Those are what the Feds need to chase and prosecute. There are plenty of cryptocurrencies (and inflated stock evaluations) that are genuine pump and dump scams. These pump and dumps really should be prosecuted harshly.
We really need to get over this idea that we can regulate away losses and negative outcomes of basic stupid human behavior simply because it seems like an ideal that we be able to do so.
It can be argued that trying to "regulate away losses and negative outcomes" is exactly what has been happening over the past decade.
Yes, this is because we have been living in a boomer-retirement-fund driven crony capitalistic market for the past 2-3 decades.
Wall Street and politicians in bed doing whatever they can to squeeze the economy of every last drop (usually through regulations + consolidations) to put in the old peoples last-wishes/bucket-list fund.
We are a society that went from having too many impoverished elderly to having too many narcissistic and lavish elderly who have no idea what too even do with their 3 homes and 7 figures. Rich hippies, basically.
NO, the market cap is not the value of something real. If the author doesn't know that hes already disqualified to make any useful comment on the matter.
Market cap simple explained: https://coil.com/p/XRPFax/Understanding-the-Crypto-Market-Ca...
Fed only reluctantly raised rates several years after '08. I would be surprised if they began staking them higher anytime soon regardless of any 'strong recovery' narrative.
The banks and courts still haven't dealt with a wave of evictions and the resulting property consolidation that will result when the moratoriums are lifted.
Plus, if you believe in speculation, the markets are frothy right now. Survey says: S&P500 is held up by FAANG, corporate bonds 'a fiasco' [zombie companies], SEC snoozing as usual. If market adjusts, then rates will have to remain low; or perhaps go negative. If you believe speculation.
But the main reason that stocks are high is probably that there is so much money out there:
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
I think the fed would need to take back money to reverse the inflation. I don't know via which mechanisms they would do this. Does anybody here know?
It is important to remember that this would bankrupt the government unless the government finds ways to raise capital elsewhere. So we will probably not see any de-inflationary actions unless we also see higher taxes.
My feeling: We will see a fast rise in taxes and a slow rise in interest rates.
In other words: Governments will try to take away peoples money and only afterwards slowly make money more valuable again. Maybe. Maybe they will just keep the value of money at the current level.
As they buy less bonds, their price drops, as the price drops risk-free yields drift higher. As risk-free yields drift higher, consumer credit becomes simultaneously more expensive and less available, as lenders allocate less of their capital to risky lending and more to risk-free (government) lending. This credit shrinkage causes the deflationary effect.
The trouble is that every time the fed has even hinted at this on past occasions (stretching back a decade), an immediate violent market event has usually followed. https://www.investopedia.com/terms/t/taper-tantrum.asp
Why would a bank take FED money in?
selling bonds or increasing reserve requirements are two of the fairly straight-forward tools central banks have to reduce money supply.
So that leaves us with selling bonds.
As for the IOUs from banks: It is an interesting question how much stocks are bought with that kind of pseudo money. Since banks probably do not give those IOUs to people who want to buy stocks with them, I would think not so much.
The IOUs would have to go through zombie companies which give the IOUs to their employees who then buy stocks with them.
It just has to stop buying them, and maybe actually start selling from their giant portfolio...
That's not a reasonable take (in the context of the question). Controlling reserve rates controls the money supply, and the money supply is relevant when it comes to the level of inflation in the economy. What you're referencing is the 'monetary base'. (which is actually only a relatively small fraction of money in circulation).
I explained why I think for that for this context the monetary base is the right type of money to look at.
For crypto and stock we do the same. People say Bitcoin is capped at 21 million and stocks in circulation is the amount the companies issued. If someone owes someone else a coin or a share, we do not count that towards the supply.
We need to start rolling back on all of the stimulus and COVID rules we've implemented to encourage people to return back to work.
Once this happens, I believe production will increase and inflation will dissipate quicker.
- keep money in the bank at negative interest.
- buy stocks at high prices.
- lock cash in bonds at risk of inflation.
- buy real estate at high prices.
And which strategy is best depends on Fed policy.
For high inflation expectations it would be wise to own companies that have plenty of debt and sell commodities or have pricing power
But they can stay irrational longer than I can remain solvent :)
But yes, I can tweak my portfolio. But for the most part we're largely left with no other option than to ride the bubble.
Maybe I still should be. I invested heavily into it years ago because most of the actual uses of cryptocurrency benefit from the privacy advantages of Monero.
I've sold out now. The truth is that since Monero came out, it has become much, much easier to wash or launder all other coins. I think long-term this is going to hurt its value. We're going to see long-term consolidation into a few main cryptocurrencies and there will just be a button in the wallet software that swaps all your coins or washes them using some crazy cross-chain technology or something. As an example, you don't really need to hold monero to benefit from its privacy advantages. Just sell your ETH into monero, move it between a few wallets, then sell it back into ETH. This could be done automatically.
So idk, I'm less bullish on it now even though I used to be a diehard fan.
The government has had its foot on the gas for a long time. The economic engine meat indeed be about to overheat. But this article is more a reaction to which gas pedal is being pressed not the risk of overheating.
Should the government fix those by heavy-handed restrictions on public’s actions first? It is up to WSJ to raise awareness on those issues first.
I remembered about +- 10 years a go in Portugal, everyone started talking and participating in this Pyramid scheme game, called "The Bubble/Ball Game" with the only difference in being presented as concentric circles instead of a pyramid: https://i.servimg.com/u/f44/12/54/78/75/folha_11.jpg
I went to check the exact dates that this happened and was reported by newspapers:
16 June 2008: https://translate.google.com/translate?hl=&sl=pt&tl=en&u=htt...
20 June 2008: https://www.publico.pt/2008/06/20/jornal/o-jogo-da-bolha-a-f...
Boom! Right at the same time the last big bubble in US (subprime crisis).
This proves not only that low interests and easy credit spreads between asset classes, but also between geographies. Each day it passes, the worst the burst of the bubble will be for EVERYONE.
Of course the most difficult part is to guess when, it can be tomorrow or it can be in 2 years, and knowing that the latest stages the most outrageous are the returns, we still could be 50%/100%/200% from the top.
For me, I'm almost all invested in S&P 500 and Nasdaq 100, they would also be affected when the bubble burst, but at least I will have productive assets generating cash-flows and selling actual things that people want and need, instead of gold-like (or with even less utility than gold) "tokens".
So everyone knew it was a ponzi scheme and participated anyway?
The markets will crash to reflect their true monetary value.
Or, we will see the ultimate effects of hyperinflation outside of the equity markets. Your potatoes and carrots will start costing $50 a piece.
Even asking the question is evidence of failure; the economy and its participants should have been robust enough to withstand this kind of shock. Instead there is an inverted economy where irresponsible and indebted risk takers are bailed out with money from those who trusted the system, while amongst other things saving for a rainy day. This bankrupt philosophy ends with social credit and cast-like systems with printing and debt at their core.
It seems that those who love freedom and responsibility have attempted to build a safe haven from all this garbage, let's hope that crypto survives.
Because of this, I’ve always thought it’s better to allow bigger economic downturns but don’t mess with that fabric of trust.
There's a reason a we don't say, "Well, if the bridge collapses while they are on it, it's their fault for not having studied civil engineering. Shoulda known better."
If you want to be protected when the bubble pops, buy what rich companies do. Real estate and blue chip stocks
if it was inevitable, there would be no bubble to begin with. Crypto is not a hedge against inflation; it’s a hedge against collapse.
Houses hyperinflation
Stocks hyperinflation
Crypto hyperinflation
(The FED has the lever to control "inflation" - or rather asset price appreciation in all three of the above by controlling the interest rate and rate of bond purchases, so talking about inflation in them is kind of useless. The FED could crash all three markets (stocks, crypto & housing) tomorrow if they wanted to)
I can live my life just fine without owning a house, stocks or crypto, and in fact many people do.
I'd bet fewer than 3% of the population here are buying US stocks.
During the massively undersubscribed 7 year note auction last month BTC absolutely tanked and recovered in perfect synchrony with SPX, TLT and gold.
During a recent deleveraging event (last month I believe), it was possible to observe BTC following an identical path to SPX for almost the entire day.
Play around with the link I provided and see for yourself.
Watching charts we can see all sorts of things we think are correlated but mathematics provides a way to check if those things are real or noise.