Mexican billionaire Salinas says his banking business may embrace Bitcoin
reuters.com
reuters.com
Billionaire buys BTC. Billionaire pumps the price of BTC. Billionaire profits. There's at least one other billionaire who plays this game.
Many in developed countries don't understand the challenges of a devaluing currency with unlimited supply or the difficulty of being unbanked.
Gold? No, it's only back at its 2012 peak now.
Bonds? I'm laughing.... or crying...
Stocks ... Could be, but very risky... because if QE stops tomorrow the stock market will correct -60% or more...
(Until Mexico gets a slight handle on systemic corruption in every aspect of that country; I have a hard time believing anything they claim about anything.)
Any mention of interest rate hikes and Bitcoin takes a dive too, because as far as I understand it, there's many borrowing cheap money (i.e. with low interest rate) to "invest" hoping to profit off the ponzi scheme.
I agree with you but we can also say with certainty that economics of Bitcoin are identical to a Ponzi scheme. Earlier investors are payed with funds from more recent investors.
At any time, all owners of bitcoin actually have their own bitcoin and theoretically could sell their coins because they actually have them. (unless we're talking about cases like specific companies or exchanges in which clients are being fooled into thinking they own bitcoins that they don't actually own. However, even in this case, the fraud is with certain BTC ecosystem players, not BTC itself as a thing.)
A ponzi scheme on the other hand literally transfers funds from new members to previous members in order to maintain an illusion of high returns, until the house of cards collapses as new members stop paying in at a rate that can sustain the illusion of returns through dishonest fund transfers.
These are all very basic and easy to grasp distinctions. It's tiresome to see the parroting of "BTC is a ponzi scheme" by so many supposedly non-stupid people on HN. Opposition to a thing shouldn't justify obviously, idiotically sloppy reasoning.
So what you are saying is that earlier investors investments only grow with influx of new investors. How is that different than a Ponzi scheme?
> At any time, all owners of bitcoin actually have their own bitcoin and theoretically could sell their coins because they actually have them.
Here you are describing a Ponzi scheme. Literally. You are just repeating what I wrote in the previous post: "Earlier investors are payed[paid] with funds from more recent investors.".
> A ponzi scheme on the other hand literally transfers funds from new members to previous members in order to maintain an illusion of high returns, until the house of cards collapses as new members stop paying in at a rate that can sustain the illusion of returns through dishonest fund transfers.
That is how bitcoin works. Are you trolling me? If I buy a bitcoin and later sell it that is literally a transfer of funds from a new member to me, a previous member.
> These are all very basic and easy to grasp distinctions.
You listed no distinctions.
One more time but even simpler: Bitcoin's structure is not designed with willful deception in mind. There is risk and some organizations working in the ecosystem are indeed fraudulent but the BTC blockchain itself is not. That alone makes it very different from a ponzi scheme.
Secondly: Earlier investors investments may grow or shrink in value depending on a number of factors. They're not dependent on new investors by default, and no transfer is taking place. Previous investors hold their same bitcoin and new investors hold their own, with their respective returns depending on market price of their assets subsequent to purchase, not literal transfers of cash/assets from new investors to previous ones to maintain a fraudulent picture of high returns. This latter process is how a ponzi scheme works, and The difference between these two things is obvious.
By your absurd definition of bitcoin as a ponzi scheme, much of the stock market and especially many high performing stocks with market caps way in excess of their book value could also be called ponzi schemes.
I first wrote: "Earlier investors are payed[paid] with funds from more recent investors.". Those are the economics of a ponzi scheme. In you previous post you just reiterated that point using different words. Go back and quote where you showed that that claim isn't true for bitcoin.
> One more time but even simpler: Bitcoin's structure is not designed with willful deception in mind. There is risk and some organizations working in the ecosystem are indeed fraudulent but the BTC blockchain itself is not. That alone makes it very different from a ponzi scheme.
This has no relation to anything I wrote.
> Secondly: Earlier investors investments may grow or shrink in value depending on a number of factors.
What are those factors for bitcoin?
> They're not dependent on new investors by default, and no transfer is taking place. Previous investors hold their same bitcoin and new investors hold their own, with their respective returns depending on market price of their assets subsequent to purchase, not literal transfers of cash/assets from new investors to previous ones to maintain a fraudulent picture of high returns. This latter process is how a ponzi scheme works, and The difference between these two things is obvious.
From where do the new investors get their bitcoins if not from earlier investors and how do they get them if there is no transfer of cash/assets?
> By your absurd definition of bitcoin as a ponzi scheme
Never did that.
> much of the stock market and especially many high performing stocks with market caps way in excess of their book value could also be called ponzi schemes.
Yes, some stock at some point in time can have a similar behavior to a ponzi scheme. That doesn't make them a pozni scheme.
Just wait till you see what happens to the price of crypto when Tether QE ends and 65% of all trading volume just pops out of existence.
Gotta ask why are you worried that the stock market might correct 60% when Bitcoin did correct 65% this past month (65K to 28K peak to trough)?
That said, I fully expect Tether to implode in the next year or so.
I'm also suspicious that right as the crypto downturn hit they suddenly went out to raise $440M - something I wouldn't expect a stablecoin with billions in the bank to need to do. [2] However, personally I would assign them a risk score of 3/10 ("Hmmm") as compared to Tether's 11/10 ("Oh sweet mercy") - a sentiment echoed by the Fed [3].
IMO there's a few things propping up USDT, including multi-stablecoin liquidity pools doing automatic arbitrage against other stablecoins.
[1] https://www.centre.io/usdc-transparency
[2] https://www.coindesk.com/usdc-builder-circle-raises-440m
[3] https://www.coindesk.com/us-fed-official-calls-tether-a-chal...
The inflation in these countries is not because of the way their economy is structured but because lack of structure and integrity. Things are not good in these countries, people don't seek to preserve the current wealth(and fail because of their currency) but they seek to get out of poverty and those who are not in poverty seek to explode their wealth so that the can buy a mansion and a Ferrari. The richer ones seek ways to hide their wealth out of the reach of the politics because in this type of countries the political situation is usually unstable and those who get very rich are cronies. When the crown falls the cronies need to have an exit strategy(sometimes they can adopt but sometimes the new crown comes with its own people) and that usually is buying property or companies overseas. Now they have the BTC option.
Therefore, in such countries people don't really keep local currency long term already(when they do, they will do it to get interest rates that at least match the inflation). The inflation rate is relevant only when doing business deals, financing projects or purchases and adjusting employee salaries. No one is losing their wealth to inflation.
It was while people had at least some hope to buy a property. But nowdays the yearly increase in a property price is more than the median yearly salary of a person in the poorer countries (this may soon be true for western countries as well).
In Eastern Europe people immigrate to west for higher salaries so that they can buy an apartment in their home country, but if they don't use a loan to buy it, they are losing a lot of time to be able to buy a good place that they planned to.
Still, as you wrote, in Europe people are still thinking very conservatively.
This is not a limiting factor for billionaires looking to protect their wealth from expropriation, the use case the parent post contemplates.
Hyperinflation is a monetary phenomenon. If the government prints a bunch of money, the purchasing power of people holding the currency will go down. If the money supply was fixed, there couldn't be such inflation (if it was completely fixed, this could cause other issues, but not hyperinflation).
Historically inaccurate. If the economic base vanishes, inflation—even hyperinflation—will manifest. Fixed quantity is no panacea.
What matters is the ratio between money supply and the economy. This is why, when the industrial revolution switched humanity from stable state/near-zero growth to positive-growth mode, we matured past the gold standard, first to bimetallism and finally to fiat.
[1] https://www.stlouisfed.org/on-the-economy/2014/september/wha...
Property is hard to buy and sell (takes time), and there were a lot of new printed dollars and euros recently.
Bulgaria seizing 213K BTC: https://www.coininsider.com/bulgarian-government-owns-3-bill...
The US seizing 73K BTC: https://www.bbc.co.uk/news/technology-54833130
are prime examples.
More recently, US getting back some of the ransom paid: https://www.fastcompany.com/90644461/stolen-bitcoin-is-hard-...
In fact, seizing property can have many complications and be very hard(ownership structures, occupant protection laws, debts and obligations etc).
https://www.theguardian.com/business/2019/aug/25/british-cit...
This is incorrect. If the owner doesn't reveal the private key, the government cannot seize the bitcoin.
Never underestimate the cryptanalytic power of whacking someone with a rubber hose until they give you their keys.
Source?
>Never underestimate the cryptanalytic power of whacking someone with a rubber hose until they give you their keys.
No forms of wealth is safe against torture, and I don't think people expect bitcoin to be any different. It's still vastly more secure than a bank account (which only requires a phone call to seize) and is trivially linked to your identity (as opposed to pseudonymous bitcoin addresses)
I believe there are only 4 addresses with more than 100,00BTC each. Satoshi is 1. I believe Bitfinex is 3.
[1] https://www.coindesk.com/bulgarian-government-sitting-3-bill...
[2] https://www.forbes.com/sites/andygreenberg/2013/10/25/fbi-sa...
The flaw in your analysis is that you assume that there's a one to one relationship between an address and a person. This is not the case because a typical bitcoin wallet has hundreds of addresses and address reuse is discouraged. Therefore your conclusion that bulgaria is the nth largest bitcoin holder in the world because there are are only n addresses with balances larger than it is incorrect.
[1] https://medium.com/cryptocurrencies-ups-and-down/top-ten-bit...
Source: tried to buy property for many months in 2 different foreign countries. Havent been able to do so yet mostly due to challenges around title and very poor broker listings / knowledge
But in many ways it is easier than in the west, since you don't need to deal with: inspections, appraisals, mortgage contingency, closing periods, CCRs, escrow, etc.
I own two pieces of property in a developing country and in both cases it took about a day. I gave them cash and they handed over the title.
It definitely doesn't take months.
Supply is only half the equation. Velocity matters. [1] The new supply was added due to a drop in velocity, and they plan to remove it from circulation once (if) velocity returns to normal. This is SOP - and a huge advantage of centrally managed currencies. There's no doubt in my mind we'd have seen a massive deflationary spiral otherwise.
Let me ask you, why do you think this new supply was added and what was its impact?
[1] https://www.stlouisfed.org/on-the-economy/2014/september/wha...
(M2 * M2V) / GDP = 1[0]
That's the formula to calculate M2V.
New supply is not created due to the drop in velocity, velocity drops when new supply is added. When M2 rises and GDP stays the same, M2V drops.
As you can see from your own chart, when the economy came back to normal in 2015, they did not remove it from circulation. And yet velocity, when the economy was booming, was still dropping. M2 is constantly rising. This is forced because we have trade deficits that force us to accept debt equal to those deficits.
The impact was rising asset prices. The value of goods was not touched at all. Money is not neutral.
Velocity does not by necessity drop when new supply is added. Velocity is how quickly money changes hands in an economy - an increase in economic activity is an increase in velocity. GDP is calculated from supply and velocity, not the other way around, yeah? [1] Adding supply by decreasing interest rates can stimulate economic activity, increasing both the supply and velocity commensurately.
The economy slowed down, money stopped changing hands as people were locked inside, and the Fed lowered interest rates and allowed the supply to rise to incentivize economic activity.
The pandemic scared people into saving. The new money is in fact to your point invested, which has led to an increase in certain asset prices, but at a rate that far outpaces inflation (i.e. the same quantity of Apple shares will today buy you a lot more bread than a few years back). [2]
As for 2015, the supply was actually contracted in that the fed began unwinding its balance sheet. It was doing so at a good clip. As you can see here [3] the balance sheet dropped from 4.5T to 3.75T before the pandemic. However, to the extent inflation remained well controlled, it shouldn't be particularly critical to do so.
[1] https://www.investopedia.com/articles/investing/051415/how-c...
[2] https://fred.stlouisfed.org/series/PSAVERT
[3] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
No.
Your graph shows that the Fed only starting to unwind their balance sheets in 2018. Why was the Velocity of Money dropping during a boom phase? It's because it's calculated like I said.
Our trade deficits force us to take our greater and greater amounts of debt. During recessions - where people and companies are unable to take out the debt - the government is forced to back us.
The growth of GDP has been constantly dropping because our economy has been keeping alive more and more zombie companies. Many of these companies are taking out debt, and funneling that debt directly back into their stock through buybacks. These buybacks increase the demand of their stock and reduce the supply, which raises prices, which raises their market cap, which allows them to take out more debt! Since their market cap has risen, Vanguard and Blackrock and all of the other index funds are now forced to buy more, which pushes even more demand to these stocks.
With the growth of debt, the Fed can now unwind their balance sheets. The cycle continues...
I have to admit, being in a developed country, that I genuinely don't understand why someone would switch away from a local currency that is failing at the task of being a currency to a cryptocurrency like bitcoin that is also failing at being a currency.
The Venezuelan Bolivar is even worse.
https://tradingeconomics.com/venezuela/currency
If you saw this happening to a close neighbour then you would also be worried about your own currency.
Not saying that bitcoin is the salve they need, just that perhaps given that context you can understand why it appears like an attractive alternative to the local currency. Also USD and EUR may be better options but I dont think having accounts denominated in these currencies is easily available to many people in Venezuela or Mexico. I have only (last 3 years or so) been able to hold EUR or USD denominated accounts (relatively easily) and I am in the UK. I'm sure it was possible to do for longer than that but it required hoops to be jumped through that are not always the easiest.
I can also totally see people using bitcoin as a speculative investment. That's also not an argument in favour of bitcoin as a currency.
> Also USD and EUR may be better options but I dont think having accounts denominated in these currencies is easily available to many people in Venezuela or Mexico.
So bitcoin is used not because it's a good currency but because it's better than the available alternatives. I guess that makes sense.
Currency is the thing you retain from earnings or cash investments out into to cover near-term spending needs.
The things important for currency are low-volatility and universal acceptance. Among the things that don’t matter much for it are “does it tend, on average, to gain value”.
If I have a need to pay someone, I use Venmo or Zelle. Bitcoin is slow and expensive and volatile.
They've often required either a business account, a "premium"/high net-worth account of some sort, or dealing with an international banking team most normal customers either will never know exists or not have easy access to.
In extremes like Venezuela or Zimbabwe they do fail at being currencies as well, but the Peso is a perfectly functional currency. It's just not a reliable store of wealth. In developed countries we think of our currencies as both, but they're two distinct functions.
https://www.inflationtool.com/mexican-peso/1980-to-present-v...
What makes you think that billionaires are somehow altruistic actors no longer looking for an ROI? Especially an easy one? [edit] Or that they're immune to speculative manias?
The result was fascinating. With exactly one exception (from a university professor) all the people I was able to contact were incredibly gracious and encouraging. Based on that experience I now believe that to have significant success really does require a reflexive attitude of generosity and gratitude. I don't think successful people are paragons by any means, but when I compare how they responded to how the average person would respond to a stranger asking a favour, I have to say - I'd definitely trust a random billionaire over a random member of my own social class.
I would absolutely trust a random homeless drug addict over the random self-made billionaire. You don't acquire a billion dollars by playing nice, fair, or by the rules, and the norm is for them to treat people as exploitable resources. Being nice is the exception, and generally something only done when it provides some sort of benefit to them to further their exploitative capabilities.
Good on him. Good on Mexico. Preserving the wealth of the middle class and giving access to the poor and unbanked is tye way forward for a more egalitarian society.
Genuine question - how is this going to help the "poor and unbanked" to get access to an economy that's somehow insulated from what you say is the inflation surrounding them? And in what concrete way is it leading to a more "egalitarian society"?
As far as I can see, this only gives an opportunity to the already wealthy (and especially the super-wealthy) to increase their wealth at the cost of newcomers to the system. But I'm genuinely curious about the part that I'm missing, where the poorest in society are reaping the benefits of their Bitcoin holdings?
It's not about making a return, or about having 'enough'.
It's about keeping score, and the person with the highest number "wins".
Inflation in Mexico hasn't been that insane for the last 10 years. You have to look at wage growth and investment returns to really make a judgement
A man like him is sufficiently diversified in asset holdings that he doesn't really care about the fluctuations of any one (property, businesses, fx), but he very much cares about the government deciding to freeze his accounts.
It's an enormous irony (if a predictable one) that the biggest buyers of a "control your money!" story are not your wacky libertarians living in the forest, but the ultra, ultra rich, especially those who obtained their fortunes in marginal ways.
Or he’s just incredibly stupid. Maybe a bit if both.
I could also see him tweeting GameStop as an anti crypto move. He basically has done nothing but inject fraud and FUD into the “internet investing” space that Bitcoin is a huge part of. How many people sold BTC to buy GME or otherwise shifted money there away from crypto?
If you’re suggesting I bought in at the wrong time, I didn’t. I would never listen to Elon Musk.
Let me ask you this... do you include Greenland in your definition of North America.
Embrace. Extend. Extinguish.
Not your keys, not your coins.
Note after hyperbitcoinization the volatility would be much lower than it is today, simply because it would take so much more to affect the price.
Worse, without a central monetary authority to adjust the supply boom and bust cycles are greatly exaggerated just as they used to be with the gold standard. There's no mechanism to address a deflationary spiral or runaway inflation (again that can happen with fixed supply). That makes it less reliable and less dependable.
There's no such thing as neutral and apolitical money, certainly not at the point of use.
This is broadly speaking wishful thinking and voodoo economics.
Currencies need to be fungible, predictable, cheap to transact and hold their value as long as required to invest or spend on basic needs. Bitcoin is absolutely none of these things, making it crap money.
Worse, it's the grey goo of energy usage.
[1] https://www.stlouisfed.org/on-the-economy/2014/september/wha...
The idea inflation is supply side only is trivially falsifiable is it not?
If the treasury minted a trillion dollar coin and gave it to me, then I threw it into a vault and never touched it the supply went up but prices stayed flat. Supply alone isn't a complete picture, obviously - what people do with that supply matters too. So what am I missing?
Bitcoin is bad because it is a deflationary currency, you just made that point so we can move on.
With the Federal Reserve setting artificially low interest rates that causes M2 to expand(which causes M2V to drop). That M2 has to go somewhere, and as money is not neutral, it goes based on the utility of the person who owns that money. You just mentioned neutrality, so we're in agreement here. That money causes the value of _something_ to rise, it has to. Whether the thing that rises is consumption items that affect the CPI or in stocks is up to the people who have the new money.
This devalues the existing cash, and anyone who keeps cash is being feeling those effects. Anyone who pulled money out in 1971 and hid it under their mattress has been wiped out. The only alternative that these people have is putting it in other assets. The two main asset classes to pick from is housing and stocks. I hope I don't have to explain why housing is also a deflationary asset, and the only sustainable future we have there is a Land Value Tax.
So let's look at stocks. The bulk of the money creation is coming in the form of corporate bonds, which the Fed is artificially holding up. They take those loans and buyback their own stock. We can see that the Stock Issuance vs Stock Buybacks has been negative for the past decade[0]. That's right, over the last decade the amount of stocks - the core value holding of the World Economy - is not only not growing, it is shrinking. Stocks are also deflationary.
This explains the winners and the losers. This explains why prices are flat. Why buy more than you need when the utility provided in the future by buying stocks will keep getting greater and greater over time? This explains why GDP is rising only very slowly. There is no returns in actually taking a risk in creating value. Why work when you can just sit on your stockpile?
[0, Figure 7]: https://www.yardeni.com/pub/fofusequity.pdf
Thanks for your thoughts! Interesting read - both here and the other thread!
Re: housing, btw, it's a bit more complicated. On average, on an inflation-adjusted $/sqft basis, housing in America costs exactly what it did in 1973. [1] However, a few things have changed - mostly zoning related.
In rural areas, houses are now twice as big, and the average family is smaller. This is likely attributable to zoning: minimum size, setback, etc.
In urban areas, city councils refused to permit construction to meet demand - to the benefit of existing landowners. San Francisco added half as much new housing stock as necessary to meet the demand in the area over the last few decades. [2]
Japan is a great counter-example, where housing has remained incredibly affordable - even in Tokyo. Likely attributable once again to zoning rules. They have national zoning rules which permit housing in every zone. [3]
IMO housing is not deflationary because you can always build up, so while each square foot of ground space may appreciate, the price of usable square footage in aggregate doesn't have to.
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
[2] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage
[3] https://marketurbanism.com/2019/03/19/why-is-japanese-zoning...
There's surely a few more nuances where it isn't.
Blub paradox: (programming) The situation where a programmer (financial participant) sees less powerful programming languages (finacial sustems) than those he/she knows as lacking in important features, but more powerful ones as having bizarre or unnecessary features
You have a pretty warped definition of inflation if you think Bitcoin is non-inflationary despite undergoing 70+% inflation over the last few months.
Since there is paper gold, it would be amazing if paper bitcoins didn't show up at some point.