Bitcoin implodes: 90% down from June Peak

It's a speculative bubble too. It has a base case of value, as you observe, so it probably won't collapse to nothing and will remain an industrial commodity for the forseeable future, but I'm pretty sure the value will collapse to something more like its actual industrial value (with a bounce to below that value) as soon as it is clear that the economy has recovered. (Which on sufficiently long time scales is quite probable, but I make no claims about what may or may not happen between then and now.)

I've considered a strategy of buying gold post-collapse on the grounds that on the 30-year business cycle, gold will probably be spiking again in the next financial crisis at right about the time I'd be retiring, but that's 100% pure speculation, not buying for "intrinsic" value... but then, I scare quote the term since there really is no such thing.

I also think investing in gold in the case of total collapse is a bit bizarre, because in the event society totally collapses, the only gold that will be worth anything is the stuff in your physical possession, not numbers in your bank account, which the government trivially confiscated (shortly before it discovered that doesn't prevent collapse either, because the government's problem was never having enough numbers in computers). (They can confiscate physical gold too, of course, it's just not trivial.) I know that's not the motivation of every gold bug, though.

With all due respect I think you both misunderstand the principle of Gold as currency (or bitcoin as currency for that matter).

Currency at its most basic level is a representation of the value generated by the society it is used in. So the number of U.S. dollars represents the entire value of what U.S. citizens produce at any given time.

What makes commodities valuable as currency is they are finite. There's only so much Gold, Silver, and Bitcoins in the world. Since all these commodities can be used as currencies (i.e. they can be converted to paper currency) they represent value beyond just its practicality because it stays consistent as the amount of each fiat currency available grows.

So Gold goes up in value because it isn't really going up in value. Everything else is going down.

In my opinion, a cryptocurrency with real backing may work. However, at the risk of being redundant, it does have to be real backing. I have to be able to really trade my currency for the real backing at any time. Including in a "run" situation, because ironically the inability to weather a run on the currency radically increases the likelihood of a run. It can't just be an "in words" backing, where everyone politely agrees that there is a fictional backing, because in a significantly-sized economy, somebody will figure out how to exploit the difference between the real and perceived backing... which manifests as bringing the real and perceived backing into forcible equilibrium.

There's at least two major problems with your particular proposed backing: Computation power isn't actually worth that much, and the value of a given amount of computation power is sinking fast, and will continue to do so for the forseeable future. This creates practical problems in providing enough backing to power an economy. And a couple of "bonus problems": Allowing people to perform arbitrary computations on your hardware can have certain legal problems, and the process of solving this problem may raise nontrivial overhead. Backing your currency with a service rather than a good has interesting implications in a "run" situation because you've added an unavoidable temporal component to the process of cashing out the currency, which is the sort of thing you could probably squeeze a PhD thesis out of describing the precise effects of that, but I doubt they're very good. But at least it would provide a non-zero backstop to the currency, which would be a start.

(Interestingly, if we ever hit a final equilibrium on the price of computational power, note my two major objections go away. While some practical problems remain, one could imagine the rest could be worked out. Could a computation-backed BitCoin variant be what powers Economy 2.0 in Stross' Accelerando?)

While specific details would require competent tax counsel, and there are a lot of specific details, the general rule is that if you receive anything of value that can be converted into dollars at a fair market price (which I use in a sort of technical sense, not just as a wishy-washy term, the IRS knows how to obtain a reasonable approximation of this value), the IRS will hit you in some form for that price. BitCoin has reasonably well-established values in dollars which can be used, should it become successful enough for the IRS to care it will be even more firmly established what the dollar value of a BitCoin is, and if nothing else the IRS can always assign a market valuation to the other side of the transaction, the thing being purchased/sold.

When you win A New Car! on the Price is Right, you better believe the IRS and all relevant local tax municipalities express no confusion on how to tax you for it. BitCoin would not be particularly different. Without a rigid wall completely separating the BitCoin economy from the greater global economy (in which the USD is only one player), the greater global economy will tend to efficiently price a BitCoin. ("Efficiently price" is a technical term, what it means in this case is that the conversion rate in some sense has a real existence and isn't just a polite fiction, though there's a couple of simple logical steps betwixt the raw definition and that conclusion.)

There is basically no escape from taxes, other than any that may be explicitly laid out in tax law.

"Legal tender" is a matter of fact, not perspective.

The USD dollar is not going to plummet because the economy "flops". (We've tried that.) In the end, what we consider a "flop" is really just a very small adjustment in growth rates, generally temporary. It's painful, but it has relatively little effect on overall economic productivity.

At the end of the day, people have to pay taxes in USD. They have to pay their rent or mortgage in USD. They're only going to be interested in bitcoin if they can dependably convert it back into USD at a moment's notice, and there isn't large amounts of volatility in the exchange rate. That only happens if you've linked the value of the currencies.

Otherwise, you're asking people to do currency speculation, which not only isn't advisable, it generally isn't possible, since they have an ongoing stream of income and spending to match, not a huge pool of cash that they're holding onto. There may be some short term arbitrage as prices move up or down, but it will still end up being largely neutral to them, since only a small % of their annual income will be in bitcoins at any one moment.

I'd say it looks even less stable. Adjusted for inflation, the dips and spikes are much deeper, and people who bought gold in 1980 still haven't made their money back.

Not that it really matters. Right now, people aren't buying it because it's stable. Quite the opposite: People are buying it because the price has been increasing rapidly, and this world is sadly full of individuals who confuse what a thing costs with what a thing is worth, and who have neither the imagination to contemplate the possibility that whatever is happening right now might not keep happening indefinitely, nor the attention span to remember just how quickly and radically it can fail to keep happening indefinitely.

Consider this: just a few short years ago, people were arguing that real estate was a very sound investment. They did so on the grounds that the price of real estate had been increasing rapidly for years, and that everyone else was buying it too.