Personally I think that's enough to justify a small market cap and a volatile price, but I agree it is speculation that has driven it to insane heights.
You can have something whose primary function is cash between parties and a secondary, minority function is being melted down for jewelry - since that provides a backstop ensuring that it stays viable cash, that there is some value for it.
You can have something whose primary function is cash between parties and a secondary, minority function is used to pay taxes or tarriffs to some party (starting with quite ancient times) - since that provides a backstop ensuring that it stays viable cash as long as that tax collector stays relevant.
That minority use can be relatively small and rare, however, if it does not exist at all, then it's a poor medium for cash.
You can have something whose primary function is permissionless digital cash between parties and a secondary, minority function is a speculative investment bubble - which ensures that it stays viable cash as long as that bubble does not pop. But not really after that.
i know this will get downvoted but I'd rather take an occassional 25% loss with the knowledge that I'll regain it in the future, rather than a guaranteed loss of 6%+ per year for the next 20 years that I will never regain. When fiat and the dollar goes down the tubes, people are going to want something else that can't be inflated away.
There's something to be said for diversification. Now that cash and bonds are finished, that only leaves equities and gold. for some people that's not enough. and if you want more diversification then you'll need some crypto.
Crypto is 1.5 trillion (bitcoin is 600B) and there are 300 trillion dollars in the world worth of assets. if the world invested 10% of assets in crypto, that's 30T. Gold is about 10T. How is 1.5T or even 3T insane?
EDIT: when i say crypto, i mean Bitcoin because the supply is limited.
Sure, comparing and old physical asset that deprecate over time with a pure digital asset built on a blockchain makes a lot of sense. Currencies are way easier to trade than physical goods.
Everything is a question of supply and demand, it does not mean it's valid to compare every goods to another on the market.
The Bitcoin you hold is exactly the same as the Bitcoin the GP holds.
The 1996 Toyota you hold is very different to the 1996 Toyota I hold. The goods are not interchangeable. They are not commodities.
Only 2.1 million 1996 Toyota Corolla VINs were ever minted; there will never be another. If 10% of the world assets were held as Toyota Corolla VINs, that would give us a value target for a VIN of about 14 million dollars per VIN; I think with those assumptions it's quite reasonable to value a Toyota Corolla at 1 million USD, regardless of condition.
Bitcoin having any value is absolutely a shared delusion. But it at least has other properties that differentiate it from other shared delusions.
[1] https://money.howstuffworks.com/how-much-money-is-in-the-wor...
You're making the claim that you have the "knowledge" that you'll regain any losses with crypto. I'm not sure what the basis for that is.
The comparison is flawed anyway, the point of cash isn't supposed to be an investment with returns, it's currency you buy stuff with! Even with inflation running at over 8%, the dollar is still good as currency, you don't need to convert it to get paid in it and buy things with it.
Crypto can be either a currency or a volatile investment, not both. The gold standard famously linked the price of gold with our currency, and it forms part of the reason the Federal Reserve didn't act to stop the Great Depression - they couldn't just print more gold to increase the money supply (to grossly oversimplify)!
If inflation is your problem, then the solution is to make central banks' inflation mandates stronger, not to pick the next commodity-like thing to link our currency to, completely ignoring lessons learnt from Depression-era monetary policy. This problem doesn't have to involve crypto as a solution, even wacky stuff like the balanced budget amendment is closer to a solution to inflation than crypto.
If you're advocating crypto as a high yield investment, then that's something different and you shouldn't compare it to the dollar.
Uhm, why can't it be both? You describe as if there is one ominous "crypto" with a single set of static rules. There are many different tokens/coins/etc, some are "store of value", some are "stable coins", and some are "volatile investments". Crypto can and is all of them at once.
If you take Bitcoin as an example, it's too volatile to be used as currency, and most vendors accepting Bitcoin price items for sale in dollars, and convert the Bitcoin to dollars rather than holding them. It's not actually used as a currency.
Stablecoins could conceivably be used as currency but then they're not a volatile investment. Except if they become volatile UST-style and thus become useless for any purpose.
The real work is actual physical production and services. Currency tries to measure the worth, and later other people might recognize that you provided a lot of useful things in the past which afford you this thing that they're making now in return.
In my opinion, the most stable thing would be something of real value, like ownership over land, or production. If you own part of a business that makes real goods, or own land, or own raw sources of material, etc.
Like inflation might sound stupid, but inflation is kind of asking everyone to work harder for each other to get over a rough patch.
A dollar is worth less because we weren't able to produce enough things for enough people that wanted them.
It's all a bit vague in my head, but concretely, it's all an agreement between people of a society that decide to work together instead of against each other.
We used to barter, I want X, I have Y, let's trade, but that wasn't as convenient if no one that wants Y has an X, things would get complicated. So we kind of all agree, okay fine, let's say Y is worth some amount of a universal currency, and the price of everything will reflect the demand for each. But what if the production isn't keeping up? Isn't that when inflation kicks in? Seems like it's a good thing no? There's not enough things for everyone anymore so everything is worth more all at ounce.
What would happen with Bitcoin? Things would cost more no? Say there's major food supply issues, the amount of groceries you used to be able to buy for 1 Bitcoin, now it'll cost you 2 for the same amount. Isn't that just inflation?
There’s also a difference between monetary inflation (increasing the amount of money in circulation) and price inflation (increases in prices due to normal supply and demand). “They” spend an enormous amount of time and energy to ensure people don’t understand the difference.
Did we? Really? Does economic exchange without money have to be barter? I've yet to see actual evidence of this, rather than just bald assertions or just-so stories.
Or is it just that the kinds of mental debt-tallying we've always done is facilitated by physical tokens (money) commonly accepted as unit of account?
Nobody cares about how many Bitcoins they have. They care how many USD those coins are worth.
For that matter, 1 LUNA is still 1 LUNA.
My take tends to be that the cryptocurrency market is undervalued, and that 99%+ of all blockchains/tokenthings/whatever which exist are properly valued at zero.
The difference between that and BTC/ETH maximalism is those camps are convinced they know where the value will land, and I'm agnostic on that question.
You are not decoupling anything. A minor correction in the real life markets caused huge parts of crypto to implode. You are leveraged, not diversified.
https://fred.stlouisfed.org/graph/?g=O7F4
Edit: This chart is federal spending only, total gov spending is higher but OP is still probably looking at 2020 as the most recent data and it's a huge outlier due to the pandemic.
As for crypto, there is no fundamental mechanism that guarantees it will appreciate more than inflation on the long run.
It isn’t that simple. Inflation indexed bonds have a coupon and a factor.
As inflation goes up, the factor goes up. Yay, keeping up with inflation!
But as market interest rates go up, the price of your bond with the lower interest rate goes down. Boo, crippling losses!
Now you can buy Series I Bonds to avoid this interest rate risk (i.e. duration) but you’re limited to $10,000 per year per social security number.
If you’re worried about inflation the best thing to buy is a productive asset. Like stock in a profitable business. That is… until so many people do that it makes every company wildly overpriced.
Wow this stuff is hard.
Not really if you hold them until maturity.
Respectfully, that is just not correct.
Imagine you own $1,000 of a 30 year bond that pays 2% interest.
Interest rates go up to 6%.
You could sell your 2% bond and buy a 6% bond. But everyone else could too. So your 2% bond is worth less.
And you’re going to hold it for 30 years, losing out on market interest. That is, you’re getting 2% when the rest of the market is getting 6%.
The loss is there whether you sell or hold to maturity.
Your only decision is do you want to take your loss now in one big sum or take it in small sums over the next 30 years.
Practically useless. The government only allows each person to buy $10k of I-bonds.
$10K is way more than what most people can save in a year, so it's effectively unlimited for more households.
Quite frankly, a S&P 500 index fund would serve them better than an I-bond, even during severe market drawdowns.
> TIPS principal is adjusted by changes in the consumer price index, either up or down. The interest rate is determined at issue.
https://www.thebalance.com/comparing-tips-to-i-bonds-2388668
Any good?
You do know that the official inflation numbers are much lower than actual inflation?
Isn't it 520 trillion now?
The word knowledge is... not applicable here.
Capped vs uncapped supply is not as big of a difference as you make it out to be [1].
[1] https://john-tromp.medium.com/a-case-for-using-soft-total-su...
Perhaps for some currency, but why that one?
There's no realistic function for an infinite number of them; there probably isn't a realistic function for more than a very small number of them.
Every day people say this as if it's a new insight.
There are many things that are valuable that don't derive that value from some other asset "backing" it.
Money is a social construct that is valuable because people agree it's valuable. When people decide it's no longer valuable, then it's not.
Unless the top few network operators get together and decide otherwise, as happened with Luna this week when the chain was forcibly halted by the validators.
It’s not permissionless or really decentralised.
Inside a country with an functioning economy people are willing to trust the government and companies to handle their transactions. When you move to the scale of countries trading, sometimes there's no one "above" that can be trusted.
Currently this is "solved" by just using the USD and trusting the US to not go crazy with it. The US and their allies are of course very happy with that and won't move away from it willingly, but some other countries are not.
Between countries that can't trust each other's economic policies it's harder to find a way to trade other than barter, and that's not very convenient. Look at Iran or Venezuela, for example, or countries that wish to trade with Russia currently but don't want to keep large reserves of Rubles. I could see some of these eventually trying out using Bitcoin to trade. And if it works well for that case, it may start to spread. Maybe countries that aren't too close to the US will start to think that maybe Bitcoin is a better option than being "subject" to another nation's economic policy.
(One of the big reasons is that you need liquidity to be useful, if you can't easily exchange them for something else when and where you need to, the permissionless digital exchange isn't very interesting)