Comment by yuan43 | Hacker News Reader

Comment by yuan43 | Hacker News Reader

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> Any token system can be thought of as a pot of money. Every cryptocurrency is its own pot of money. When people sell, they are taking money out of the pot. When people buy, they are putting money into the pot.

I'm not sure where the author gets this from, but it doesn't make sense.

Buying and selling bitcoin does not change the size of the pot of bitcoin. Look on the block chain and you'll find no mention of USD, alpaca socks, or Lambos purchased. What you'll find are state transitions with value being unlocked and simultaneously re-locked.

The one exception is a block reward, which requires no unlock (input).

The block reward can be viewed from one of two perspectives:

1. value being created

2. value being unlocked

Either way, the block reward comes into existence on a fixed schedule known to all participants.

The author tries to once again bring in the US dollar as follows:

> In this more accurate representation, we have miners pulling money out of the pot in two ways: transaction fees, and the selling of their Bitcoin mining rewards. The latter is harmful to BTC’s value in two ways. It dilutes the circulating supply of BTC which decreases its value, and it pulls money from the pot to cover energy costs. A majority portion of the money miners are pulling from the system is being burned forever in the form of energy costs, meaning it has no way of ever re-entering the system.

Again, bitcoin transactions merely unlock and re-lock value as an atomic operation. What the author characterizes as "value" is an off-chain phenomenon.

That last part about "being burned forever" is debatable. The residual value of the energy expenditure is proof-of-work that the author conveniently ignores. That proof-of-work is what stands between the Bitcoin network and an attack that rewrites history. So to characterize mining as "burning forever" value misleads the reader into thinking nothing of value remains. This is demonstrably false.

> I'm not sure where the author gets this from, but it doesn't make sense.

It makes sense if you look at bitcoin like a speculative asset with a cash value, which is how most people who own bitcoin treat it. Bitcoin has a market cap based on its current exchange value, which is the "pot of money". As more people buy bitcoin, it's cash value goes up, and vice versa.

One can argue whether this adheres to the purist view of Nakamoto et al but this is simply how crypto is marketed to consumers, for better or worse. And in this system, the ways in which these various exchanges and defi platforms facilitate access to blockchain technology through cash transactions ultimately define its value, as we've seen these tokens plummet this year.

> Again, bitcoin transactions merely unlock and re-lock value as an atomic operation. What the author characterizes as "value" is an off-chain phenomenon.

People only care about bitcoin nowadays precisely because of what happens "off-chain". If 1 bitcoin was still a penny, nobody outside the crypto enthusiasts would care more than a decade into this experiment.

> its current exchange value, which is the "pot of money"

It's not a "pot of money" because the market cap is not determined by the amount of government currency traded for bitcoin. Trading $100,000,000 for 5,000 bitcoin does not increase the market cap by $100,000,000.

Similarly, trading 5,000 bitcoin for $100,000,000 does not decrease the market cap by $100,000,000.

Since there's a seller for every buyer, there's zero money going into any "pot".

The market cap is determined by what price buyers and sellers agree on at any point in time. That means the market cap can double, or halve, instantly, even though trading volume is a tiny fraction of the change in market cap.

There is no pot.

And it works the same way for every other market, from stocks to bonds to gold and real estate.

Nevertheless we humans still think of things in terms of pots. The term "pension pot" comes to mind.

The reality is the market value of anything is influenced a great deal by human sentiment, as well as raw intrinsic properties of an underlying asset or the performance of a business.

Investors like to think they are actually "investing" in Google when they buy Alphabet shares even though not a single penny of their money is going to Google for the board to direct toward productive endeavours.

Even earned income in a savings account is an act of faith... in a system that we hope will continue to value an hour of our labour today to something close to what it will be a year from now. The savings account itself isn't a store of value, it's the nature of the labour market here that is actually the store of value.

The author states this myth perfectly:

Every cryptocurrency is its own pot of money. When people sell, they are taking money out of the pot. When people buy, they are putting money into the pot.

It's a popular myth but it's obviously bogus when you realize that for every buyer there is a seller.

So when people buy a gold bar, or 100 shares of AAPL or a cabin at the lake, the money the buyer puts in is exactly offset by the money the seller takes out.

In the end everything is based on faith. You hope that in the future your stocks/bonds/cash/gold/crypto/bank account/real estate

a) are still recognized as being yours and that

b) some entity will be willing and able to exchange it for something of the same or higher value as you think it has now

I'm not trying to argue that the "pot" is an actual pot of money, it's obviously a metaphor.

> As more people buy bitcoin, it's cash value goes up, and vice versa.

Ignoring mining, every purchase is a sale, and vice versa. Lots of new people could buy bitcoin and its price could drop in the process. What you maybe mean is something else about supply and demand?

> Bitcoin has a market cap based on its current exchange value, which is the "pot of money". As more people buy bitcoin, it's cash value goes up, and vice versa.

This is not how trading and market cap works, at all. There is no "pot of money" either.

I had a sidetake on that quoted bit.

It’s been curious to me just how related all these coins are, even as speculation devices.

When Bitcoin falls, they all fall, when it rises for the most part they all rise.

The correlation to completely separate pots is something I don’t think anyone can fully explain.

A major factor here is that, especially historically, the vast majority of trading volume for coins apart from BTC/ETH is priced in either of those two. Unless you have aggressive arbitrators and liquid markets with thick and deep order books, this means that smaller-cap coins end up tracking the major ones.

It is only relatively recently that ETH significantly decoupled from BTC in this sense.

There are also infinite ways to construct and weight a price index. Go to different websites and you will notice significant discrepancies. One doesn't necessarily have to be more "accurate" or "better" than the other.

Right now everything seems to be tracking the NASDAQ, though...

The correlation is very easy to explain.

It's the same reason the bubble in tech stocks crashed in the same general time frame that all of the crypto crashed, and the housing market began to freeze up.

It's risk off, as the Fed pushes up rates and investors and speculators grow increasingly fearful of more to come. The cost of debt and leverage also went up considerably.

Or as Warren Buffett likes to put it, you can think of interest rates as gravity as it pertains to asset prices and speculation.

Isn't it fully explained by most of the money being from speculators whose thesis is "if crypto goes big these will be worth more!"?

If you add up the net worth of all the people who deeply understand how each coin works, you don't get anywhere near $500 billion.

When people buy or sell it simply changes the makeup of an order book. there is no pot of money. there is just an entry on the ledger. the article doesn’t make any sense full of bad faith arguments

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