Crypto’s Final Price Could Be Zero
wsj.com
wsj.com
I love this quote. This is the reason I refuse to get involved in crypto.
But what does this statement actually mean? What is "underlying collateral"? The US dollar doesn't have any physical assets backing it, but I'm pretty sure most lenders would lend against it.
That's why our system is called the Petrodollar system.
Define "stable", because the USA has been anything but stable last few years. The currency itself is being quite volatible as well due to the inflaction going on right now.
Also, the fact that they can just print money of out thin air (which caused the inflaction) should scare people way more than it did.
Yes, crypto bros are scared, that's why they invest in crypto. However, every exporter out there want to swap his/her physical assets with US dollars. That's the difference between the crypto crowd and others.
How many people can your organization / nation murder in 90 minutes? By comparing the numbers, we get a rough idea of the baseline value for each nation's currency.
It's one of the things that make nuclear weapons such a good deal; when you can kill a number of people equal to all of your neighbors, you become invasion-proof.
Since we're grammar-sniping, that second sentence doesn't parse either.
The fact that so many people bought into the hype will continue to amaze me for the rest of my life.
Sure, people could collectively decide that gold isn't valuable and that certainly happens to some extent as the commodity markets fluctuate, but in general when you get to the bottom of the turtle stack, gold has more fundamental value than most other forms of money.
So, in sum, gold can be used in the manufacture of durable, long-lasting goods. It's crucial for certain electronics. There's a constant demand for it for turning into goods. Other rocks can be used for other things, like ground covering, structural support, etc. Bitcoin can be used for?... ? ... ? ... ? nothing
But even without them its value would not go to zero; ignoring the purely aesthetic uses (jewelry, decorations, etc.,) elemental gold has a wide variety of uses including corrosion-resistant electrical contacts, dental fillings, etc.; the James Webb Space Telescope mirrors have a gold coating as it is a good reflector of infrared radiation.
It's not just gold bugs: central banks worldwide are stockpiling on gold at record levels lately.
https://www.reuters.com/markets/commodities/record-central-b...
I'm on about year 10 of this amazement. Even tulip mania only lasted 1-2 years. Crypto keeps inventing new snake oil and is continually able to sell it. It's so odd to me.
By the way, it's not just a lot of second hand GPUs that will come back to the market. A lot of quants too!
Just morally bankrupt.
Edit: I obviously mean in the developed world.
I think until it's dead we're not going to see any change from that.
Cryptocurrencies like Bitcoin don't have that feature, but that just makes them more like fiat currencies. You could argue that fiat currencies are backed by the force the state is willing to use to get its population to pay taxes in the currency, but that's not a stable backing, as the state could decide to accept another currency at any time. Some states do allow for tax payments in other currencies, which means that some fiat currencies have no backing by that mechanism. Some people are also forced to pay in Bitcoin, for example to ransomware, which should have a similar effect in forcing people to use the currency.
Ultimately, I don't see why a currency would need backing. There is nothing wrong with a currency gaining value purely from its value and utility as a currency. Many other valuable things such as precious metals and art gain a large part of its value in the same way.
I mean, the problem with that is twofold:
1. If it has value as a currency then it gaining value incentivizes hoarding of the currency. If it is going to be worth more tomorrow, why spend it? In that case it has failed as a currency since the economy cannot grow without economic activity; specifically currency movement
2. If it only has value because people perceive it to have value (specifically, there is no need to use this currency over any other) then it is all based on faith. At that point a rapid devaluation can be triggered by any number of market actions -- all it takes is a little wavering for a selloff to start and the snowball starts rolling down the hill. This is the reason that crypto cultures can be so toxic -- if you start to question any of it (rock the boat) it is an existential crisis and you get the appropriate response, so no one is willing to question the underlying economics for fear of social repercussions
You may get amazed as many times you need before learning why people find value in it.
I like old stock certificates with pretty designs or interesting histories; there's almost no situation where I wouldn't pay a couple of dollars for one. Being pretty pieces of paper, I imagine they have even more appeal than a number in a distributed database.
So that sets a nice theoretical ceiling for bitcoin's theoretical floor.
Then there's a huge list of altcoins promising things that are different, are not actually different or helpful, and are really just still targeting being a money like bitcoin or the dollar except the founder of the new currency wants to be the one that centrally controls it. Thus 'crypto' is not a helpful space, but bitcoin could be.
Those absolutely are not features of Bitcoin.
That means that over the long-term the incentive for honest consensus tends towards zero. By 2032, the cost of 51% attacking the network for one day will be less than 0.1% of the outstanding market cap. The long-term theoretical solution is to replace block rewards with transaction fees, however because Bitcoin is not a Turing complete smart contract platform the demand for block space is essentially a rounding error.
By its choice of emission, Bitcoin ensured a concentration of wealth on early miners including Satoshi.
Some founders, on the contrary, want no-one to be able to control their new currency, by making the emission purely linear, thus diluting any early adopter.
You don't get paid for running a node unless you're also staking.
Warren Buffet
As a centralized currency, the power flows from the Government. If the US Government loses power, of course dollar bills lose value. But generally speaking, the trust in the dollar is one-and-the-same as trust in the US Government.
DOGE is -53% over the last year, which means its _actually inflated_ by 212% vs the Dollar (or really like 233% in real terms, after accounting for the 9%+ inflation of USD).
DOGE inflating by 233% in a single year is horrific policy.
As far as things with inflation, we should be discussing why Cryptocoins are so terrible at it.
Since you brought it up, YoY returns are not really relevant for a long-term investor. If you're speculating/gambling on short-term volatility, then USD/VTSAX/BTC have done poorly--but I'm not much of a speculator. I'm very happy with my 10-year returns.
As long as you keep wildly changing the subject (this applies to your next reply as well), I'll assume you have no counterpoints and agree with everything I say. I'm glad we can agree!
You literally said this. Honestly, I'm not sure what subject you want to discuss anymore. But you were the one to first bring up inflation.
If you got something to say about my root post, feel free. But you're changing the subject more than I am: https://news.ycombinator.com/item?id=33789831
Everything else's value is determined by the market and not the government, so how does Bitcoin have trouble finding value if the market thinks it has its utility, which is a storage of value without any third party intervention which is its unique capability that people can't seem to figure out after 10+ years of its existence.
The only thing a currency needs is widespread community coordination. US Government forces this through taxes and bonds/lending, so our system is largely built on top of the dollar and a centralized bank.
Other systems can be made however you wish. But solving the coordination problem is the fundamental issue.
You can't pay taxes with worthless money.
The actual concern with this argument is that "You can only pay your taxes in US dollars" is a backing that is contingent on the policy of the US Government. The strength of that backing depends on your view about the likelihood that such a policy will stay in place. (Edit: granted, if all USD were owned by a single entity, the likelihood that such a policy would be revoked is much, much higher.)
If all of USD were owned by a single entity, the US Government just prints more. They will always have that power. That may cause inflation effects that they would be concerned about in the long term, but they have an immediate reaction lever to increase the monetary supply in such a (weird) hypothetical. (Though the correspondence between monetary supply and long-term inflation has always been much more theoretical "cause-and-effect" rather than showing practical, real world correlation much less "cause-and-effect". Especially this side of the Gold Standard the practical relationship between monetary supply and inflation is incredibly complex, and while you will find many people still presume an inflationary relationship the practical effects have been much weirder. [There are times in recent US history where USD monetary supply was at all time highs and inflation at all time lows.])
(Unless you hypothesizing an even weirder hypothetical where the monetary supply is increased by the US Government just handing the dollars to the single USD dollar holder and hoping that provides incentive to "trickle down" dollars back to everyone, but there's very little anyone can do with the onion of dumb in that weird hypothetical.)
1) You don't need bitcoin to pay taxes in El Salvador. You need dollars to pay taxes in the US.
2) Why would people in El Salvador give you their USD for bitcoin when you can pay taxes there in USD?
I get your point, but they are really not the same.
If you produce something of value in return for Bitcoin, you must still acquire dollars to pay your taxes. If you refuse, men with guns will escort you to jail. That is what ultimately backs Buffet’s preferred currency.
Crypto doesn’t produce anything, nor can you buy anything with it you can’t buy with fiat except perhaps drugs online. What’s the value of magic tokens whose speciality is avoiding monetary controls for illicit goods? No one needs crypto (macro scale), so why would you buy it? Because you hope a greater fool comes along.
It seems the issue was with buying _all_ the bitcoin, since it suggests that nobody wants it anymore, so he wouldn't be able to sell it.
He's no ascetic: he enjoys a good steak (and tons of Coke) and he had an $11 million vacation house. But fairly modest, especially for someone who has voting control of a $700 billion corporation (which he built from pretty much nothing).
The same argument applies.
It is a crucial difference.
If you want to say, this isn't really that solid a foundation to build a money system on... hey, I'm right there myself, honestly. The US dollar really is based on "the full faith and credit of the US government", and specifically its ability to project power in order to harass people failing to pay its taxes. Looking out into the world, I'm seeing a negative first derivative on that, and possibly a negative second derivative too. But that is still a cut above the nothing standing behind cryptocurrency. At the present time, based on its behavior, cryptocurrency is a derivative of the US dollar and is dependent on it and the prior low interest rates it had, not a separate entity with its own trust base.
This is where I disagree with the maximalists of specific cryptocurrencies. If utility means anything, better payment networks will emerge as tech advances.
Of course gold solves for both of these issues.
Agree with your other points to a degree. Cryptocurrency is derivative in that it discounts the heavily regulated financial markets. The easy money policies can be viewed as part of that. Part of the value proposition in users choosing voluntary means rather than collaborating with coercive money.
Even for a simple use case like online shopping there is regulatory overhead. Chargebacks, merchant agreements and AML considerations all come into play. Try billing users $1 or 25 cents with PayPal as an example. Most shops won't allow you to buy a pack of chewing gum with a card.
There have been many fiat currencies in history to look at. It doesn't take long to see that pure fiat currencies really are based on the full faith and credit of the issuing authority. These issuing authorities don't have to be governments; the only thing stopping private parties from issuing currencies is just that governments tend to see that as muscling in on their turf, but it's not otherwise impossible or even particularly difficult. (Getting everyone to accept your currency is what is difficult.) The US dollar is a derivative of the US government. Something that is not a derivative of the US government is something other than a "US Dollar". The US government really couldn't start a new currency because the base case of the currency, what it really is under layers and layers of finances and financial structures and loans and everything else, is "what the US government accepts".
Again, the hypothetical is impossible anyhow, which kind of skews how you think about it, but at its core, at the deepest level, what the US Dollar is is what the US government accepts as payment, and below that, the fact that it is the US Government that will come after you if they are not satisfied with your payment. Anything else that they would accept for the same reason is basically the same thing as a US dollar as a result, and if the US government tried to create "multiple currencies", the financial system would swiftly come to an exchange rate based on precisely how much of the US Government threat can be avoided with each one. That is the base case upon which all the further recursion is based.
And again, I'm not making any more claims beyond "that is what it is"; I'm not saying that's obviously good, or that's obviously stable, or that anyone who questions it is an idiot... this post is simply about understanding what is. How you feel about what is, and what further conclusions you come to about what is, are up to you.
On the other hand, the US Dollar is a worth something because of a shared belief that the US government is going to do whatever it takes to make sure it's worth something. Even if I thought that the US government is gonna get overthrown next year, I still need to pay this year's taxes in US dollars, so it derives at least some of its value from there.
To be fair to Buffett, he doesn't care about owning dollars either. Or even gold, which has a damn good track record of being valuable. His assets are pretty much entirely in some form of equity. He likes owning shares of companies that sell some product. Sure, he needs dollars to transact, but it's not like he's holding tons of dollars either.
Money has no inherent value other than that which you can buy with it, and so far the biggest value of bitcoin is in being able to buy USD, or other fiat.
Pinball can be entertaining without a market for pinball machines, I don't see how bitcoins would be entertaining if there were no market for them.
So if you view bitcoin as a consumable you are consuming to provide entertainment to you, that's great. I'd personally take a lower cost source of entertainment, but to each his own.
Pinball machines are fun with or without this. Warren Buffet is saying he wouldn't want all bitcoin (in this hypothetical scenario where it is 100% concentrated under a single owner) because there is no reason for him to believe he could sell it to anyone.
Creating demand for essentially nothing is way harder than creating demand for something that has immediately demonstrable economic value. This is why crypto is so full of scams and pyramid schemes and shady marketing.
If that sounds stupid that's because it is. It's like saying there "is no inherent value" in a textbook because all it does is teach you calculus.
My point is that Buffet seems to understand non-tangible benefits are still valuable, and not only that he is hypocritical in his reasoning that he would have to sell it back to you.
Parting out the visible bits could be lucrative too, especially if it's a desirable machine like No Good Gofers or Attack from Mars.
Entertainment is an inherent value of something.
This isn't strictly true. The fundamental utility of crypto assets is to pay for transactions that execute on blockchains. Blockspace is a scarce resource, and running transactions on-chain requires bidding for inclusion in a fee market that's denominated in the native currency of the chain.
This isn't just hypothetical. Currently, more than $2 million worth of Ethereum per day is being paid to the network as "gas" necessary for Ethereum transactions.[1] The blockspace demand comes from a variety of blockchain applications, such as NFT marketplaces, DeFi applications like Uniswap and AAVE, and stablecoin payments such as USDC[2]. (Not to mention simple peer-to-peer Ethereum transfers.)
We can debate a long time about whether blockchain based applications are here to stay or just fads. But there is a compelling case that some users and use cases will value the decentralization, immutability, censorship resistance and credible neutrality that comes with on-chain applications. In that type of decentralized digital economy, native crypto is very useful in the same way that crude oil is very useful to the industrialized economy.
[1]https://cryptofees.info [2]https://etherscan.io/gastracker
That might be true within a system. But anyone with the skills can start a new cryptocurrency at any time.
Again, this isn't just hypothetical. Today, users pay an orders of magnitude premium for Ethereum block space compared to other chains. That's because Ethereum has much higher value applications to compose against and better security guarantees around consensus.
In that situation, there is no scarce resource that has value. People can create as many new cryptocurrencies as they want. The fact that you happen to own all of the one called Bitcoin is meaningless.
And of course, central planners and standard economists, Buffet's buds, are all high-time-preference and that's why the economy is an instant-gratification consumerist junk hellscape.
(Some might argue we are already at that stage and the epsilon just happens to be absurdly large at the moment).
Well, while it is still legal that is.
Don't know about that but it seems an accepted fact, even here on HN, that it's worth two digits less than 18 months ago (due to inflation).
Kinda hurts.
Pos assets like Eth also have a running yield so you can discount cashflows on those.
Plenty of things have value that are not securities or contracts or bonds subject to net present value of discounted future cash flows. Gold, precious art or houses are all valuable but have zero (or negative) value under discounted cash flow analysis.
The proper way to interpret discounted future cash flow analysis of crypto is to say that crypto isn't a security. That isn't even necessarily true, since something like an Ethereum token could in fact have future cash flows and be security-like, but it is true for Bitcoin.
The problem is that the utility of crypto in the real economy is quite low, so its price is driven almost entirely by speculation, with some niche uses like being a relatively stable medium of exchange in failed state-economies like Venezuela. If you wouldn't have a reason in a functioning economy to buy anything beyond drugs with Bitcoin (and the public nature of its ledger makes even that use case suspect), then it won't have stable prices. That's a vicious cycle undermining BTC.
If Ethereum had one or two killer apps, I have a feeling Bitcoin would become both price stable and much more valuable. But that's a big "if." Crypto kitties, NFTs and weird monkey photos aren't it.
The value becomes clear when you think about the amount of resources spent on that problem in the traditional financial markets.
These are both problems that hopefully we will get better at solving. I think even if neither of those things quite goes to zero, there is a minimum combined level of both needed to keep the ecosystem running and secure. There needs to be enough economic activity passing through the system to pay enough miners to keep it running.
I also think that if the main usage of crytpocurrencies becomes avoiding unstable currencies, that will itself destablize cryptocurrency prices.
So what you actually need is a party who controls most of the validation and is willing to go against their own economic self interests in order to cause damage, that's a much bigger ask.
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