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Comment by RivieraKid | Hacker News Reader

Given some weak assumptions, it can be proven that Bitcoin can't beat the performance of S&P 500 in a long enough time horizon.

The gist of it is this: Bitcoin can't perpetually grow faster than world wealth. If we assume, say, 3% inflation-adjusted growth in world wealth, it means that Bitcoin cannot perpetually make more than 3% annually. Stocks, bonds, real-estate don't have this constraint because they pay cash to investors.

At some point in the future, Bitcoin will be down over the last decade while S&P 500 will be up significantly. Bitcoin holders will start to think - wait, why am I holding Bitcoin instead of S&P 500?

Edit: Hacker News says I'm posting too fast so I can't reply to comments below.

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Even if your argument were logical, “at some undetermined point in the future, this investment will underperform a different potential investment” is all you’d be proving.

I'm not sure that argument is rigorous enough to be called a proof. We have no guarantee that the S&P 500 will grow faster than world wealth. It's plausible it will, but one could reasonably purchase something like gold or BTC to hedge against scenarios where it doesn't.

Perhaps you should give an estimate of bitcoin's worth compared to world wealth. Because my guess is bitcoin is worth a lot less then world wealth, meaning btc growth could outpace average world wealth growth for some time.

Bitcoin is about 0.3% of world wealth, gold 3%. My estimate is that peak Bitcoin is anywhere between the current 0.3% and 1.5% (implied price $325k). After this peak is reached, and there's a chance it has already been reached, it won't recover for decades or forever. And my guess is that this peak Bitcoin will happen within a decade.

Is there any particular reason we should assign any weight to this guess of yours? People have been calling “peak bitcoin from which it won’t recover” for at least 5 cycles now.

You should make your own mind.

My belief is that it would be shocking if Bitcoin's market cap got close to gold, because gold has substantial fundamental value (which prevents the price fron collapsing) and a long tradition.

Another reason is that the narrative that Bitcoin's price will at least double or triple won't be believable if Bitcoin gets to 1.5% of world wealth. When hodlers realize that they will not double their money, the rationale for hodling disappears.

If you don't think bitcoin can even get close to gold, then you really don't understand bitcoin yet. Smashing golds market cap will happen in less than 6 years. And that's just the start.

I could say the same, if you think Bitcoin's market cap can get close to gold's, you don't understand Bitcoin yet. Same "argument" as yours.

Except I have already been in your frame of mind. You have never been in mine.

I've been in yours and it's wrong.

You'd be the first person I've come across who understood bitcoin and then un-understood it.

What about Bitcoin do you think I don't understand, be specific.

If it's a claim about Bitcoin that's not self-evident, give some reasoning behind it.

You claim that gold has "fundamental value" and imply that bitcoin doesn't.

If you don't understand why bitcoin has fundamental value, then I'd bet you don't understand why gold has either. If you understand why gold has fundamental value, it's self evident why bitcoin has it too (far, far more in fact).

So what's this fundamental value that I'm not understanding? I think Bitcoin has some limited fundamental value by the way.

Be specific, it seems like you're deliberately vague because you don't have a strong argument. (And I think I know what's the argument.)

I just don't have time unfortunately, it's a large subject.

But if you're genuinely interested in learning why bitcoin is fundamentally much better money than gold or fiat, or in fact anything else then I highly recommend listening to at least the first 9 episodes of this podcast series - one of the most interesting podcasts I've ever heard:

https://www.youtube.com/playlist?list=PL2jAZ0x9H0bQFY6wIbQfn...

In fact make that the first 10 - the tenth is called "The Death of Gold"

If I need to go through 10 podcast episodes to understand why bitcoin is better than gold, that makes me seriously question whether bitcoin is better than gold. Things that are actually better shouldn't need that long of an explanation.

Example: Why is gold better than fiat currency? Because the government can't print more of it, thereby devaluing all the currency you possess. Sure, there's much more detail than that (on both sides), but the basic proposition can be stated in one sentence.

So if you can't say that for crypto, then it does sound like you don't have a very strong argument.

Okay, I'll try.

Why is bitcoin going to suck in all the stored value in the world? Because it's better money than fiat (or gold).

Why is it better money, well to explain that we need to answer the question, "what is money?". And that topic is so broad Robert Breedlove has a 453-epsiode podcast channel discussing the subject.

So please accept the 10 episodes I point you to as a quick summary, carefully selected by myself after 1000's of hours of research into the subject. You're welcome.

If Bitcoin was much better money than fiat, people would use it.

My country's currency is much better money than Bitcoin. I can pay basically everywhere with contactless payments, I did this 5 times today and it couldn't be any simpler. I can send money instantly to anyone in my country for free.

Volatility is minimal because the central bank actively tries to minimize it. Bitcoin or gold don't have this stabilizing mechanism, so they will always have worse volatility (assuming a responsible central bank).

Losses due to inflation are negligible if you have your money in a savings account and use other assets (stocks, bonds, real estate) for long-term saving.

If you want to use Bitcoin for long-term savings, the competitor is not fiat but stocks / bonds / real estate. And I don't see a good argument for Bitcoin. In a sufficiently long time horizon, stocks are guaranteed to outperform Bitcoin given some weak assumptions.

> Volatility is minimal because the central bank actively tries to minimize it. Bitcoin or gold don't have this stabilizing mechanism, so they will always have worse volatility (assuming a responsible central bank).

You've been indoctrinated well. Here's an explanation I made on what the central bank is really doing: https://news.ycombinator.com/item?id=40114857

> In a sufficiently long time horizon, stocks are guaranteed to outperform Bitcoin given some weak assumptions.

In a sufficiently long time horizon, stocks will be priced in bitcoin. Rather than an index fund giving you 7% but with a 7-10% devaluation of your fiat (i.e. net return of -3% to 0%), it will return you 7% with no devaluation of the underlying money (net 7%).

Bitcoin is first proving itself as a store-of-value (fundamental for any money), then once it's growth has reached the point that it is stable enough to be used as a unit of account and medium of exchange, it will be, through demand from the people. Any volatility will be measured against bitcoin, not the other way round.

Given false assumptions, anything can be proven.

This doesn't really make sense. Bitcoin is deflationary but the market cap has no ceiling, it's just based on what people are currently willing to pay for a coin.

Bitcoin's market cap can't grow faster than world wealth perpetually. S&P 500 can and has consistently done so. Does it make sense now?

> perpetually

Is this a fun thought experiment, or are you immortal?

You may be shocked to learn that GDP growth can't continue perpetually either, under reasonable assumptions:

https://arxiv.org/ftp/arxiv/papers/2005/2005.05244.pdf

The market cap is just the last price multiplied by the number of the asset in existence. There is no restriction on last price for either SP500 or bitcoin.

The restriction is that Bitcoin can't grow faster than total wealth forever. I.e. you can't grow total wealth by 3% and grow Bitcoin by 4% forever.

It can. The misconception that people generally have is believing that purchasing securities is a zero-sum game when in fact it's generally a positive sum game. When you buy a bitcoin (or security), the money you spent doesn't disappear so the amount of bitcoins and fiat in circulation do not change as a result of this trade. There's nothing stopping a bitcoin from being worth a million dollars or a dollar being worth a million bitcoins, it's just a function of supply and demand.

You might want to think outside the box a little more.

Bitcoin can consume the entire value that's stored in the dollar.

Does your model hold if it does 80% of that over the next, say 50 years? The S&P will be priced in bitcoin for a start.

Isn't S&P 500 basically inflation + GDP growth at this point? I think BTC will follow similar pattern given enough adoption.

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