Greenspan Says Bitcoin a Bubble Without Intrinsic Currency Value | Hacker News Reader

Greenspan Says Bitcoin a Bubble Without Intrinsic Currency Value

bloomberg.com

26 pointsdiogenescynic75 comments

Who is Greenspan? Oh right, the fella who advocated for 1999 banking deregulation [1] and 2001/2003 tax cuts that encouraged a historic boom (and subsequent bust) -- cleverly calling the direct consequences of his own policies "Irrational Exuberance".

[1] http://www.federalreserve.gov/boarddocs/speeches/1999/199911...

On the one hand, your snarky dismissal. On the other, the second-longest-serving former chairman of the Federal Reserve, appointed and reappointed by 4 different Presidents.

Best part: your dismissal dings him for not calling earlier bubbles, in a story where he calls a bubble.

Also, for what it's worth, "Irrational exuberance" wasn't a Greenspan policy; it was itself an allusion to stock market activity being bubble-like.

Instead of appealing directly to the authority of Greenspan, you deferred to an appeal to the authority of 4 Presidents. Why should US Presidents be considered authorities on economic matters like this?

Greenspan's policies consisted of easy money, dismantling regulation, and trusting big banks to regulate themselves.

Those policies failed miserably. Greenspan cleverly called the consequences of his policies 'irrational exuberance', and then failed to take action to rein in these consequences.

The crisis that resulted from Greenspan's incorrect analysis and bad judgement rivaled the Great Depression in its severity and longevity.

Greenspan's credibility is nil, so why should we listen to what he says about Bitcoin?

I might even agree with you that Greenspan's credibility as a shepherd of the entire US economy is nil. But the inadequacy of that conclusion to the actual argument at hand is obvious.

Short answer: because he knows much more about economics than we do.

I wouldn't be so sure. The Fed is the root cause of almost all the bubbles we've seen in US markets. As for Bitcoin he might be right, but I want to hear his opinions on economics about as much as I want to hear Obama's opinions on drone strikes.

>Best part: your dismissal dings him for not calling earlier bubbles, in a story where he calls a bubble.

I think it's up to history to determine whether Bitcoin's a bubble or not. Rather than a bubble, it may simply be the first of a new type of digital commodity backed by computing power. There was a time when a domain like sex.com could be had for very little money. Now it's worth significantly more money. Is that due to being a bubble or simply it being prime real estate (which BTC might be compared to altcoins)?

1.1) A alternative to Paypal

1.2) An alternative to Square / Venmo

1.3) An alternative to Level Up

1.4) A method of cheaply moving money between currencies without going through a financial institution.

1.5) An alternative to buying Gold

1.6) A way for libertarians / alternative currency advocates / people who are angry at wall street / The Fed to opt out of fiat currency, and lets remember, these are large movements with very little other outlets for popular expression.

1.7) Provide non-reversible transactions

1.8) Provide transactions that do not require trust on the part of either individual.

1.9) Provide transactions that do not require any financial institutions.

That's the ideology of Bitcoin, the reality is that the majority of people are NOT using it for any of those things. It's still just a pyramid scheme after all these years because of the friction and time it takes to exchange USD for Bitcoins and back. The price changes so often you'd have to update your prices constantly, and with the constantly rising price of bitcoin, people earn money by keeping the currency and NOT using it.

Bitcoin encourages people to KEEP their bitcoins. Why use them to buy something when next month they're going to increase in value.

> Bitcoin encourages people to KEEP their bitcoins.

Particularly, so long as it is preceived to be likely to increase rapidly in value, it encourages them to use bitcoin as an investment vehicle rather than investing bitcoins in other things.

Obviously, if you want to consume things, you need to liquidate some assets to consume them, and if you've tied up your assets in bitcoin, you'll spend them for consumption.

It can be all - a method of transferring money, a method of payment for products and services, and a convenient way to invest while it's going up.

There's not that much friction to exchange it for currencies. I just transferred a five-figure USD amount to an exchange, sold it for BTC, sent them to another exchanged, sold BTC for Euro, withdrew it on the other side of the world. All of that through two exchanges based in countries I've never visited. I saved enormous amount of money compared to just wiring USD -> Euro through my bank.

For every bad story your read online there are hundreds of transactions that went perfectly fine, but people rarely bother to write about their positive experiences.

2.0) Is inflated by algorithm, not at the whim of the central bank. 2.1) Cannot be used to pursue mercantilist trade policy. 2.2) Cannot be created from nothing as credit.

On the down side, it is not clear that the market for coins is liquid, and it is currently not widely accepted as tender, and may never be in the US/Japan (whose Central Banks/Governments have the most to lose with loss of control of money supply). But in spite of this, or maybe because of it, I think the future for Bitcoin is bright. When we see hedge funds becoming market makers in Bitcoins I think it's time has arrived.

The reactions always jerk too far to either side.

Currency clearly derives it value from a variety of sources, all stemming from beliefs held by people. Bitcoin as it stands right now derives the majority of its value from people holding that belief that its value will continue to rise - that is it is driven heavily by speculation.

Most countries will jealously guard their currencies in foreign exchange markets specifically to reduce the effect of speculation on the value of their currency because they want their currency not to act as a method for people to get rich, but to facilitate economic activity within their own country. You can obviously see why speculation driven volatility (or this freakish deflation that Bitcoin has right now) can be bad for actually using the currency as a medium of exchange. This is especially true since most services that accept Bitcoin right now still interface heavily with other currency to deal with their suppliers and such.

It's obviously knee-jerk to say that Bitcoin has no intrinsic value. Currencies do not require intrinsic value beyond people being fairly certain that other people will accept the currency as payment. This is why American dollars, gold, copper, bullets, alcohol, and seashells can all be used as effective currency given the right situation.

The flip side is that it should also be obvious that the current value of Bitcoin is pretty much divorced from its value as a medium of exchange as its clearly fueled by speculation right now. When people stop believing that they can buy 1 BTC now and sell a few days later for 20% increase of US dollars, and start believing that they can buy 1 BTC now and that they can hang on to it for a few days or a few years and that it'll be roughly equally useful over that time-frame, that will be when the "value" of Bitcoin is set.

I didn't see him dismiss Bitcoin's utility as a currency (though for what it's worth, I don't see that either). I saw him refer to its current valuation as a bubble.

In the long term, can bitcoin be able to survive if it doesn't have property of having anti-speculation system in it's design ?

The belief that the value will rise is only a minor part of my interest and investment in Bitcoin. My primary reason is a belief in the increase of its abilities and usefulness. Having programmable money opens a whole bunch of possible opportunities that haven't even been conceived yet. At the very least, it offers opportunities to disrupt the business practices of a lot of notaries, title companies, gambling operators, wire transfer companies, transparent systems for non-profit finances, etc.

The concept of an open distributed ledger that doesn't require you to trust the parties you are dealing with is exciting.

Simply put, I think its the future of monetary transfer. Perhaps not a good system to replace daily transactions, but certainly a good system for bulk transactions and to build a whole new generation of finance.

I'd say that the US Dollar also has "no intrinsic value." Should the military might which props up the USD suddenly be mitigated, and the world then decided to abandon trading in USD, then the true "intrinsic value" of that US Dollar will be realized.

Partial reactionary says something partial and reactionary, more news at 11.

Funny, my reaction was more along the lines of "Stephen Hawking says sky is blue".

Depends on how you look at it since he actually says two things

a.) Bitcoin has no intrinsic value

b.) there's a Bitcoin bubble.

I'm not saying that there isn't a Bitcoin bubble (since I don't know), but I don't think that Greenspan knows either.

I have limited respect for Stephen Hawking; Greenspan is no Stephen Hawking.

Right, but nobody has heard of the physicists who command only as much respect as Greenspan.

> There is no fundamental issue of capabilities of repaying it in anything which is universally acceptable, which is either intrinsic value of the currency or the credit or trust of the individual who is issuing the money, whether it's a government or an individual.

I wonder how many people skip right over this in the article thinking that's just another pointless or no-substance sentence.

It pretty much sums up everything that makes Bitcoin unsutable for any type of real world (at scale) transactions and trade.

The value in Bitcoin is the network and the people joining in. Try to start another bitcoin-like network, you will know it is not easy to set up an alternative.

I do think Bitcoin has a deflation problem that coin holders has no incentive to spend. And if the transaction volume goes up in future, the rewards for those new nodes may not be able to justify the cost unless you have a way to "rob" those early holders, or to force them spend before they die.

What is "intrinsic value"?

Do our current, non-digital currency have such "intrinsic value?"

Seems to me, all value for all currencies are extrinsic.

The guy who was wrong about EVERYTHING makes another prediction. what else is new?

Or he did it on purpose and is now lying about being mistaken.

I'm thinking, time to buy mBTC.

Decentralized digital trust is pretty valuable, that is one of the ways to see bitcoin and its use as such is starting to become apparent even if we haven't really scratched the surface yet.

Whenever somebody brings up the intrinsic value of bitcoin vs something else, like gold, I ask them - what's the intrinsic value of gold, give me a dollar figure. It's like seeing deer in the headlights, they never thought of that, they just keep repeating that talking point.

Bitcoin's value is not in its growing price (it's nice, I admit), but in the fact that it solves many monetary problems - nearly free nearly instant transfers, extremely secure, global acceptance, non-reversible, not centralized. I admit it has its issues, but many will go away as it gains more popularity and stabilizes.

I'm pretty sure the intrinsic value of gold is less than 10% of the market value.

If the world suddenly stopped seeing gold as 'money' or a 'store of value' or whatever it would lose 90% or more of its value. Bitcoin would lose 100%. The difference is not that big.

Falling by 90% versus 100% is quite big.

One is now 0. There other is still above 0.

I disagree, bitcoin will always be useful as the best mode of transferring money, regardless of its value. And that alone gives it value. There's a reason people pay something like 5-8% to Western Union. It's a valuable service. Well, was.

Reminder to myself: short Western Union and MoneyGram stocks.

Bitcoin is worth $0.00. How is it useable for tranferring money? (Hint: It's not)

It won't be. Have you ever seen a stock drop to zero? It's always something like 0.0000123.

Great. So, if you owned all 21M bitcoins you could move $258 dollars.

> If the world suddenly stopped seeing gold as 'money' or a 'store of value' or whatever it would lose 90% or more of its value. Bitcoin would lose 100%.

For the world to suddenly stop seeing Bitcoin as 'money' or a 'store of value,' the world would have to not see any value in a non-reversible, virtually fraud-immune, decentralized, near-instant, near-free, completely electronic means of exchange. Those are the attributes of Bitcoin that give it "intrinsic" value.

Gold is rare. Gold is used for things. You can argue about the _scale_ of the value, and whether or not current market conditions truly reflect the value of an ounce of gold, but that does not remove the fact that it is an actual resource, limited in availability and has practical uses in and of itself.

Gold is not rare, it's a huge lie. I just checked, it's mined at 2,500 tons per year. That's just the discovered gold, and only on our planet. There are enormous quantities of gold in the universe. Same goes for many other things that are marketed "rare" - silver, diamonds, other gems.

You don't have a clue what you're talking about. Gold is extremely rare, making up under 1 part per billion of the earth's crust. Only 6 elements (ruthenium, palladium, rhenium, iridium, and rhodium) are rarer.

Over 1 billion tons of iron are mined each year, to put your figure in comparison.

To say that gold is not rare is not just misleading but a bald-faced lie.

It's rare per pound, but it's not limited in any real sense like bitcoin. Gold is mined to the point where 2% of it is added to the traded/stored amounts. It's pretty much guaranteed to lose value.

And then there's this coming soon:

http://en.wikipedia.org/wiki/Asteroid_mining

> Only 6 elements (ruthenium, palladium, rhenium, iridium, and rhodium) are rarer.

I think you forgot to count all the truly rare elements on the periodic table past number 90. You know, the ones that decay in hours, minutes, seconds or microsends.

Doesn't the design of Bitcoin ensure limited availability as well?

Sure, but it still has no utility on it's own. Interesting point though, because it brings up a weakness of bitcoin in general; the same weakness that got us off the gold standard in the first place.

Your bank account has no utility on its own. So what? It's still valuable.

Bitcoin is valuable because of its properties, and that's why people are willing to pay more than $1,000 for each.

Not really. You can create an infinite number of cryptocoin currencies. Look at the proliferation of them.

Your argument about intrinsic value is flawed because you assume that intrinsic value means an intrinsic price in dollars. You could rephrase your question to apply to basically anything and you'll get the same blank stare because it isn't a meaningful question. What is the intrinsic value of a loaf of bread, or a gallon of water, or a gallon of gas, in dollars? Do these things have no intrinsic value just because they don't have an intrinsic price?

what's the definition of 'intrinsic'? I think bitcoins have an 'intrinsic' value, it's the trust model that's built into their design, the verifiability of the blockchain.

I don't know if economists would agree, but I'd say that the intrinsic value of a thing is the value that exists in the absence of other people's desire for that thing. A loaf of bread has intrinsic value for its nourishment and ability to sustain life. These properties would be present even if no other human desired the loaf of bread. Similarly, gasoline has chemical energy which can effect work, and this would still be true if every other human disappeared. Gold has useful properties that make it well-suited for a number of industrial applications, wholly apart from it's attractiveness or usefulness as a store of wealth.

On the other hand, Bitcoin has no "intrinsic" value by this definition. Its value is wholly derived from other people's interest and belief. If other people stopped using Bitcoin, any and all Bitcoins you hold would be instantly valueless. There is no meaningful trust, no useful verifiability, in the absence of others' continued desire for Bitcoins.

Under this definition, I can see no "intrinsic" value for the US dollar or any other fiat currency, either. They all derive their value from others' continued use. If everyone else stopped using USD tomorrow, your bank account contents would be worthless.

The real question is whether Bitcoin is like the dollar, in that it has no intrinsic value but may nonetheless sustain practical value long-term, or if it's like the Tulip, in that it has impressive prices but no long-term practical value.

Similarly, gasoline has chemical energy which can effect work, and this would still be true if every other human disappeared.

But those properties have no "value" without humans to extract its "value" by using it, and/or desiring it. The point being, that there is no objective standard of "value" and that concept is hoplessly entangled with human desires and needs. For example, you could make the argument that there is "intrinsic value" in whale oil, but it doesn't matter because we can extract it from the ground in a cheaper fashion (that's arguably more ethical, too). The market for whale oil - outside of a very rare few corner cases that are more than taken care of by the strategic sperm oil reserve - is effectively zero.

I think you are mixing several different things here. The size of the market for a thing does not define its intrinsic value under my definition. In fact the value assigned by the market is the opposite of intrinsic value, and my definition explicitly addressed this. The fact that whale oil has a very limited market and more efficient alternatives does not mean that it has no intrinsic value.

As for value being tied to human want/needs, obviously this is true. A thing can have value by its very nature as opposed to value created by a market, though. Whale oil will heat my house even if no one else is interested in buying it. That is what I call the intrinsic value.

The intrinsic value of a thing may be hard to extract without other people (e.g. Industrial uses), but this is different from saying that the value is tied solely to others' desires.

> because you assume that intrinsic value means an intrinsic price in dollars

But that's the exact argument I'm usually facing. They use this "intrinsic value" to justify the price of gold.

Okay, but tearing down the "intrinsic value" of gold does not justify any price or value for Bitcoin. Your argument is effectively that nothing has intrinsic value, which does nothing to make the price of Bitcoin appear legitimate.

The industrial value of gold is a whole lot clearer than the value of bitcoin as a transaction mechanism (for one thing, there are lots of purposes where gold is the best thing you could use. It isn't at all clear if bitcoin is superior to a cheaper alternative, or an alternative that somehow better facilitates exchange with tiresome existing systems).

Really? Only 10% of gold is used for industrial purposes. It's really not as useful as copper or aluminium.

The rest 90% is purely used for hoarding, as traditionally it was thought of as rare and valuable. Now gold is mined at an industrial scale, more than 2000 tons per year. While it's sort-of rare, its quantities in the universe are enormous (and even Earth). People are finally realizing that, and that's why we see both gold and silver prices falling.

That's silly. What you really mean is that at $1200 an ounce 10% of gold is still used industrially. I guess that might stay level if the price dropped, but no it wouldn't.

@maxerickson I'm not arguing that gold isn't useful, it absolutely is. Every element in the periodic table has been used for something practical, as far as I'm aware.

I'm arguing against the "intrinsic value" bullsh*t.

I ignored all the stuff about intrinsic value.

I just pointed out that there are strong reasons to believe that gold will retain some value in the future. There is exactly no drop in replacement for gold. Drop in replacements for bitcoin are easy (not necessarily drop in replacements with so many miners, but I don't think it is clear whether that matters).

Gold has intrinsic value for applications like jewelry and electronics (it being easily malleable and a very good conductor). There are many more here: http://en.wikipedia.org/wiki/Gold#Applications. These uses don't explain the price of gold fully, but they (along with its rarity) are the reason that gold has historically been considered valuable.

Bitcoin as an idea may have some sort of "value" (although it's a stretch to compare it to a physical thing like gold), but that doesn't mean this particular blockchain has value. There are only so many bits of metal in the Earth's crust, but there are infinitely many possible cryptocurrencies.

gold has historically been valuable because due to relativistic contraction you can easily assess its purity using a low-tech solution: a touchstone, and therefore there is a trust model is built in. It's also portable, so could be carried long distances over caravan.

Sound familiar?

Please read my second paragraph. The bitcoin v. gold comparison is not really valid.

I'm saying your first paragraph is not valid. If you're going to claim that the ancients valued gold because it has intrinsic value as a heat reflector in astronaut helmets or as a good conductor in electrical components, you're crazy.

Specifically,

These uses ... are the reason that gold has historically been considered valuable.

Actually it's extremely hard to assess gold's purity.

Tungsten is extremely close in the density to gold, and even major banks got fooled into buying tungsten bricks wrapped in gold.

http://www.zerohedge.com/news/2012-09-23/gold-counterfeiting...

http://www.zerohedge.com/news/2012-09-24/get-your-fake-tungs...

It's not that terribly hard. Tungsten is ferromagnetic, gold is weakly dimagnetic. If you have quite a strong magnet (like a large permanent magnet) and a fine scale, you can detect the presence of ferromagnetic materials even if present in low quantities.

The weakly dimagnetic effect of gold will exert almost no force, and what little it does will weakly repel the magnet. The ferromagnetic tungsten on the other hand will be strongly attracted to the magnet and so can be detected already in trace quantities.

You can in fact buy machines for a few thousand bucks that'll perform a barrage of non invasive physical tests on gold to verify that it's actually solid gold. Of course you can't expect banks and gold merchants to go the eye watering expense of actually getting one of those.

So it means you have to bring this kind of expensive machine with you everywhere you go if you want to use gold as means of payment.

Ridiculous.

I guess bitcoin is superior, then. But really the point is a historical one; "superior" methods of gold forgery were equally as unavailable to the ancients as "superior" methods of gold verification.

NPR's Planet Money podcast did a really cool episode a few years back called, "Why Gold?".

http://www.npr.org/blogs/money/2011/02/07/131363098/the-tues...

Only 10% of gold is used industrially.

Aluminium used to be extremely expensive and was used in jewelry, until we discovered how to mine it more efficiently. That's not an intrinsic value, that's perceived value.

"belonging to a thing by its very nature: the intrinsic value of a gold ring."

That's from dictionary.com. Gold is literally the EXAMPLE they give for intrinsic value.

@TylerE Yeah, and they would say they same about an aluminium ring when aluminium was rare.

That definition is awfully circular and wrong, don't you think?

People assign values to things based on their properties. Not because they have some magical natural number assigned to them by an invisible man in the sky.

It all comes down to "how intrinsic" you want Bitcoin to be. I would say that the intrinsic value of Bitcoin is the decentralized network that maintains a transaction log that is virtually immune from fraud due to its foundation on proof-of-work. It's true that arbitrary forks of Bitcoin can be made, so the specific value of Bitcoin is based on the size of its network. So is the size of the Bitcoin network not "intrinsic enough" for consideration?

Moreover, Bitcoin is not only replicable, but also inadequate as an actual means of transfer. If various banks got together to launch a new crypto-currency, which could actually be exchanged for real money, Bitcoin would effectively become deprecated overnight.

> nearly free nearly instant transfers

Average confirmation times in the last 30 days have been between 8 - 19 minutes. Hardly instant. Also, what do you think will happen when all 21 MM BTC have been mined, fees will probably start to appear too.

> what's the intrinsic value of gold

Gold is 1 out of 3 metals in the ENTIRE periodic table that posses the qualities which made it plausible for using in trade, holding value, and being a universal standard (does not normally de-compose or react, is not radioactive, solid, pliable, rare, minable by standard technique, etc). The other 2 were silver and platinum.

Gold has held its purchasing power for thousands of years.

That's its intrinsic value.

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