What a time to be alive. No wonder the M2 money supply is at an all time high. No one has any idea of what the intrinsic value is of anything.
I don't have strong opinions on fiat vs crypto, primarily because it seems like a boring question. Whatever currency is the future, currency isn't the present or the future of investments, productive assets are.
Scare quotes used because a ton of the price of those assets now reflects a monetary premium. I.e. a portion of the price of a house is its value for living or renting out in a given area, but a lot of it is its value as a scarce asset that is somewhat resistant to inflation.
Needless to say, this is not a great allocation of resources and is an incredibly inefficient way for saving to work.
So you’re suggesting this is a bad thing? And the alternative of hoarding unproductive assets is preferable?
> houses...a lot of it is its value as a scarce asset that is somewhat resistant to inflation.
The reason houses are expensive has nothing to do with being resistant to inflation. They get expensive when the supply of the land they sit on gets used up relative to the number of people who want to live in a given area.
Houses in rural Kentucky aren’t expensive at all, because nobody wants to live there. That’s the main factor driving prices, not some inflation hedge. If the only reason people bought houses was to hedge inflation, they’d be better off buying stocks which are even more productive and produce returns above inflation.
> this is not a great allocation of resources and is an incredibly inefficient way for saving to work.
After reading this, I could not be more confused.
So you’re saying that, the inflation mechanics of fiat is bad because it encourages people to invest in productive businesses and build useful real estate? And it’d be more efficient for society if everybody kept a useless stash of gold bars in their basement and took no risk?
How would this make less people want to live in SF and houses suddenly cheaper?
The end result is an enormous asset bubble as their only solution is to print money to prevent any actual deflation from happening as that would implode the financial system.
Pretty clever trick but it’s only a random accident of the financialized systems that make modern life possible. It’s like how all the pandemic chaos only increased corporate profits and government power.
It’s just endless consistent accidents that never benefit 95% of people.
Could it be that all this worry about printing money really doesn't matter?
Read as: as long as others want access and are not fully satiated to you, your affiliates, or what you both possess
We are in an era where saving does not exist, where interest rates are negative.
The value of US currency is backed, whether you like it or not, by US's military might. Very much not nothing
You have it backwards. The military is an instrument in protecting the US dollar's dominance, control and influence as a reserve currency.
So I don't think that it's a good argument for the USD being backed by value.
I'm pro crypto, but this is ridiculous.
No intrinsic value? I can spend my dollars anywhere in the world with no input or reliance on any other entity. They might be the most valuable asset on the planet.
USD in paper form can also be burned for warmth, or used to write on. In coin form, it has the same intrinsic value as the metal.
Besides, everything you said, including tax payment and keeping out of jail, also applies to the Venezuelan bolivar and quite a few other fiat currencies that completely crashed in value due to hyper-inflation.
So I don't think those are good arguments for the USD being valuable or having substantial intrinsic value.
Yes, I agree.
> Besides, everything you said, including tax payment and keeping out of jail, also applies to the Venezuelan bolivar and quite a few other fiat currencies that completely crashed in value due to hyper-inflation.
USD will always be valuable as long as the US government exists and taxes its citizens in USD. This means that there will always be demand for USD (again, as long as the US government exists).
I don't think it's wrong to say that the US government is more stable than the other governments that print currencies that are less stable.
For the USD to have value, you need technological innovation and productivity. You need to export more value than you import.
Simply existing and taxing your population does not give your currency value.
However the flammability is a good example of intrinsic value
There are also many, many situations where I’d rather have dollars than bread.
Although I think we should mention that one can write a sentence for bread that is very similar to the one you gave for dollars. Bread only has value if you are hungry and don't have other more preferable food sources.
I don't understand what specifically makes some kind of value "intrinsic" under your model.
"In philosophy and ethics, an end, or telos, is the ultimate goal in a series of steps. For example, according to Aristotle the end of everything we do is happiness. It is contrasted to a means, which is something that helps you achieve that goal. For example, money or power may be said to be a means to the end of happiness."
https://en.wikipedia.org/wiki/Intrinsic_value_%28ethics%29
Fiat currency and bitcoin, and to some extent gold, are not an end-in-themselves but just a means to acquire something which is actually useful to you. They are not in and of themselves useful to anybody.
If those goals were satisfied through other means, whether by using bio-engineering to modify my physiology or through some other process, would bread no longer have intrinsic value?
What are some examples beyond bread that meet your criteria of intrinsically valuable?
How do you determine if something is an “end-in-itself”? I find it difficult to definitively attribute that label to anything.
However once you have them, you get rid of them. Good assets don't lose value over time. https://www.statista.com/statistics/1032048/value-us-dollar-...
https://en.m.wikipedia.org/wiki/Civil_forfeiture_in_the_Unit...
https://en.m.wikipedia.org/wiki/Executive_Order_6102
https://en.m.wikipedia.org/wiki/Greek_austerity_packages
A 51% attack doesn’t let the bad actor steal someone else’s coins. It lets them reverse and double spend their own spending. They can’t directly steal coins. The flexibility of open source software gives opportunities to mitigate such an event, should it happen.
- Medium of exchange
- Store of value
Fiat currency has utility for both. If crypto was more widely accepted by merchants (thereby satisfying bullet point #1) then this certainly changes the game. But it's not.
Comparing both in their current capacities is disingenuous.
It is at the whims of whoever decides the interest rate.
Which is precisely what makes it a fiat currency - its value is determined by a government entity.
> A US Government 10 yr bond currently yields 0.91%, and has been falling consecutively since its peak in 1981.
You know there are other fiat currencies right?
> not sure how you determined there is much utility in using it for saving.
"store of value" doesn't mean simply saving, it means the asset doesn't depreciate. The alternative to a fiat currency is to hold your goods as is and barter them, which relative to a fiat currency is a bad idea. Your cow eventually dies, your milk eventually soils, your tree eventually dies, etc. etc. In other words those assets all eventually depreciate to zero.
Bitcoin is interesting because it's possibly the biggest actual wealth destructor from all tradeable assets. Companies can have large losses on paper, but how much of that is actual wealth destruction, and how much just redistribution to new owners? I suspect the fraction that's actually gone in the physical sense is very small, allowing wealth to slosh around for a long time. Bitcoin's proof of work is designed to actually destroy wealth in the physical sense - transformed into waste heat and devices designed to do nothing else. This means that it's eventually certain to be outcompeted even by redistribution-type loss schemes, as groups that stay away from bitcoin completely are going to be increasingly wealthier relatively to groups that buy into it.
In the short term it may not look like it, but what's happening is social redistribution of power away from people that think bitcoin is a great idea.
https://www.goldbroker.com/media/image/cms/media/images/glob...
Would Gold become a net destructor if jewellery demand declined for some reason?
While I'm definitely not a fan of crypto currency and wouldn't seriously consider investing a single Euro into this mess, it's certainly misguided to simply laugh at it being "not real", because a lot of important things are. Obviously the gp makes some other important points.
Also, stocks don't really produce cash flow either - A dividend drops the price of each stock by the equivelent amount. So if you get a 3% dividend a year, the stock price is dropping by the same amount.
I will say, it is easier to quantify that Apple/Google/other company is in an industry and makes things, and has revenue/expense to look at and thats why they are worth xyz today. I can't explain why bitcoin goes up or down. (other than whale buys a bunch, so the sheep follow)
I don’t know where the concept of dividends dropping the value of a company came from, but from a transactional point of view it doesn’t make sense. Sure, there are more earnings that have not been retained for increasing future earnings, but the value does not drop correspondingly. That’s just not how companies are valued.
3% of earnings going to shareholders just does not at all mean the company drops by 3% in value. Companies are valued in a number of different ways, but not one of them is based on a 1:1 proportion of earnings. Earnings multiples, yes, but what you’re suggesting is companies drop equivalent to being valued at a P/E ratio of 1.
A company making 1 billion in earnings is not worth 1 billion dollars. Certainly not a majority of the time, at least.
I am well aware of this myth, but not from where it originates. Yes, certainly cash on hand drops which affects valuations, but not by as much as you’re suggesting.
I don’t understand your comment about stocks not producing cash flow. You’re buying part of a company. You’re not buying the certificate.
But this is not what's being claimed. Dividends are measured relative to stock price, not earnings. And a 3% dividend - that is, a per-share dividend equal to 3% of the share price - absolutely does cause the price to decrease by 3%.
It's pretty clear why this must be the case - it's one of the weakest possible forms of the efficient-markets hypothesis. If it wasn't the case, people would buy (sell) the stock just before the dividend and sell (buy) just after for a nearly guaranteed profit.
Because of transaction costs there is in practice a zone where they should neither raise nor give dividends.
Close to the optimum a dollar in dividend will change the value of the company by approximately one dollar.
Well, there's taxes for example.
https://www.investopedia.com/articles/investing/091015/how-d...
https://finance.zacks.com/stock-price-change-dividend-paid-3...
It's not 100% true, but it's a fair bit better approximation than the other end of the spectrum which is roughly "dividends create free money out of thin air".
Here is the reason the stock price drops by the dividend amount.
Dividends are issued to the person holding the stock at the date the dividend is issued.
This means it is possible to buy the stock one day before the dividend issue date, hold the stock for another day which then entitles you to the dividend and then sell the stock the following day.
So you can hold the stock for just three days yet still get the dividend and the price drop accounts for this possibility.
If the price did not drop that would effectively equate to free money, as you could take out a three day loan to get the dividend and the interest on that loan would be way less than the dividend amount.
As such it is capital market forces that is causing the share price to drop.
Is that any different than a stock though? You can’t spend stocks, they don’t produce cash flow (ignoring dividends), and their value is what other’s are buying and selling it for.
Just as I can offer to sell my share for $10,000 despite it trading at $100, I can do the same with Bitcoin. There’s a reason some people call Bitcoin an “investment.”
Now, before anyone thinks I’m advocating Bitcoin, I’m not. I’m just pointing out the similarities to the stock market.
Say you have a drywall company in town. You and the owner are good friends and the owner wants to retire but doesn’t have a family member who is interested in the enterprise. He seeks out buyers. You mention to him you’re interested but you have to ask yourself how much you’re willing to pay for the business, its fleet, tools, leads and customer database, current lease agreements, employees, etc.
Someone has to value that, because it intrinsically has value. It’s not worthless. You can’t rebuild a multimillion dollar business over night.
So it turns out if you have this entity that produces cash flow, it’s worth something. So how much are you willing to pay for each dollar of earnings? At the end of the day, that’s what a business produces for its owners.
If you invest in large companies on the public stock market, it's about the same as investing in cryptocurrency.
1. If companies don’t care what they’re valued at, it makes M&A infeasible. A business could never be sold.
2. Selling equity is done to raise cash. If no one cares what the business is valued at, equity is worthless, and 1. is infeasible.
I used to think that, but then I saw what happened to TSLA this year. I don't think that these markets are as different as you think they are.
But Bitcoin was designed to be a currency. Certainly the software is worth something. Or maybe nothing really. Look at other FOSS.
As far as a currency goes though? I don’t want my currency to fluctuate.
The idea of bargaining with an employer or client to pay me “more” this week versus last because the value of the currency dropped 11% is ridiculous.
Bitcoin is dead on arrival because it’s design doesn’t evade the central banking problem. A currency cannot have a limited supply when value as a production of labor is not limited.
Also, Bitcoin was not necessarily designed to replace every fiat currency for every single everyday spending use case and it's a strawman to imply that if it can't do then it's "dead on arrival". There are plenty of important possible use cases which don't presuppose the collapse of all fiat currencies.
Finally we don't really know the volatility of Bitcoin in the long term. It hasn't existed long enough. Looking at the price behavior in the first decade of its existence is not likely to give you a promising picture of any new asset class.
Whatever drives the value of shares it's not voting rights.
Well, this is a bit of an unfair premise :) the whole point of equity is that it is a claim on a company's future profits, and companies return profits either via directly via dividends or indirectly via buybacks (which push up the value of existing stockowner's holdings). It's easy to forget this in startup land, where most companies are unprofitable and thus have no profits to distribute.
When you invest in stocks it is sort of like giving a loan to a corporation so that they can spend your money on growth, to create more profits, which allows them to become more valuable. That is why stocks are expected to continually grow in value over time.
Bitcoin might be many things, like a store of value, transaction network, etc., but it is not really a long term investment vehicle except maybe as an inflation hedge.
Nobody is claiming that stocks will replace fiat currency, though. In fact, it makes no sense.
- Picking the right businesses to invest in
- Investing in Crypto(used to be easier than it is now)
- Convincing shmucks to invest in the wrong business
- Investing in index funds
ROI if executed successfully(highest to lowest) - Starting the right business
- Convincing shmucks to invest in the wrong business
- Investing in Crypto
- Picking the right businesses to invest in
- Investing in index funds
strategic money making popularity scores
Don't try this at home. Very few people do this well. Those that do make a lot of money.
- Picking the right businesses to invest in
- Starting the right business
The "Dominant Strategy" of the market right now
- Convincing shmucks to invest in the wrong business
If you know what you're doing
- Investing in Crypto
What shmucks should do
- Investing in index funds
Well yeah, starting a business is literally the riskiest thing you can do with a wad of cash. Much riskier than cryptocurrencies, riskier than most casinos. Of course it's going to have higher potential upside, but 75% of companies go completely broke within their first 15 years.
Demand is not only coming from people falling for the "greater sucker" theory. You're either ill informed on the topic or being dishonest.
This is a fantasy put forth by Bitcoin enthusiasts that's not supported by the facts. The average cost of a bitcoin transaction is currently ~$7.5USD[1]; nobody in the unbanked world is spending the cost of 1-2 Nokias to make day-to-day purchases.
> Another example is how it is providing a way for people in hyper-inflationary economies like Venezuela to store value.
This isn't true. Zelle's ability to store actual USD make it the preferred means for storing digital currency safely in Venezuela right now[2]:
"Ecoanalítica, a local consulting firm, estimates that 17% of transactions at retail establishments in Caracas go through [Zelle] and that other Venezuelan cities are seeing similar usage levels. The actual figure may be larger, considering the data do not include smaller shops."
Accusing others of being ill informed or dishonest while yourself pushing forth maximalist narratives that aren't grounded in reality is a bit rich.
[1] https://ycharts.com/indicators/bitcoin_average_transaction_f.... [2] https://www.bloomberg.com/amp/news/features/2020-11-11/zelle...
> You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.
Yes, this incredibly vague statement is almost tautologically true. You can definitely think of a business that will make more money than some cherry-picked example of an investment that lost money. Bravo.
Crypto businesses are very lucrative so don’t be too busy asking why when you should be asking how
The law of large numbers, in this case—the speculative experiment of seeking returns from assets that do not produce value, will iron this out. History does not repeat, but it rhymes often enough for those who know the tune to sing along.
For starters, you should probably start over on whatever you think you know about the tulips. Primarily its relation to tulip derivatives and the spot market of tulips, and the government's role in the dutch derivatives market at that time. And secondly, the length of that asset price distortion, compared to the crypto markets.
Of all the endless knowledge that humanity produces, you have to ask yourself whether or not there’s meaning in pursuing topics endlessly.
They’re flowers. This isn’t a discussion about some ECON 500-level course topic.
There’s an academic argument to be had about whether or not the accounts of the event are credible, but that’s not what we’re talking about here.
It is.
> There’s an academic argument to be had about whether or not the accounts of the event are credible, but that’s not what we’re talking about here.
It is.
You brought it up. You threw in conjecture. And every rebuttal is more complex than you decided to be willing to pursue. That doesn't become false by saying we aren't talking about something that we absolutely are, and all of your hyperbole keeps reinforcing your willing self-proclaimed but obvious ignorance.
Your side of the argument is ad hominem. I’m ignorant. OK, great, what’s your point? I should rethink tulips. Why?
You don’t actually make an argument yourself; sure I spouted off some things I think are generally bad because my statements imply you’re not going to find long-term returns from that type of “investing,” but are you not also spouting off some points of your own?
Truce, one last "ad hominem" and I'll move on
> Of all the endless knowledge that humanity produces, you have to ask yourself whether or not there’s meaning in pursuing topics endlessly.
This is a verbose way of saying ignorance.
Okay moving on.
My real argument is that Tulip mania is actually the worst poster child of speculative bubbles, as the spot market was largely unaffected and for a brief period of time the futures market became very divorced. It also ended with a local bubonic plague, which means the speculators died, so we don't really know if there was merit to the future delivery or not. Also public policy played a role in the futures contracts, and for that I would have to brush off more literature to expound upon. But the idea in popular culture is quite wrong.
I personally did not comment on beanie babies and ignored it. My first inclination on that speculative bubble is that it was silly, but I didn't comment on it because I don't know if there were supply and demand conditions to support it, and such imbalances can occur in any asset class whether there is utility or not.
Regarding crypto in the light of other speculative asset price bubbles, even ignoring the utility that it does have for a broader and broader set of people, the staying power alone has defeated the bubbles you mentioned. But to counter the lowest hanging rebuttal of "but it can remain irrational longer than you can remain solvent" you have to then counter in how the utility does address a wider and wider market. Its not just a payments, it is far beyond payments right now, and all of these crypto assets inherit the payments capability.
So I researched the Beanie Babies bubble and it also does not seem irrational. Ty Warner encountered a temporary supply chain problem and announced that was permanent, and this was not priced in as in, nobody expected that. Beanie Babies did have high sales before this, and people wanted ones they couldn't get.
The Beanie Babies bubble burst when Ty Warner flooded the market with too many variants at once. He didn't know it at the time and was also more interested in his own revenue.
It is not irrational if the traders factored in the possibility of the market being flooded. Does that include the infamous tale of a divorced couple splitting their Beanie Babies investments on a family courtroom floor? I don't think that matters. This is a hallmark of all markets, a spot commodity that there is more of.
Beanie Babies traded at their retail value after Christmas 1999. It is possible to have sustained above market value, such as with diamonds. Maintain the scarcity properly at the expense of near term revenues.
In relation to crypto, the market doesn't become diluted just because there is "more cryptos", the digital commodities that have known immutable supply and market share occasionally have supply shocks and are expected to have them at greater amplitude.
At this point, I can only draw the line of irrational exuberance at equities and credit market bubbles. And even then, only sometimes. So that gives us South China Sea bubble, and the 90s Tech bubble in the Nasdaq.
I don't see a way to turn bitcoin back into electricity. One could exchange bitcoin to fiat currency and then buy new electricity(created from a different source) but that's not really using stored electricity.
Do you have any examples of a bubble which
- lasted more than 5 years - recovered from previous drops in value of more than 50 %?
What kind of evidence would convince you that bitcoin were different from these past bubbles?
Before 3 years ago, it wouldn't have looked like "any other penny asset" it would have had a similar chart as now because its prior booms and busts 3 years prior to that all had similar degrees of amplitude. Just zoom in on a chart and pretend that it is summer 2017 with no future price history available, just like all the traders at the time had.
Regarding "penny asset" again, in price 3 years ago and 6 years ago Bitcoin would have been hundreds of dollars, which is not like penny assets, and even if comparing "penny stocks" to a digital commodity the marketcap of bitcoin 3 even 6 years ago would be greater than 99.9% of anything in the penny stock markets (bulletin boards, pink sheets), of which - of course - commodities and commodities derivative do not trade on.
You speak in hyperbole for emphasis and that's generally fine, but that only works if you know what you are talking about and it is pretty clear you just conflate concepts over and over again.
Its fine if you personally don't want to or don't have the risk profile to be in this market, yes you are missing a lot of alpha from sitting on the sidelines. No, you don't have any insight to support you sitting on the sidelines. But again, it is a completely valid choice to do so.
It’s supposed to be a currency. And yet it’s not. It doesn’t exhibit any of the traits of a currency I’d want to spend at least. Maybe you’re OK with that, so have fun. It’s fundamental existence doesn’t work for me.
ah that argument, I read that recently, those are skeumorphs, here is a quote
> When it comes to this asset class, there are still people that argue against the concept of Bitcoin, mostly in reaction to one of its sales pitches without ever noticing what this really is. For example, people are likely to debate about the “coin” or “currency” nomenclature of “bitcoin” and “cryptocurrency” respectively. Ultimately, what we have is an asset with a fixed known supply, which has some attributes of all other asset classes, some improvements, is continually updated to have more attributes and improvements, in a world with massive inflation. This is the macro story of bitcoin, the big picture.
You might begin to notice that I use the term "digital asset" and "crypto" in its new asset-based context very reliably. It can be transferred peer to peer and I frequently do that, I don't use the term currency and I typically don't single bitcoin out specifically as I'm not usually talking about bitcoin specifically.
Except there’s a fixed supply. There isn’t a fixed supply of value in the world.
The amendment ratification process has a long lead time, even when it is not politicized. The current Taproot and Schnoor amendments actually improve the "electronic cash" feature set, and has signaling consensus already but they must signal for I think 6-12 months before the nodes start updating their software. Hopefully wallets and exchanges use this time to implement the technology as default for the users (but they won't, human nature)
The real gift of bitcoin is that it jump-started a wave of innovation by birthing "cryptocurrency". Once people saw that money would flow into bitcoin, people started new projects to try out all the other now-obvious ideas for cryptocurrencies. People want to build important things.
If you're thinking of bitcoin in the mindset of beanie babies or building a better credit card, then you may have missed the bigger thing that's happening. It's becoming obvious, to me at least, that cryptocurrency is trending in a direction where it will profoundly disrupt any industry that uses the internet, beginning with finance.
Also, I've been following this thread, and you should probably re-read all of vmception's comments. IMO he's right about some important stuff that your replies suggest you may be missing.
Plus the Lindy effect. If it's lasted 10 yrs, it's likely to last another 10.
You refuted yourself in the second paragraph. I suspect that crazy cash and financial instruments are crowding out the value of business investment.
You can spend it.
> does not produce cash flow,
Neither commodities nor currencies produce cash flow. People still reasonably invest in both.
> and whose values are determined by other shmucks buying it from previous shmucks.
The value of every other asset in existence is also determined by this process.
"Intrinsic value" isn't a rational concept and doesn't exist inside any successful economic formalizations.
Gold has value because it has useful properties, just like Bitcoin.
Gold: Shiny, sort of limited supply, difficult to store and transport
Bitcoin: Not shiny, hard-limited supply, easy to store and transport
TL;DR A lot of investors buy high and sell low. We're seeing that now with crypto as well as US stocks.
Right. Small businesses are just killing it these days.
I take its value that its supply doesn't unexpectedly increase by a single entity's decision but controlled and doesn't also need the help of another entity to transfer.
Not sure if you call that intrinsic value but there is value.
It underpins major perspectives on investment, monetary and gov policy, and individual agency. It is infuriating, but it has worked spectacularly for a long time and has just enough truth in it to keep people building castles in the air.
re intrinsic value - i think that intrinsic value is a fiction. there is always a market value. i don't know what the hell "intrinsic" value is and how useful can it be.
Tether's total valuation is $19.4 billion. It's a drop in the bucket.
> Research by John M. Griffin and Amin Shams in 2018 suggests that trading associated with increases in the amount of tether and associated trading at the Bitfinex exchange account for about half of the price increase in bitcoin in late 2017.[29][11][23]
https://en.m.wikipedia.org/wiki/Tether_(cryptocurrency)
:)
In the past, ethereum was also highly automated trading.
Anyway, the reason you buy it is so you don't need to manage the security.
Both Binance and Circle Pay ended United States operations causing my friends to either move their Bitcoin or they didn't and had it sold at 3k/coin and can get it from their states "lost money".
Start a business, build a product. If you have excess cash by all means invest in crypto assets and startups.
What a time to be alive. No wonder the S&P 500 CAPE ratio is beyond the 1929 high. No one has any idea of what the intrinsic value is of anything.
Investing in companies that don’t make a profit, investing in companies whose investment returns are below real inflation, investing in SPACs that don’t expose financials.
You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.