That seems like a lot, but compare it to Apple -- the market cap of just this one company's stock is currently ~2,238bn.
The market cap of gold, US dollars, Euros, etc. are all many times more than Apple. The value of all BTC is a tiny microscopic speck compared to the amount of USD or gold in the world.
This means (among other things) a few small players (with tiny capital relative to, say, the size of all USD) can swing the BTC market either way with a comparatively tiny amount of value moving around.
That would seem to greatly limit BTC's usefulness as any kind of inflation gauge for the broader economy.
600bn is more than gdp of majority of countries.
As far as I know, they have not proven they even have 1 billion on reserve. How can they claim 21 billion?
Is this pyramid scheme the real reason bitcoin prices are so high?
Asset prices are up across the board.
Over the long term (several decades) you can expect it to perform like gold once it has turned into a mature market.
Bitcoin gives a PRICE APPRECIATION RETURN
One could call this then a “greater fool” play except it has algorithmic reduction in supply which repairs “greater fool” aspect.
In the US, it is more like "you can only charge what consumers can go into debt for". The self-correcting force of consumer inflation on price discovery has been time-delayed buffered and confusing price signals for a long time for select industries by acommodative consumer debt issuance. Without that effect upon price discovery, I suspect the number one reason bankruptcies occur to consumers to trade categories every few years as the inflation works its way through different key industries and their customers. Which is why US personal bankruptcy has been quite consistently caused by medical bills for decades [1].
When/If this inflation wave takes root in the consumer sector, it first has to overcome the deflationary secular bias that has plagued developed world economies for a few decades. I suspect this is because price discovery in wages has been quite robust, but in goods and services it is obfuscated by many means (consumer debt issuance is only one of many mechanisms), and the end effect is people are functionally broke.
If it breaks that deflationary bias, then it will break a great many households who cannot bear inflation while their wages stay functionally unresponsive to the same inflation. If that happens, then I expect the deflationary bias to turn into a depression.
What you're saying is that; due to debt issuance in the US, it's hard for commodities and consumer goods to be priced efficiently. I interpret "confusing price signals" to mean that e.g. Apple can charge $1k for an iPhone and sell out to families who wouldn't typically be able to afford it, but the price of bread remains the same. Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry?
And so you're saying that most commodity goods face deflationary pressure as a means to stabilize the market? So if the price of commodity goods does increase significantly beyond the capacity of debt issuance, we're likely to see a depression?
It is more an interplay between wages and price signals of consumer goods and services than between price signals of separate commodities and consumer goods. Consumer debt (primarily credit card, but also HELOC) distorts the timely impact of purchasing signals upon pricing, but wages-offered signals are much quicker to respond. The debt acts as phantom wages, but only for awhile does this levitating act suspend disbelief in the pricing signals, until the debt service overwhelms consumers. By then, the purchasing decision has already long since been priced into the market, and the correction of the debt overwhelming the consumer is either completely ignored because it is by now disconnected, or attenuated away into irrelevance.
"Awhile" in this use case is longer than the time horizon of most consumers, on the order of a few months to a few years depending upon the individual, but in any case long enough to modify consumer behavior. The glass half-full perspective is this behavior implies a strong optimistic bias to consumers; nearly everyone believes they will make the debt nut over time. Looking at the historic patterns of US institutions laying off however, most working and middle class US consumers should be much more secularly pessimistic in looking after their own interests: they should be acting on a cash-basis only, and make very austere purchasing decisions therefrom until they can use capital to help themselves, instead of capital using them via debt (with extremely few exceptions, like home mortgage in very circumscribed circumstances which most of them do not qualify for).
> Your medical bill comment -- you're basically saying that when one of these families hits a statistically predictable snag, they're instantly bankrupt because they've always been functionally broke, propped up by the consumer debt industry?
Correct. Most working and middle class families are under-insured. Using plans that only pay 80% of covered procedures. Or have very high annual deductibles to afford the premiums, which are orders of magnitude more than what they can pay from savings. Most such families struggle to find $400 to spare [1]. A typical high-deductible-low-premium health plan will typically set back a family $2-4,000 before the plan kicks in, and for many of these families, the plan offered by employers only pays 80% of covered procedures, and there are many exceptions to covered procedures.
Unless you are well-educated, persistent, have time to set aside, apply an extremely low time preference, and able to learn the ropes, these families are completely unprepared for the probable budget killing black swans. One bad broken bone, or God forbid a serious disease, they first get blind-sided by a $2,500 deductible. Which they'll take on debt to meet. Then they start getting the bills and dunning letters. Many of which are wrong, but that's where the "well-educated, persistent, have time to set aside" part comes into play: you have to be willing to pay the cost in your own time and energy to make the phone calls and figure out which bills are legitimately what you have to pay, and which the insurance company has to pay, and do other people's jobs for them by pointing out where it says in the black letter policies their own companies wrote. So many of these families start good-naturedly taking on more debt for multi-hundred (if they're lucky) and multi-thousand (typical) bills they shouldn't, which they cannot afford.
It is not unusual for a mean household income of $68,000 to get blindsided with $30,000 in medical debt. At high double-digit interest rates. Mix in a chronic, terminal or serious illness, and they start racking up nearly that much every single year. The US system is fundamentally broken.
> And so you're saying that most commodity goods face deflationary pressure as a means to stabilize the market? So if the price of commodity goods does increase significantly beyond the capacity of debt issuance, we're likely to see a depression?
Most commodity goods consumed by working and middle classes are facing deflationary pressure on the consumer buy side because the bulk of consumers in working and middle classes are barely staying afloat through sheer, literal luck of the draw. But yes, with those qualifiers in place, you rephrased what I intended convey.
Due to the US lack of adequate response to COVID-19, the presence of an unknown, yet statistically significant recovered population exhibiting what so far appear to be chronic after effects, and the above dynamics with medical debt, one factor to the US economic recovery story I'm watching is how many people go into bankruptcy because their after-acute-recovery conditions require too much care (in the US, any ongoing care is too much for such financially-stressed families). 19.9M infected is large enough to affect the margins if enough of them require even medium-term (3-7 year) care, not to speak of life-long care. I wish I had hedge fund-grade access to data, as this is tradeable information at the macro scale.
[1] https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-...
US numbers are missing on how many enter aftercare; when someone contracts COVID-19 then is eventually discharged from acute care to rehabilitation, as far as I have been able to tell, they disappear from the statistical models, lumped into an unhelpful puddle called "Recovered". Only the insurance companies and Medicare/Medicaid have those numbers for their individual policy holders. That's why I think only a hedge fund would have the funding and clout to call up and cajole those kinds of numbers out from each of those entities to assemble a data mosaic.
Because of this, there is just no telling how widespread this issue is at this time. It is widespread enough that some medical specialists like pulmonologists and cardiologists are noting very abnormal (worst in their professional experience) rates of complications requiring extensive and sometimes life-long rehabilitation. Not widespread enough (yet?) to tax the available rehabilitation resources. We have rough ideas of available rehabilitation resources in the US, but to make a speculative bet on this ahead of the crowd, you'd need this information before it gets to that point. One microsecond after the headline "US Rehab Units Full from COVID Patients" hits the Reuters news wire, all the good bets are already placed.
A common narrative going around is with the anticipated failure of US politicians to enact sufficient financial relief for working and middle class members, there will be a lot of foreclosures on that dynamic alone, and residential rental will see lots of demand. Lots of long bets have already been placed on residential multi-family rental ventures (wish I knew of an exclusively US MFH residential REIT, but my EFT screening yielded none such, lots of them are over-salted with extensive commercial properties holdings, but I'm only using public data sources).
Backing in from your 4M figure, if the US hits a 20% (and declining, as the number of infected keeps rising) rate of long-term aftercare complications, then it starts to seriously toy with the possibility of a medical bankruptcy-induced foreclosure wave just as big as the 2007-10 recession. This is on top of the pain from economic disruption, which lowers the threshold when medical bankruptcy would be declared; I'm pretty sure that data of general versus medical DTI before bankruptcy is declared could be teased out of historical bankruptcy data at various banks and then assembled into risk tranches along various categories of profiling, pretty straightforward ML work. The US political and financial establishment will probably try to amortize the pain out as much as possible through piling up medical social benefits debt and various kinds of staged mortgage note relief for the capital holders (I see insufficient political power on all sides to directly assist citizens sufficiently to have the same effect, and the decision makers are probably tunnel visioned into the systemic damage done if the capital underwriters of the notes zero out without noticing they get a two-fer by transiting the stimulus funds through those who took out mortgages first). So whether the US enters another credit crisis comes down to some mix of political, monetary, and currency exchange factors.
> Unlike last time though, the housing supply currently seems fairly tight in many areas, so a large pricing collapse downward seems not nearly as likely.
I suspect this is more due to the large amounts of monetary stimulus that makes its way into investment venture fundings than organic demand shaping.
But yes, I believe for partly the reason you cite, and mostly the reason I gave, that the pressure to hold up residential (and to some extent commercial) real estate asset pricing is immense, and likely to continue. The US is walking straight into the 80's Tokyo Trap: real estate asset pricing levitated by so much hot money flows that it mostly disconnected from its original utility to function as a natural world good. Kind of ironic, natural persons using natural world goods usurped by corporate persons using financial world goods. But this levitation continues for much longer than most people expect (Keynes' “markets...irrational longer than you...solvent” quip), and I suspect this continues until the US Congress' spending is reined in by the forex markets (which might be in a kind of a regulatory capture of their own peculiar kind).
Use every year the US political establishment kicks the can down the road to put away your larder. It's going to be a bumpy ride if the levees break the way I fear they will in about 3-4 years.
To me, the most reasonable interpretation of these valuations is a savings glut. People are being given extra income, but instead of going out and spending it on more impulse purchases (such as fine dining or an exotic vacation), they're shoveling that into savings accounts. And assets that reflect a long-term saving mindset--real estate, stocks--are going up in price, while more immediate consumptive assets (e.g., food) are staying stable.
> wouldn't be surprised to see the price of things like groceries, beer and travel double or triple what they were in 2019.
That would be an effective inflation rate of 100-200%. If you're assuming that would happen within a year, the number of countries right now with that high of an inflation rate is 3: Venezuela, Zimbabwe, and Iran. Even the developing world doesn't regularly see inflation quite that high, you'd expect more like 10-30% annual inflation for those countries.
Note that many other assets such as energy, financial, and real estate stocks, consumer goods, etc. are not experiencing sky-high valuations - indeed, some of those asset classes are down for the year.
So it's not just fiat dollars that have dropped dramatically in value by your reasoning.
It seems to me more likely the market is simply overpricing one class of assets (tech stocks) here. Occam's Razor comes to mind.
I'd invoke Occam's Razor to state that inflation due to increase in monetary supply is more likely to manifest as "overpricing" of one or two asset classes first. As opposed to a crash, where one asset class bottoms out and takes the other with it, stimulus and inflation, in theory, would cause the opposite -- would they not?
I haven't studied hyperinflation. So consider me inquisitive on the subject. But it's certainly happened before, and the dynamics seem like they have the potential to create a positive feedback loop similar to a crash.
Bitcoin doesn't go up because inflation is coming. The current value of bitcoin is an early indication of people betting on inflation. There doesn't need to be inflation, there only needs to be an expectation of inflation for investors to pile into bitcoin, thus massively driving up the price. And investors piling in will drive the price massively because there's a fixed supply of bitcoin so the price is entirely driven by demand and the current present value of all the bitcoins in existence is still ~500Bn, the same amount as a company on the stock excahnge. The price of all the gold in the world for comparison is ~10Tn. Or to put it another way, if inflation now doesn't happen, the price of bitcoin looks ridiculous and there'd be a massive crash as everyone floods back out. In fact, further than that, if inflation doesn't sky rocket then the value of BTC looks silly.
It's already the case. Not 2x or 3x but double digits inflation on groceries notably meat products won't be surprising when we do the math next year.
When the government issues debt and then uses the money to send out cheques, that money had to come from investors in the first place. So the money was reallocated, not created. (New assets did get created: someone is going to hold those bonds and count them as part of their assets. But they can't use these bonds directly to buy groceries.)
Furthermore, the last time the Fed has tried to draw down its balance sheet of federal debt, commodity prices went crazy and Jerome Powell had to abandon that quantitative tightening program. So, it's not even like the Fed can easily move those T-notes to the private sector and pull USD out of circulation -- we're stuck in an inflationary period.
When the central bank later buys those bonds from banks (they never buy them directly), something different happens: the bonds are exchanged for "bank reserves", a different type of digital money that only exists as numbers in the central bank's database. This "money" cannot be used to buy groceries.
Quantitative easing increases the money supply. They've injected trillions. Who got it is a separate question.
[0] https://positivemoney.org/how-money-works/advanced/how-quant...
If banks would buy financial assets and create money in the process as described in the post, then that would certainly be inflationary. (e.g. I can imagine hypothetical legislation that forces banks to buy government bonds, that would be the time to run for inflation protection.) As far as I understand, this has not happened, or at least not to the degree that it caused inflation. The effect of QE has been to increase bank reserves but not the money supply, which is why we haven't seen inflation since the financial crisis.
I can't find a source that explains the mechanism for how QE affects the economy.
[0] https://www.investopedia.com/articles/investing/051315/what-... [1] https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
And that's how you get BTC and Tesla's meteoric rise.
Even if the returns of btc were poor, it would still be a very attractive investment as uncorrelated assets boost the risk adjusted returns of a portfolio.
Recently I have had friends that are very far from the tech scene, but well versed in investment risk pick up BTC as institutions announced the onboarding of coins.
I have no idea if $30k / btc is reasonable or insane, but I think we will know when bitcoin gets to the final price as the correlation to gold gets closer to 1.
Housing price is up, but not rent (all over US), that is driven by lower rates rather than inflation.
All that said, a ton of money was dumped on the market. We won't know until later in the year what the result of that is.
> the increasing worthlessness of the USD
I think you must be using words different from what I take them to mean, which means you can draw radically different conclusions from how I read them.
If everything in the economy is tied together, such that $10 is still an hour of work at a grocery store, and $10 still buys you a lunch or three gallons of milk, and $10 still buys you 4 gallons of gas, etc etc, then I don't see how you can say that there has been some kind of "secret" sky-high inflation over the past few years that is only detectable "from the outside."
Inflation is defined by the purchasing power of money within the economy. If that's not changing, inflation isn't happening.
Pointing to a single asset whose price is fluctuating wildly and insinuating that that is the only real source of truth, and that literally everything else is hiding the true cost of living seems to be just showing what you want to believe.
(Note, I'm not saying that there's been no inflation. It's been about 2.5%/yr over the past 20 years. But simply that the notion that it isn't visible from "inside" the economy is contradictory.)
What's being asked is, "is what we're seeing a warning sign of inflation-yet-to-come?" Rephrased, "are people bullish on technology stocks and Bitcoin because they're speculating that there's major fiat inflationary risk and these asset classes are most likely to hold value?"
The key ingredient missing from your calculation is time. If you are simply measuring how much an hour of work can purchase now, you are completely ignoring that some people want to save money.
If $10 is the measurement for an hour of work and 4 gallons of gas today, in a decade or so, you might need $20 to pay for 4 gallons of gas, and you might get paid $20 for an hour of work. But somebody who saved $10 worked today, and chooses to spend it a decade later, will only be able to acquire 2 gallons of gas. The result of their labour would have been reduced to half.
This is what Bitcoin intends to fix. We want to be able to store wealth into the future - so that an hour worked today is still worth an hour (or more) tomorrow. The potential appreciation in purchasing power is reward for thrift.
As it stands, if one wants to preserve wealth into the future, they must put money into risky investments to ensure that the dollar value of the savings appreciates at a greater rate than its purchasing power is lost to inflation. They also run the risk that their savings or pensions could be lost with companies going bust or if hyperinflation occurs.
Bitcoin is a pension plan.
As for using Bitcoin as a reference frame of measurement, there's a good reason to do this. Bitcoin is a fixed system of measurement which is disjoint of time or other externalities. There is an absolute maximum of 21M bitcoin, so any whole bitcoin is always 1/21M of the total supply. This is a truth that holds today and in a decade. It is immutable.
Consider measurement of length. If you only have cows in a field, how do you measure the length of a field? You could say it is 100 cows long and 80 cows wide, but how long is the cow? The cow grows as it ages. Once you get hold of an external tool of measurement - a meter (or yard, etc), then you can measure both the field and each cow against it.
The same is now true for economic value. Before Bitcoin, there was no fixed scale of measurement. The dollar was flexible, just as any other commodity. Bitcoin OTOH, is not flexible. The exchange rate of BTC/USD might be flexible, but when you use BTC as the frame of reference, you can instead measure how much value the dollar is losing against bitcoin. https://usdsat.com
As you can see, the dollar is losing value so rapidly that inflation of the dollar is negligible. It is the perception of inflation which is causing it to plummet far quicker than the actual rate of inflation.
So? They can still be idiots. Idiocy does not have an age limit.
>> Inflation is measured in many ways, most often by looking at a basket of goods where the prices are relatively non-volatile.
Meaning you remove the items from the basket if it's price jump too much ? so if you tamper with the items in the basket you can project(pretend) that the inflation is not happening.?
>> using the USD/Bitcoin ratio as a yardstick for inflation seems very misguided, as Bitcoin is heavily speculated.
No it doesn't need to be a yardstick as Bitcoin is not yet in full circulation in the economy but it's growth indicates people are increasingly prioritising it over paper to store value.
Re: speculation, everything is a speculation, there are those who keep holding USD in cash and banks and keep speculating that the economic prophets will do the right thing to retain value in their chosen currency.
You can look up the methodologies used to determine the basket of goods. By non-volatile I mean that they’re aggregates over purchasing categories - for example, it’s not the simply the price of a “40inch TV” or cod fillet (which may change in ways non-representative of general purchasing practices - as TVs of a given size get cheaper, or cod has a good year) but an aggregate over the entire purchasing category (fresh fish, consumer electronics) based on typical purchasing habits.
https://www150.statcan.gc.ca/n1/pub/62f0014m/62f0014m2019001...
When things are added or removed it’s because people have stopped buying that thing (DVD rentals for example).
Or simply that there are thousands of speculators. (Which isn't even that many people considering the number of people who speculate in stocks.)
Everything else is just a derivative of this. You're measuring the side effects of inflation. If you want the deeper cause, it's here.
Everything else–money supply, borrowing costs, etc are linked to it, but do not necessarily correlate. The price of a Big Mac is almost certain to be a far better approximation than any of those indicators.
This really isn't that complicated.
If you have a lot of unemployment and inflation is low that basically means there is very little work for your people. This is the reason why 2% inflation is a policy goal. You always want there to be just a tiny little bit more work than there are workers. If there is a way to do more work thanks to technology that is increasing productivity it will be done.
Historically, inflation always meant inflation of the money supply. Its definition has changed over time and you've been swindled.
If you have a name for something, name the root cause, otherwise you're obfuscating its study, and perpetuating the non-identification of the root cause.
"Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation." [0]
But it doesn't happen without the prerequisite of money being printed.
but this chart doesnt take into account increases in productive capacity. If there exists production capacity to match this growth in money supply, goods will remain relatively priced the same, even if more is printed.
A Bitcoin is totally speculative and has virtually no useful purpose in the real world yet. You can’t actually buy stuff with it from stores, due to its niche status, high fees, slow transactions, and wild price fluctuations.
Looking at it that way, it’s clear that a stock is a much safer investment than a Bitcoin.
In short, from a quantitative perspective, it never makes sense to look at a security or asset in isolation. Instead one must consider the total portfolio as a whole.
Source: work as a quant trader
tldr: If the question is "does crypto have a place in everyone's portfolio?" The answer is emphatic an "yes". And indeed, we are quickly moving towards a world in which crypto is held by most institutional investors. Even at this early stage, the institutional flows into btc is staggering. And it will only increase with time. From my vantage point as an insider, btc is here to stay. full stop
You could instead look at downside deviation instead of volatility, but in my experience standard volatility and upside/downside deviation look very similar for most securities. This is somewhat paradoxical for me personally, but it is what it is.
It's not even that unusual, or newsworthy. It's pretty common for banks, basically the rule for European banks. I'm still not convinced the numbers are "real" though. As I understand it, there are a few main arguments as to why "buy and strip" price arbitrage doesnt happen, and I'm not sure which is/are true:
- Regulatory barriers. JPM or Apple can't just buy Deutsche Bank because lawmakers won't allow it.
- They're too big to be bought out out by (European?) private equity, or controlling stakes aren't available.
- That's not real book value. Try to wind it down and it'll evaporate.
Maybe there are more. I understand that dividends and buybacks are currently limited by regulators in Europe, and that closes one valve for the price arbitrage, but still...
I will concede though that there is a huge market of derivatives which often seem pretty unusual and risky to an amateur investor such as myself, so maybe Bitcoin isn’t that different from some of those investments. I don’t know a lot about that market, other than that it played a large role in the Great Recession, which is a dubious distinction.
Most people are unaware, the the derivative volume of btc is yuuuge compared to the spot volume.
We've injected trillions of dollars of fiat into the economy this year. It feels like the sky-high valuations of technology companies and Bitcoin are "shock absorbers" of sorts, or early signals of inflation-yet-to-come. If we assume the market is efficiently pricing these assets (like AirBnB's IPO) then it could very well be that the actual value of a fiat dollar has dropped dramatically -- making sky-high valuations more reasonable -- and we'll only see that reflected in the price of consumer goods and commodities once industry leaders collectively feel comfortable the economy is on track again. After all, you can only charge what consumers can afford to pay.
I'm an armchair economist at best. I just can't make sense of the market right now, and wouldn't be surprised to see the price of things like groceries, beer and travel double or triple what they were in 2019. Is there anybody writing about this that I haven't been paying attention to? Am I missing something?