On the other hand, for btc to keep value, you need people to mine it from to the moment you buy it to the moment you sell it. This has a cost, which is currently paid by newcomers. But if btc becomes stable (i.e. there are no new entrants willing to pay a premium to get in), current holders have to accept depreciation to pay for mining costs. Since btc is not backed by any kind of real world asset, there is no other source of profit.
An investment that is only worthwile as long as it attracts newcomers is in essence a ponzi scheme.
Also, there is a 3rd group that thinks it is a hedge. With hedges you don't really care if the price is going up or down. You want it to give you options. For example, you may buy a stockpile of food or toilet paper, not because you are hoping to turn a profit, but to give you an option to avoid going to the grocery store during another panic buying situation.
I don't have an opinion on BTC (or gold for that matter) but this widely-distributed meme is simply untrue.
1) If I have a bar of gold, and it will buy me 1% more bread loaves in a year's time, but I can invest it in something that will trade for 2% more bread loaves next year, then I will spend it because despite appreciation it is not my best source of appreciation.
2) I have living/operating expenses that I consider to supersede my need for financial return. If I don't pay for shelter and food, I won't be around in a year to enjoy the 1% more bread loaves I would get from appreciation.
3) Empirically/historically, over long time frames, gold appreciates in real terms (slowly). And yet people spent gold coins and gold-backed notes regularly.
Now, if a currency is appreciating much faster than anything else in the economy I agree you can have a deflationary spiral and a liquidity problem. But this is because the economy is collapsing — ordinary sources of growth have disappeared or reversed. This is a very special situation, and is not a general argument that currencies must depreciate.
The purchasing power of a currency doesn't have to change, the government manipulators could target 0% inflations just as easily as they target 2-3%.
Most modern economies are driven by debt, thats what "creates" new wealth out of thin air. The main reason we target a low, steady level of inflation is to best incentivize lending and investing in debt. If currency value is allowed to swing wildly you can't put a predictable price on future money. If currency is allowed to lose value (deflation) you are incentivized to hold onto it rather than buy up debt. Noone buying debt means noone creating money out of nothing, meaning no GDP growth unless velocity increases.
Ah, that would explain why we abandoned the gold standard. No one ever spent those gold coins, and no trade existed before 1933.
Isn't this only true with the removal of the gold standard?
I'm not deeply steeped in macro-economics. Is this a theory, or an historical observation? Where can I find more about this?
In the context of Bitcoin we are talking about the modern world. The major forces in the modern world are Globalization and Technology. Assuming you don't want China to take over the world you need growth. Growth happens when investment and debts are created. Ray Dalio explains it well. https://www.youtube.com/watch?v=PHe0bXAIuk0&ab_channel=Princ... This is why successful countries like the USA target 2-3% inflation. It is theoretically possible to create a country where inflation was -1%, but technological growth, which is very hard to stop would create a deflationary spiral that would bring the economy to a halt.
Mining is only necessary for making transactions, and it doesn't have to be expensive. It only is because of the competition. That expensive competition is important for stability but in theory, the entire system could run on a smartphone.
And it could run without newcomers. If everyone in the world had bitcoins, making it impossible to have newcomers, it would still have value, in fact a lot more than it has now.
Bitcoin may be a bubble, but it is not a Ponzi scheme.
Gold has some value as a technical material and because of its (subjective) beauty, so it will never crash down to zero, but it could lose a lot of its value if we decided that it is not worth hoarding.
Also, what is not a bubble nowadays. Just look at the gold price, the housing price, etc.
https://en.wikipedia.org/wiki/Greenspan_put#Everything_Bubbl...
It might actually be entertaining to bury a bottle with $10 worth of bitcoin - it might be worth quite a lot when dug up like that guys hard drive in a refuse tip he wants to dig up. Or not of course.
("A man who says he threw away a hard drive loaded with 7,500 bitcoins in 2013 is offering his city $70 million to dig it up from the dump" https://www.businessinsider.com/man-offers-council-70-millio...)
If I understand the tweets correctly, Taleb, et al, are basically saying that the mining pool functions as the insiders in a Ponzi scheme, by outcome if not intent.
The argument is that a Ponzi scheme isn't just zero-sum speculation, with some people winning and some people losing: it is negative-sum, for the speculators, because the insiders were siphoning off money the entire time.
In this situation, the siphoning comes in the form -- among other things -- of the 6.25 BTC / 10 minute block rewards [$20B / year at present], which the miners sell to pay their costs [$10B / year of electricity at present?] and their own paydays. Because these "insiders" have been taking out money the entire time, when all of the investors go to get their money back, there won't be anywhere near as much money as they put in left to get out.
The existence of a group of insiders runing the scheme is really a detail when it comes to understanding how the market works. If it works like a ponzi scheme, does it really make a difference for the victims whether or not some people get arrested?
There's ontologically, in the manner of pedants, where you're really asking "in this defined ontology of financial phenomena, schemes and frauds, where does Bitcoin fit in?"
There's descriptively, where you are asking if it is useful to model or think of Bitcoin as a Ponzi scheme, regardless of whether it is a fully accurate categorization.
And there's rhetorically, where you are really just using "Ponzi scheme" as a concise way to tell people, "Don't invest in it, people are trying to take advantage of you."
Have you heard about the miracle of decentralization? :)
Just to put some additional data to this:
Jewellery: 92,947 tonnes, 47.0%
Private investment: 42,619 tonnes, 21.6%
Official Holdings: 33,919 tonnes, 17.2%
Other: 28,090 tonnes, 14.2%
Below ground reserves: 54,000 tonnes
Since BTC has no underlying asset, it's hard to demonstrate a correlation with anything. So if you buy btc as a hedge, you could pretend you're hedging against anything. In reality, the only significant factor is btc's popularity.
That means you could probably buy anything that isn't correlated with Euro and get the same result.
We used to all rely on bonds and bills to stabilize our portfolios but central banks have killed that.
Gold is a scheme (not quite a ponzi scheme) in which we've all agreed to maintain the delusion that it's a good marker for totting up wealth. It happens to have nice material properties for that, and it's nearly unique in those properties. The main one being that you can't print more of it.
BTC has a lot of those properties... as does Doge, as does Ethereum, as does Bitcoin Cash, and every other cryptocurrency. BTC has the name recognition -- which it shares with gold -- and in doing so may or may not become Gold 2.0.
But once we've realized that there can be Gold 2.0, why not Gold 3.0, 4.0, etc.? Only gold can ever be gold 1.0. Even adding silver and platinum and such doesn't really substantially diminish that uniqueness. Whereas there's no one crypto... which means that the "you can't print more of it" goes away. The Dogecoin guy did it. So do thousands of others, every day.
Maybe BTC will become the one and only Gold 2.0 and it'll stop there, and if so it'll have a value of some sort -- hard to say what, but eventually it'll reach some kind of equilibrium. Until it reaches that point, it has only its hope to be The crypto, and for the moment that relies on a continuous flow of new investors.
Some original guy got rich by convincing others to take his lump of metal in exchange for goods and services. The fact that it's nice to look at helped. That happened thousands of years ago, and so we're all just living with it as a collective agreement. We could break it if we wanted to, but there's not much motivation to.
So that part of the D&D economy actually works pretty well; copper, on the other hand, is something like 3600x more common than gold.
1) require an initial investment and promise above-average returns
2) money cannot be withdrawn for a certain period of time in exchange for higher returns.
High investment returns with little or no risk.? Overly consistent returns?
Your argument is that if I buy an ETF for gold and they charge 2% to keep the gold safe and manage it. This etf is a ponzi scheme as they need have holders to keep the thing going.
As the transaction fees go to miners you could then argue VISA and mastercard are ponzi schemes?
That's not correct. Once you receive your transaction within a block, they are there forever assuming you keep a copy of that blockchain. If miners stop mining, you'll be able to mine yourself within 14 days with a regular computer.
Nothing like this in gold. It is an atom which does not require any extra belief from the society.
Burying bitcoin in a garbage pit hasn't paid off yet but given time and patience. Who knows?
If it’s nearly equivalent to overall population growth, it may not matter.
(For what it’s worth, I’m with you for the most part. Just curious. I’ve been short-term wrong on BTC since $102 and I’m trying to figure out if I’m long-term wrong as well.)
It has managed to outdistance both the dotcom bubble and the housing bubble at this point. Although the tulip bubble went from the 1590s to the 1630s, so there is some precedent for these boondoggles to run for a surprisingly long time before gravity catches up.
There’s a 5000 year history of gold. But only a few grams per person in this world; and a great number of people feel some sort of pressure to buy a few grams for their spouses.
Obviously what I’m saying is an oversimplification. But if we imagined a world where gold did not have its lustrous history, it might still be sold at the same price. In this world, gold would still cost around 800 dollars an ounce to mine; but the only difference would be the market cap for gold would be very small and would serve its niche applications (comparable to the market for terbium or platinum).
Gold might be overpriced a little bit. But the debate about bitcoin is if it’s worth anything at all.
Disclosure: I work for a bitcoin trading firm.
Historic precedence doesn’t exist... till it does.
No one wants to carry around chickens to trade.
The value of a monetary asset is in its interoperability, and backers of Bitcoin are working to enable that to a high degree.
Gold has its niche applications where you need a malleable and nonreactive metal (like dentistry). If this was the only use for gold, it would still be at least 800-900USD an ounce, because it that’s what it costs to extract.
The market cap for gold would be like 1 billion USD, rather than 11 trillion USD.
Ironically in a world where gold wasn’t ‘lusted’ after, it might even be more expensive because the market would be illiquid. And a small oligopoly of suppliers would be able to gouge buyers.
This is what happens in the rare earth metals market.
I can answer that question for BTC. To transfer the USD value equivalent of 17 tons of gold, it's currently around $27.50[1]. This transaction can be made anywhere you can broadcast a hash string.
If you want to get fancy, you can trade wBTC on ethereum for, as of this moment, ~$8[2]. If even that is too high a fee for you, you could bridge over to xDAI and trade for orders of magnitude less than the value of a penny[3]. Again, you can do this anywhere you can broadcast a hash string.]
All of this is EXCHANGE, transaction, alone. Zero mention of the amazing utility of the financial instruments that are IMPOSSIBLE with legacy protocols. To go over which is not a comment or a blogpost but a detailed textbook or equivalent of a MOOC.
How's that for intrinsic value?
[1]https://ycharts.com/indicators/bitcoin_average_transaction_f...
[2]https://etherscan.io/gastracker
[3]https://jaredstauffer.medium.com/what-is-xdai-how-do-i-use-x....
Everyone who tries to make the argument that moving physical Gold is the same as a Bitcoin transaction is deluding themselves. They're conflating the logistics of commodity transfer with transfer of ownership. These are completely different things.
How much does it cost to verify 17 tons of gold is not counterfeit? How long would that take?
You can comfortably bet your family's life that Bitcoin is not counterfeit about an hour after a transaction.
If we find a million tons of easily mineable gold tomorrow the price will dip below copper's. This can't happen to Bitcoin.
The problem with Bitcoin is that it is "international" in nature.
Yet, China holds the largest share of Bitcoins and thus ownership is unbalanced.
https://www.investopedia.com/news/bitcoin-wont-win-worldwide...
https://www.schneier.com/essays/archives/2021/03/bitcoins-gr...
I think there is more value in Blockchain at the municipal or federal level of a country to improve transparency and such. Or somehow even the issuance of currency. Given geopolitical unrest and contention, or differing political views (USA vs. China), I can't see how this decentralized coin will continue over a 20 year period.
From the wiki for Ponzi scheme-
> The scheme leads victims to believe that profits are coming from legitimate business activity (e.g. product sales and/or successful investments), and they remain unaware that other investors are the source of funds.
TSLA has a P/E of 1,181 right now. Peloton is 1,660. Amazon is even 80. How is it any different right now?
Bitcoin lacks that, it only has money from new investors and it loses money from mining. Which means without new investment it’s value must crash which creates incentives for people that own Bitcoin to convince others to buy Bitcoin.
The only way to argue Bitcoin has long term value is it must provide inherent utility like land. Increasing the number of transactions per second would be one way to demonstrate that value, but talking about future value doesn’t.
Currencies aren't inherently valuable, but a measure of value and a medium of exchange. If you couldn't buy things, or settle your debts (taxes), with US dollars tomorrow they'd be worthless.
Something that is valuable, and is either subjectively or objectively going to become more valuable, is an investment.
You can make a case for almost anything being an investment, since value can be subjective and speculation is rife
The issue is crypto currency is a digital asset so you need a buyer to do anything with it. That buyer could be a 3rd party uninvolved in the transaction, but someone needs to hold it after the sale even if it’s just to look for the next buyer.
when was the last time TSLA paid out a dividend?
>Boeing, which has been struggling for the past year with the safety of its 737 Max jet, has spent over $43 billion buying back stock over the past decade. The six airlines—Southwest Airlines, Alaska Air, Delta Airlines, United Airlines, American Airlines and JetBlue—have spent about $47 billion over the same period.
https://www.newsweek.com/boeing-airlines-under-fire-90-billi...
If you own X% of a company and it buys back 20% of it’s shares, congratulations you now own 1.25X% of the company. If you don’t want 1.25% of the company sell 1/5th and it’s equivalent to a dividend. Alternatively, if it does this for long enough without you selling then you end up owning 100% of the company and the next buyback is again equivalent to a dividend.
The point is that the company is pumping share price, not through actually creating value, but by tweaking but by engineering scarcity, and othogonal to the corporation's reason to exist. GP is conflating the end to which buybacks are a means with the actual goal of what Boeing was colloquially for; baking safe airplanes.
This more pervasive than anyone in the business world wishes to admit.
With dividends you can't really rely on a future amount, i.e. you can receive more (or less) than you actually need. Also it can come at a different date that you want. Plus creates a tax event event when you maybe don't want to have it. And so on.
So it become more convinient to just have stock which you sell when you want and you sell exact amount as you need to. Also the tax rate on dividends is usually higher, especially if you hold the stock long enough.
You can buy real estate and generate returns by renting it out. A smart real estate investment can generate money for y you regardless if its market value.
Stocks are the same: they represent a real piece of a company. If the company doesn’t issue dividends, the value is retained in the price of the stock. Warren Buffet almost never sells stock, his whole strategy is to hold forever.
Stocks and real estate are zero sum in the short term. In the long term, they are not
Unless it loses 50%+ of value suddenly. Then it may take you 10+ years to return back to profit.
>> If the company doesn’t issue dividends, the value is retained in the price of the stock.
Unless your company go bankrupt. You may lose the whole investment.
You didn't understand what I said. It doesn't matter about short term fluctuations of market value. If you are pulling in rent (or not paying rent because you are using the house) then it doesn't matter what the market price is right this minute. Flipping assets in a hot market is a zero sum game, and is more akin to gambling than capitalism. Traditionally capital generates profit by producing real value, in this case by providing shelter to you, or to someone paying you. Ownership of a company is the same thing (that's what a stock is). It produces value or provides a service.
This is a thread about bitcoin. Which is a virtual (read intangible), currency whose value is determined entirely by other people's belief that it is worth something. It can't be used for anything except as an incredibly unstable store of value. It can't provide shelter, people won't give you real value to temporarily hold it. Bitcoin as an algorithm is unkillable. As an investment it is, very, very fragile.
If I were sitting on a bunch of USDT, but I wanted to be holding USD stablecoins, just generally speaking, why not swap them into a different stablecoin?
Maybe another question I should be asking is what proportion of Tether is being used to collateralize leveraged long positions in other crypto assets? Maybe that's why this is a tinder box?
Sorry for all of the questions, but legitimately trying to understand what people are talking about.
It's an interesting time in the history of bitcoin as we are starting to see a move from small speculators (number go up) to institutions buying in (it's sensible to diversify 5% of your portfolio into crypoassets as they have historically high returns and low correlations).
Its just wrong to think all people in crypto are evangelising others into their ponzi investments
I mean I wish I had listened because BTC was $50 a coin the first time someone tried to convince me to buy in.
I see lots of people fall into the "If I only had done X back in year Y, then I would be rich." fallacy. No, you wouldn't be rich, because the information available at the time didn't justify such a decision. If that information were available, Bitcoin would have been worth $60k in 2009.
Right now nobody can tell you what will happen to Bitcoin, because all available information is already priced in. At this point it might go up but it might go down as well.
The crypto-famous NFT collector “Silver Surfer”, known for dropping hundreds of thousands of dollars on NFTs [1], tweets “celebrities that fail to get engaged with their communities will continue to have weak secondary [NFT] sales.” [2] That’s weird, I wonder why the money would stop flowing if the artist stopped tweeting about NFTs? Doesn’t their art still have value?
The truth is, if you spend enough time around the crypto art community, you realize that there aren’t any “real” art collectors in the space. There are crypto speculators, and there are artists who feel obliged to “engage with the community”. The lack of real money flowing into the space is what leads me to label this as a marketing campaign, as opposed to a completely organic movement. It’s a somewhat decentralized marketing campaign, but it’s a marketing campaign nonetheless.
[1] https://twitter.com/makersplaceco/status/1359654252944105473
[2] https://twitter.com/7Surfer7Silver7/status/13827818844433367...
Bitcoin can be transferred around the world easily, The way gold achieves permanence is partially by being extremely hard to move around and store.
Gold can be outcompeted too, aluminum used to be more expensive than gold.
Gold: Asset that goes up and down in price according to demand. No central body controlling it. Some utility as jewelry though we could get by without that. Massive dollar and environmental cost from mining the stuff.
Ponzi scheme: Fraud where insiders take money from investors and use it to pay other investors. Collapses and the fraudsters run off or go to jail. No mining no utility.
Bitcoin: Asset that goes up and down in price according to demand. No central body controlling it. Some utility as a payments system though we could get by without that. Massive dollar and environmental cost from mining the stuff.
Gold has a certain permanence as the only element in the periodic table that has properties that has made it the #1 jewellery metal for the last few thousand years and probably the next few thousand though while Bitcoin was invented ten years ago and may well get outcompeted by a better invention/currency.