You are 100% incorrect. Bitcoin is wildly deflationary. Therefore it does not encourage an economy to function, it encourages people to hold onto it with white knuckles. It's not oil for the economy, it's sand.
> This means that the government now has to provide connectivity to all citizens and teach them.
And when they don't provide connectivity and teach citizens?
In my opinion, that's the biggest lie that people have been made to believe to justify constant stealing of their purchasing power over time.
People will always spend money for things they need, they will also spend money for things they want, our current system is forcing them to spend it for the sake of spending it causing unnecessary over-consumerism.
It doesn't matter how much Bitcoin price will appreciate in 5 years. If I need to eat, I'll have to spend today, if I want to buy a house, I'll have to spend too. Instead, I will think twice on upgrading to the shiny new iPhone every year, maybe doing it once every 2-3 years, which is a good thing.
The US gold standard collapsed. That's a fact of history.
In this world where the currency doesn't depreciate like ~95% over a 100 year period, only investments which make sense will get money thrown at them.
If the P/E is high, it mostly has to do with what i mentioned and your are late to the "party".
But high p/e stocks != Fiat money as the op mentioned.
BTC isn't good for any of that.
USD is good for 1 and 2.
The gov. can move to re-establish it's currency and have 3 as well.
That it's used widely and fungible is what gives it value.
If your own currency is destroyed, you use the one that has the most integrity that's relative to your country. For most nations the default would be USD. For Vietnam probably RMB. For Belarus either Euro or Rouble.
Then you develop integrity in governance and switch to a national currency.
A nations currency is actually a vert good measure of the competence and integrity of the leadership class.
How Inflation Is Stealing Your Wealth | Jeff Booth | Pomp Podcast #572 https://www.youtube.com/watch?v=RuCqFjU9Wi4
It's very simple. 100 euros in your hand right now is worth more than a possible/probable 100 euros in your hand next week. And Jeff Booth is arguing that we are trapped in a mental prison because we agree with this obvious fact.
A) time value of money
B) inflationary aspects of fiat currency vs hard currency
It's called a 'deflationary trap' and everything falls apart.
Nations need a stable currency to function, BTC is untenable.
There's not much to debate here because it simply won't work, it's Banana Republic kind of stuff. They'll never switch over to BTC as a nation it's pragmatically impossible.
If they had the ability to effectively switch over to BTC, then they'd have the ability to responsibly issue and manage a currency.
[1] https://www.amazon.com/Their-Money-Oxford-India-Paperbacks/d...
I mean, it's literally the #1 meme for cryptocurrency.
Life is short, you enjoy/spend what you have while you're here.
Sure. It's like the successful ipo's. While 1% succeeds and people want to have a startup, everyone forgets that 99% fails.
I earned the 2nd biggest amount of people i know personally and i can't buy a fancy car with it. On Reddit, you can see all people come together on a population of 10 billion, lol.
People that were interviewed for Bitcoin gains in the newspaper in 2020 had 20% of my gains in 2017. And it went life changing money either.
Seeing it on Reddit mostly means that you have found your "community".
Inversely, with BTC, you would want to spend as little as humanly possible. Make whatever philosophical arguments you want: this is not adding oil to the engine. This is adding sand.
Sign me up. Hyper-consumerism has laid waste to our planet, commoditized every human interaction, and polluted our minds with its drivel.
Behold Denmark and its glorious decision to punish its citizenry for saving any amount of money at all. Hope you weren't thinking of saving your pennies for a ticket out of the renter's racket, Denmark would prefer you stuff it in stocks and pay them their cut.
It's time we seized control of the engine and refashioned it into a tool that serves our welfare.
If no one would spend money, the related countries would go bust within a year.
If you don't want to consume, then you can just...not consume.
Why buy bitcoin in order to not sell it, ever?
In a sound currency world, interest rates are set by the relative availability of funds for investment - that is, they are counter-cyclically market-determined: if there is little investment, rates will be low, if the economy is booming, rates will naturally rise.
Secondly, the rate of deflation is determined by the rate of increase in the economy: if the economy is shrinking over time, there is no deflationary incentive to hold - so here again the currency is counter-cyclical, discouraging rapid growth while allowing for measured growth.
Is that sand? Or sanity?
It would be like saying 'we're going to fix the amount of roads we have' and 'people will be forced to use the roads more sensibly!'.
The only reason for 'fixing' currency would be to prevent bad actors from running the printing press. Now - this is actually a very real problem historically - however, it's a pretty crude solution.
The smart thing to do is manage your currency smartly - literally like everything else in civilization.
You need good Public Health Policy, you need good Monetary Policy.
Good monetary policy may be practicable by angels or saints, but not by men, who stand at the gates of unimaginable wealth that emanates from the printing press. Literal trillions of dollars - who can even conceive of that value, let alone decline the exercise thereof? Better to take it out of our hands.
If there was no elasticity in the monetary supply, then in both 2009 and 2021 the entire US economy would have collapsed probably taking down the world with in 2008, and most nations would have been wiped out in 2021 as well.
Also, most major currencies are managed well enough.
If you don't like your local fiat units, then don't hold on to them. Exchange them for anything else you value more and use local currency on as that - currency. Currency was never meant to be a long term store of value.
That a widely, blindly believed economist mantra without much basis.
People now don't want to spend money even at the time when interest rates are near negative.
The few countries still with relatively high rates, and credible economy are the ones which register growth.
But, I predict that the practicals are not going to be good. Bitcoin transaction fees are high. If anything, this is a gift to large criminal organizations with a large footprint in the country which will be far more able to make use of their BTC. The law enforcement arm of this will not be ready or able to deal with it.
There is a role for cryptocurrency in helping the underserved gain access to banking. This plan does not sound like the right one to me.
With the rapid increase of the Money Supply of the USD, this is no different than any other Asset, especially Buyback driven stocks(where the supply diminishes over time!). To store value you also need to hold onto them with white knuckles. It also does not encourage an economy to function, hence why our GDP growth has slowed to a halt.
Using a stablecoin on a proof of stake blockchain with high transaction rates would make a lot of sense.
But that wouldn't help the officials who pushed this get rich from their stash of bitcoin...
1. Pay huge fees to take your money off the blockchain.
2. Whiz it around a new, totally independent, centralized network where you need an always-on connection to anyone you're paying or receiving from and need to trust any intermediaries you're using, with brand new fees for every transaction and even at rest (so you can pay a "watchtower" to help make sure you don't get cheated).
3. Pay more huge fees to put your money back on the blockchain when you're done.
4. Wonder how you got yourself into a situation where you have all the disadvantages of Visa and Bitcoin, with none of the advantages of either.
We already have existing coins, like Nano, that can handle transactions instantly, for zero fees, and with nearly no energy use, on the main chain.
Security and trust are a lot more important for currency, nano doesn't have that. It has easily been spammed [1]. It barely has a market cap of ~1B$ and has never recovered to it's 2017 prices, so it's not even remotely close to being an ideal candidate for a country's currency.
1: https://www.coindesk.com/nanos-network-flooded-spam-nodes-ou...
Ya know what doesn't have security and trust? Putting your entire country on two custodial wallets and having all your citizen's wealth in the hands of two foreign companies (channel factoried or no). No one in El Salvador actually owns any Bitcoin. It baffles me how anyone could get on board with the original ideals of BTC, then defend what's happening now.
But yeah, if you sell this to me as a test of lightning at scale, then I'm definitely more interested in it, while still thinking a super volatile asset is a bad currency.
The volatility will come down as the market caps get larger, but it'll never go away (I mean even fiat currencies and gold's price fluctuate on a daily basis).
The energy usage (not waste if you consider it to be a useful thing) will only go up as the price goes up, but it'll use increasingly renewable % and stranded energy and even bankroll new renewable power plants that wouldn't have been profitable to start.
1: https://www.forbes.com/sites/tatianakoffman/2020/07/14/this-...
So, not the same kinds of returns and drawdowns as BTC/USD, but enough to make one's eyes water and stomach churn. Forex has always had a reputation for volatility.
I think when Bitcoin approaches Gold's price, you can expect similar volatility because by then large institutions/countries would be holding it.
Also on a long term basis, it appreciates an average of ~300% year over year which is much better than the dollar which is depreciating on purpose.
Gold isn't used directly because it's not convenient, are you gonna transport a heavy metal that you can't divide into small portions to pay for stuff? No! Lightning network wallets makes even tiny payments of couple satoshis very easy/instant/almost free.
The price didn't move much after the announcement. The whole point is to attract those who have already gotten rich from their stash of bitcoin to come to the country.
That could have been done with just like a public bank instead of bitcoin though.
> Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them.
It's like proposing to dismantle old but working streetcars, because when the only way people can get around is by cars then the government will have to build decent highways. Sure, maybe the government should, but if it couldn't until now then what makes you think it will suddenly be able to?
This is because all the Fed does is create reserves that it uses to purchase Treasuries on the open market. But when we talk of foreigners demanding USD, what they really demand are treasuries, thus more "printing" (it is electronic, reserves are just numbers in a database) actually reduces the supply of assets that foreigners want to hold. Of course the scale is not really relevant to make a big difference in either direction.
What would increase the supply of treasuries is more debt issuance. There is an insatiable thirst to hold risk free debt in stable jurisdictions where property rights are respected. That is why the U.S. can run enormous deficits every year and the yields on those deficits are negative in real terms. None of this has anything to do with the supply of Federal reserve liabilities, which are reserves, but with the supply of Treasury liabilities, both actual liabilities and the off-balance sheet stuff like mortgages which are federally insured and thus also risk-free. We live in a world where the globalization of capital means that the moment anyone has some money to save, they want to store it on account in some US Bank or as a US corporate bond or equity, as they don't trust their own local banks and their own local corporations. Thus the U.S. is the world's bank, and that's why there is a global demand for dollar-denominated assets independent of whatever the Federal reserve does to increase or decrease the supply of reserves within the US banking system. Adjusting those reserves with open market operations does absolutely nothing to supply more dollars to anyone in El Salvador (or in Kansas).
But the problem for El Salvador is not the technology of monetary systems, it is that El Salvador has an underground economy that prevents it from collecting taxes or having a working credit system. If all your dealings are under the table, you have nothing to show a loan officer. If you don't want to store your savings in a bank but want to instantly withdraw them and store them in a foreign bank or under your mattress, then you are not going to be able to get much in bank loans in your own currency. None of that will be solved or even improved with bitcoin. Proving once again that bitcoin is a solution in search of problem, even in the arena of El Salvador's monetary woes.
I do believe that the monetary system IS the problem since El Salvador is dollarized and is subject to a foreign central bank antics while having no say in the matter. Having their own would be marginally better perhaps but IMO bitcoin is a much better solution.
It's a wildly irresponsible financial move.
1) It only takes a bare minimum of competence to create a currency that has integrity, and is stable.
2) Extending that digitally, should not be a hard.
3) Using energy supplies to calculate made up numbers seems like a giant waste of energy - that energy could be used to heat homes and power other things.
4) BTC is wildly unstable, since El Salvador depends on imports - and - nobody accepts BTC for payment - it's going to be a wild ride.
5) Nobody is going to be issuing debt in BTC so that part is moot.
6) BTC is inappropriate for 'unbanked' people - they're going to be the target of hackers worldwide. Sure, you could make a 'government wallet' that protects them from that ... but then why not just do regular banking.
6) For a currency ... if for some reason you can't do #1 ... the best option, by far, is to use USD. Prices in USD are stable. They're accepted globally. You don't have to issue debt in USD, but you can if you want. You can also digitally bank in USD if you want, it's not that hard.
7) If you really think that the best way to leverage volcanic heat is to mine BTC ... then fine. Do that - and exchange it for whatever currency you need.
This whole concept is fairly insane, regular people I feel are going to pay a heavy price.
Lastly - the problem is not 'finances' - it's the fools managing the country. If they acted with a modicum of responsibility, you'd be able to have all of the normal things other countries do i.e. a currency, basic banking. None of that is actually that hard.
A better solution would be to approach an established bank somewhere: US, Canada, Brazil, UK, Germany and ask them to provide online banking for your citizens, probably in USD or a mix of USD and local currency.
Do the BTC mining if you really want to, but as a secondary thing.
Final Note: this already has the stench of corruption. My bet is that the leadership already has a big stake in BTC and are 'Doing a Musk' by propping it up and they will be grafting off the top of the mining activity.
But I will say this, I think that your assumption in point 1 is wrong. I think that the mismanagement of the financial system worldwide has proven that there is no country currency invulnerable to manipulation.
Jeff Booth talks about this towards the end of this interview which is great in it's entirety IMO.
How Inflation Is Stealing Your Wealth | Jeff Booth | Pomp Podcast #572 https://www.youtube.com/watch?v=RuCqFjU9Wi4
A nations currency will have the integrity and competency of the governing class, so El Salvador will be able to have a basic currency when they are not corrupt.
Frankly, this whole thing stinks of corruption, my bet is that the leadership are already speculating on BTC and are making big statements like Musk to drive it up, and that their fingers will be in the pot of the BTC volcanic mining.
But it may be moot: you can't force people to use BTC and businesses, esp. those that import will balk at it, and citizens likely won't adopt it.
Ask a US, Canadian, UK, Brazilian bank to provide basic financial services for citizens and they'd do it in a heartbreat.
The 'currency problem' in El Salvador is just a symptom of underlying problems.
Ok, so I’m going to straight-up ask you to either retract this racist statement or justify your position with evidence.
I want to see your proof that the government of El Salvador is corrupt. This link seems to indicate the opposite [1].
To help you see the light, let me highlight the fact that El Salvador lost their own currency after a bloody 12 year long civil war that was funded by an interventionist US government that raised an army of child soldiers in the 1980s.
Per Wikipedia [2], the Carter and Reagan administrations spent $1-2 million per day in 1980 dollars to raise and train this army of child soldiers.
Tell me again why El Salvador is corrupt and that is why they lost their currency?
Notably, the British Pound Sterling is named such because 1 British pound originally represented a pound of Sterling Silver. Today it takes over 400 British pounds to buy 1 pound of sterling silver.
Twenty US Dollars were worth 1 oz of gold until 1933. Today it is nearly 2000 USD per oz.
I challenge your statement that it is easy for a government to manage a currency over the long term. In fact it seems impossible for politicians and central bankers to resist the temptation to inflate their currencies to infinity.
Why haven’t the US, Canadian, UK or Brazilian banks provided services to the 70% of El Salvadorans today? What are were they waiting for all this time? I believe it simply wasn’t profitable enough for them.
I believe that what the president, Nayib Bukele, and his team have done is monumental. The reason is that I also believe that the financial system crashed back in 2008 and has been kept alive by central banks worldwide. Last summer we saw how Lebanon banks reneged to pay back their customers their holdings in USD. This seems to be increasing. The thirst for USD around the world is increasing and all the so called printing by the FED is not getting to the other countries and international companies fast enough. El Salvador is in a though position since it does not control its main currency. The other one, the Colón, while still legal tender is for all practical purposes unusable. It would take too long to grow the economy enough for it to be valued appropriately against the USD. Mandating BTC as legal tender is an awesome move. To me the most important benefit is that the 70% of the population which was excluded from banking and relegated to use physical currency will now be included. If the economy is an engine and money is the oil, El Salvador, which had only some drops of oil, will now get a complete oil change with synthetic on top of that. Lets remember that the law obligates the government to instruct all citizens on the use of the technology and to provide the means if necessary. This means that the government now has to provide connectivity to all citizens and teach them. Nayib has shown that he’s up to the task. For example, El Salvador is providing every child in the public school system with a laptop and free internet connectivity.
So I think this is beyond if BTC goes up to 200k. It doesn’t matter. If it goes back to 10k is OK too. What matters is that every citizen will now be included as equal in this new financial system.