Long term I'm bearish because it's a deflationary asset. Deflationary value stores have a tendency to cause all sorts of social ills by encouraging hoarding. There's a reasonable line of thought that observes that it's no coincidence that the end of the age of European colonialism coincided with the demise of the gold standard.

More concretely: if crypto is deflationary, then its value works similarly to how an Amway or Herbalife membership's value does. You get rich by getting in first and then convincing others to join after you.

> Long term I'm bearish because it's a deflationary asset. Deflationary value stores have a tendency to cause all sorts of social ills by encouraging hoarding. There's a reasonable line of thought that observes that it's no coincidence that the end of the age of European colonialism coincided with the demise of the gold standard.

It's definitely an interesting theory - any particular articles or books you've read on the subject? I find the story of money fascinating.

On the other hand, however, States are no longer constrained by how much gold they have. In the past you could wage war until you ran out of gold and then that was that - you couldn't print money out of thin air. Now you can just print money and at least up until some point (which we don't know yet) it works. I guess you could argue back to your first point that this is what caused wars - you needed to accumulate resources in order to have wealth so you'd start wars and take stuff.

I think deflationary economies have bad attributes - like why take risks when you can do nothing and the value of your assets goes up? On the other hand, (and someone else mentioned something related to this) inflation literally destroys wealth so how can someone working a non-high paying job store wealth when the value of that wealth is destroyed at a minimum of 2% per year?

> inflation literally destroys wealth

Inflation doesn't destroy wealth, inflation erodes the value of money. Wealth and money are two separate but related ideas. One shouldn't tie up the majority of their wealth in money, its non-productive.

> how can someone working a non-high paying job store wealth when the value of that wealth is destroyed at a minimum of 2% per year?

By investing in productive assets instead of holding pieces of paper under their mattress.

In my opinion mixing the functions of medium of exchange and store of value has caused untold amounts of needless suffering. You see 2% inflation is the middle ground. Rich people may want to save and increase their wealth but my mom just wants a job to pay rent and buy groceries, she has no grand ambitions to become super wealthy. When you mix the two functions into cash, one of the two is going to dominate the economy and with gold it was the rich, with fiat it is mostly average people because having a job is more important than maintaining purchasing power.

Maybe the issue is just that we no longer have a store of wealth that isn't tied to a speculative asset? Fiat currency is a fantastic currency - even terrorists who hate America use dollars. But it's a terrible store of wealth because it loses at least 2% of its value by intention (this fluctuates - just going off the stated Federal Reserve targets).

I think this is where things like houses becoming collateralized assets start coming into the picture. You can buy stocks or index funds, but those can lose value and they're definitely not guaranteed to increase in value. Houses are a pretty "hard" asset in physical reality and with inflation basically they go up in value while also providing utility. And to buy a house you need fiat currency so they're somewhat liquid in that sense. So what do you do? Buy gold? Maybe. Bitcoin is another option similar in some ways to gold (in function at least). Other cryptocurrencies are assets in my view more similar to a stock with products or platforms behind them. I'm just not sure what to do. If you make cash inflation neutral or deflationary that sounds ideal, but how do you do that? And would people be likely to take risk in such an environment? Do we need to? Is it bad that we are encouraging the use of fiat currency by threatening to devalue it over time? I'm not sure.

> Maybe the issue is just that we no longer have a store of wealth that isn't tied to a speculative asset?

You say speculative, I say productive.

Is a non-productive store of value actually a thing which exists in nature?

For most things, you can't store a thing itself: grain rots, chickens die, houses decay, iron rusts, water is fouled.

If you want to have a thing in the future, you need a way to produce the thing: fields of grains, lineages of chickens, maintenance and construction of houses, refinement of iron, the purification of water.

All investment in these future means of production is speculative; you have no guarantee the bet you made on how you will obtain a chicken in 20 years will play out.

> You say speculative, I say productive.

Oh I totally agree! Stocks in companies are absolutely productive assets. Though they are still speculative. I guess the first thought that comes to mind is well, so what? Does it make sense for individuals to plow money into the stock market even at all-time highs? Should you basically have to perform an investor level due diligence for buying these productive assets? Sometimes I think we are duped by the liquidity in ways we wouldn't be if we were deciding whether or not to buy a farm or a movie theater.

> Is a non-productive store of value actually a thing which exists in nature?

Gold is probably the closest we've ever gotten. Besides that I'm not sure. But then that begs the question I was responding to regarding savings for "regular people". Is it impossible to save money without buying into the stock market? Idk.

Gold famously doesn't decay, but why should I expect prices to remain constant in terms of gold? If I sell you a chicken today for 80 milligrams of gold, why would you be obligated to sell me an equivalent chicken for 80 milligrams of gold in twenty years?

Gold isn't a perfect store or value, it's just a perfect store of gold.

Yea - I was just saying it's probably the closest we have ever gotten. The chicken example is interesting b/c what would you actually compare gold to? Say chickens were commonplace today and could be had for 80 milligrams of gold but then some disease wiped them out and only 10,000 could be grown and sold each year. Obviously they'd be worth more than 80 milligrams of gold - but as prices for other things perhaps come down and become more plentiful (or new products/services emerge) 80 milligrams of gold may buy something completely different at a great price.

I mostly agree with you here. Keep in mind I was preliminary responding to someone else w.r.t stores of wealth. It may even be the case that storing wealth is nonsensical as a matter of physics (either natural physics or economic physics). Perhaps what we refer to as wealth storage is really just scarcity of a physical item, whether that be a house, a collector's edition widget, a car or piece of art, or in your example, a chicken. Maybe the goal in what we would call wealth preservation is to find assets that either do not decay over time, or that decay very, very slowly over time? One thing that comes to mind then is how fiat currency plays into this decay? What would it represent?

So the question is basically "How fast does credit decay?"

Let's switch from goods to services and favors. Let's suppose you're in a real bind one day, and need some help -- painting your house, moving cross-country, who knows -- and I step up and help you as a favor, and spend a solid week of my time.

How long do I have to redeem that favor and get a week's worth of time out of you? How does the intervening time affect the answer? If I disappear for twenty years and show up on your doorstep expecting the favor to be repaid in full, is that a reasonable expectation? What if we are close friends for those twenty years, trading favors back and forth?

There aren't necessarily right or wrong answers to those questions, but that's basically the question inflation answers -- it's the price for not participating. You do a job, you get your currency, and then you can roll your currency into participating in the shared risk for maintaining our systems of production, or you can stand back, and see the credit for your past contributions decay over time. Sometimes it decays slowly, when everything is going fine. Sometimes it decays quickly; if things begin going badly and you're not invested in the outcomes improving, your credit for your past contributions declines faster.

People say gold is a good store or value because it has relatively inelastic (hard to ramp up) supply and relatively modest and stable demand (jewelry, industrial uses etc).

The cost of chicken has actually plummeted over the last century, even adjusting for inflation, because we can battery farm them now and they produce way more meat than they used to due to selective breeding etc.

Gold is still a speculative asset! You're speculating what it will be worth in the future. Its current value varies a good bit compared to other goods and dollars.

You can very well sell these goods and buy new ones maintaining a fixed amount and using it to back your currency.

This would be my favourite currency.

So your proposal is, what, you have a warehouse of grain, and each day you sell your grain at price $X and buy new grain (N days more recently harvested) at the same price? Because you're trading nominally fungible commodities they're priced the same, but when you go back twenty years later you'd have an equivalent quantity of grain to withdrawal regardless of how the price fluctuated in between?

The main problem is that you'd need to pay for storage over the 20 years in between, which would take the form of selling some Y% of your grain each year to pay the storage on the remaining percent, which is basically the same as inflation.

> it loses at least 2% of its value by intention

How do you get "at least"? The target used to be "below, but close to 2%", but has been increased to around 2% (symmetrically). It has been less than 2.5% over the last 20 years (https://fred.stlouisfed.org/series/CPIAUCSL) including the recent spike, and has been 2.02% from Jan 2001 to Jan 2021, which I'd call precisely on target.

Needless to say, if you parked your extra money in the stock or housing markets, you handily beat inflation. And if you don't have money to invest in the markets, then you don't care about inflation anyway (but rather real wage growth).

The indexes used to measure inflation are picked to stay under 2%.

I kept track of my groceries and rent for 10 years up to last year and my perceived inflation was way higher than 2% (even allowing some margin of error). This year is being completely insane but it's hard for me to compare as I moved.

Wages don't grow with inflation (the sad 1% yearly raise) unless you job hop.

Stocks don't give you always the best window to withdraw your annualised 7-8% profit. If you'll need to buy a house or if you'll go to pension you may end up withdrawing at bad times.

Houses have been mostly going up. Good to beat inflation, terrible for youngsters who need a place to live without paying someone else's mortgage.

That's a common fallacy. Hoarding, saving, preparing for the future is one of most fundamental human needs and the bedrock for a functioning economy and society. There's no fundamental economic principle which would indicate that an inflationary money would do any good to a society. It destroys savings, which is opposite of what is good for an individual and a society.

Also, because you mentioned colonialism, read this to understand how colonialism and slave trade was enabled by inflation (counterfeit money): https://breedlove22.medium.com/masters-and-slaves-of-money-2...

Money isn't wealth. What you can get for it is. Hoarding casino chips does not prepare you for the future. It just makes the people running the casino richer with goods you traded for the chips.

Oh you say, I can trade the chips with other people. Also the chips are numbered and we have an agreement to never accept a casino chip numbered over 1 trillion. Then we pay the casino one chip every time we trade. So the casino always has some chips to trade.

The casino always wins. You're even paying their horrendous electricity bill.

Money allows optionality - instead of hoarding food and fuel, you can hoard money and buy the things you need in the future. If you know for sure that you need food and fuel, and hoard them in advance, they will rot and evaporate by the time you need them.

Inflationary money is like rotting food, instead of canned food. It makes no sense at all to store your wealth in rotting and evaporating things.

How do you know people will want to trade fuel for casino chips in the future?

Well, you don't really know, but you can make certain assumptions. Money is like a social network with network effects, which means that people want to hoard casino chips which are most popular, and thus they also want to accept them in trade and reject everything else. This keeps them in the most popular economic network, and also keeps the casino chips valuable.

However, if there's something wrong in the casino chips itself (like inflation), people start to switch to a better version of casino chips, and they can assume that everyone switches, sooner or later, to the best alternative available, with least issues and largest network. Network effects will keep the new casino chips valuable as long as there's no better alternative.

Network effects go to a certain point yes. Then having people who hoarded chips is a detriment to the network. Because after that, people with actual resources like food or fuel will just invent their own chips to trade.

It won't get to that point, because no one wants to hoard too much. Hoarding chips endlessly is pointless. It's basically just a riskless buffer for future spending or investing. People will either spend or invest all extra chips. Rich people would own all the factories that produce food and fuel. They wouldn't sit on a pile of chips.

If someone is endlessly hoarding chips, it means that they are producing more than they are consuming. This would be positive for the economic network, but negative for the individual (because they are working more than needed).

If someone has a lot of chips, but isn't producing anything, they'll eventually lose their chips, because they have to spend them to stay alive.

Well fine. But now you're contradicting what you said two comments up:

> instead of hoarding food and fuel, you can hoard money and buy the things you need in the future.

Again, how do you know people won't just start trading with other chips? That will devalue the hoarded chips.

The argument started with paper thalers being a poor store of value. Casino chips were pitched as an alternative. And now here we are. Turns out the chips too are a poor store of value. Both can be true at the same time.

More importantly it's only "bitcoin" because it's the first; even if everything crypto takes off the world could collectively decide to use something else (Etherium being an obvious choice, but there could be others).

> which will necessitate $BTC being "worth" hundreds of thousands of dollars

You'd need a two trillion dollar market cap in bitcoin to make each unit worth more than 100k USD.

(Currently there are 19m out of 21m coins minted; two trillion / 19million = ~105k)

What does Bitcoin provide that a cheaper coin doesn't? The only thing pushing the price up is speculation, all digital coins are worth pennies as they're all completely interchangeable from an end user perspective.

> What does Bitcoin provide that a cheaper coin doesn't?

Longer track record than the rest. More buy-in from people. Just like Gold vs other shiny metals.

The network effect is strong, if BTC actually was to take over for USD then people would have to have trust that BTC wouldn't evaporate the next day. BTC's incentive model and network effect provide that.

Assuming of course that BTC could outplace USD.

I see BTC in the same class as Gold (hard assets without any intrinsic value and valued only because everyone else values it). USD is a different asset type - Fiat currencies which are essentially debts owed by various governments to the holders of those currencies.

So BTC won't be replacing USD, imo.

Gold has some intrinsic value, you can turn it into fancy jewelry, teeth replacement or cutlery :)

And yet its market cap, >10T USD, is not at all commensurate to the uses you cited. Governments hold gold in their reserves because they see it as a hard asset.

> What does Bitcoin provide that a cheaper coin doesn't?

Good question, since it is trivial to clone Bitcoin.

Only answer I can come up with (except for psychological factors): hash power.

It sounds to me like you’ve said that BTC will both go up and not go up in an inflationary environment.

I’ve been wondering why a hedge wouldn’t be for this exact environment, so can you explain your thinking a bit more?

> if you target 2% inflation every year it's all but guaranteed that $BTC will simply be "worth" a lot of dollars (or $0).

FWIW, the BTC money supply increases at 1.7% p.a. right now (until the next halving).

> It's more of a hedge against low interest rates and the central banks printing money in that environment IMO.

Could you explain how /exactly/ it functions as a hedge? I don’t care about price, just the mechanics/logic.

From what I gather, and certainly someone may come in with a much better explanation or refutation is that Bitcoin is in a sense a finite resource (let's just look at the mechanics right now) and if appetite for Bitcoins increases you can't make more of them.

If a central bank is inflating a currency, it means each year that more of that currency exists than it did previously, so people can effectively bid for resources with more currency which increases the relative price. A pack of gum used to cost $.05. Now it's like $2.99 (or whatever). This is primarily due to inflation as far as I can tell.

Likewise the same is true for Bitcoin, except that it has an additional feature in that it's transmutable into a pack of gum, or a share of JPMorgan stock, or a house, or a car, or some service. It's also transferrable - you can move it (again let's ignore how well it works right now) from place to place without having to actually ship it anywhere.

So because Bitcoin is transmutable like a Euro or Dollar it can do similar things, except the difference is that more Euros and Dollars are effectively "mined" and created, whereas there's a limit to how many Bitcoins can ever exist. So as more and more Euros and Dollars are created, you can spend more of those to buy the same Bitcoin.

Granted, this is very much at face value and some of the mechanics aren't quite there - it's actually very expensive right now to move Bitcoin around and it appears to make for a pretty bad currency, but I think this should at least touch on the mechanics or logic.

tl;dr it's like gold.

Prices don't rise 'due to inflation'. Inflation is just another name for price rise. This 'transmutability' you speak of is called currency. Bitcoin has some but very little compared to cash. Also the so-called 'deflacionary' nature of bitcoin, supposedly caused by the supply cap assumes a constant or growing demand for it, which is far from assured. Bitcoin only needs to collapse once to become worthless forever, there will be no cold re-start. Whereas precious metals don't need one. That, IMHO, is the crucial difference that advocates seem to forget.

Prices rise for more than one reason. For example marble is more expensive because it’s more difficult to find and mine than it was in the past (just a contrived example). But prices also rise due to increases in money supply.

I agree that Bitcoin is a poor currency compared to fiat currency, but conversely a dollar is a very poor store of wealth while Bitcoin is looking like it may be a good store of wealth. The confusion comes when you (not you specifically) don’t recognize that you can assess the utility and value of these “things” across various traits. Gold is a decent store of wealth, but a very bad currency. Stocks are great at producing and storing value and are highly liquid but awful currencies.

I’m not a Bitcoin advocate. I’m a neutral investor. You are correct in my view that if Bitcoin collapses it may become worthless forever. We have examples of this happening with fiat currency as well, though, so it’s not a unique trait of Bitcoin.

Diversification and asset accumulation are what I focus on. Bitcoin could turn out to be totally worthless. So could Amazon stock. So could GBP.

I agree with most of what you said, except that Bitcoin looks like a good store of wealth. It has a very short track record, and has shown huge volatility. How does that indicate a good store of wealth?

Well I would just mention it looks like it to me but that’s an opinion, not a fact. I don’t think it’s dissimilar to any other financial advice though. Like some people think Amazon stock is a good investment. I personally don’t. That’s all :)