Cryptocurrencies

[Xerxes]

9 hours ago, Parsad said:

 

My Grandma passed away in September, and I miss her dearly.  But I have to say, I'm going to miss these two farts (Buffett & Munger) nearly as much when their time comes.  Especially Charlie's straight forward, take no prisoners vernacular!  Cheers!

 

Sorry for your loss

[Xerxes]

On 11/14/2022 at 8:08 PM, TwoCitiesCapital said:

 

Gold has a fixed supply that's above ground and new supply added each year from additional mining. That ratio is called stock-to-flow. In general it's about 70x (i.em there is 70x more gold above ground than added in new supply meaning new supply is only slightly inflationary).

 

Many people consider this ratio important in describing general scarcity and relative value of commodities. Why is gold capitalized as more valuable than silver and platinum? It's stock-to-flow ratio is significantly higher. New supply is significantly more scarce. 

 

BTCs stock to flow is currently ~55x. At the next halving, it'll be ~110-120x. Significantly more scarce than gold on a relative basis and significantly less inflationary. At some point, annual supply basically drops to 0 and BTC becomes deflationary as people will still occasionally lose coins. 

 

Who is buying it? I've already covered sources in a prior post from yesterday. People are buying it for use in payments, people are buying it as a differentiated asset class, people are buying it for a balance sheet store of wealth given it's relative scarcity, Russia is considering it's use in global trade to avoid USD sanctions, central banks might be considering it as an alternative to gold and USD assets now that CB bank reserves have been weaponized, etc. 

 

Lots of use cases - some good and some bad. That network of people is generally growing every year and this demand for the coin is growing every year while new supply slows. 

 

Why is BTC going to outperform the S&P? Over what time frame? 10-years? 20-years? Because it's in a secular growth trend of growing demand and decreasing new supply making it highly inelastic. Price moves are explosive as we've seen time and time again.

BTC could go to $1 million tomorrow and the number of new BTC issued in supply doesn't change. The only way to incentivize additional supply coming to market is paying a high enough price to convince someone to sell. 70+% of BTC in circulation hasn't moved in over a year - there aren't many sellers in these desperate times, how many do you expect when times are good and they're being rewarded for holding?

 

Eventually BTC will trade at a significantly higher enough capitalization that forward returns will be pretty minimal as holding a currency should be. That point doesn't occur until mass adoption has happened which we're only seeing the beginning of. Lots and lots of new market participants have come around to accepting BTC since 2018 and I believe more will come around. 

Supply and demand. 

 

 

And yet over 3-year, 5-year, and 10-year periods BTC is trouncing the dollar despite being down 80% while the dollar is at 20-year highs? Which one was the real store of value over the intermediate-to-long term?

 

Would also add last time BTC boomed was in 2017...when interest rates were rising. The top coincided with rising interest rates this time around. Interest rates didn't matter to it in 2016/2017. And interest rates weren't moving in 2013 when it had the prior bust. Pretty sure we can say historically over the 3 boom/bust cycles that there is ZERO correlation to interest rates. 

 

One of the intersting thing about gold is that, all the gold that has ever been mined since the dawn man, are in some shape and form part of that gold hoard that is "above ground", as they got re-melted and recasted hundreds of times over. Even what is use for industrial use/electronics, finds itself back given that it is not "used-up" as barrel of oil would be.

 

If i recall the last major gold supply increase was either (1) california or (2) Russia and since than no mega increase on the supply. Can you imagine today world economy with currencies backed by gold, it would just choke on itself, sense supplies of gold have not leapt the way economies have grown in the past 4-5 decades.

 

 

 

 

[james22]

16 Psyche...

[Xerxes]

"16 Psyche is a large M-type asteroid discovered by the Italian astronomer Annibale de Gasparis, working in Naples, on 17 March 1852 and named after the Greek mythological figure Psyche. The prefix "16" signifies that it was the sixteenth minor planet in order of discovery."

 

That will change the stock-to-flow ratio for gold, until someone clever comes up a normalized stock-to-flow ratio that normalizes for "cost of extraction" rather than weight. Is it weight, i dont know 

[rkbabang]

This article is from 2009, by the late L. Neil Smith.  Technically Bitcoin existed already, but the author hadn't heard of it yet.  His point on gold toward the end is what I want to point out.

 

from: "The Money of Your Choice" by L. Neil Smith and Rylla Cathryn Smith

https://ncc-1776.org/tle2009/tle507-20090222-02.html

 

"In the 16th century, the economy of Spain was more or less destroyed when conquistadores brought home tons of gold they'd looted from the New World. The value of gold, relative to other things, plummeted because the more there is of anything, the less any of it is worth, a phenomenon economists refer to as the "Law of Marginal Utility". Spain ceased to be a world power and became, instead, the first "sick man of Europe". In many ways, it has never recovered.

(The Law of Marginal Utility, we insist, is not a law of economics or any kind of physical phenomenon—the quality of a commodity does not change simply because there is more or less of it—but is psychological in nature. If Man A has a thousand gold ounces, and Man B has a hundred, Man A will be less concerned about spending ten of his ounces, possibly because he will have many more left, at the end of such a transaction, than would Man B.)

The future of monetary standards based on precious metals lies in the stars, or, more accurately, in the Asteroid Belt, where roughly a third of the millions of rocks circling the Sun between Mars and Jupiter are composed of metals, mostly iron and nickel. Other metals are present in lesser amounts: it has been said that a single metallic asteroid a mile in diameter contains more gold than has ever been mined on Earth, lying within relatively easy reach of the asteroid's surface.

Thanks to the Law of Marginal Utility, importing that much gold would halve the perceived value of the gold we already possess. Given a future that offers relatively easy and inexpensive means of importing gold and other metals from space—current proposals for "space elevators" present just such an opportunity—within this century, the entire future global economy could be affected in exactly the same way that Spain's was 500 years ago, if America (and humanity) relies on gold and gold alone as a monetary standard. On the other hand, allowing the market to decide, and to constantly re-decide, what is money—and what is not—would prevent such a catastrophe."

 

 

[TwoCitiesCapital]

32 minutes ago, rkbabang said:

This article is from 2009, by the late L. Neil Smith.  Technically Bitcoin existed already, but the author hadn't heard of it yet.  His point on gold toward the end is what I want to point out.

 

from: "The Money of Your Choice" by L. Neil Smith and Rylla Cathryn Smith

https://ncc-1776.org/tle2009/tle507-20090222-02.html

 

"In the 16th century, the economy of Spain was more or less destroyed when conquistadores brought home tons of gold they'd looted from the New World. The value of gold, relative to other things, plummeted because the more there is of anything, the less any of it is worth, a phenomenon economists refer to as the "Law of Marginal Utility". Spain ceased to be a world power and became, instead, the first "sick man of Europe". In many ways, it has never recovered.

(The Law of Marginal Utility, we insist, is not a law of economics or any kind of physical phenomenon—the quality of a commodity does not change simply because there is more or less of it—but is psychological in nature. If Man A has a thousand gold ounces, and Man B has a hundred, Man A will be less concerned about spending ten of his ounces, possibly because he will have many more left, at the end of such a transaction, than would Man B.)

The future of monetary standards based on precious metals lies in the stars, or, more accurately, in the Asteroid Belt, where roughly a third of the millions of rocks circling the Sun between Mars and Jupiter are composed of metals, mostly iron and nickel. Other metals are present in lesser amounts: it has been said that a single metallic asteroid a mile in diameter contains more gold than has ever been mined on Earth, lying within relatively easy reach of the asteroid's surface.

Thanks to the Law of Marginal Utility, importing that much gold would halve the perceived value of the gold we already possess. Given a future that offers relatively easy and inexpensive means of importing gold and other metals from space—current proposals for "space elevators" present just such an opportunity—within this century, the entire future global economy could be affected in exactly the same way that Spain's was 500 years ago, if America (and humanity) relies on gold and gold alone as a monetary standard. On the other hand, allowing the market to decide, and to constantly re-decide, what is money—and what is not—would prevent such a catastrophe."

 

 

 

The TL;DR

 

Bitcoin fixes this

[rkbabang]

3 minutes ago, TwoCitiesCapital said:

 

The TL;DR

 

Bitcoin fixes this

Exactly.  There will be no way to mine more BTC out of a near-Earth asteroid.

 

[Cigarbutt]

1 hour ago, rkbabang said:

This article is from 2009, by the late L. Neil Smith.  Technically Bitcoin existed already, but the author hadn't heard of it yet.  His point on gold toward the end is what I want to point out.

 

from: "The Money of Your Choice" by L. Neil Smith and Rylla Cathryn Smith

https://ncc-1776.org/tle2009/tle507-20090222-02.html

...

Their explanation of Spain decline is oversimplified and incomplete..

"The lesson, in all of this, is that money needs to be based on something of real value"

How do 'we' decide what is something of real value?

[rkbabang]

1 hour ago, Cigarbutt said:

Their explanation of Spain decline is oversimplified and incomplete..

"The lesson, in all of this, is that money needs to be based on something of real value"

How do 'we' decide what is something of real value?

 

I disagree with that part in the way that I think he meant it.  There is a certain viewpoint that thinks money needs to be valuable for uses other than as money.  I think having the properties which make something useful to use as money is a value in and of itself.  Being good money is valuable without any other uses necessary.  Money is the use.  Bitcoin has been designed to have every quality a good money should have and it is extremely difficult to counterfeit .  It's valuable because of the properties which would make it useful as money.  It's funny that people think money should also do other things.  No one looks at a car and says "Sure it can take you from point A to point B, but what else can it do? Can you wear it like jewelry"? 

 

[Castanza]

What gives BTC value? 

 

scarcity? 

 

Because in the crypto world, scarcity is no longer scarce. Anyone can stand up a new coin and call it valuable. 

 

Everything hinges on psychological adoption over time. 

 

It's the same reasons a Van Gough painting holds value vs some other one off LSD fueled finger painting hanging on your local coffee shop wall. 

 

BTC has to accomplish psychological adoption of the masses to hold value. I think most people underestimate how difficult that is. 

Edited November 16, 2022 by Castanza

[Longnose]

19 minutes ago, Castanza said:

What gives BTC value? 

 

scarcity? 

 

Because in the crypto world, scarcity is no longer scarce. Anyone can stand up a new coin and call it valuable. 

 

Everything hinges on psychological adoption over time. 

 

It's the same reasons a Van Gough painting holds value vs some other one off LSD fueled finger painting hanging on your local coffee shop wall. 

 

BTC has to accomplish psychological adoption of the masses to hold value. I think most people underestimate how difficult that is. 

 

Adoption is happening. 

 

El Salvador made it legal tender. Addtionally, even after this whole FTX debacle he is still defending BTC. 

https://cointelegraph.com/news/el-salvador-president-bukele-says-bitcoin-is-the-opposite-of-ftx

 

Its scarce, its easy to transmit and make payments, using the lightning network it very cheap to transact in, its secure and proof of work only enhances the security of the system. 

 

Adoption will only continue to grow. I believe it will grow faster outside the US. But eventually it will become mainstream. When INTL businesses start realizing I can transfer a million dollars plus from singapore to El Salvador for .02 cents with instant settlement and no middlemen that will become an advantage. When small time shops start questioning why they are paying 3% to mastercard and visa  when they can get instant settlement for 0.02 cents on thier $10 T-shirt sale. 

 

The tourist in El Salvador feels safer because he doesn't need to carry cash to transact. He can pay with a global currency his wallet to recipient. 

 

This all feels like value to me. While here in the US we say Meh.... the USD is strong (which i agree with). Alot of the world is like shit I cant keep value in my countries currency. Swings in value of BTC are better than the 70% inflation of my local currency.

 

[Spooky]

28 minutes ago, Longnose said:

Adoption is happening. 

 

El Salvador made it legal tender.

 

I wouldn't point to this as evidence. Adoption by the population for everyday use is not that great in El Salvador: https://bitcoinist.com/el-salvadors-bitcoin-adoption/

 

Seems like the experiment in El Salvador has been a disaster.

[rkbabang]

1 hour ago, Castanza said:

What gives BTC value? 

 

scarcity? 

 

Because in the crypto world, scarcity is no longer scarce. Anyone can stand up a new coin and call it valuable. 

 

 

No not just scarcity alone.  I just drew a happy face on a piece of paper at my desk.  It is a scarce commodity, as only one such drawing exists in the world, but I don't think it is very valuable.  Bitcoin has been cloned probably thousands of times and even though they all have the same or similar code they are not as valuable as Bitcoin.  Why?  I will say what I said a few messages above:    "whether it has been colorful shells from far away or rare shiny metals, the free market has always used the hardest thing to create, find, or duplicate as money, as long as it was also easily transported, divided, and fungible.  That was gold for centuries, but right now on planet Earth it is Bitcoin."

 

You can create another crypto, even one exactly like Bitcoin, but anyone with 51% more computing power than you can destroy it.   Bitcoin is secure like nothing else is right now.  And that is what makes it valuable.

 

 

1 hour ago, Castanza said:

Everything hinges on psychological adoption over time. 

 

 

Yes.  This is happening, but it won't be overnight.  People are comparing Bitcoin, which is ~15 years old, to gold which has been in use for thousands of years.  Expecting Bitcoin to take over the world overnight isn't realistic.  This will be a many decades long project.

 

Edited November 16, 2022 by rkbabang

[Vish_ram]

BTC uses: store of value - > this is already established as a digital gold. But the rub is, price needs to keep going up to sustain the momentum. That means more people have to keep joining the network. If price drops with continued downward momentum, the leveraged bets will wind up with big losses, resulting in more liquidations and exits. To an extent this is a ponzi/pyramid scheme (like Herbalife, Madoff). 

The current cycle of (price manipulations->pump & dump->leverage-> more price jumps with more people joining the fray-> dump-> run on the exchange-> collapse) will eventually result in more regulations and reduced speculations. 

 

if price is constant, then it removes all speculative activity/leverage. The alternative assets that go up will become attractive and slowly with increased BTC supply, the price will trend down. 

 

To compound to this problem, we've millions of new crypto coming out.

 

The 2nd use of BTC as a currency (facilitating exchange of goods) hasn't taken off. It can't handle the volume or hasn't gained traction. 

 

Crypto has a ecosystem challenge. It can’t penetrate fiat ecosystem in a meaningful way as existing infrastructure handle fiat well and at scale.  You need a complete alternate ecosystem for crypto to potentially thrive. What can that be?

Assume we spend most of our lives in VR, we work, live and get entertained there. We can do 1000s of micropayments/even big $$$ (your avatar gets a spa, learn a new language in VR, your physician performs virtual examination going thru your MRI in VR, invest in virtual real estate etc). We are not there yet.

 

let's compare this to internet.

Internet used almost all of existing infrastructure (computers that were already used for word processing, computations, payment processing, transportation to get stuff shipped, existing media content creators, etc etc. In each case, it complemented or augmented existing processes.

 

Crypto is trying to replace fiat, create alternative payment system and thereby threatening existing status quo of taxation, governance and regulations.

[Castanza]

1 hour ago, rkbabang said:

 

No not just scarcity alone.  I just drew a happy face on a piece of paper at my desk.  It is a scarce commodity, as only one such drawing exists in the world, but I don't think it is very valuable.  Bitcoin has been cloned probably thousands of times and even though they all have the same or similar code they are not as valuable as Bitcoin.  Why?  I will say what I said a few messages above:    "whether it has been colorful shells from far away or rare shiny metals, the free market has always used the hardest thing to create, find, or duplicate as money, as long as it was also easily transported, divided, and fungible.  That was gold for centuries, but right now on planet Earth it is Bitcoin."

 

What happens when BTC encryption gets broken by quantum computing in 10-20 years? BTC relies on something where gold does not. It simply exists and on top of that human psychology has adopted it over thousands of years. 

 

Go talk to some average Joe and tell him you will give him 1BTC for 50c on the dollar cash. Tell him that anyone can clone BTC but the one you're giving to him has value because it's the most used currently. Think he's taking the deal? 

 

Now take that man to a local coin shop and say I'll go in 50/50 with you on 20k worth of gold coins and let you keep them all. Think he's taking that deal? 

 

Average people do not understand it and that is a MASSIVE problem. 

 

1 hour ago, rkbabang said:

Bitcoin is secure like nothing else is right now.  And that is what makes it valuable.

 

Why does that make it valuable? Most people will go through life and never have USD taken from them other than through inflation. Security is overrated if there are effective systems in place to claim what was taken from you. USD stored in a bank provides exactly that. The US government will likely get rid of physical cash in the next 25 years imo. Everyone will more to digital USD and it's very possible that it is it's own form of crypto. At that point, the use case for BTC goes out the window. All it would take is the US govt to say "exchanging BTC for USDcrypto is illegal" and those transactions would be visible on the blockchain. This system designed to facilitate "freedom" will in time be turned on it's head and used by govts to monitor transactions closer than they ever have before. People will be begging for cold hard cash in 50 years. 87,000 new IRS agents with a bead on small cash transactions is already happening. 

 

1 hour ago, rkbabang said:

Yes.  This is happening, but it won't be overnight.  People are comparing Bitcoin, which is ~15 years old, to gold which has been in use for thousands of years.  Expecting Bitcoin to take over the world overnight isn't realistic.  This will be a many decades long project.

 

On the flipside of that how can anyone claim BTC is replacing Gold when it has only 15 years (10 relevant) of adoption? Everything but Gold failed because it was easily found or replicable. And I'm not saying Gold will be it forever. But I have no confidence that BTC will be "it" either. I am a believer in blockchain in general for its utility....I just don't see us getting from point A (institutional backed currencies) to point B (code with no oversight and no "face" behind it). If we see anything like this in our lifetimes I think it will simply be the US Government saying "come exchange your cash because we have implemented a digital token of USD." And that will be that. 

 

 

1 hour ago, Vish_ram said:

Assume we spend most of our lives in VR, we work, live and get entertained there. We can do 1000s of micropayments/even big $$$ (your avatar gets a spa, learn a new language in VR, your physician performs virtual examination going thru your MRI in VR, invest in virtual real estate etc). We are not there yet.

 

That is a very large assumption....most of that sounds like complete nonsense (virtual real estate in a limitless world? Why would I want my avatar to get a spa treatment when I could get one myself in real life? ) but ignoring that...."when will we be there?" As of now BTC is an "investment". If BTC hit 1m tomorrow, everyone would sell except Saylor. Why? Because they don't value it and can't put a face to it and see institutions, militaries, industries behind those BTC like they can with dollars. BTC tries to ignore human psychology imo. At the end of the day the vast majority of people want to be governed and want to have leadership. BTC removes that and replaces it with "compute power".

 

So when and how does BTC move from an "investment" to a currency? Someone has to facilitate that step over that threshold. Likely a government. 

Edited November 16, 2022 by Castanza

[rkbabang]

25 minutes ago, Castanza said:

What happens when BTC encryption gets broken by quantum computing in 10-20 years?

That's a long way off, quantum computing is a lot like nuclear fusion, it is always 10-20 years away.   There are quantum hardened algorithms Bitcoin could hard-fork to well before this becomes an issue.

 

25 minutes ago, Castanza said:

Go talk to some average Joe and tell him you will give him...

The average Joe isn't going to change until well after the institutions do.  Go offer the average Joe a choice between an oz of gold or $20 and you'd be surprised what the answer will be.   If their friends and neighbors all start using it, they will as well.

 

 

 

[Castanza]

6 minutes ago, rkbabang said:

That's a long way off, quantum computing is a lot like nuclear fusion, it is always 10-20 years away.   There are quantum hardened algorithms Bitcoin could hard-fork to well before this becomes an issue.

 

The average Joe isn't going to change until well after the institutions do.  Go offer the average Joe a choice between an oz of gold or $20 and you'd be surprised what the answer will be.   If their friends and neighbors all start using it, they will as well.

 

 

 

 I knew you were going to post this vid but it's likely cherry picked and who would take a "gold bar" from someone on the street? It's an issue of source and trust of that source. 

 

Money needs to be durable for long long periods of time. So even if it takes 50 years for BTC to be cracked it's still a real issue. We have 30yr notes with USD. Could you do that with any confidence using BTC instead? 

[james22]

2 hours ago, rkbabang said:

 

 

$2

[SharperDingaan]

These days the gold thing is a pretty poor example.

I can now digitally separate the blood gold from the ethical gold in your wedding band, and trade them both as separate commodities tied to the value of the physical commodity. The value of the ethical gold being worth nothing more than what you are willing to pay for it!

 

SD

 

[LC]

4 hours ago, Longnose said:

When small time shops start questioning why they are paying 3% to mastercard and visa  when they can get instant settlement for 0.02 cents on thier $10 T-shirt sale. 

Sorry if a dumb question, but how does bitcoin solve for extending credit and managing the associated credit risk?

[Gregmal]

Isnt the relevance right in front of us when you have a big bully, like the US, decide Russia will be forced into default on its debt obligations? Even though Russia has the money to pay, and wants to pay, the bully basically just says "we are cutting you off from paying everyone you owe money, even though you want to pay and the people you owe money to want to be paid back!". Or the shareholders who's ownership interests in businesses are now impaired and no longer able to receive the dividends they are entitled?

[Longnose]

14 minutes ago, LC said:

Sorry if a dumb question, but how does bitcoin solve for extending credit and managing the associated credit risk?

 

It doesnt solve for credit. But it does solve for a digital cash transaction without middlemen. 

 

Download a Muun Wallet on your phone post your lightning network address  and ill send you 100 sats (0.017 USD). It'll settle immediately and you'll see it in your wallet. No credit or middle men involved. My wallet to yours. 

 

If i had a reason to pay you $1M worth of BTC i could send $1M worth also near instantaneous. 

[TwoCitiesCapital]

2 hours ago, LC said:

Sorry if a dumb question, but how does bitcoin solve for extending credit and managing the associated credit risk?

 

Not sure there's a "fix". Credit is credit regardless of the currency it's extended in. 

 

Smart contracts can help with enforcement and facilitation of payment and contract law, but not certain I understand what's "broken" about credit to know how Bitcoin or other crypto might be expected to fix it?

[rkbabang]

4 hours ago, Castanza said:

 I knew you were going to post this vid but it's likely cherry picked and who would take a "gold bar" from someone on the street? It's an issue of source and trust of that source. 

 

Money needs to be durable for long long periods of time. So even if it takes 50 years for BTC to be cracked it's still a real issue. We have 30yr notes with USD. Could you do that with any confidence using BTC instead? 

That’s another thing that makes Bitcoin far superior to gold. I wouldn’t trust a gold bar from some stranger on the street, but if he pays me in Bitcoin I immediately know that it is genuine and I don’t need to trust him.  You can fake gold, you can counterfeit dollars or pesos, but when the BTC hits your wallet you know it is real whether or not you trust the person who sent it to you.

[SharperDingaan]

12 hours ago, TwoCitiesCapital said:

 

Not sure there's a "fix". Credit is credit regardless of the currency it's extended in. 

 

Smart contracts can help with enforcement and facilitation of payment and contract law, but not certain I understand what's "broken" about credit to know how Bitcoin or other crypto might be expected to fix it?

 

Long term, FICA score gets replaced with a local reputation score, and smart contracts/CBDC facilitate payments at a transaction cost close to zero. The 2B+ unbanked connect to the internet via cheap (& robust) laptops, and satellite link (Gates/Musk). Solar panels to charge the laptop via China's various belt and road initiatives.

 

The old jeweler/money lender in your community who lent based on reputation and collateral, replaced with internet lenders. The scale solution that FICA scoring enabled, replaced with a much more robust (and higher capacity) global solution. 

 

SD