SnarkyPuppy Posted November 29, 2017 Share Posted November 29, 2017 Just wanted to bump this thread up. I re-read it from the beginning and found it interesting how I went from highly sceptical of Bitcoin in 2014 to buying my first bitcoins in January 2015. Wachtwoord's post are really good and worth it to re-read. Bitcoin cannot be a store of value. Valuation - by definition - requires some kind of cash flow. You need earnings, dividends, interest, etc. Valuation of a commodity can be based on its use in an industrial context. Even fiat currencies can be valued, based on the underlying tax levying authority of a government. The governments of countries have value based on the taxes they can generate each year for the foreseeable future. Bitcoin has no cash flows whatsoever. It is solely valuable for transactions, yet this is a trivial function. Many virtual currencies exist and can be used for transactions. There is no sense in which a currency must have a store of value to be useful for transactions. Therefore any attempt to value Bitcoin is ultimately just tulip mania. A price of $0, $10, $100, $1000, $10K, $100K, and $1M per Bitcoin are equally valid valuations. Because ultimately 95% of the use of Bitcoin is speculators who buy Bitcoin on the erroneous belief that it is a store of value and must increase in value. Gold doesn't produce cash flow, is a store of value, and has a market capitalization of $7tn. Most of your points are made irrelevant when compared to gold as a store of value. Fiat currencies do not produce cash flow (holding fiat is effectively negative cash flow). Your argument regarding governments controlling/backing fiat as a source of value/valuation point may be seen as a strength of bitcoin by some. The fact that a store of value, such as gold or bitcoin, is not valued based on cash flow earnings is precisely why this is not a bubble. It may not work out, and it is absolutely still speculative, but it cannot be a bubble if there is valuation anchor for fundamental analysis. Those focusing on prior % gains and shouting bubble will continue to be stunned as the price of bitcoin continues to rise. Those who focus on bitcoin's current capitalization as a % of the capitalization of one very real potential outcome recognize a bet that is highly asymmetric and almost definitely +expected value. As each day passes, the perceived safety (value) of bitcoin increases. As bitcoin rises in popularity and acceptance, the perceived safety (value) of bitcoin increases. Link to comment Share on other sites More sharing options...
Mephistopheles Posted November 29, 2017 Share Posted November 29, 2017 Just wanted to bump this thread up. I re-read it from the beginning and found it interesting how I went from highly sceptical of Bitcoin in 2014 to buying my first bitcoins in January 2015. Wachtwoord's post are really good and worth it to re-read. Bitcoin cannot be a store of value. Valuation - by definition - requires some kind of cash flow. You need earnings, dividends, interest, etc. Valuation of a commodity can be based on its use in an industrial context. Even fiat currencies can be valued, based on the underlying tax levying authority of a government. The governments of countries have value based on the taxes they can generate each year for the foreseeable future. Bitcoin has no cash flows whatsoever. It is solely valuable for transactions, yet this is a trivial function. Many virtual currencies exist and can be used for transactions. There is no sense in which a currency must have a store of value to be useful for transactions. Therefore any attempt to value Bitcoin is ultimately just tulip mania. A price of $0, $10, $100, $1000, $10K, $100K, and $1M per Bitcoin are equally valid valuations. Because ultimately 95% of the use of Bitcoin is speculators who buy Bitcoin on the erroneous belief that it is a store of value and must increase in value. Gold doesn't produce cash flow, is a store of value, and has a market capitalization of $7tn. Most of your points are made irrelevant when compared to gold as a store of value. Fiat currencies do not produce cash flow (holding fiat is effectively negative cash flow). Your argument regarding governments controlling/backing fiat as a source of value/valuation point may be seen as a strength of bitcoin by some. The fact that a store of value, such as gold or bitcoin, is not valued based on cash flow earnings is precisely why this is not a bubble. It may not work out, and it is absolutely still speculative, but it cannot be a bubble if there is valuation anchor for fundamental analysis. Those focusing on prior % gains and shouting bubble will continue to be stunned as the price of bitcoin continues to rise. Those who focus on bitcoin's current capitalization as a % of the capitalization of one very real potential outcome recognize a bet that is highly asymmetric and almost definitely +expected value. As each day passes, the perceived safety (value) of bitcoin increases. As bitcoin rises in popularity and acceptance, the perceived safety (value) of bitcoin increases. And every rule has an exception and gold is the exception. The only major store of value that has survived generations without producing cash flow. You're saying bitcoin is also an exception but the burden of proof is on you, not us. Gold has thousands of years of history as store of value to earn its status today. To compare the two is just silly. No, fiat currencies do not produce cash flow; also fiat currencies depreciate over time. The U.S. dollar FYI is not a good store of value. The fact that a store of value, such as gold or bitcoin, is not valued based on cash flow earnings is precisely why this is not a bubble. It may not work out, and it is absolutely still speculative, but it cannot be a bubble if there is valuation anchor for fundamental analysis. What? Even if bitcoin goes to $100,000 or $1 million, nobody here has made a case as to why it's a buy at this price. It'll go up there and you all will claim victory but will just get lucky. Link to comment Share on other sites More sharing options...
rb Posted November 29, 2017 Share Posted November 29, 2017 I think you guys are getting some stuff confused. The economic store of value function of currency is about stability. Basically that you can expect to buy roughly the same amount of goods as today at some point in the next too distant future. That's why central banks strive for low and stable inflation. Anything that goes up/down more than a bit in value is not a good store of value by definition. Btw, gold is also not a good store of value. Along with a host of actual currencies. Link to comment Share on other sites More sharing options...
mcliu Posted November 29, 2017 Share Posted November 29, 2017 Slightly off-topic, but is there a reason why Bitcoin is preferred over other cryptocurrencies? Link to comment Share on other sites More sharing options...
scorpioncapital Posted November 29, 2017 Share Posted November 29, 2017 Why should money have a return in excess of maintaining a 0% real purchasing power? It's not like money produces anything, or is a business. Link to comment Share on other sites More sharing options...
writser Posted November 29, 2017 Share Posted November 29, 2017 Slightly off-topic, but is there a reason why Bitcoin is preferred over other cryptocurrencies? Because it went up the most. Link to comment Share on other sites More sharing options...
rkbabang Posted November 29, 2017 Share Posted November 29, 2017 Even fiat currencies can be valued, based on the underlying tax levying authority of a government. The governments of countries have value based on the taxes they can generate each year for the foreseeable future. Government bonds are backed by the taxes the government will collect in the future, government fiat currencies are only protected by the fact that government has a lot of guns and can pass legal tender laws to force businesses to accept it. Link to comment Share on other sites More sharing options...
rkbabang Posted November 29, 2017 Share Posted November 29, 2017 Bitcoin becomes a store of value for the world it will create the most massive disparity of wealth distribution in the history of mankind. Someday that will show up on the blue square in Jeopardy and the contestant will say: "What is the method Libertarians used to take over the world?" Link to comment Share on other sites More sharing options...
SnarkyPuppy Posted November 29, 2017 Share Posted November 29, 2017 Just wanted to bump this thread up. I re-read it from the beginning and found it interesting how I went from highly sceptical of Bitcoin in 2014 to buying my first bitcoins in January 2015. Wachtwoord's post are really good and worth it to re-read. Bitcoin cannot be a store of value. Valuation - by definition - requires some kind of cash flow. You need earnings, dividends, interest, etc. Valuation of a commodity can be based on its use in an industrial context. Even fiat currencies can be valued, based on the underlying tax levying authority of a government. The governments of countries have value based on the taxes they can generate each year for the foreseeable future. Bitcoin has no cash flows whatsoever. It is solely valuable for transactions, yet this is a trivial function. Many virtual currencies exist and can be used for transactions. There is no sense in which a currency must have a store of value to be useful for transactions. Therefore any attempt to value Bitcoin is ultimately just tulip mania. A price of $0, $10, $100, $1000, $10K, $100K, and $1M per Bitcoin are equally valid valuations. Because ultimately 95% of the use of Bitcoin is speculators who buy Bitcoin on the erroneous belief that it is a store of value and must increase in value. Gold doesn't produce cash flow, is a store of value, and has a market capitalization of $7tn. Most of your points are made irrelevant when compared to gold as a store of value. Fiat currencies do not produce cash flow (holding fiat is effectively negative cash flow). Your argument regarding governments controlling/backing fiat as a source of value/valuation point may be seen as a strength of bitcoin by some. The fact that a store of value, such as gold or bitcoin, is not valued based on cash flow earnings is precisely why this is not a bubble. It may not work out, and it is absolutely still speculative, but it cannot be a bubble if there is valuation anchor for fundamental analysis. Those focusing on prior % gains and shouting bubble will continue to be stunned as the price of bitcoin continues to rise. Those who focus on bitcoin's current capitalization as a % of the capitalization of one very real potential outcome recognize a bet that is highly asymmetric and almost definitely +expected value. As each day passes, the perceived safety (value) of bitcoin increases. As bitcoin rises in popularity and acceptance, the perceived safety (value) of bitcoin increases. And every rule has an exception and gold is the exception. The only major store of value that has survived generations without producing cash flow. You're saying bitcoin is also an exception but the burden of proof is on you, not us. Gold has thousands of years of history as store of value to earn its status today. To compare the two is just silly. No, fiat currencies do not produce cash flow; also fiat currencies depreciate over time. The U.S. dollar FYI is not a good store of value. The fact that a store of value, such as gold or bitcoin, is not valued based on cash flow earnings is precisely why this is not a bubble. It may not work out, and it is absolutely still speculative, but it cannot be a bubble if there is valuation anchor for fundamental analysis. What? Even if bitcoin goes to $100,000 or $1 million, nobody here has made a case as to why it's a buy at this price. It'll go up there and you all will claim victory but will just get lucky. I just want to be clear on my stance here. I have absolutely no idea what will happen and I bought in at much lower prices (greater asymmetry i.e. expected value significantly higher). With that said, my stance is that the future is entirely unpredictable (tell someone 5 years ago that Trump would be president and get a more visceral reaction than saying bitcoin might become a store of value) and that the historical % gains of bitcoin indicating a bubble are a kneejerk reaction that do not tell the full story. Given the lack of predictability, the fact that there is a non-0% probability that bitcoin does replace gold as a store of value (we can debate this, but we'd BOTH be speculating), it remains to be highly asymmetric and IMO a positive expected value speculative gamble. Regarding volatility/gains- if you accept the bull thesis (store of value -> comparable store of values worth ~$7tn), the new asset class will have volatility as it rises to becoming a store of value. I see this as a binary outcome over a long period of time- either it becomes a widely accepted store of value (NOT currency, imo) or not. $0 or $7tn. It is not currently a store of value, but if it were to rise to those levels volatility would likely be consistent with the volatility we see in gold today. Link to comment Share on other sites More sharing options...
bearprowler6 Posted November 29, 2017 Share Posted November 29, 2017 This discussion reminds me of a conversation I overheard recently on a trip to NYC between a prominent Wall Street Trader and and early investor in Bitcoin: Bitcoin Investor speaking: "you a wall street trader who spent years in school earning multiple degrees and learning the minutia of finance and investments, worked 100 hour weeks for the last 10 years, never seeing your family and risking your health seem super excited about your 10% returns this year. Me a Bitcoiner, read a few books, posted a few ideas on Twitter, ate some steaks and drank a few beers and can sit back and enjoy my 900% return this year" Link to comment Share on other sites More sharing options...
Liberty Posted November 29, 2017 Share Posted November 29, 2017 This discussion reminds me of a conversation I overheard recently on a trip to NYC between a prominent Wall Street Trader and and early investor in Bitcoin: Bitcoin Investor speaking: "you a wall street trader who spent years in school earning multiple degrees and learning the minutia of finance and investments, worked 100 hour weeks for the last 10 years, never seeing your family and risking your health seem super excited about your 10% returns this year. Me a Bitcoiner, read a few books, posted a few ideas on Twitter, ate some steaks and drank a few beers and can sit back and enjoy my 900% return this year" Is this like one of those jokes where you pretend it happened to you, or are you Michael Goldstein? Link to comment Share on other sites More sharing options...
rkbabang Posted November 29, 2017 Share Posted November 29, 2017 This discussion reminds me of a conversation I overheard recently on a trip to NYC between a prominent Wall Street Trader and and early investor in Bitcoin: Bitcoin Investor speaking: "you a wall street trader who spent years in school earning multiple degrees and learning the minutia of finance and investments, worked 100 hour weeks for the last 10 years, never seeing your family and risking your health seem super excited about your 10% returns this year. Me a Bitcoiner, read a few books, posted a few ideas on Twitter, ate some steaks and drank a few beers and can sit back and enjoy my 900% return this year" Is this like one of those jokes where you pretend it happened to you, or are you Michael Goldstein? Maybe he was at the airport too. Link to comment Share on other sites More sharing options...
SharperDingaan Posted November 29, 2017 Share Posted November 29, 2017 Buying a Bitcoin is the same as buying a USD with CAD, in anticipation of a near term devaluation in CAD. If you're correct you book a CAD profit equal to the difference in the exchange rates x the quantity of USD owned. You bought 'money' (USD), with no intent of spending it - you are doing EXACTLY the same thing when you buy a Bitcoin. To buy a Bitcoin at USD 1,000 and sell it at USD 10,000, the USD/Bitcoin exchange rate had to devalue by 10x. Given that most of the globe uses USD to pay for goods and services, were crypto to largely replace the use of USD for this purpose; the USD would collapse. Hard to argue against crypto being a long term 'store of value'. 'Safe' is in the eye of the beholder. Know what you're buying, and why. SD Link to comment Share on other sites More sharing options...
DooDiligence Posted November 29, 2017 Share Posted November 29, 2017 Will sovereign governments ever turn to blockchain to manage fiat currencies? Do we really need paper & metal to be involved in the creation of fiat? Could / how would, the forces of inflation be accurately reflected in a fiat cryptocurrency? I'm not trying to poke at anyone who's posted here, I really want to know the answers to these q's & am woefully ignorant re: cryptocurrency & it's implications as a legitimate fiat currency (if there is truly such a thing ??? ) Personally, I wouldn't put a single farthing into a cryptocurrency unless it was a reasonably stable medium of exchange. I make wild gambles but they usually involve long odds on the value of me (oh, & the crap in my signature but I don't think those are WILD gambles.) Link to comment Share on other sites More sharing options...
rkbabang Posted November 29, 2017 Share Posted November 29, 2017 Will sovereign governments ever turn to blockchain to manage fiat currencies? Do we really need paper & metal to be involved in the creation of fiat? Could / how would, the forces of inflation be accurately reflected in a fiat cryptocurrency? I'm not trying to poke at anyone who's posted here, I really want to know the answers to these q's & am woefully ignorant re: cryptocurrency & it's implications as a legitimate fiat currency (if there is truly such a thing ??? ) Personally, I wouldn't put a single farthing into a cryptocurrency unless it was a reasonably stable medium of exchange. I make wild gambles but they usually involve long odds on the value of me (oh, & the crap in my signature but I don't think those are WILD gambles.) There is no reason a government couldn't issue money on a blockchain. But you know they would never relinquish control over it. It wouldn't be a mined public blockchain, it would be a private blockchain running on government servers. They would have complete control and could issue new units at will just as they do now only they would have perfect record keeping over who owns what and where they got it from. It's the IRS's dream come true. Link to comment Share on other sites More sharing options...
Jurgis Posted November 29, 2017 Share Posted November 29, 2017 Buying bitcoin is not zero or one decision. ;D Link to comment Share on other sites More sharing options...
rkbabang Posted November 29, 2017 Share Posted November 29, 2017 Buying bitcoin is not zero or one decision. <groan> That joke was definitely a zero though. Link to comment Share on other sites More sharing options...
rkbabang Posted November 29, 2017 Share Posted November 29, 2017 Link to comment Share on other sites More sharing options...
LC Posted November 29, 2017 Share Posted November 29, 2017 Will sovereign governments ever turn to blockchain to manage fiat currencies? Do we really need paper & metal to be involved in the creation of fiat? Could / how would, the forces of inflation be accurately reflected in a fiat cryptocurrency? I'm not trying to poke at anyone who's posted here, I really want to know the answers to these q's & am woefully ignorant re: cryptocurrency & it's implications as a legitimate fiat currency (if there is truly such a thing ??? ) Personally, I wouldn't put a single farthing into a cryptocurrency unless it was a reasonably stable medium of exchange. I make wild gambles but they usually involve long odds on the value of me (oh, & the crap in my signature but I don't think those are WILD gambles.) There is no reason a government couldn't issue money on a blockchain. But you know they would never relinquish control over it. It wouldn't be a mined public blockchain, it would be a private blockchain running on government servers. They would have complete control and could issue new units at will just as they do now only they would have perfect record keeping over who owns what and where they got it from. It's the IRS's dream come true. Man I really hope this happens. No more panama/paradise papers! Link to comment Share on other sites More sharing options...
rkbabang Posted November 29, 2017 Share Posted November 29, 2017 Will sovereign governments ever turn to blockchain to manage fiat currencies? Do we really need paper & metal to be involved in the creation of fiat? Could / how would, the forces of inflation be accurately reflected in a fiat cryptocurrency? I'm not trying to poke at anyone who's posted here, I really want to know the answers to these q's & am woefully ignorant re: cryptocurrency & it's implications as a legitimate fiat currency (if there is truly such a thing ??? ) Personally, I wouldn't put a single farthing into a cryptocurrency unless it was a reasonably stable medium of exchange. I make wild gambles but they usually involve long odds on the value of me (oh, & the crap in my signature but I don't think those are WILD gambles.) There is no reason a government couldn't issue money on a blockchain. But you know they would never relinquish control over it. It wouldn't be a mined public blockchain, it would be a private blockchain running on government servers. They would have complete control and could issue new units at will just as they do now only they would have perfect record keeping over who owns what and where they got it from. It's the IRS's dream come true. Man I really hope this happens. No more panama/paradise papers! They could also freeze the entire economy and everyone's assets simply by shutting down their servers. A hacker/terrorist could do so as well. Link to comment Share on other sites More sharing options...
wachtwoord Posted November 29, 2017 Share Posted November 29, 2017 Will sovereign governments ever turn to blockchain to manage fiat currencies? Do we really need paper & metal to be involved in the creation of fiat? Could / how would, the forces of inflation be accurately reflected in a fiat cryptocurrency? I'm not trying to poke at anyone who's posted here, I really want to know the answers to these q's & am woefully ignorant re: cryptocurrency & it's implications as a legitimate fiat currency (if there is truly such a thing ??? ) Personally, I wouldn't put a single farthing into a cryptocurrency unless it was a reasonably stable medium of exchange. I make wild gambles but they usually involve long odds on the value of me (oh, & the crap in my signature but I don't think those are WILD gambles.) There is no reason a government couldn't issue money on a blockchain. But you know they would never relinquish control over it. It wouldn't be a mined public blockchain, it would be a private blockchain running on government servers. They would have complete control and could issue new units at will just as they do now only they would have perfect record keeping over who owns what and where they got it from. It's the IRS's dream come true. Man I really hope this happens. No more panama/paradise papers! Wow. Makes me really sad when educated people talk this naive :( Link to comment Share on other sites More sharing options...
LC Posted November 29, 2017 Share Posted November 29, 2017 I admittedly know little (nothing?) about blockchain technology. Was a tongue-in-cheek comment ;) Link to comment Share on other sites More sharing options...
wachtwoord Posted November 29, 2017 Share Posted November 29, 2017 I admittedly know little (nothing?) about blockchain technology. Was a tongue-in-cheek comment ;) I was referring to the blind faith in the government and the indirect condemnation of those exposed in the paradise papers (who are not criminals while those releasing the papers are). Link to comment Share on other sites More sharing options...
rb Posted November 29, 2017 Share Posted November 29, 2017 Will sovereign governments ever turn to blockchain to manage fiat currencies? Do we really need paper & metal to be involved in the creation of fiat? Could / how would, the forces of inflation be accurately reflected in a fiat cryptocurrency? I'm not trying to poke at anyone who's posted here, I really want to know the answers to these q's & am woefully ignorant re: cryptocurrency & it's implications as a legitimate fiat currency (if there is truly such a thing ??? ) Personally, I wouldn't put a single farthing into a cryptocurrency unless it was a reasonably stable medium of exchange. I make wild gambles but they usually involve long odds on the value of me (oh, & the crap in my signature but I don't think those are WILD gambles.) There is no reason a government couldn't issue money on a blockchain. But you know they would never relinquish control over it. It wouldn't be a mined public blockchain, it would be a private blockchain running on government servers. They would have complete control and could issue new units at will just as they do now only they would have perfect record keeping over who owns what and where they got it from. It's the IRS's dream come true. Man I really hope this happens. No more panama/paradise papers! They could also freeze the entire economy and everyone's assets simply by shutting down their servers. A hacker/terrorist could do so as well. That's not really much different than what we have today in developed economies. The currencies are basically electronic. In Canada last time I checked physical currency made about 5-7% of money. In the US it's probably more because there's a lot of mattresses stuffed with 100 dollar bills abroad but for the real economy i suspect it's in line with Canada. On top of that you have central clearing at the Fed. So the Fed essentially is aware of all of the transactions. This doesn't impact the tax situation much because the Fed doesn't share the data with the IRS. Furthermore, If you were to shut down the Fed's clearing servers you will create chaos in the economy. That's why the clearing system is designed to be highly resilient. Link to comment Share on other sites More sharing options...
rb Posted November 29, 2017 Share Posted November 29, 2017 Oh look... Bitcoin drops 20% in hours. https://www.bloomberg.com/news/articles/2017-11-29/wild-bitcoin-ride-erases-2-200-in-five-hours-after-record-rally Feel the store of value. Link to comment Share on other sites More sharing options...
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