There are a lot of cryptocurrency folks talking up Bitcoin as a hedge against inflation and Federal Reserve policies. But when it comes to Tether printing billions of counterfeit dollars every month to inflate the cryptocurrency markets... crickets.
Riiiiight, because no cryptocurrency folk has ever criticized Tether. That is sarcasm, it is a recurring topic for most of last decade till now.
Inductive reasoning suggests that Tether dollars are mostly and usually created accurately as they have weathered state actor lawsuits, some segments of the market itself choose competitors primarily for better transparency and a lack bad history.
Given the similar percentage growth of similar stablecoins like USDC and DAI, there just is a market for stablecoins where capital completely skips bitcoin to enter the digital asset market. USDC issuance size is just as large as Tether’s has been in the recent past, while Tether was weathering the exact same controversies as it has today. This suggests there is just a market for stablecoins, simple as that. This actually bolsters the general credibility of Tether functioning mostly as they always claimed it did where Tether was created only in response to deposits on Bitfinex (except when it wasnt, but usually).
Tethers are not printed out of thin air. But me saying this doesn’t mean anyone on HN will believe it, although they similarly believe other random Internet strangers because it agrees with their preconceived desire that Tether is fraudulent.
Don't you see the irony of that? When the New York AG focused their lasers onto Tether not being back 1:1, it was because it became unbacked, which ironically squashes the assumptions people had for all those the years prior, because it was functioning as the company said it was the whole time, until it wasn't.
No, the authorities specifically said it was backed 1:1 like Tether said, until Tether became a self-referencing meme of itself and NY moved on them when it wasn't. Basically most of the time, people were wrong about Tether.
Is this defense more nuanced than "before they committed fraud they didn't commit fraud"? Yeah, i guess you could see that as a silver lining, but it puts it squarely in the past.
Its not a defense and the point is that people were wrong about tether most of its lifespan and most of the time even after they actually went fractional reserve.
If you said Tether was printing non-backed Tethers in 2017 and pumping the market, you were wrong.
If you said it in early 2018 you were wrong.
Afterwards you would have been mostly wrong.
The product does not offer transparency that competing products do. And thats it. You have no way of knowing if you are wrong or not until a filing shows up in court later and even then it is just part of an allegation.
Tether has a $17bn marketcap because about $17bn dollars were deposited into the Tether printer and are still there and that was true most of the time despite many people not wanting to believe it during the times that it was 100% true until ironically ceasing to be 100% true.
So, there are problems with tether and other stablecoins, but they can and may well be regulated, as cryptoassets become more ingrained in the global financial systems. I am shocked that bitcoin is still around, and as I have said, the longer it is around, the more legitimacy it gains.
Keep in mind, the same cryptography that secures global banking system, is the same cryptography used to secure bitcoin transactions.
I still dont understand why bitcoin should hold any value over the next 10, 20 years. In that time I still earn dollars and items cost dollars and I borrow dollar mortgage to buy a dollar house. I can see how some central bank backed electronic currency could be used for my transactions.
Why would BTC be involved? Why would anyone choose to use it? I can't see it makes any sense.
Your dollars lose value every year because the government creates money out of thin air (aka inflation).
Some assets like gold or Bitcoin are much harder to create, and so there is no indefinite, limitless increase in supply. This allows them to function better as stores of value than dollars.
I understand money, inflation and finance very well. I understand that BTC has limited supply. In 10 years why would anyone want BTC though? Why would I want to buy it when I could buy BTC2 or whatever else? Its like yes there is a limited supply, but there is unlimited supply of cryptocurrencies, why is BTC more valuable than the others?
Was initially my argument against bitcoin also. The flaw in this reasoning imo is the power law distribution of attention. Bitcoin and Ethereum get the vast majority of the attention (and hence trade volume). Everything else pales in comparison.
because it was first and has proven itself to be both immutable and highly secure. this leads to network effects. and money is the ultimate network effect. people want money because they know others want money and will therefore accept it in exchange for other things.
The existence of a cryptocurrency does not give it value. Its network gives it value (users, wallets, hardware, aka usage and adoption).
Ex: Facebook is the most valuable social network on the internet. Forking FB's source code and starting my own social network does not mean anyone will use it. FB is valuable because it works, and because users are there.
Because Bitcoin is credibly scarce. In 10 years, Bitcoin will have 20+ years of history behind it. Your BTC2 will be much younger, probably have had a creator, a foundation that directs where it goes, possibly changed the proof-of-work and supply schedule a few times and possibly picked winners and loser on their ecosystem. In other words, your other currency won't be that different than normal fiat money.
Most people don't really get that Bitcoin is unique in this regard. Literally every other coin has less credibility and more intervention and a shorter history. That's why BTC will be more valuable.
You could spin up your own Bitcoin fork in an afternoon. The difference between Bitcoin and x87678rCoin is confidence. No one knows or cares about x87678rCoin. x87678rCoin has no track record or evidence that it will be maintained and supported by any ecosystem in the long run. Until x87678rCoin proves itself, it is contributing nothing to the supply of cryptocurrencies. Zero.
> Your dollars lose value every year because the government creates money out of thin air (aka inflation).
I'm pretty sure it's not the government that creates most of the money. It's mostly the banks right? When you borrow money, they don't need to go to the government to create the money for that loan in your account.
And this is a mostly a good thing. I know a lot of people think it's not, but what it really does is democratise borrowing. Your ability to borrow money is mostly only limited to your own ability to make regular payments.
A slight inflation also incentivises people to borrow and invest, so it's often good for economic growth.
Maybe it won't be so good in the future when the population and economy starts to shrink consistently. But I'm not convinced that cryptocurrencies is the answer there either.
The central bank / federal reserve controls monetary policy. Explaining the path of money creation to consumer is beyond my scope, but basically it always starts with the feds.
The power to create money is indeed useful at times. However, there are problems with it that eventually arise over time.
Cryptocurrencies/blockchains simply provide infrastructure outside the control of the government or any single entity. The applications we decide to use with it is ultimately up to us.
software people in stable states have had a hard time understanding why bitcoin could be valuable. consider that the dollar may not be desirable for such transactions in the future if its basis is unstable (not uncommon in many countries around the world). when you consider the instability of the US government of late, we must agree that there is a non-zero probability of confidence in the dollar diminishing significantly. multiply this probability times what you think the price of bitcoin would be in such a world. that's why people want bitcoin.
My theory as someone long Bitcoin? Nostalgia. Why were cars some of the best investments one could have made in the 1960s? Because people today associate these cars with intense memories of their youth.
Making and losing your first fortune trading Bitcoins should have a similar effect on the retirees of 2050.
Yeah, this is currently my main reason for thinking the existing cryptocurrencies will not compete with normal currencies. You can't do fractional reserve banking. I know a lot of people think that's a good thing, but I'm not so sure. I like to consider borrowing with a fractional reserve banking system as borrowing from your future self. Mostly, the only barrier to getting a loan is your own ability to make regular payments.
With a cryptocurrency, it feels like you're gonna have to find some old rich dude willing to lend you some money (possibly through a bank, but still..). I have a suspicion that this will lead to many people not being able to buy their own home anymore.. if you have a lot of money, why put it in savings in a bank to be lent out to others to buy homes? Why not buy property and rent it out instead? You'll probably have a higher ROI.
In my view BTC is basically acting like a distributed pyramid scheme. A lot of the money going into it is people "investing" in the currency, and these people will try their best to recruit more people to invest even more money into the scheme so that the first guys can increase the value of the BTCs, and possibly sell out for a profit later. The only difference from an actual pyramid scheme is you don't get money directly from the people you recruit. BTC kind of shuffles the contributions. But once you're bought into BTC you still have very high incentives to hype it up as much as possible, regardless of the actual value of cryptocurrency to society.
I think cryptocurrencies and blockchains in general is incredibly cool. I played around with mining Bitcoin very early on, and I do like the concept. But like many others I've yet to see a single usecase where there's no better alternative to using a blockchain, as long as you have a functioning legal system. If you're doing crime, or living in a failed/corrupt state, or doing something like international bank transfers ... sure. But those cases should hopefully be niche.
Specifically for the mortgages I don't think that will be much different with bitcoin. The whole fractional bitcoin reserve category is already booming and they do the same things as banks do in terms of rehypothecating the collateral, e.g. https://blockfi.com does that.
If you are living in the US, not homeless, getting paid US dollars via direct deposit, paying for your lattes with a Mastercard, then there's not much need for Bitcoin for you beyond 1) a speculative bet on it taking off globally. 2) a speculative hedge against the US dollar greatly losing value in the next decade.
But, if you are living in the confines of an backwards/broken/oppressive financial system, runnaway inflation, oppressive restrictions/sanctions, outright kleptocracy then Bitcoin is your sanctuary. It's complicated, risky, slow and tremendously better than what billions of people are dealing with from their local governments/banking systems.
Why does Gold have value? Everyone just agrees that it does, and once that has been true for a while you can trust that it will continue to be true tomorrow and beyond.
Bitcoin seems to be entering that domain, at least in my opinion. Like gold it can't be inflated on a whim, and it's a good reserve store of value that can be stored and sent anywhere in the world much more easily than gold.
There's definitely a vocal subsection of the crypto community that wants to spend BTC or some other cryptocurrency for everything they buy down to a cup of coffee, and FWIW I agree with what you're saying and I also don't understand that line of thinking. It solves no problem for me, buying a cup of coffee in a developed country. But like gold, BTC doesn't need to be used for that purpose to be useful.
And then of course, it's also an alternative store of value for people in other places who can't trust their own government's currency. But I think even this (very real, very useful) use case is dwarfed by its use as a store of value in rich countries which is the largest factor in driving its valuation, since the majority of the world's wealth is held in rich countries.
I have a different take on this. In the next 10-20 years, I could earn DAI (dollars backed by ether), and buy items with DAI or ETH, and borrow mortgages on DeFi in ETH or DAI once I have a digital identity issued on Ethereum with collateral / trust built in. I also see no reason for Bitcoin.
Ethereum has some respect because atleast it is not an outright scam. But consider following :
- Rollback done during DAO hack
- Policy of minimum issuance but they're changing the issuance to more tighter issuance "going fwd"
- They are changing the main consensus algo from proof of work to proof of stake
if you understand and try to work on it you will understand how centrally planned it is becoming and how clunky their nodes are to run and their entire execution is chaos. it is hard to put serious money on something like that but sure you can bet on it ...
The Ethereum network has much larger and complex technical aspirations than the Bitcoin network.
I'm okay that its only lead by a few people, that they did a rollback, etc. We are in the earliest days of decentralized infrastructure; laying the foundations for something that can physically last forever is more important following stringent, irreversible protocols. Ethereum as of today has many limitations, but has a chance to literally be THE future of decentralized computing. It's worth trading whatever we have now for a chance at that future.
those aspirations are futile if there's compromise on decentralization...
+ most projects on Ethereum are not decentralized if you think how they're raising funds from the VCs => they've jurisdictions anyways...but good luck to them i hope it works out
On the flipside: What else are you going to hold?
How much are you allocating to cash, bonds, equity, real estate, gold, bitcoin(, collectibles, art, pokemon trading cards), etc?
They all come with their own sets of risk.
Think of it as another asset class, with different characteristics / (albeit changing) correlation.
We are at historically low interest rates.
Equities are at historic P/E multiples in the U.S. and globally.
Real Estate is getting more and more expensive compared to generated cashflow.
Inflation/Deflation possibilities.
Naturally, people are looking at other opportunities or hedges.
Allocating portion according to your own situation and believe can make sense.
There also exists an argument on Gold vs BTC:
- Gold is hard to transport
- Same bar appears on multiple balance sheets
- Paper gold ETFs
- Price manipulation by central banks and hedge funds
- Hardness / How much gold is added yearly
- Ability to improve in use through software
Could be a very good collateral, compared to bonds which lose value through inflation.
It's really a personal decision.
If you think your money should be elsewhere, then put it elsewhere.
Right. Bitcoin is just another FX with a permanently neutral balance of trade and a deflationary supply.
That would be a disaster of an economy if that was your government's mandated currency but it sure sounds to me like a great thing to own relative to today's macro environment.
Fwiw, almost every macro commentator I follow agrees.
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[ 3.0 ms ] story [ 44.7 ms ] threadInductive reasoning suggests that Tether dollars are mostly and usually created accurately as they have weathered state actor lawsuits, some segments of the market itself choose competitors primarily for better transparency and a lack bad history.
Given the similar percentage growth of similar stablecoins like USDC and DAI, there just is a market for stablecoins where capital completely skips bitcoin to enter the digital asset market. USDC issuance size is just as large as Tether’s has been in the recent past, while Tether was weathering the exact same controversies as it has today. This suggests there is just a market for stablecoins, simple as that. This actually bolsters the general credibility of Tether functioning mostly as they always claimed it did where Tether was created only in response to deposits on Bitfinex (except when it wasnt, but usually).
- Tether was only backed 74% as of April 2019 rather than 1:1 (https://www.bloomberg.com/news/articles/2019-04-30/tether-sa...)
- Tether loaned Bitfinex ~$600m after Bitfinex got hacked or ran into liquidity issues (https://www.coindesk.com/bitfinex-tether-nyag-hearing). The two are owned by the same people.
- Won't allow their books to be audited. etc, etc.
..am I misunderstanding your argument or are you saying that if the authorities aren't investigating wrongdoing it can't be happening?
If you said Tether was printing non-backed Tethers in 2017 and pumping the market, you were wrong.
If you said it in early 2018 you were wrong.
Afterwards you would have been mostly wrong.
The product does not offer transparency that competing products do. And thats it. You have no way of knowing if you are wrong or not until a filing shows up in court later and even then it is just part of an allegation.
Tether has a $17bn marketcap because about $17bn dollars were deposited into the Tether printer and are still there and that was true most of the time despite many people not wanting to believe it during the times that it was 100% true until ironically ceasing to be 100% true.
Tether is fiat-madness squared
So, there are problems with tether and other stablecoins, but they can and may well be regulated, as cryptoassets become more ingrained in the global financial systems. I am shocked that bitcoin is still around, and as I have said, the longer it is around, the more legitimacy it gains.
Keep in mind, the same cryptography that secures global banking system, is the same cryptography used to secure bitcoin transactions.
Why would BTC be involved? Why would anyone choose to use it? I can't see it makes any sense.
Some assets like gold or Bitcoin are much harder to create, and so there is no indefinite, limitless increase in supply. This allows them to function better as stores of value than dollars.
See hyperinflation to better understand why some people fear government spending deficits and the spiral of money creation that follows: https://www.investopedia.com/terms/h/hyperinflation.asp
Ex: Facebook is the most valuable social network on the internet. Forking FB's source code and starting my own social network does not mean anyone will use it. FB is valuable because it works, and because users are there.
Most people don't really get that Bitcoin is unique in this regard. Literally every other coin has less credibility and more intervention and a shorter history. That's why BTC will be more valuable.
I'm pretty sure it's not the government that creates most of the money. It's mostly the banks right? When you borrow money, they don't need to go to the government to create the money for that loan in your account.
And this is a mostly a good thing. I know a lot of people think it's not, but what it really does is democratise borrowing. Your ability to borrow money is mostly only limited to your own ability to make regular payments.
A slight inflation also incentivises people to borrow and invest, so it's often good for economic growth.
Maybe it won't be so good in the future when the population and economy starts to shrink consistently. But I'm not convinced that cryptocurrencies is the answer there either.
The power to create money is indeed useful at times. However, there are problems with it that eventually arise over time.
Cryptocurrencies/blockchains simply provide infrastructure outside the control of the government or any single entity. The applications we decide to use with it is ultimately up to us.
Making and losing your first fortune trading Bitcoins should have a similar effect on the retirees of 2050.
Bitcoin seems too abstract to be collectable in that sense
Yeah, this is currently my main reason for thinking the existing cryptocurrencies will not compete with normal currencies. You can't do fractional reserve banking. I know a lot of people think that's a good thing, but I'm not so sure. I like to consider borrowing with a fractional reserve banking system as borrowing from your future self. Mostly, the only barrier to getting a loan is your own ability to make regular payments.
With a cryptocurrency, it feels like you're gonna have to find some old rich dude willing to lend you some money (possibly through a bank, but still..). I have a suspicion that this will lead to many people not being able to buy their own home anymore.. if you have a lot of money, why put it in savings in a bank to be lent out to others to buy homes? Why not buy property and rent it out instead? You'll probably have a higher ROI.
In my view BTC is basically acting like a distributed pyramid scheme. A lot of the money going into it is people "investing" in the currency, and these people will try their best to recruit more people to invest even more money into the scheme so that the first guys can increase the value of the BTCs, and possibly sell out for a profit later. The only difference from an actual pyramid scheme is you don't get money directly from the people you recruit. BTC kind of shuffles the contributions. But once you're bought into BTC you still have very high incentives to hype it up as much as possible, regardless of the actual value of cryptocurrency to society.
I think cryptocurrencies and blockchains in general is incredibly cool. I played around with mining Bitcoin very early on, and I do like the concept. But like many others I've yet to see a single usecase where there's no better alternative to using a blockchain, as long as you have a functioning legal system. If you're doing crime, or living in a failed/corrupt state, or doing something like international bank transfers ... sure. But those cases should hopefully be niche.
But, if you are living in the confines of an backwards/broken/oppressive financial system, runnaway inflation, oppressive restrictions/sanctions, outright kleptocracy then Bitcoin is your sanctuary. It's complicated, risky, slow and tremendously better than what billions of people are dealing with from their local governments/banking systems.
Right now, Bitcoin is ~$1000 more expensive in Vietnam. Demand is higher.
https://bitcoinvn.io/
376,246,110 / 23150 = $16,252
Bitcoin seems to be entering that domain, at least in my opinion. Like gold it can't be inflated on a whim, and it's a good reserve store of value that can be stored and sent anywhere in the world much more easily than gold.
There's definitely a vocal subsection of the crypto community that wants to spend BTC or some other cryptocurrency for everything they buy down to a cup of coffee, and FWIW I agree with what you're saying and I also don't understand that line of thinking. It solves no problem for me, buying a cup of coffee in a developed country. But like gold, BTC doesn't need to be used for that purpose to be useful.
And then of course, it's also an alternative store of value for people in other places who can't trust their own government's currency. But I think even this (very real, very useful) use case is dwarfed by its use as a store of value in rich countries which is the largest factor in driving its valuation, since the majority of the world's wealth is held in rich countries.
I love Ethereum but think that Bitcoin solves something different.
if you understand and try to work on it you will understand how centrally planned it is becoming and how clunky their nodes are to run and their entire execution is chaos. it is hard to put serious money on something like that but sure you can bet on it ...
I'm okay that its only lead by a few people, that they did a rollback, etc. We are in the earliest days of decentralized infrastructure; laying the foundations for something that can physically last forever is more important following stringent, irreversible protocols. Ethereum as of today has many limitations, but has a chance to literally be THE future of decentralized computing. It's worth trading whatever we have now for a chance at that future.
We are at historically low interest rates. Equities are at historic P/E multiples in the U.S. and globally. Real Estate is getting more and more expensive compared to generated cashflow. Inflation/Deflation possibilities. Naturally, people are looking at other opportunities or hedges. Allocating portion according to your own situation and believe can make sense.
There also exists an argument on Gold vs BTC: - Gold is hard to transport - Same bar appears on multiple balance sheets - Paper gold ETFs - Price manipulation by central banks and hedge funds - Hardness / How much gold is added yearly - Ability to improve in use through software
Could be a very good collateral, compared to bonds which lose value through inflation.
It's really a personal decision. If you think your money should be elsewhere, then put it elsewhere.
That would be a disaster of an economy if that was your government's mandated currency but it sure sounds to me like a great thing to own relative to today's macro environment.
Fwiw, almost every macro commentator I follow agrees.
It’s no more or less effective at predicting the future as reading tea leaves or casting lots.
[1] https://towardsdatascience.com/does-technical-analysis-work-...
Also, machine learning models will be trained on market data and find these "spurious" patterns and begin enforcing these patterns themselves.