I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto.
I know many here are stridently anti-crypto, but there is some not very likely but plausible future where Bitcoin or Ethereum become the global reserve asset. Much the same way gold was in the 19th century or IMF drawing rights have operated at certain points post Breton Woods.
This is entirely different than the scalability limits that stand in the way of Bitcoin becoming a consumer currency. In this future, only major central banks and financial institutions would hold physical Bitcoin. Consumers would use either Bitcoin backed scrip issued by a bank. Or fiat currency where global confidence largely stems from the central bank’s BTC reserves.
I’d give this future a 1% of happening in the next 15 years. And conditional on it occurring, I’d estimate the price of BTC would likely increase by two orders of magnitude. From a pure expected value standpoint that makes crypto one of the most compelling asset classes around.
This lines up with the "hyperbitcoinization" narrative. It is pretty interesting to consider from a game theory perspective what sequence of events might cause this outcome to occur.
> I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto.
crypto, especially bitcoin, is an intentional environmental disaster. I don't want to invest 1% of my money into an intentional environmental disaster.
Exactly the reason I don't invest. My risk appetite is more than enough to take on Bitcoin/Ethereum investment, but the environmental impact relative to its utility outside of speculative investment is insane.
Did you mean to say "international environmental disaster"? I don't know in which way it's intentional that Bitcoin destroys the environment. The damage seems incidental.
I don't understand this argument. There are lots of things people like to do that use a lot of energy that I think are stupid. Like why to people in the West drive such stupidly large cars? Surely the answer to clean the inputs, not the use case? Trying to control what people can do is just going to make the transition to a clean future impossible, because you will piss lots of people off, and make then enemies. Bitcoin uses a lot of energy because that's it's security model. Trucks use a lot of energy because they are huge. Seems a lot more productive to concentrate on moving electricity to be a clean world input ( say a carbon tax), or move to electric vehicles ( say via tax credits), than to police the actual end usage.
Internet brainwashing “ but it uses electricity” never mind the fact proof of work is on it’s fourth generation of hardware and the price absolutely coo relates with the cost to play the game.
We’re opining about a system that finally, for the first time in the history of man, might accurately price the cost of the electricity consumed to power the system.
It’s pretty mind boggling but that’s the internet for you.
Bitcoin is fairly unique in its energy use. Almost every other use of resources will try to be more efficient if it can be.
If, for example, it were possible to create steel alloy in a way that took 1% less energy or made less waste (and thus was presumably cheaper at scale), the trucks would use this slightly more efficient steel.
On the other hand, Bitcoin relies on wasting a certain monetary value of energy for the security of the network. Its waste is adversarial. If we manage to produce 2x the electricity tomorrow and it becomes significantly cheaper, that just means a 51% attack also became much cheaper so people need to waste even more energy mining.
I can't think of any other uses of energy offhand that so actively resist any improvements. I can think of other intentional forms of waste (like dumping toxic waste, "rolling coal", etc), but I can't think of any that are aligned such that making upstream production of a resource more efficient then requires producing even more waste and environmental damage.
> Bitcoin is fairly unique in its energy use. Almost every other use of resources will try to be more efficient if it can be.
It's not like energy use in the world has gone down. If it's cheaper or more efficient it will go up or at best stay the same. Bitcoin has made the transition to more efficient ASICs because that increases profits, it just didn't result in less energy use because now you make more profit.
If a car can be more efficiently produced, the energy spent producing cars will go up because either more cars will be produced or more features will be added to the car. This is a win for the car consumer. This is very different from Bitcoin where any improvements to the efficiency of mining it (such as transitioning to ASICs) does not lead to a tangible benefit for the Bitcoin user. All major non-ASIC miners will eventually be out-competed out, but the amount of energy wasted will always be correlated to the price of Bitcoin.
I don't think they do if you're just referring to how difficult it is to pull off a 51% attack. Assume the status quo is that it costs X to secure 51% of the hash power. If there is a new ASIC that can hash twice as fast with the same energy use, then suddenly it will cost 0.5X to secure 51% of the hash power. But if the price of Bitcoin remains the same, then miners will have an incentive to double their hash power as that was their breakeven point before. And so now you've gone back to the previous status quo. Assuming the attackers have access to the new ASICs, it still costs X to 51% attack the network.
I'm not sure I understand your reasoning regarding the price of bitcoin staying the same and the miners having an incentive to double their hashpower. In the situation you described, you'd have the same hashing power but half the energy cost? Doubling it would double their hashing power and keep the energy cost the same. I don't see how this doesn't lead to a more secure network?
I don't think you can neglect the price of a new ASIC in a real situation though, those things are very expensive. Where it was first possible to attack the network using regular hardware, it now requires a much bigger capital investment. When ASICs were first released they had a bigger advantage than they have now, it seems unlikely a 2x improvement over the previous generation is still possible (assuming it was possible before, I didn't check).
It doesn't lead to a more secure network because the costs to attack the network are the same. Attackers will have access to the same technology and have similar costs.
Right, I'm not saying there will be a new ASIC; just that there will be no innovation in the Bitcoin space (unless they switch out of PoW) that leads to less energy being used.
I agree with that, it seems very unlikely we'll go to a less energy situation unless a price decline happens. At least until all bitcoins have been dug out.
> Bitcoin uses a lot of energy because that's its security model. Trucks use a lot of energy because they are huge.
I agree about cleaning the inputs, but I think the parallelism implicit in your phrasing is misleading.
Bitcoin uses about 12 GW. https://www.eia.gov/outlooks/ieo/pdf/transportation.pdf says freight trucks use 23% of global transportation energy use, which seems to be about 110 quads/year (figure 8-2), so that's 25 quads/year or about 850 GW. (And all of that is fossil fuel, while most Bitcoin energy consumption is from renewables.)
You could say that an 850-kg rhinoceros has a lot of weight and so does a lot of damage when it runs into things, and a 12-kg poodle also has a lot of weight, but there is a noticeable difference when they accidentally crash into your garage door.
> There are lots of things people like to do that use a lot of energy that I think are stupid. (...)
I don't understand what argument you tried to make. Other than a far fetched attempt at whattaboutism... Is bitcoin's astronomical power drain ok because some hypothetical person might drive a big car or goods are shipped with trucks? That does not follow. I mean, aren't there alternatives to bitcoin that have far lower energy needs? Why stick with absurd non-sequiturs to insist that bitcoin's astronomical power drain is somehow ok?
Look at it this way, if Bitcoin/crypto fails, then you have nothing to worry about, since they'll just go away and there will be no environmental concerns. In this scenario, you lose the 1% you invested.
If they succeed on the other hand at becoming world reserve currency, then that energy usage will be justified since it's replacing something that takes even more energy (current fiat system). In this scenario, your 1% investment has probably grown to be a much larger % of your portfolio.
I've never seen an energy consumption breakdown of what it takes to run the branches of the Federal Reserve or the Treasury. Do you have any primary source material on that?
The USA dollar is the settlement currency of the world. Which means you are really looking at the energy use of the Army/Navy/Air-force. If, in this hypothetical future, BTC became the settlement record.
War in Libya was initiated to prevent erosion of the US dollar as a world reserve currency among the other things. You are free to calculate how much energy went into it. I am sure there are more big energy consuming "contributions" in facilitating current financial system.
In my view, the energy cost of crypto is on top of the cost of the mainstream system. The mainstream system is what supports great ventures such as widespread energy distribution, manufacturing of computers, telecommunications, international shipping, and so forth. And it provides the goods and services that are worth spending bitcoins on.
Note I've had similar debates with my kids: "Why don't we just replace the entire economy and political system with X?"
> then that energy usage will be justified since it's replacing something that takes even more energy (current fiat system).
I really doubt that, at least with proof-of-work cryptocurrencies, since a competitive waste of resources is at the very core of their design (e.g. he who can waste the most, wins). The equivalent part of the fiat network is far more efficient (e.g. a basic money transfer probably takes as much power as a couple of HTTPS web requests to a dynamic website).
Conveniently ignoring how the exponentially increasing fiat supply incentivises pulling forward consumption from the future to be spent on unnecessary things today. Thereby massively misallocating investment in the world simply because people don't have a sound money which they can save for the future.
> Conveniently ignoring how the exponentially increasing fiat supply incentivises pulling forward consumption from the future to be spent on unnecessary things today.
Isn't that called keeping the economy going? There are people and physical capital that need something to do today. You can't save today's time for tomorrow, no matter what kind of money you have.
> Thereby massively misallocating investment in the world simply because people don't have a sound money which they can save for the future.
That sounds a lot like a depression, which probably wouldn't be too painful of an experience to the few people sitting on hoards of money, waiting for the choicest investment opportunities. Everyone else on the other hand...
>Isn't that called keeping the economy going? There are people and physical capital that need something to do today. You can't save today's time for tomorrow, no matter what kind of money you have.
Yes, saving is impossible. The shiny gold rock doesn't wither. It will be long there after your death.
A shiny rock isn't meaningfully different from fiat either. It's just a token that represents an entry in a ledger. That rock represents that someone else owes you a debt but that debt continues to exist after your death. The only way that debt can be repaid is if someone completely unrelated is born in the future and works to repay the debt of a long dead person. This can't work because that person also has to work for himself to pay for food and shelter. The only reason it works today is because population and productivity growth has exploded and can take care of that debt and even pay above and beyond the original debt.
The reason why fiat rots (inflation) is that the rest of the world rots as well. Gold is the exception, it doesn't rot, therefore it lets you pretend that the rest of the world doesn't rot.
This is wrong. First, there is no such thing as sound money.
Second, the problem with fiat is that people are saving too much to the point where we have underemployment and in some countries extreme amounts of youth unemployment.
The gold standard failed because the supply of gold was not growing fast enough. The constraints of money creation under a gold standard constrained the maximum size of the economy.
The underlying reasoning behind fiat is that money creation should be driven by demand so that the money supply grows with the economy. A good approximation is that private debt creation follows demand. A growing economy needs loans to finance expansion, therefore creating loans will ensure the money supply catches up with economic growth.
However, the obvious problem is that loans have to be paid back and paying back loans contracts the money supply. If the economy needs $4 trillion and growth ceases then we will actually fall short of the $4 trillion and we will enter deflation and deflation is a self reinforcing cycle that prevents further growth. We are running into the same problem as the gold standard. The money in circulation is not adjusting to the level needed for the economy. The private banking sector as the sole source of money simply isn't enough as it requires lowering the interest rates until you hit 0%. Without negative interest rates the system just stops there. This isn't surprising. Tally sticks [0] function the exact same way as fiat does. There isn't enough silver/gold in circulation so people create a ledger on top of it. When the ledger has served its purpose the two sticks (each representing credit and debit) are united and then destroyed together. A short term fall in growth doesn't imply that we have reached the end of growth. Ending the economy today is obviously a mistake.
What is needed is a secondary method of money issuance in the hand of the public. Direct issuance of money by the government generally suffers from discipline problems. Politicians just can't get enough money and when there is too much of it they refuse to stop, often there are legitimate reasons to not stop. What we'd need is an independent organization whose sole function is money issuance based on a macroeconomic measure that is important even if we don't have real growth right now.
Turns out, what the fiat system needs isn't real growth to begin with. It only needs nominal growth. That is, nominal growth caused by inflation is just as good as real growth as it still stimulates organic debt creation and therefore a demand driven increase in the money supply. As we are merely fighting off a contraction in the money supply, the destination of the issued money is not important, as long as it drives inflation. You can hand the money to unemployed people if that helps to drive inflation.
One unique difference between private banks and public government is that banks require you to return the money via monthly payments. Governments require you to return the money via taxation. This difference means that publicly issued money doesn't have to disappear on a schedule, it only has to disappear when there is too much of it, e.g. you are suffering from too high inflation. An inflation based tax policy could solve this problem.
If we went back to the gold standard we would run in the same not enough money for the economy problem except it would be even worse. Interest rates would have to be very negative. -10% interest probably wouldn't be an exaggeration but then people just withdraw their gold for risk free gains and we'd have no economy to speak of whatsoever.
He who wastes the most wins is not a description of the incentives in my opinion. Miners actually need to be efficient to win. It's why Bitcoin is driven by ASIC chips right now. They are on the cutting edge of computational efficiency and you may not realize, but have been driving technology quite a lot especially chip technogy and "computer programs directly to chip" tech. And guess how much potential energy consumption that saves. Think overclocking a 386 cpu to 1ghz vs chip tech today. Now imagine how ASIC design can potentially cut that even further for general purpose computing.
ASICs just shift energy costs from energy spent on mining to energy spent on making ASICs. The economics don't change. If the reward is $60k you must destroy $60k.
But what Im saying is the ASIC tech is applied to other chips not in the Bitcoin space making computing more efficient overall. This future savings dwarfs the current usage.
> But what Im saying is the ASIC tech is applied to other chips not in the Bitcoin space making computing more efficient overall. This future savings dwarfs the current usage.
Is the development of bitcoin ASICs actually driving any general purpose advances? My understanding is they were just applying existing advanced technology to Bitcoin. The idea of an ASIC isn't new, and Bitcoin mining is niche compared to other areas (e.g. cell phone processors, desktop CPUs & GPUs)
We are venturing on my opinions now but yes, the ASIC development is important in my opinion. It really is exercising the "pipeline" for computer programs baked directly into chips. It is the direction the industry is moving and why you see so much activity in the RISC-V space for example. This tech is the future for faster computing / more efficient computing. I am not actually sure though if tech like RISC-V is used today in the ASIC miners. I think I'll look into that.
This is goofy. The worldwide Bitcoin network uses about 12 GW, mostly renewable, because Bitcoin mining is unprofitable if it's using anything but the absolute cheapest electricity, and scalable renewable electricity is about a third the price of fossil-fuel electricity now, with the gap constantly widening. By comparison, China built 71.7 GW(p!) of new wind energy capacity last year, and the world economy uses 18000 GW.
Worrying about today's Bitcoin mining is as silly as worrying about plastic straws. Maybe in the future Bitcoin mining could become an environmental disaster, but today it's insignificant.
> The worldwide Bitcoin network uses about 12 GW, mostly renewable, because Bitcoin mining is unprofitable if it's using anything but the absolute cheapest electricity, and scalable renewable electricity is about a third the price of fossil-fuel electricity now, with the gap constantly widening.
If I'm following this right, the only evidence for Bitcoin being mostly based on renewable energy is because people believe it's uneconomical to not be renewable, and not based on any actual attempt to figure out what energy types are actually being used by large mining groups?
Because, especially when you compare across international countries, retail prices are only vaguely correlated with production prices. Many places subsidize the crap out of energy prices, and electricity in a subsidized place could well be much cheaper than in a non-subsidized place, even if the first plant is burning coal and other plant is using wind.
For some specific data points, I believe a large clutch of miners operated out of Inner Mongolia, whose electricity capacity increases in recent years has been dominated by coal-fired power plants (because it's a coal-rich region that doesn't give two whits about environmental effects). I'll also note that there was a story a few weeks back about a coal powered plant being recommissioned solely for mining bitcoin.
> If I'm following this right, the only evidence for Bitcoin being mostly based on renewable energy is because people believe it's uneconomical to not be renewable, and not based on any actual attempt to figure out what energy types are actually being used by large mining groups?
Nope, sounds like you didn't look at the references I linked at all. If you want to follow something right, try reading the references, or at least casually skimming them. https://coinshares.com/insights/beware-of-lazy-research-bitc... is one of the sources for the percentages cited in the Harvard Business Review article explaining their methodology (in 02018). It's the polar opposite of what you're saying.
It's also true that there are fundamental economic reasons that Bitcoin mining is mostly done with renewable energy; it's not just a weird coincidence. But it's not just a theoretical prediction.
> retail prices are only vaguely correlated with production prices. Many places subsidize the crap out of energy prices
Yeah, that does happen. Also, outright theft happens; the cheapest energy is energy that you steal. But it turns out that unprofitable subsidies and stolen energy aren't very scalable, because places where the government pays for most of the energy ① tend to have strict oversight of industrial-scale operations, ② don't generate much electricity in the first place, and ③ tend to consider entrepreneurs criminals by default because they increase wealth inequality, so they shut them down when they get found out. When Bitcoin mining (or, say, Litecoin mining) starts to scale up in such places, as it did here in Argentina some years back, the energy subsidies have a way of evaporating.
> I'll also note that there was a story a few weeks back about a coal powered plant being recommissioned solely for mining bitcoin
You're right that there are a variety of unusual circumstances that can make fossil-fueled Bitcoin mining profitable at small scales in one or another place, so it's easy to find anecdotes of it. But it's not the majority of the network.
> The worldwide Bitcoin network uses about 12 GW, mostly renewable, because Bitcoin mining is unprofitable if it's using anything but the absolute cheapest electricity
> Private-equity firm revives zombie fossil-fuel power plant to mine bitcoin
> Few bitcoin projects illustrate the cryptocurrency’s enormous climate impact better than the Greenidge power plant in upstate New York. The once-abandoned power plant was bought by private equity firm Atlas Holdings and retasked. A significant portion of Greenidge's electricity no longer powers nearby homes or businesses; rather, the plant's smokestacks are increasingly pouring pollutants into the atmosphere in the service of mining bitcoin.
> China’s Crypto Mining Crackdown Followed Deadly Coal Accidents
> China’s escalating push to rein in cryptocurrency mining was triggered in part by concern that the practice has stoked a surge in illicit coal extraction, endangering lives and undermining Xi Jinping’s ambitious environmental goals.
> Authorities decided to act after concluding the spike in electricity consumption from server farms underpinning Bitcoin and other tokens was a key factor behind rising demand for coal in certain parts of China, according to a person who participated in high-level government meetings on the issue and asked not to be identified discussing private information.
Yeah, if you steal your energy it can even be cheaper than any energy you have to pay for. But then you get "authorities deciding to act," which really limits your scalability.
I see both sides throw random facts and numbers around when it comes to energy consumption - so the truth is probably somewhere in between. It's an issue, and its gonna get better over time. So I'm less sure if it's really that big of a problem.
Just because I walked by a Chase bank right now... I mean, wouldn't it safe more energy if banks would start turning off their lights from 5pm to 8am and on weekends also?
The hypocrisy on this topic is unbelievable. I don't know what your portfolio looks like, but most people are happy to invest in blue chip stocks and indices that contain some of the worlds largest polluters, but, of course, as soon as they hear the word BTC, they cast judgement and throw the baby out with the bath water.
If you actually cared about the environment, you would be attempting to invest money into disruptive technologies like BTC that can move money away from traditional banks that have literally funded global corruption, wars, genocide and (surprise surprise), ecocide.
It makes no sense whatsoever and what it tells me is that you're just regurgitating the same dribble that you heard with no critical thought of your own
Why do people keep posting this? I have no idea where this meme came from. It's not even 1% of global energy consumption. Cryptocurrencies in general are absolutely not environmental disasters. I agree, bitcoin is a useless coin but it's not even close to having any real environmental impact.
Investment in environmental disasters? I'd suggest the developed world stop trading with China but we all know people can't live without cheap consumer products, including the computers we're using to post our opinions. How about we drop the USD instead? It's literally backed by petroleum and the US military. Hard to think of anything with a bigger environmental impact. It should be easy, right? Just quote petroleum prices in cryptocurrency. Simple... The hard part is surving the inevitable US invasion and destruction of your country.
> I’d estimate the price of BTC would likely increase by two orders of magnitude
I broadly agree that there's no great reason not to allocate 1-5% (I'd go higher on the range, depending on personal context) to crypto.
However there's no scenario where Bitcoin can increase in value by two orders of magnitude. Literally, there is no scenario that can actually occur that will get it there. You're talking about ~$75-$100 trillion in value depending on where Bitcoin is at in a given week or month.
You know what compares well to that? All the public stock holdings on planet Earth, which is just under that line.
Bitcoin is going to be worth more than every publicly traded company in existence, from the US to China and everything inbetween. Not a chance that can ever happen. The odds are zero.
The bond market is over 100 trillion. Why would people buy bonds returning low fixed interest rates in depreciating currencies if bitcoin with a fixed total supply becomes the global reserve currency?
Gold is currently at a 10 trillion dollar market cap, and is a pretty small part of the global financial system at this point.
The odds are absolutely not zero.
Yes, but gold was an awful reserve, which is why we got rid of it. Replacing it, now, with the benefit of hindsight, with a digital version of an awful reserve isn't a game plan.
I've read a fair share of Austrian Economics and they certainly don't believe that gold was an awful reserve. I have yet to hear a credible argument against the use of gold as a global reserve currency other than the fact that countries can cheat by lying about their reserves such as they did during WWI.
If you have reasoning to back your claim that gold was an awful reserve currency, I would love to hear it.
This is a common myth used to support a gold standard and it's wrong. Barter was rarely practiced because it is too impractical and theoretical. Ledgers and debt existed as soon as imbalanced trade existed.
Paying later is a form of debt. Paying too much is a form of debt. In tribal communities people simply kept the ledger in their head. Some of them used physical objects to remind them of their debts but that is not any different from writing numbers into a notebook.
Common ledgers were tally sticks [0]. You just take a long object and use a knife to mark how much debt you have. They even had a resurgence in medieval Europe because of a shortage of precious metal coins.
These are all good points and I agree with them, but I don’t understand where the quote came from and whether you are making a case for or against the gold standard.
Even if that’s true, the problem with fiat as reserve is that it basically acts as a curse on the country who shoulders that burden. Besides America, no other country is willing to step up to the plate.
Reserve status results in an artificially high bid on exchange rates, which decimates the export industries of the host country and results in perpetual trade deficits. The US is in a relatively unique position by being a big enough economy to absorb this impact, and by having an advanced enough financial system to sustain perpetual trade deficits by converting low yield liabilities to high yield assets.
But if for some reason or another the dollar loses reserve status, expect the central bank of any other contender to fight tooth and nail to protect their exchange rates. Just witness how the Swiss National Bank defended an arbitrary ceiling when global markets started piling en masse to the franc after the GFC. Or look at how China continuously manipulates a cheap yuan to keep exports competitive and its manufacturing based economy humming.
Without the dollar, the only long term sustainable fiat reserve I can imagine is something like the IMF SDRs. Basically the major currencies creating a basket weighted blend to make sure no single economy is burdened with reserve status.
I target about 2.5% of my portfolio to be crypto. Another 2.5% gold and silver.
It's kind of amusing and baffling watching all these people speak with such certainty and conviction. If crypto currencies collapse, meh, oh well. If they spike another order of magnitude, nice, I'll just sell to keep my allocation on target. Like you, it just seems prudent to have limited downside (ie a crypto collapse won't ruin you.. at all) but also having some exposure to big positive swings, and never basing ones hopes and dreams on it. Anyway, here's to enjoying the show.
Edit: when you disclose something like this, and people get viciously defensive about it, it usually means you're on course (see comments below).
There's an entire universe of things you can invest in. Picking crypto with no real thesis except one day the entire world may be transacting 7tx/sec isn't really a good one.
If you allocate 1% to every longshot you will be broke. Should I allocate 1% of my portfolio to Dentacoin in case dentists on the blockchain become the future of dental work?
Especially knowing that 80% of all trading volume is against Tether, which is 3% backed by money. 95% of all trading volume in the space is fictitious, according to an ETF that tried to list a few years ago.
Once again, lightning network is here and functional with growing adoption (1ml.com) and that's what they are using in El Salvador. LN can achieve almost instant and practically free Bitcoin payments.
Do they though? Because that's not really what I'm hearing.
Strike is, in the US, a custodial US dollar wallet. You give them dollars and they keep them as dollars. You send them to another person in the US and they just amend their internal ledger.
When you try and send them to El Salvador things go pear shaped. They:
(1) Buy Bitcoin with those dollars.
(2) Use a private LN network that they don't let anyone else onto because it made it totally un-workable according to their CEO.
(3) To send those Bitcoin between their own two accounts.
(4) And then buy Tether with them in El Salvador. You remember, the dollars that are actually 3% dollars.
Strike is somehow the absolute worst case for the people of El Salvador. Centralized, permissioned, censorable (it's not available in Hawaii or New York) and backed by Tether. Not a coin that's likely to have the money (USDC) but Tether, who admits they don't.
El Salvador by the way, is a dictatorship mandating their citizens use of Bitcoin.
Strike is the government sanctioned one, however, so saying options exist is a bit inconsequential. After all people on HN can barely keep abreast of why Tether is bad - I hardly expect the average Salvadoran. A government-endorsed Tether wallet is awful.
>(2) Use a private LN network that they don't let anyone else onto because it made it totally un-workable according to their CEO.
This is a strange statement to make. It still runs on the same LN network as everyone else, it's just that they won't peer with anyone. I wouldn't exactly call that a "private LN network" in the same way I wouldn't characterize verizon as operating a "private internet" because they don't have an open peering policy.
As for the bit about using tether, I wholeheartedly agree that something like USDC would be much more suited. The only explanation I can come up with is that USDC has orders of magnitude less volume than USDT. According to cryptowatch USDT has 24hr volume of 73.3B whereas USDC only has 0.60B.
Not sure why trading volume would matter, they can simply be an authorized participant of USDC. They after all are receiving real dollars.
[edit] Complete speculation, but if I had to guess, Tether's ability to create ersatz dollars is really important to the Salvadoran scheme. After all El Salvador cannot print currency, because it's a USD economy. I know someone who's got an unlimited wildcat money printer (and the reckless abandon to use it) - his name is Paolo.
If I were a criminal mastermind operating in plain sight with about $60B shortfall on my books due to counterfeiting, the best way I could think of to keep myself out of trouble would be to make a poor nation dependent on its continued existence. Literally too big to fail. Again, purely speculative.
Remember, frauds have to keep getting bigger out of necessity.
1. Bitcoin mining will eventually halvening away and all security will be funded by transaction fees.
2. Most transactions will move to the Lightning Network and be practically free.
As the LN will remove the need to pay fees with it combining so many transactions, the Bitcoin network will thus not be worth mining on, and will thus be able to be easily attacked. As the security of the network is diminished, it will quickly become worthless.
There will always be demand for on-chain transactions (for very large transfers, cold storage movements, batch opening/closing lightning channels, etc).
The 1MB limit makes it highly likely that there will always be a backlog of transactions even post reward world.
Understood. So even with the Lightning Network Bitcoin will not be able to keep up with the transactions and transacting in it will be extraordinarily expensive.
Currently block fees are 5% of the block reward. In 2024 when the next halvening occurs, either Bitcoin needs to double in price by then or the block fee will have to make up 45% of the gap, which is an increase in almost 10x, from $4.5/transaction to $40. If it fails to do this miners on the margin will stop mining and the security of the network will diminish.
You have an axe to grind, friend, and using hyperbole and warped quotations of what I said to take it out on someone whose net worth consists of 99%+ non-bitcoin, and 98% not crypto currency overall, is the wrong target.
By all means, continue grinding your axe if you really got to get it out, it's all very baffling and amusing.
I disagree with your bolstering the thesis that you should invest 1% or more of your portfolio in any given long-shot simply because you won't go broke if it went down. That's bad investment advice. Longshots aren't bad, but they should be backed by thesis.
Certainly when there's evidence of rampant market manipulation in your target asset class. That there's plenty of evidence for.
Primarily however, I'm responding to your counter that it's surprising people react with certainty. I'm saying I have evidence to back the claims I make. That's where my certainty comes from. I was offering citations.
Instead of arguing that it makes sense to invest 1% in every investment, what if the argument is that it makes sense to invest 1% in every investment that has outperformed every other investment class over the past 12 years of its existence? Historic performance isn’t the only indicator to consider but it is notable. Given that you have been wrong about it’s performance so consistently would you consider checking your assumptions?
> ... outperformed every other investment class over the past 12 years of its existence?
Because past performance isn't indicative of future performance. The XLF has dramatically outperformed Bitcoin in the last few months hasn't it? Really puts a damper on the "long bitcoin short banks" narrative.
> Given that you have been wrong about it’s performance so consistently would you consider checking your assumptions?
Who says I've been wrong about its performance?
I'm saying it's driven by fraud and manipulation. Frauds go up until they don't. I'm not confident in catching the top before the music stops. I don't think I've ever said the price is guaranteed to go down on any particular time horizon.
I’ll concede that if you are certain Bitcoin or Tether is a fraud that will likely blow up at any time, then no you shouldn’t put any allocation into Bitcoin.
I obviously don’t agree with your assessment but I am intellectually curious enough to want to understand where this conviction comes from.
Edited: to add Tether fraud risk, as I misinterpreted OPs comment to be about Bitcoin when it was actually about Tether.
I don't think Bitcoin is a fraud, after all 1BTC=1BTC. However, its price in USD is largely fictitious. 95% of all Bitcoin trading volume is fake according to Bitwise. [1]
Trading BTC is almost exclusively conducted not against USD but against USDT, on the order of 80%. [2]
Tether is by their own admission (or I should say pie chart) 3% backed by USD. [3] That 65% "commercial paper" would make them the second largest global holder of commercial paper after JP Morgan, but nobody on Wall Street has heard of them. By their own terms of service, they never have to redeem a single one for USD, on any timeline - not for you, not for anyone else - and even if they chose to out of good will, they could redeem it for any "backing" they so choose. [4]
Tether is, by and large, a fraudulent enterprise. [5]
So, my conviction is based on the idea that if $60B worth of dollars (not market cap, dollars) and 80% of trading volume against BTC is these chuck-e-cheese tokens - and they were to suddenly disintegrate, that yes, the market price would utterly collapse.
There are no good players in this space. Even Coinbase, widely regarded as the "best" of the exchanges, had to settle with the CFTC because at one point they allowed 99% of the entire Litecoin trading pair (globally) to exist as wash trading between two bots at Coinbase HQ. [6] That's the best of the best.
tl;dr: The market is overwhelmingly manipulated, wash traded, spoofed, and trading is conducted in a currency that's backed by chewing gum and baling twine.
btw, I think it's important to say I could be totally wrong on what - if any - impact this would have on the price in the future. I'm speculating; this is my thesis for not investing, but everyone has to of course make up their own minds.
> (...) what if the argument is that it makes sense to invest 1% in every investment that has outperformed every other investment class over the past 12 years of its existence?
Pray tell, how do you explain thaf fantastic performance of Bitcoin to those who bought in while it was at 54k and right now they look at the market and see btc at around 30k?
How does losing half the value fare against any conservative investment strategy?
We remind them that Bitcoin is volatile in the short term and then we ask them to zoom out.
We remind them how many times Bitcoin has been declared dead before. We remind them that that anyone who has held Bitcoin as a long term investment has made money.
Even today after the recent dip anyone who held for 12 months is up 300% y/y.
Did you even read article or just here to troll? All of your points (except for 1 about investing in everything, which is covered in the article) are FUD that have been debunked or addressed for years. Are you even in the software space, the whole point of software is to replace the limits physical world and now its possible with money, get excited!
It may be possible that Tether is a house of cards, it may not. But my question is, if you’re so sure, why aren’t you actively shorting Tether? It only costs a few percent a year, and you’ll net 97% when it eventually collapses to the 3% assets that you posit.
> Then the total value of the currency should be equal to the total value of all the wealth in the world.
These people flat out don't understand how currency works. They don't understand where it comes from, how it's created, how it's destroyed, or what gives it intrinsic value.
He made that prediction when Bitcoin was worth a big 0. Back then if you told anyone that one day it would achieve prices of 63k$ per coin, they would have told you you're just crazy, yet here we are. Let's see where we are in 10-20 years from now.
> I’d give this future a 1% of happening in the next 15 years.
This will never happen. Governments won’t allow loss of control and the planet can’t support it either. If Bitcoin is not banned in all western nations within 10 years I will be very surprised.
It doesn't matter what they will allow. What matters is what will happen.
Science fiction has explored the idea of transnational, nation-like organizations that have more real importance than an actual country. If nations reject bitcoin I suspect that is where we're going to go.
Fiction is an odd place to put the trust of your future wealth. Personally, I feel very confident that those who currently hold real power will end up on top. I.e. those with a powerful military and police force who are capable of enforcing actual change. Same as it ever was.
I think a ban is questionable and likely backfires for those in charge. Also banning based on what grounds? The US and many others see it as an investable asset.
Governments will likely start to buy/mine large amounts... that's seems more likely at this point.
I'd be surprised if the US government isn't doing this very soon (or has already)
I think the major argument against that is ethical. I wouldn't invest in something that has disastrous consequences on the environment, even if the expected returns are great.
Much of what passes for human industry is essentially just strip mining the planet of its natural resources. I’d recommend watching Sir David Attenborough’s A Life On Our Planet for a sobering view of the ecological footprint of non-Bitcoin human economic activity, which presumably you invest in one way or the other. Moving to a global deflationary economic system per Bitcoin would at least disincentivize the rampant consumerism destroying this planet via disincentivizing capital investment and spending.
Chances of Bitcoin being still around in 10 years and valued accordingly are a lot higher than 1%. The first 10 years were way more difficult and challenging. The market will chose, some governments will try to fight it, but its much easier for governments to stock up Bitcoin reserves and embrace it.
That’s rather uncharitable; the fallout would at least be similar to what would happen to the holders of SGD, NZD, DKK, and dozens of other currencies smaller than Bitcoin were they to implode.
There's no such thing as market cap of a currency - just circulating supply denominated in itself. Each of those economies would be devastated and left unable to conduct commerce. Bitcoin though? A handful of speculators.
I hold a decent amount of Eth for this reason, but I actually think the biggest risk to either Bitcoin or Eth as an investment asset is not that crypto will fail, but that it will succeed enough that enough that institutional crypto users are sophisticated enough to create altcoins (or just hard forks) for these kind of banking-reserve use-cases.
Market cap for crypto can go up by 100x but crypto overall could still be inflationary by adding new niche crypto asset classes.
> I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto.
The much larger than 1% probability of the current mainstream crypto being replaced by whatever new crypto is hyped in the future. Or the chance of "crypto" simply debasing itself out of existence with an infinite supply of new tokens.
> I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto.
sure if you like to gamble
> I know many here are stridently anti-crypto, but there is some not very likely but plausible future where Bitcoin or Ethereum become the global reserve asset. Much the same way gold was in the 19th century or IMF drawing rights have operated at certain points post Breton Woods.
not very plausible at all. As for a gold standard it was abandoned for good reason. You don't want a standard that is artificially limited and artificially limiting the economy, that's how you get a Great Depression
The answer is simpler than the article suggests: People who hoard precious metals or cryptocurrency have fallen for the financial-economic equivalent of Flat Earth propaganda, but unlike Flat Earth propaganda many people are not sufficiently literate in finance or economics to defend against such a destructive meme.
I feel like you’re being way too harsh on the people who buy gold and silver. The fact is both of those commodities do tend to hold onto their value very well over long stretches of time. Sure, investing in an index fund would have yielded more money but we only know that in hindsight. It’s not universally true that the stock market gets people the best returns. The fact is that gold and silver, while dumb and simple elements, will last longer than any company or government will. And there is some value in that. I don’t fault risk averse people for investing in scarce resources.
Well said. I don't have any gold in my portfolio but I don't begrudge people who do. The risk of ruin is pretty darn small, so even if you give up money versus an index fund, you're unlikely to lose much value over the long run.
Baffling that tech types here aren’t grasping digital money, basicaly a self custody PGP key with value, and instead defending the status quo with poorly researched FUD like layer 1 scaling limits, power usage, and fear of regulators!? You guys sound like Paul Krugman, meanwhile Tesla and MicroStrategy are taking all the trending bitcoins off the table… the only point I disagree with LynAlydn, who wrote a great article, is that Bitcoin doesn’t offer yield. You can get yield on Bitcoin by either loaning it out or staking in in the lightning network to collect fees for providing liquidity.
The reason is that this is a societal and economical issue, beyond tech.
American education is not helping either, like most people don't know about Austrian economics for instance - which is kind of a background you need to have been exposed to, to have in depth discussions that go beyond the typical posts you get on forums.
Yeah, we're not teaching people that Austrian economics doesn't work so they end up getting redpilled into thinking it's some kind of secret awesome suppressed knowledge.
It's interesting because it seems that democratizing money is what we should be good at based on founding principles - rather we have bunch of flawed central planning disasters and bailouts.
> Under a system with hard money and free banking we would instead have occasional emergent disasters and nothing could be done about them.
And my understanding is that such disasters used to happen with some regularity, but they weren't wars so people don't typically learn about them in school.
That would be natural selection, which might be preferable in a free market. Small constant corrections, rather than larger distasters we experienced the last 50-100 years (bailouts and going to war every 10-12 years)
It would arguable allow people to safe their wealth rather than being forced to spend money all the time.
Here is a thought experiment. The current fiat system requires negative interest rates. Austrian economics doesn't believe in the existence of negative interest rates as a result of market forces. If there is a central bank in the world that introduces negative interest rates on bank accounts and cash (via serial numbers) and it works, then Austrian economics is completely wrong not in just this aspect but wrong about fiat currency in its entirety.
They would have to acknowledge that:
* negative interest rates are necessary
* austerity and permanent saving don't work
* moderate inflation is necessary for a functioning economy
* central banks are doing a good job managing the economy
Plenty of people grasp digital cash but (1) they don't want cash and (2) current cryptocurrencies aren't good digital cash. And most people don't want (digital) gold either.
> In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive
I can't believe policymakers have the gall to even consider substantially negative interest rates. That is just beyond f*** up. Proposing shit like that is a big part of the reason why people believe in crypto - these idiots can decide to steal the returns of your past labor with zero accountability or democratic process behind it.
As much as I dislike Bitcoin, this kind of stuff really just pisses me off so much. This dissatisfaction with central banks is the heart of why people believe in crypto. All my life, I've struggled and worked incredibly hard to build financial security - who the hell are they to take it away without my permission?
We just wake up one day and find cryptic IMF papers about this shit and are expected to shut up and deal with it? Maybe 5% of people even understand what negative interest rates would mean, 5% of those are even aware that they are being considered as policy objectives. Central bank fucks just aren't getting the message - this is about a failure of democracy. Where is the messaging about this? Where is my chance to vote or debate on whether we should do this? Who put them in charge?
Everyone who is excited about central bank controlled "digital money" - please take some to consider the policy implications. It's not just new and better technology - the tech is cool but unimportant. It is a serious and irreversible shift of power towards even more undemocratic systems.
I think your vitriol is misplaced; the whole point of a negative interest rate is to stimulate the economy, i.e. increase the value of your investments, which presumably would be good for someone who has built financial security. Suppose for example that a -4% rate spurs a 1% economic boost - that would only be bad for you if you keep more than 20% of your wealth sitting around in your checking account.
I'm not saying it would work, as in successfully grow the economy, necessarily. Not my area, and it'd depend on the country and the recession and so forth. Just saying, the "central bank fucks" who toyed with this idea were trying to make people money, not take it away.
Valuations of everything are so high they make little sense. In this situation, yes holding cash is bad, but it doesn't exactly feel safe holding superinflated assets. What will happen when interest rates rise? How long are we going to keep inflating stocks and houses 2x in a year?
My overall problem is that it makes the entire process of preserving money a time consuming and scary game of predicting what the central bank will do and hoarding assets. We are forced to play that pointless game, when really that is what a simple bank savings account should do. Preserving (not growing) money shouldn't be so complicated.
> How long are we going to keep inflating stocks and houses 2x in a year?
Totally agree, there are things about modern fiscal policy that seem scary and weird! But that is pretty much unrelated to...
> We are forced to play that pointless game, when really that is what a simple bank savings account should do.
I don't think is true. Granted, savings accounts used to have higher returns, but inflation was higher then. It has never been possible to preserve money (i.e. beat inflation) with no risk, nor to grow money without more risk; it's just that the specific investments look different nowadays.
Anyway, to put it bluntly, the goal of central bank planners is not to preserve your savings, it's to grow the economy. And what happens if mid-to-upper people get spooked by a recession, and move assets in to cash? That's deflationary, which prolongs the recession! So if low interest rates make you think, "Gah, I'd like to pile up cash in a savings account, but these bankers are forcing me to go invest it", well, guilty as charged, yes that's exactly what they're trying to do. But I don't think it follows that they're mean jerks, or that they're doing their jobs wrong.
Yes one of the central banks mandates is maximum employment. But I don't believe people prefer sitting around not working to good jobs. The problem is the majority of jobs pay bad wages, provide little meaning and no agency. Central banks want to bully people into working anyways, but some of us have had enough of that bullshit. If they want more employment then employers should provide jobs worth doing rather than forcing it on people via inflation. Besides the fact that we've had 100 years of incredible technological progress and increasing productivity but somehow that doesn't translate to fewer jobs or lower working hours or better safety nets or anything?
You say the banks want us to invest our money, but buying a house or stock just to store wealth is not an investment in any meaningful sense. Yet, people do that because they have no alternative to store wealth and no clarity on when the banks will decide to double the amount of money overnight. So at best they have implemented a policy without considering the most basic second order effects. True investment is making something better, faster, cheaper, new etc. and their tactic of just making saving more and more difficult and making people's lives more precarious is not going to achieve that. That would take education, messaging, community, and perhaps weaning off a growth addicted policy/society.
I don't really know what you're on about here, man. You don't want to work, but you don't want to invest your capital either? You want to keep your money in cash and not lose it, but you also don't want the low interest rates that minimize inflation? This is a mish-mash of non-sequiters.
I'm not sure why you want hoarding cash to be viable, other than the vague general idea that that's how the world ought to work. Well, you're right, it's not viable - but there is no villain responsible, that's just a feature of healthy economies. If you imagine a world in which it were, and then imagine what would happen when everyone did it, it may become clear why.
Fair enough, thanks for engaging. I like work and get why hoarding is a problem, but it's just a little scary to think about what happens 30-40 years down the line when it's my turn to retire. Hoarding is bad but with no social safety nets it's also necessary in a sense to secure your future.
Investment is necessary but I feel there are very few real investments or they are very time consuming to find - AAPL did not suddenly become worth 2x in a year, that's only a result of people rushing into AAPL. True investment is a full time job, that very few people are good at, and I don't have the time to take on another full time job in addition to my current job just to maintain a sense of safety that i won't be homeless when I'm old or incapable for whatever reason.
I don't know what you mean by "real investments" - it sounds like you're saying that since you don't know how to do it perfectly (e.g. buy a stock because you have some insight or have done some research that convinces you it will go up tomorrow), you won't do it at all. Finding an investment that outperforms other investments, yeah, that's hard. But you don't need to do that, you just need to beat inflation. Just put a little away in something relatively safe (your employer's 401k or an index fund perhaps) every month and ignore it. That's what 95% of the middle class does.
If that's odious to you, if "relatively low risk" is too risky, you might consider some kind of annuity. One popular type is called Whole Life Insurance. Basically, you pay a set amount in each year for X years while you're working, and then when you retire they pay you back a set amount every month until you die. Some people consider them a ripoff, because you could (probably) make more by investing in the market yourself, but if you are adamantly opposed to the market, it's an option.
But, be aware that some Whole Life policies are much worse than others, and all of them are sold by pushy salespeople with slick suits and fancy cars who will happily goad you into signing something that's not right for you. There is absolutely no scenario where you get a safe, assured retirement without doing some work for it. But in practice that means few hours of research every few years, not a full time job. Good luck.
Actually, this is a failure of private bank issuance of money. If you don't let the government issue money you get shrinking interest and when interest hits 0% the economy has to end as people hoard money and eventually return it to where it came from, namely the private banks.
The reason issuing money via gold backing was a mistake is also the reason why issuing money exclusively via debt was a mistake. We can't generate enough debt so that the money supply keeps up to what the economy wants. When you have negative interest rates, the government can issue money via a pseudo public method that doesn't depend on endless growth. The benefit is that if governments issue too much money inflation will catch up and so will interest rates, which then stops issuance of money exactly when there is too much money in the economy.
In other words, your money becomes "complete". It can recover from every recession/depression and moderate every inflation boom back to sustainable levels. Central bank managed fiat has an extremely good track record against inflation, it just needs the same power against deflation.
Just look at Turkey, Erdogan took control over the central bank and things went to shit. Democratic control isn't what you want here.
The article's premise is that people want to buy gold and Bitcoin because they are both stores of value and they're bearer assets, which means that you don't need a third party to store them for you.
That seems... somewhat suspect as an explanation, given that most people who have substantial holdings in either store them with a third party. I think that there's not much in common between most current gold holders (who are looking to hedge against drops in other markets), and current crypto holders, who are often speculators,hoping for big returns on investment.
But many people shouting this, they bought at levels below 5k for btcusd. Then it retains purchasing power fine. I am going to say we will see below 5k again within 2 years though, so you can have another chance to get purchasing power for btc yourself.
Yeah, and it went all the way up to 60k+ in about the same time. People who bought the top in 2017 have literally doubled their money. I wonder how much purchasing power bitcoin holders will have 10 years from now.
It’s over 40k, so either you don’t have access to real time data or you are trying to paint a picture that you prefer to believe. You can’t expect zero volatility in a new money while its being adopted. It’s the only fixed supply money in a world that’s printing paper like crazy, where do you think that trends trends to?
They want to own them until they suddenly don't and the price plunges. We saw this in May 2021 with bitcoin. And with gold in 2011-2014, etc.. Silver in 2011. Everyone thought Bitcoin would keep going up due to stimulus spending, stimulus checks, and inflation, and when whoosh 40% lower. By the time you buy gold as a hedge, it is often too late..a lot of inflation is already priced in.
This is the way. From what I read, it's really, really hard to time the market, and often, not even that lucrative. One of the best strategies seems to be to go against human nature, and be patient, consistent, and to stick to a plan over a long time.
Yeah and I get that lots of people don't feel like parking 15% of their savings in something that's not really yielding. But it keeps the heartburn away :)
I totally agree. I have no idea what's happened to the stock market over the past week and I'm at peace with that. If the market goes up, I have more money. If the market goes down, it means I'm getting a better deal with my per-paycheck investment transactions. I recently finished When Genius Failed, which is a great book that further convinced me to stick with my lazy approach.
Same strategy works with bitcoin. Put 15% in it and just keep it. On the next bull run it will become >90% of your wealth. Really no need to scale it back to 15% then unless you need this kind of money.
Wow, that's a lot of gold. I prefer something akin to the 60/40 approach. Then again I'm decades away from retiring. I might become more conservative as the day I start needing that money draws near.
> By the time you buy gold as a hedge, it is often too late..a lot of inflation is already priced in.
If by "hedge" you mean a hedge against inflation, it seems to be of questionable utility:
> Gold objects have existed for thousands of years but for many investors gold has only recently become a tradable investment opportunity. Gold has been described as an inflation hedge, a “golden constant”, with a long run real return of zero. Yet over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average. Given this situation is it time to explore “this time is different” rationalizations? We show that new mined supply is surprisingly unresponsive to prices. In addition, authoritative estimates suggest that about three quarters of the achievable world supply of gold has already been mined. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. As a result investors in gold face a daunting dilemma: 1) embrace a view that “those who cannot remember the past are condemned to repeat it”, there is a “golden constant” and the purchasing power of gold is likely to fall or 2) embrace a view that “this time is different” and the “golden constant” is dead.
> To recap, gold is not a productive asset. It has a real expected return of 0. That is, based on history, it might keep pace with inflation over a millennium, but that’s probably way longer than most people want to wait. Even as a safe haven based on its low correlation with other assets, gold falls short in a portfolio due to its non-existent real expected return. Finally, while gold’s purchasing power is unaffected by inflation, that does not mean it will maintain its purchasing power in the face of inflation. This calls into question its ability to hedge against extreme currency events.
Not that you’re wrong, but I know a lot of people with substantial holdings all of them self-custody. (I personally think it’s crazy and companies like anchorage have a good market to serve.)
The way I see it even you have crypto in your own wallet, you don't have self custody. Cryptocurrencies are consensus protocols that require a network to operate if the network goes down, you can't transact in them making your holdings useless.
Doesn't that describe literally every financial asset? After all, a piece of paper or a yellow rock only has value because other people are willing to give you goods in exchange for it.
Partially. I have a hard time getting excited about blockchain as the solution to everything because of the issue GP points out. I took a blockchain dev course on Coursera out of curiosity and realized just how fragile some of these projects can be. Bitcoin is more resilient than most for a number of reasons, but it still relies on an outside network more than me selling my house or a chunk of pretty rock.
Indian individuals have more gold stashed under their beds than then USA gold reserves. Mostly jewelry. It's a tremendous drag on their nations productivity. But hard to argue with given their history. They are by far the largest single source of gold demand.
> The article's premise is that people want to buy gold and Bitcoin because they are both stores of value and they're bearer assets, which means that you don't need a third party to store them for you.
> That seems... somewhat suspect as an explanation […]
It's a perfectly reasonable explanation, but it begs the question as to why people want to hold an asset (class) with those properties in the first place.
For that you probably need a psychologist more than an economist.
"Some societies are more collectivist or individualistic than others, and then within those societies, various members range across a spectrum of how much they trust the system.
I think a big portion of one’s perception on this topic of gold or bitcoin is shaped by life experiences or disposition. Growing up in a smooth environment where things just “work”, with no major currency failures or oppressive regimes, leads one to trust institutions more. They are fine with the concept of centralization, and giving up certain rights in exchange for certain conveniences."
That's the paradox of Bitcoin. Boosters talk about how you can disintermediate the entire financial system, which admittedly sounds pretty cool. Except if you want to live on Bitcoin, you end up working with institutions that look an awful lot like traditional financial corporations. So what's the day-to-day advantage?
I'm a strong cryptoskeptic, but this is the most convincing argument for enduring relevance that I've seen yet.
Nevertheless, I'm going to wait for Tether to blow up first before I get back in, because there's $63B worth of funny money propping up the current valuation.
Over the past century, the strongest currencies, like the Swiss franc and US dollar, lost over 95% of their value. The average currency lost more than that, like around 98-99%. The worst currencies lost 100% of their value.
This only applies to foreign currencies relative to the US dollar, not the dollar itself given that the dollar is considered the universal, global unit of wealth. It's like saying that a 1kg weights .3k on mars. A kg is a kg anywhere. What she means to say is that "the US dollar has lost its purchasing power due to inflation" which she does later but still misleading. But this still it not quite the same as saying the dollar lost its value. The nice thing about owning dollars is even in spite of loss of purchasing power due to CPI, you have no forex risk. Foreign currencies not only losing purchasing power due to inflation but also due to falling against the US dollar.
And for longer-term savings instruments, here is a chart of the inflation-adjusted forward annualized rate of return of buying 10-year Treasury notes that year and holding them to maturity. You can see the three decades where bondholders got massacred, because the underlying dollars were devalued. During those times, anyone who bought Treasuries and held to maturity received annualized real returns of as low as -4% or -5% during the full duration of the note.
Again, all she did was cherry pick two bad periods. Over the past 100 years, 10-year bonds have tended to produce positive real returns.
Bitcoin and gold are popular but this does not make them good investments or a good hedge against inflation. Beanie babies were popular too. Overall, stocks have proven to be the best hedge against inflation. The S&P 500 has gained more than enough this year to overcome all inflation. Compare the charts of the total S&P 500 , nasdaq, or DJIA with any other asset class and stocks tend to win hands-down with few exceptions between.
Central banks never held beanie baby reserves, whereas thousands of tons of gold are held among central bank reserves. Why do you suppose they hold it?
It is the remnant of pre-fiat money era when foreign trade was settled via specie flows. Although it was no longer possible for individuals to show up at the Fed and demand some gold for the dollar, it was still possible for nations to do that under the Bretton Woords system setup by Keynes to manage postwar international trade. When France demanded a large gold shipment from the U.S. to settle accounts, Nixon exited Bretton Woods agreement.
However that lack of convertability still left central banks with lots of Gold reserves that were no longer required to clear trade deficits, so they mostly sat on them. Some central banks decided to sell some of their gold and others bought some, but it is now basically another asset (like Beanie Babies) although gold lasts a lot longer and is more durable, and central banks have spent 100 years collecting it prior to the end of Bretton Woods.
Fun Fact: Many people still think that foreign trade is settled via specie flows, which is why they get all confused about how the US will "pay back" China, when of course China has already been paid (in dollars) and those dollars are not convertible to anything else. If China wants to, for example, use those dollars to retire its own RMB debt, it will need to sell those dollars for something like oil on the international commodity markets, and then sell the oil to its own people for their RMB, and then use those RMB to retire their own bonds. But of course China does not rely on anyone else to supply it with RMB anymore than the US relies on China to supply it with dollars. Once you take settlement of specie flows out of the mix, there is little reason to hold dollars other than sentimentality for the old metallic era.
A kg of gold is a kg of gold anywhere. So yes if you want to know the value of a currency you need to compare it to something else, USD not being an exception.
,,The U.S. dollar was originally defined under a bimetallic standard of 371.25 grains (24.057 g) fine silver or, from 1837, 23.22 grains (1.505 g) fine gold, or $20.67 per troy ounce''.
The definition of the US dollar changed over time, but according to how it was defined originally, it lost 99% of its value.
Exactly. This is why Eth has a wildly superior value proposition than pretty much any other coin, because it drives a useful blockchain ecosystem and isn’t just another stagnant store of value…
Unfortunately, ETH, while definitely better, still makes the same deflationary mistake. The ETH money supply growth is still effectively a negative interest rate since economies grow much much faster than their ever-shrinking coin generation.
It is the reason gas prices are choking Ethereum economic activity.
> The winning crypto, one day, will be the one that DOES NOT make you rich.
Well said! I bailed on Bitcoin in 2017 when I started seeing breathless coverage on CNBC. Once the speculators get out, cryptocurrencies could become very powerful. Unfortunately, I don't see that happening any time soon. Crypto needs to become boring before it can become useful.
The last time the Dutch government issued a few billion in bonds it took the market 10 seconds to buy them all up.
If you want safe and boring I wouldn't bet on bitcoin I'd bet on Northern Europe.
All currencies are supposed to infinitely lose value, gradually over time, in order to encourage labor to continue. So, yeah, they’re all supposed to lose “100%” of their value, except that’s a weird way to quantify the value of currencies because to claim a percentage of it has been lost is an absolute measure, and not a relative one.
If you said a currency lost 4% of its value year-over-year that would be high, sure. If you said a currency lost 25% of its value… so what? Relative to what? That’s not an important measurement.
Cryptocurrencies are popular because “the sucker’s going up.” If they didn’t, they’d be little more interesting than PayPal transactions.
> If they didn’t, they’d be little more interesting than PayPal transactions.
I'd be a lot more excited about Bitcoin if it were that boring. If the speculators got out, it could be a viable payment method for everyday purchases. I bailed on Bitcoin in 2017 and didn't look back.
I disagree with your statement that all currencies are 'supposed' to be devalued. That is the conventional wisdom, but I've found no facts this is necessary. A deflationary currency may encourage some people to save instead of spend, and that will contract parts of the economy, but it is also more sustainable over the long run. I don't want to be 'encouraged' to buy a bunch of stuff I don't need, including being forced to invest in overpriced assets like stocks and real estate, simply because my currency is constantly losing value.
I don't think you understand. It naturally happens as people create money (debt) to purchase things on their own volition. If people seek goods and services, debt will exist, and money supply will grow, devaluing the currency naturally. The only way you can avoid this is with a fixed money supply (e.g. the gold standard.)
And when you fix the money supply, the owners of capital, versus a central bank, control the effective market average interest rate. Thats absolutely not a world you want to live in.
I'm not sure why you assume people will always take on debt for purchases. I've never taken on debt to purchase anything, not once in my life, and I'm doing just fine. I own everything I use. I have my own business and never had to take out a loan. My wife runs her own business without ever having taken a loan.
I don't know if I necessarily disagree with you about a fixed money supply being bad, but I don't think you provided enough information for me to agree with you either. With a fixed money supply, the FED would be less able to 'manage' the economy, but I think this being bad stems from your argument about money creation and debt.
There are other ways for the FED to manage the money supply that have fallen out of favor as they aren't 'free market' enough, like credit/window guidance. That was formally implemented in Japan and led to their most prosperous era, all the way up until incompetence / malfeasance ruined their economy with lending quotas that had to be met, causing their asset bubble in the 1980s. Window guidance also works as an informal/cultural mechanism in Germany and is one of the reasons for their industrial success.
The article addresses one key aspect in fiat that is parallel to gold: inflation - gold being 1-2% (in par with population growth), fiat 2-4% - while one preserves value, the other expands it, by fueling production.
I have read a lot about crypto recently, and yet the community cannot answer this: How do you account for the global population growth (and consequently GDP growth) that is constantly in need for a relatively stable exchange medium for value of goods produced?
More people > more production > more money.
Money is a tool to fuel production. Controlled devaluation fuels growth, AS LONG as it is backed by actual production - counter this with popular examples quoted: Germany (WWII), Venezuela, Greece, Argentina, etc. dramatically devalued their currency WITHOUT an increase in production.
The problem with any limited supply is that it benefits and incentivizes hoarders and non-producers, having nonbeneficial effects for society as a whole.
Please provide information that help answer this question, I am still researching.
> The problem with any limited supply is that it benefits and incentivizes hoarders and non-producers, having nonbeneficial effects for society as a whole.
Hoarding of what? Don't you need money to buy gold / bitcoin?
191 comments
[ 3.1 ms ] story [ 228 ms ] threadI know many here are stridently anti-crypto, but there is some not very likely but plausible future where Bitcoin or Ethereum become the global reserve asset. Much the same way gold was in the 19th century or IMF drawing rights have operated at certain points post Breton Woods.
This is entirely different than the scalability limits that stand in the way of Bitcoin becoming a consumer currency. In this future, only major central banks and financial institutions would hold physical Bitcoin. Consumers would use either Bitcoin backed scrip issued by a bank. Or fiat currency where global confidence largely stems from the central bank’s BTC reserves.
I’d give this future a 1% of happening in the next 15 years. And conditional on it occurring, I’d estimate the price of BTC would likely increase by two orders of magnitude. From a pure expected value standpoint that makes crypto one of the most compelling asset classes around.
crypto, especially bitcoin, is an intentional environmental disaster. I don't want to invest 1% of my money into an intentional environmental disaster.
Did you mean to say "international environmental disaster"? I don't know in which way it's intentional that Bitcoin destroys the environment. The damage seems incidental.
So, now we're at two things I don't do because they're bad for the environment.
We’re opining about a system that finally, for the first time in the history of man, might accurately price the cost of the electricity consumed to power the system.
It’s pretty mind boggling but that’s the internet for you.
If, for example, it were possible to create steel alloy in a way that took 1% less energy or made less waste (and thus was presumably cheaper at scale), the trucks would use this slightly more efficient steel.
On the other hand, Bitcoin relies on wasting a certain monetary value of energy for the security of the network. Its waste is adversarial. If we manage to produce 2x the electricity tomorrow and it becomes significantly cheaper, that just means a 51% attack also became much cheaper so people need to waste even more energy mining.
I can't think of any other uses of energy offhand that so actively resist any improvements. I can think of other intentional forms of waste (like dumping toxic waste, "rolling coal", etc), but I can't think of any that are aligned such that making upstream production of a resource more efficient then requires producing even more waste and environmental damage.
Bitcoin mining does respond to market pressure, if the price goes down, or you wait until the subsidy halves, there will be less incentive to mine.
It's not like energy use in the world has gone down. If it's cheaper or more efficient it will go up or at best stay the same. Bitcoin has made the transition to more efficient ASICs because that increases profits, it just didn't result in less energy use because now you make more profit.
I don't think you can neglect the price of a new ASIC in a real situation though, those things are very expensive. Where it was first possible to attack the network using regular hardware, it now requires a much bigger capital investment. When ASICs were first released they had a bigger advantage than they have now, it seems unlikely a 2x improvement over the previous generation is still possible (assuming it was possible before, I didn't check).
Right, I'm not saying there will be a new ASIC; just that there will be no innovation in the Bitcoin space (unless they switch out of PoW) that leads to less energy being used.
I agree about cleaning the inputs, but I think the parallelism implicit in your phrasing is misleading.
Bitcoin uses about 12 GW. https://www.eia.gov/outlooks/ieo/pdf/transportation.pdf says freight trucks use 23% of global transportation energy use, which seems to be about 110 quads/year (figure 8-2), so that's 25 quads/year or about 850 GW. (And all of that is fossil fuel, while most Bitcoin energy consumption is from renewables.)
You could say that an 850-kg rhinoceros has a lot of weight and so does a lot of damage when it runs into things, and a 12-kg poodle also has a lot of weight, but there is a noticeable difference when they accidentally crash into your garage door.
I don't understand what argument you tried to make. Other than a far fetched attempt at whattaboutism... Is bitcoin's astronomical power drain ok because some hypothetical person might drive a big car or goods are shipped with trucks? That does not follow. I mean, aren't there alternatives to bitcoin that have far lower energy needs? Why stick with absurd non-sequiturs to insist that bitcoin's astronomical power drain is somehow ok?
If they succeed on the other hand at becoming world reserve currency, then that energy usage will be justified since it's replacing something that takes even more energy (current fiat system). In this scenario, your 1% investment has probably grown to be a much larger % of your portfolio.
(a) the energy of the Army/Navy/Air-force supports nothing other than US currency
(b) no force would be necessary to back compliance with entries in a crypto ledger
Note I've had similar debates with my kids: "Why don't we just replace the entire economy and political system with X?"
I really doubt that, at least with proof-of-work cryptocurrencies, since a competitive waste of resources is at the very core of their design (e.g. he who can waste the most, wins). The equivalent part of the fiat network is far more efficient (e.g. a basic money transfer probably takes as much power as a couple of HTTPS web requests to a dynamic website).
Isn't that called keeping the economy going? There are people and physical capital that need something to do today. You can't save today's time for tomorrow, no matter what kind of money you have.
> Thereby massively misallocating investment in the world simply because people don't have a sound money which they can save for the future.
That sounds a lot like a depression, which probably wouldn't be too painful of an experience to the few people sitting on hoards of money, waiting for the choicest investment opportunities. Everyone else on the other hand...
Yes, saving is impossible. The shiny gold rock doesn't wither. It will be long there after your death.
A shiny rock isn't meaningfully different from fiat either. It's just a token that represents an entry in a ledger. That rock represents that someone else owes you a debt but that debt continues to exist after your death. The only way that debt can be repaid is if someone completely unrelated is born in the future and works to repay the debt of a long dead person. This can't work because that person also has to work for himself to pay for food and shelter. The only reason it works today is because population and productivity growth has exploded and can take care of that debt and even pay above and beyond the original debt.
The reason why fiat rots (inflation) is that the rest of the world rots as well. Gold is the exception, it doesn't rot, therefore it lets you pretend that the rest of the world doesn't rot.
Second, the problem with fiat is that people are saving too much to the point where we have underemployment and in some countries extreme amounts of youth unemployment.
The gold standard failed because the supply of gold was not growing fast enough. The constraints of money creation under a gold standard constrained the maximum size of the economy.
The underlying reasoning behind fiat is that money creation should be driven by demand so that the money supply grows with the economy. A good approximation is that private debt creation follows demand. A growing economy needs loans to finance expansion, therefore creating loans will ensure the money supply catches up with economic growth.
However, the obvious problem is that loans have to be paid back and paying back loans contracts the money supply. If the economy needs $4 trillion and growth ceases then we will actually fall short of the $4 trillion and we will enter deflation and deflation is a self reinforcing cycle that prevents further growth. We are running into the same problem as the gold standard. The money in circulation is not adjusting to the level needed for the economy. The private banking sector as the sole source of money simply isn't enough as it requires lowering the interest rates until you hit 0%. Without negative interest rates the system just stops there. This isn't surprising. Tally sticks [0] function the exact same way as fiat does. There isn't enough silver/gold in circulation so people create a ledger on top of it. When the ledger has served its purpose the two sticks (each representing credit and debit) are united and then destroyed together. A short term fall in growth doesn't imply that we have reached the end of growth. Ending the economy today is obviously a mistake.
What is needed is a secondary method of money issuance in the hand of the public. Direct issuance of money by the government generally suffers from discipline problems. Politicians just can't get enough money and when there is too much of it they refuse to stop, often there are legitimate reasons to not stop. What we'd need is an independent organization whose sole function is money issuance based on a macroeconomic measure that is important even if we don't have real growth right now.
Turns out, what the fiat system needs isn't real growth to begin with. It only needs nominal growth. That is, nominal growth caused by inflation is just as good as real growth as it still stimulates organic debt creation and therefore a demand driven increase in the money supply. As we are merely fighting off a contraction in the money supply, the destination of the issued money is not important, as long as it drives inflation. You can hand the money to unemployed people if that helps to drive inflation.
One unique difference between private banks and public government is that banks require you to return the money via monthly payments. Governments require you to return the money via taxation. This difference means that publicly issued money doesn't have to disappear on a schedule, it only has to disappear when there is too much of it, e.g. you are suffering from too high inflation. An inflation based tax policy could solve this problem.
If we went back to the gold standard we would run in the same not enough money for the economy problem except it would be even worse. Interest rates would have to be very negative. -10% interest probably wouldn't be an exaggeration but then people just withdraw their gold for risk free gains and we'd have no economy to speak of whatsoever.
[0] https://en.wikipedia.org/wiki/Tally_stick
How does the lighting network obviate the need for mining, which is the deliberately wasteful part?
Is the development of bitcoin ASICs actually driving any general purpose advances? My understanding is they were just applying existing advanced technology to Bitcoin. The idea of an ASIC isn't new, and Bitcoin mining is niche compared to other areas (e.g. cell phone processors, desktop CPUs & GPUs)
Worrying about today's Bitcoin mining is as silly as worrying about plastic straws. Maybe in the future Bitcoin mining could become an environmental disaster, but today it's insignificant.
Further details in https://news.ycombinator.com/item?id=27449443 and https://hbr.org/2021/05/how-much-energy-does-bitcoin-actuall....
If I'm following this right, the only evidence for Bitcoin being mostly based on renewable energy is because people believe it's uneconomical to not be renewable, and not based on any actual attempt to figure out what energy types are actually being used by large mining groups?
Because, especially when you compare across international countries, retail prices are only vaguely correlated with production prices. Many places subsidize the crap out of energy prices, and electricity in a subsidized place could well be much cheaper than in a non-subsidized place, even if the first plant is burning coal and other plant is using wind.
For some specific data points, I believe a large clutch of miners operated out of Inner Mongolia, whose electricity capacity increases in recent years has been dominated by coal-fired power plants (because it's a coal-rich region that doesn't give two whits about environmental effects). I'll also note that there was a story a few weeks back about a coal powered plant being recommissioned solely for mining bitcoin.
Nope, sounds like you didn't look at the references I linked at all. If you want to follow something right, try reading the references, or at least casually skimming them. https://coinshares.com/insights/beware-of-lazy-research-bitc... is one of the sources for the percentages cited in the Harvard Business Review article explaining their methodology (in 02018). It's the polar opposite of what you're saying.
It's also true that there are fundamental economic reasons that Bitcoin mining is mostly done with renewable energy; it's not just a weird coincidence. But it's not just a theoretical prediction.
> retail prices are only vaguely correlated with production prices. Many places subsidize the crap out of energy prices
Yeah, that does happen. Also, outright theft happens; the cheapest energy is energy that you steal. But it turns out that unprofitable subsidies and stolen energy aren't very scalable, because places where the government pays for most of the energy ① tend to have strict oversight of industrial-scale operations, ② don't generate much electricity in the first place, and ③ tend to consider entrepreneurs criminals by default because they increase wealth inequality, so they shut them down when they get found out. When Bitcoin mining (or, say, Litecoin mining) starts to scale up in such places, as it did here in Argentina some years back, the energy subsidies have a way of evaporating.
> I'll also note that there was a story a few weeks back about a coal powered plant being recommissioned solely for mining bitcoin
No, that was gas; my comments on it are https://news.ycombinator.com/item?id=27450889.
You're right that there are a variety of unusual circumstances that can make fossil-fueled Bitcoin mining profitable at small scales in one or another place, so it's easy to find anecdotes of it. But it's not the majority of the network.
Really now?
https://arstechnica.com/tech-policy/2021/05/private-equity-f...:
> Private-equity firm revives zombie fossil-fuel power plant to mine bitcoin
> Few bitcoin projects illustrate the cryptocurrency’s enormous climate impact better than the Greenidge power plant in upstate New York. The once-abandoned power plant was bought by private equity firm Atlas Holdings and retasked. A significant portion of Greenidge's electricity no longer powers nearby homes or businesses; rather, the plant's smokestacks are increasingly pouring pollutants into the atmosphere in the service of mining bitcoin.
https://www.bloomberg.com/news/articles/2021-05-26/china-s-c...:
> China’s Crypto Mining Crackdown Followed Deadly Coal Accidents
> China’s escalating push to rein in cryptocurrency mining was triggered in part by concern that the practice has stoked a surge in illicit coal extraction, endangering lives and undermining Xi Jinping’s ambitious environmental goals.
> Authorities decided to act after concluding the spike in electricity consumption from server farms underpinning Bitcoin and other tokens was a key factor behind rising demand for coal in certain parts of China, according to a person who participated in high-level government meetings on the issue and asked not to be identified discussing private information.
Yeah, my comments on this are at https://news.ycombinator.com/item?id=27450889. Either they're dumb or they're pulling some scam I'm not wise to.
> illicit coal extraction
Yeah, if you steal your energy it can even be cheaper than any energy you have to pay for. But then you get "authorities deciding to act," which really limits your scalability.
Just because I walked by a Chase bank right now... I mean, wouldn't it safe more energy if banks would start turning off their lights from 5pm to 8am and on weekends also?
If you actually cared about the environment, you would be attempting to invest money into disruptive technologies like BTC that can move money away from traditional banks that have literally funded global corruption, wars, genocide and (surprise surprise), ecocide.
It makes no sense whatsoever and what it tells me is that you're just regurgitating the same dribble that you heard with no critical thought of your own
Investment in environmental disasters? I'd suggest the developed world stop trading with China but we all know people can't live without cheap consumer products, including the computers we're using to post our opinions. How about we drop the USD instead? It's literally backed by petroleum and the US military. Hard to think of anything with a bigger environmental impact. It should be easy, right? Just quote petroleum prices in cryptocurrency. Simple... The hard part is surving the inevitable US invasion and destruction of your country.
I broadly agree that there's no great reason not to allocate 1-5% (I'd go higher on the range, depending on personal context) to crypto.
However there's no scenario where Bitcoin can increase in value by two orders of magnitude. Literally, there is no scenario that can actually occur that will get it there. You're talking about ~$75-$100 trillion in value depending on where Bitcoin is at in a given week or month.
You know what compares well to that? All the public stock holdings on planet Earth, which is just under that line.
Bitcoin is going to be worth more than every publicly traded company in existence, from the US to China and everything inbetween. Not a chance that can ever happen. The odds are zero.
If you have reasoning to back your claim that gold was an awful reserve currency, I would love to hear it.
Have you read a fair share of other schools of Economics, or did you just focus on Austrian?
Here is former Fed chair Alan Greenspan’s bullish case for the Gold standard for example [1]
[1] http://www.altavra.com/docs/thirdparty/gold-and-economic-fre...
This is a common myth used to support a gold standard and it's wrong. Barter was rarely practiced because it is too impractical and theoretical. Ledgers and debt existed as soon as imbalanced trade existed.
Paying later is a form of debt. Paying too much is a form of debt. In tribal communities people simply kept the ledger in their head. Some of them used physical objects to remind them of their debts but that is not any different from writing numbers into a notebook.
Common ledgers were tally sticks [0]. You just take a long object and use a knife to mark how much debt you have. They even had a resurgence in medieval Europe because of a shortage of precious metal coins.
[0] https://en.wikipedia.org/wiki/Tally_stick
Reserve status results in an artificially high bid on exchange rates, which decimates the export industries of the host country and results in perpetual trade deficits. The US is in a relatively unique position by being a big enough economy to absorb this impact, and by having an advanced enough financial system to sustain perpetual trade deficits by converting low yield liabilities to high yield assets.
But if for some reason or another the dollar loses reserve status, expect the central bank of any other contender to fight tooth and nail to protect their exchange rates. Just witness how the Swiss National Bank defended an arbitrary ceiling when global markets started piling en masse to the franc after the GFC. Or look at how China continuously manipulates a cheap yuan to keep exports competitive and its manufacturing based economy humming.
Without the dollar, the only long term sustainable fiat reserve I can imagine is something like the IMF SDRs. Basically the major currencies creating a basket weighted blend to make sure no single economy is burdened with reserve status.
It's kind of amusing and baffling watching all these people speak with such certainty and conviction. If crypto currencies collapse, meh, oh well. If they spike another order of magnitude, nice, I'll just sell to keep my allocation on target. Like you, it just seems prudent to have limited downside (ie a crypto collapse won't ruin you.. at all) but also having some exposure to big positive swings, and never basing ones hopes and dreams on it. Anyway, here's to enjoying the show.
Edit: when you disclose something like this, and people get viciously defensive about it, it usually means you're on course (see comments below).
If you allocate 1% to every longshot you will be broke. Should I allocate 1% of my portfolio to Dentacoin in case dentists on the blockchain become the future of dental work?
Especially knowing that 80% of all trading volume is against Tether, which is 3% backed by money. 95% of all trading volume in the space is fictitious, according to an ETF that tried to list a few years ago.
Strike is, in the US, a custodial US dollar wallet. You give them dollars and they keep them as dollars. You send them to another person in the US and they just amend their internal ledger.
When you try and send them to El Salvador things go pear shaped. They:
(1) Buy Bitcoin with those dollars.
(2) Use a private LN network that they don't let anyone else onto because it made it totally un-workable according to their CEO.
(3) To send those Bitcoin between their own two accounts.
(4) And then buy Tether with them in El Salvador. You remember, the dollars that are actually 3% dollars.
Strike is somehow the absolute worst case for the people of El Salvador. Centralized, permissioned, censorable (it's not available in Hawaii or New York) and backed by Tether. Not a coin that's likely to have the money (USDC) but Tether, who admits they don't.
El Salvador by the way, is a dictatorship mandating their citizens use of Bitcoin.
Where's the win exactly?
[1] https://davidgerard.co.uk/blockchain/2021/06/11/el-salvador-...
This is a strange statement to make. It still runs on the same LN network as everyone else, it's just that they won't peer with anyone. I wouldn't exactly call that a "private LN network" in the same way I wouldn't characterize verizon as operating a "private internet" because they don't have an open peering policy.
As for the bit about using tether, I wholeheartedly agree that something like USDC would be much more suited. The only explanation I can come up with is that USDC has orders of magnitude less volume than USDT. According to cryptowatch USDT has 24hr volume of 73.3B whereas USDC only has 0.60B.
[edit] Complete speculation, but if I had to guess, Tether's ability to create ersatz dollars is really important to the Salvadoran scheme. After all El Salvador cannot print currency, because it's a USD economy. I know someone who's got an unlimited wildcat money printer (and the reckless abandon to use it) - his name is Paolo.
If I were a criminal mastermind operating in plain sight with about $60B shortfall on my books due to counterfeiting, the best way I could think of to keep myself out of trouble would be to make a poor nation dependent on its continued existence. Literally too big to fail. Again, purely speculative.
Remember, frauds have to keep getting bigger out of necessity.
1. Bitcoin mining will eventually halvening away and all security will be funded by transaction fees.
2. Most transactions will move to the Lightning Network and be practically free.
As the LN will remove the need to pay fees with it combining so many transactions, the Bitcoin network will thus not be worth mining on, and will thus be able to be easily attacked. As the security of the network is diminished, it will quickly become worthless.
I don't see how this works long-term.
The 1MB limit makes it highly likely that there will always be a backlog of transactions even post reward world.
Currently block fees are 5% of the block reward. In 2024 when the next halvening occurs, either Bitcoin needs to double in price by then or the block fee will have to make up 45% of the gap, which is an increase in almost 10x, from $4.5/transaction to $40. If it fails to do this miners on the margin will stop mining and the security of the network will diminish.
By all means, continue grinding your axe if you really got to get it out, it's all very baffling and amusing.
I disagree with your bolstering the thesis that you should invest 1% or more of your portfolio in any given long-shot simply because you won't go broke if it went down. That's bad investment advice. Longshots aren't bad, but they should be backed by thesis.
Certainly when there's evidence of rampant market manipulation in your target asset class. That there's plenty of evidence for.
Primarily however, I'm responding to your counter that it's surprising people react with certainty. I'm saying I have evidence to back the claims I make. That's where my certainty comes from. I was offering citations.
Because past performance isn't indicative of future performance. The XLF has dramatically outperformed Bitcoin in the last few months hasn't it? Really puts a damper on the "long bitcoin short banks" narrative.
> Given that you have been wrong about it’s performance so consistently would you consider checking your assumptions?
Who says I've been wrong about its performance?
I'm saying it's driven by fraud and manipulation. Frauds go up until they don't. I'm not confident in catching the top before the music stops. I don't think I've ever said the price is guaranteed to go down on any particular time horizon.
I obviously don’t agree with your assessment but I am intellectually curious enough to want to understand where this conviction comes from.
Edited: to add Tether fraud risk, as I misinterpreted OPs comment to be about Bitcoin when it was actually about Tether.
Trading BTC is almost exclusively conducted not against USD but against USDT, on the order of 80%. [2]
Tether is by their own admission (or I should say pie chart) 3% backed by USD. [3] That 65% "commercial paper" would make them the second largest global holder of commercial paper after JP Morgan, but nobody on Wall Street has heard of them. By their own terms of service, they never have to redeem a single one for USD, on any timeline - not for you, not for anyone else - and even if they chose to out of good will, they could redeem it for any "backing" they so choose. [4]
Tether is, by and large, a fraudulent enterprise. [5]
So, my conviction is based on the idea that if $60B worth of dollars (not market cap, dollars) and 80% of trading volume against BTC is these chuck-e-cheese tokens - and they were to suddenly disintegrate, that yes, the market price would utterly collapse.
There are no good players in this space. Even Coinbase, widely regarded as the "best" of the exchanges, had to settle with the CFTC because at one point they allowed 99% of the entire Litecoin trading pair (globally) to exist as wash trading between two bots at Coinbase HQ. [6] That's the best of the best.
tl;dr: The market is overwhelmingly manipulated, wash traded, spoofed, and trading is conducted in a currency that's backed by chewing gum and baling twine.
[1] https://cointelegraph.com/news/bitwise-calls-out-to-sec-95-o...
[2] https://coinlib.io/coin/BTC/Bitcoin
[3] https://davidgerard.co.uk/blockchain/2021/05/13/tether-publi...
[4] https://tether.to/legal/ section (3)
[5] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...
[6] https://www.cftc.gov/PressRoom/PressReleases/8369-21
I thank you for the links. I will look into them further.
Pray tell, how do you explain thaf fantastic performance of Bitcoin to those who bought in while it was at 54k and right now they look at the market and see btc at around 30k?
How does losing half the value fare against any conservative investment strategy?
We remind them how many times Bitcoin has been declared dead before. We remind them that that anyone who has held Bitcoin as a long term investment has made money.
Even today after the recent dip anyone who held for 12 months is up 300% y/y.
If in doubt zoom out.
This isn’t a great heuristic. It green lights every high-gain proposal, irrespective of the risks, actual rewards and odds of success.
1: https://twitter.com/DocumentingBTC/status/136350447853262438...
These people flat out don't understand how currency works. They don't understand where it comes from, how it's created, how it's destroyed, or what gives it intrinsic value.
This will never happen. Governments won’t allow loss of control and the planet can’t support it either. If Bitcoin is not banned in all western nations within 10 years I will be very surprised.
Science fiction has explored the idea of transnational, nation-like organizations that have more real importance than an actual country. If nations reject bitcoin I suspect that is where we're going to go.
Governments will likely start to buy/mine large amounts... that's seems more likely at this point.
I'd be surprised if the US government isn't doing this very soon (or has already)
Bitcoin now is basically too big to fail.
That phrase, are you really going to use that without a /s ?
[1]: https://fiatmarketcap.com/
Market cap for crypto can go up by 100x but crypto overall could still be inflationary by adding new niche crypto asset classes.
The much larger than 1% probability of the current mainstream crypto being replaced by whatever new crypto is hyped in the future. Or the chance of "crypto" simply debasing itself out of existence with an infinite supply of new tokens.
sure if you like to gamble
> I know many here are stridently anti-crypto, but there is some not very likely but plausible future where Bitcoin or Ethereum become the global reserve asset. Much the same way gold was in the 19th century or IMF drawing rights have operated at certain points post Breton Woods.
not very plausible at all. As for a gold standard it was abandoned for good reason. You don't want a standard that is artificially limited and artificially limiting the economy, that's how you get a Great Depression
As an aside, the S&P 500 is down since 1970 as measured in gold [1].
[1]: http://pricedingold.com/sp-500/
I hope someday I would have the domain knowledge of something to write like the author
- they already trust the government and their institutions and don't see the need for it,
- they hear all the FUD and don't want/have time to research further,
- maybe some feeling of having missed out (especially for those that knew about it very early on or sold it for very cheap),
- seeing some "stupid loud mouths" who yolo'd and made a lot of money in it.
It's very interesting to see.
Strange given that most americans don't trust their government (https://www.pewresearch.org/politics/2021/05/17/public-trust...) Maybe trust in government is correlated with how well you're doing, and techies tend to be doing very well?
American education is not helping either, like most people don't know about Austrian economics for instance - which is kind of a background you need to have been exposed to, to have in depth discussions that go beyond the typical posts you get on forums.
And my understanding is that such disasters used to happen with some regularity, but they weren't wars so people don't typically learn about them in school.
It would arguable allow people to safe their wealth rather than being forced to spend money all the time.
They would have to acknowledge that:
* negative interest rates are necessary
* austerity and permanent saving don't work
* moderate inflation is necessary for a functioning economy
* central banks are doing a good job managing the economy
I can't believe policymakers have the gall to even consider substantially negative interest rates. That is just beyond f*** up. Proposing shit like that is a big part of the reason why people believe in crypto - these idiots can decide to steal the returns of your past labor with zero accountability or democratic process behind it.
As much as I dislike Bitcoin, this kind of stuff really just pisses me off so much. This dissatisfaction with central banks is the heart of why people believe in crypto. All my life, I've struggled and worked incredibly hard to build financial security - who the hell are they to take it away without my permission?
We just wake up one day and find cryptic IMF papers about this shit and are expected to shut up and deal with it? Maybe 5% of people even understand what negative interest rates would mean, 5% of those are even aware that they are being considered as policy objectives. Central bank fucks just aren't getting the message - this is about a failure of democracy. Where is the messaging about this? Where is my chance to vote or debate on whether we should do this? Who put them in charge?
Everyone who is excited about central bank controlled "digital money" - please take some to consider the policy implications. It's not just new and better technology - the tech is cool but unimportant. It is a serious and irreversible shift of power towards even more undemocratic systems.
I'm not saying it would work, as in successfully grow the economy, necessarily. Not my area, and it'd depend on the country and the recession and so forth. Just saying, the "central bank fucks" who toyed with this idea were trying to make people money, not take it away.
My overall problem is that it makes the entire process of preserving money a time consuming and scary game of predicting what the central bank will do and hoarding assets. We are forced to play that pointless game, when really that is what a simple bank savings account should do. Preserving (not growing) money shouldn't be so complicated.
Totally agree, there are things about modern fiscal policy that seem scary and weird! But that is pretty much unrelated to...
> We are forced to play that pointless game, when really that is what a simple bank savings account should do.
I don't think is true. Granted, savings accounts used to have higher returns, but inflation was higher then. It has never been possible to preserve money (i.e. beat inflation) with no risk, nor to grow money without more risk; it's just that the specific investments look different nowadays.
Anyway, to put it bluntly, the goal of central bank planners is not to preserve your savings, it's to grow the economy. And what happens if mid-to-upper people get spooked by a recession, and move assets in to cash? That's deflationary, which prolongs the recession! So if low interest rates make you think, "Gah, I'd like to pile up cash in a savings account, but these bankers are forcing me to go invest it", well, guilty as charged, yes that's exactly what they're trying to do. But I don't think it follows that they're mean jerks, or that they're doing their jobs wrong.
You say the banks want us to invest our money, but buying a house or stock just to store wealth is not an investment in any meaningful sense. Yet, people do that because they have no alternative to store wealth and no clarity on when the banks will decide to double the amount of money overnight. So at best they have implemented a policy without considering the most basic second order effects. True investment is making something better, faster, cheaper, new etc. and their tactic of just making saving more and more difficult and making people's lives more precarious is not going to achieve that. That would take education, messaging, community, and perhaps weaning off a growth addicted policy/society.
I'm not sure why you want hoarding cash to be viable, other than the vague general idea that that's how the world ought to work. Well, you're right, it's not viable - but there is no villain responsible, that's just a feature of healthy economies. If you imagine a world in which it were, and then imagine what would happen when everyone did it, it may become clear why.
Investment is necessary but I feel there are very few real investments or they are very time consuming to find - AAPL did not suddenly become worth 2x in a year, that's only a result of people rushing into AAPL. True investment is a full time job, that very few people are good at, and I don't have the time to take on another full time job in addition to my current job just to maintain a sense of safety that i won't be homeless when I'm old or incapable for whatever reason.
If that's odious to you, if "relatively low risk" is too risky, you might consider some kind of annuity. One popular type is called Whole Life Insurance. Basically, you pay a set amount in each year for X years while you're working, and then when you retire they pay you back a set amount every month until you die. Some people consider them a ripoff, because you could (probably) make more by investing in the market yourself, but if you are adamantly opposed to the market, it's an option.
But, be aware that some Whole Life policies are much worse than others, and all of them are sold by pushy salespeople with slick suits and fancy cars who will happily goad you into signing something that's not right for you. There is absolutely no scenario where you get a safe, assured retirement without doing some work for it. But in practice that means few hours of research every few years, not a full time job. Good luck.
What happens when I'm trying to save for a down-payment and the savings depreciates by -4% and house prices rise by 10%?
The reason issuing money via gold backing was a mistake is also the reason why issuing money exclusively via debt was a mistake. We can't generate enough debt so that the money supply keeps up to what the economy wants. When you have negative interest rates, the government can issue money via a pseudo public method that doesn't depend on endless growth. The benefit is that if governments issue too much money inflation will catch up and so will interest rates, which then stops issuance of money exactly when there is too much money in the economy.
In other words, your money becomes "complete". It can recover from every recession/depression and moderate every inflation boom back to sustainable levels. Central bank managed fiat has an extremely good track record against inflation, it just needs the same power against deflation.
Just look at Turkey, Erdogan took control over the central bank and things went to shit. Democratic control isn't what you want here.
That seems... somewhat suspect as an explanation, given that most people who have substantial holdings in either store them with a third party. I think that there's not much in common between most current gold holders (who are looking to hedge against drops in other markets), and current crypto holders, who are often speculators,hoping for big returns on investment.
Bitcoin retains purchasing power? Better than money?
Can you explain? In what real-world scenario does Bitcoin have stable purchasing power?
Bitcoin market price tanked from 54k to 29k a few weeks ago, and currently is still around 30k.
That's not exactly what I would call retaining purchasing power.
No, not really. In fact, today it's still lingering around 32k.
Regardless, it seems you inadvertedly tried to make the case that indeed Bitcoin is highly volatile and does not work at all as a store of value.
I just pick a percentage and keep that as gold in my portfolio. Trying to time it, just makes me nervous. I think I keep around 15 percent or so.
If by "hedge" you mean a hedge against inflation, it seems to be of questionable utility:
> Gold objects have existed for thousands of years but for many investors gold has only recently become a tradable investment opportunity. Gold has been described as an inflation hedge, a “golden constant”, with a long run real return of zero. Yet over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average. Given this situation is it time to explore “this time is different” rationalizations? We show that new mined supply is surprisingly unresponsive to prices. In addition, authoritative estimates suggest that about three quarters of the achievable world supply of gold has already been mined. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. As a result investors in gold face a daunting dilemma: 1) embrace a view that “those who cannot remember the past are condemned to repeat it”, there is a “golden constant” and the purchasing power of gold is likely to fall or 2) embrace a view that “this time is different” and the “golden constant” is dead.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2078535
TL; DR:
> To recap, gold is not a productive asset. It has a real expected return of 0. That is, based on history, it might keep pace with inflation over a millennium, but that’s probably way longer than most people want to wait. Even as a safe haven based on its low correlation with other assets, gold falls short in a portfolio due to its non-existent real expected return. Finally, while gold’s purchasing power is unaffected by inflation, that does not mean it will maintain its purchasing power in the face of inflation. This calls into question its ability to hedge against extreme currency events.
* https://www.pwlcapital.com/will-gold-save-the-day/
Doesn't it make it more like self custody if you are virtually guaranteed that network will stay alive?
> That seems... somewhat suspect as an explanation […]
It's a perfectly reasonable explanation, but it begs the question as to why people want to hold an asset (class) with those properties in the first place.
For that you probably need a psychologist more than an economist.
"Some societies are more collectivist or individualistic than others, and then within those societies, various members range across a spectrum of how much they trust the system.
I think a big portion of one’s perception on this topic of gold or bitcoin is shaped by life experiences or disposition. Growing up in a smooth environment where things just “work”, with no major currency failures or oppressive regimes, leads one to trust institutions more. They are fine with the concept of centralization, and giving up certain rights in exchange for certain conveniences."
Nevertheless, I'm going to wait for Tether to blow up first before I get back in, because there's $63B worth of funny money propping up the current valuation.
This only applies to foreign currencies relative to the US dollar, not the dollar itself given that the dollar is considered the universal, global unit of wealth. It's like saying that a 1kg weights .3k on mars. A kg is a kg anywhere. What she means to say is that "the US dollar has lost its purchasing power due to inflation" which she does later but still misleading. But this still it not quite the same as saying the dollar lost its value. The nice thing about owning dollars is even in spite of loss of purchasing power due to CPI, you have no forex risk. Foreign currencies not only losing purchasing power due to inflation but also due to falling against the US dollar.
And for longer-term savings instruments, here is a chart of the inflation-adjusted forward annualized rate of return of buying 10-year Treasury notes that year and holding them to maturity. You can see the three decades where bondholders got massacred, because the underlying dollars were devalued. During those times, anyone who bought Treasuries and held to maturity received annualized real returns of as low as -4% or -5% during the full duration of the note.
Again, all she did was cherry pick two bad periods. Over the past 100 years, 10-year bonds have tended to produce positive real returns.
Bitcoin and gold are popular but this does not make them good investments or a good hedge against inflation. Beanie babies were popular too. Overall, stocks have proven to be the best hedge against inflation. The S&P 500 has gained more than enough this year to overcome all inflation. Compare the charts of the total S&P 500 , nasdaq, or DJIA with any other asset class and stocks tend to win hands-down with few exceptions between.
However that lack of convertability still left central banks with lots of Gold reserves that were no longer required to clear trade deficits, so they mostly sat on them. Some central banks decided to sell some of their gold and others bought some, but it is now basically another asset (like Beanie Babies) although gold lasts a lot longer and is more durable, and central banks have spent 100 years collecting it prior to the end of Bretton Woods.
For more info, see https://www.imf.org/external/about/histend.htm
Fun Fact: Many people still think that foreign trade is settled via specie flows, which is why they get all confused about how the US will "pay back" China, when of course China has already been paid (in dollars) and those dollars are not convertible to anything else. If China wants to, for example, use those dollars to retire its own RMB debt, it will need to sell those dollars for something like oil on the international commodity markets, and then sell the oil to its own people for their RMB, and then use those RMB to retire their own bonds. But of course China does not rely on anyone else to supply it with RMB anymore than the US relies on China to supply it with dollars. Once you take settlement of specie flows out of the mix, there is little reason to hold dollars other than sentimentality for the old metallic era.
The definition of the US dollar changed over time, but according to how it was defined originally, it lost 99% of its value.
If you want a long-term hold of value - buy some sort of asset that has utility beyond it's trading value.
This is the key thing 99.9% of the crypto community does not understand.
The winning crypto, one day, will be the one that DOES NOT make you rich.
It is the reason gas prices are choking Ethereum economic activity.
Well said! I bailed on Bitcoin in 2017 when I started seeing breathless coverage on CNBC. Once the speculators get out, cryptocurrencies could become very powerful. Unfortunately, I don't see that happening any time soon. Crypto needs to become boring before it can become useful.
> If you want a long-term hold of value - buy some sort of asset that has utility beyond it's trading value.
That's the definition of gold.
If you said a currency lost 4% of its value year-over-year that would be high, sure. If you said a currency lost 25% of its value… so what? Relative to what? That’s not an important measurement.
Cryptocurrencies are popular because “the sucker’s going up.” If they didn’t, they’d be little more interesting than PayPal transactions.
I'd be a lot more excited about Bitcoin if it were that boring. If the speculators got out, it could be a viable payment method for everyday purchases. I bailed on Bitcoin in 2017 and didn't look back.
And when you fix the money supply, the owners of capital, versus a central bank, control the effective market average interest rate. Thats absolutely not a world you want to live in.
I don't know if I necessarily disagree with you about a fixed money supply being bad, but I don't think you provided enough information for me to agree with you either. With a fixed money supply, the FED would be less able to 'manage' the economy, but I think this being bad stems from your argument about money creation and debt.
There are other ways for the FED to manage the money supply that have fallen out of favor as they aren't 'free market' enough, like credit/window guidance. That was formally implemented in Japan and led to their most prosperous era, all the way up until incompetence / malfeasance ruined their economy with lending quotas that had to be met, causing their asset bubble in the 1980s. Window guidance also works as an informal/cultural mechanism in Germany and is one of the reasons for their industrial success.
I have read a lot about crypto recently, and yet the community cannot answer this: How do you account for the global population growth (and consequently GDP growth) that is constantly in need for a relatively stable exchange medium for value of goods produced?
More people > more production > more money.
Money is a tool to fuel production. Controlled devaluation fuels growth, AS LONG as it is backed by actual production - counter this with popular examples quoted: Germany (WWII), Venezuela, Greece, Argentina, etc. dramatically devalued their currency WITHOUT an increase in production.
The problem with any limited supply is that it benefits and incentivizes hoarders and non-producers, having nonbeneficial effects for society as a whole.
Please provide information that help answer this question, I am still researching.
Which is the argument that FED is doing right now. See M1: https://fred.stlouisfed.org/series/M1SL and think of this, is the US that much more productive?
> The problem with any limited supply is that it benefits and incentivizes hoarders and non-producers, having nonbeneficial effects for society as a whole.
Hoarding of what? Don't you need money to buy gold / bitcoin?