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At least the author has a new argument I haven't seen before. 1) Gresham's law: bad money drives out good 2) Bitcoin is good money (deflationary, holds its va

At least the author has a new argument I haven't seen before. 1) Gresham's law: bad money drives out good 2) Bitcoin is good money (deflationary, holds its value) 3) National currencies are bad money (inflationary) 4) People prefer to "hoard" good bitcoin and spend bad national currencies (So far, so good) 5) Therefore, since people prefer to own bitcoin, it has zero value (Not every new argument has to make sense, I guess.)

colejohnson66 9y ago
Couldn’t that same argument apply to the stock market? People prefer holding on to stocks, but every once in a while will cash out on their increase?
- sharemywin 9y ago
  especially growth stocks that don't pay dividends.
- emodendroket 9y ago
  Nobody is talking about replacing United States dollars with stocks, are they?
SilasX 9y ago
Gresham's law is specifically about the case where people are required to treat the two moneys as equal when one has a higher real value; if they're just different goods with no parity requirement, the effect doesn't happen. (People casually refer to "bad money driving out good" whenever smart investors abandon bad markets, but that's a different dynamic from Gresham's Law proper.)
alexasmyths 9y ago
What you are referring to as 'good money' , most people would call 'stupid money'. It's a stupid idea to run a country with a fixed amount of currency - as the economy expands, more currency is needed - either that - or all prices of everything need to adjust because the 'stupid currency' is fixed. A 'well managed' currency is better than a fixed supply. Of course - the 'existential risk' is that some political cowboy will 'print money' for political reasons - this is the great problem that fiat always faces. But this can be avoided. Most major currencies are very well managed. Also - remember that they are backed by actual assets - so money is not coming out of nowhere. Almost all Euros are backed by some kind of quality asset. It's very rational to allow entities to 'trade' some kind of asset for currency at the central bank. This is actually more 'free market' than any kind of fixed currency. National currencies - irrespective of the quality of their governance, fixed or not - are extremely useful to everyone. They 'spend' that currency because it's what's used to buy stuff. Household expenditures: mortgage/rent, electricity, groceries, insurance, gas, car payments, cable/internet. Can you use BTC for any of that. Pragmatically - No. BTC is 'pragmatically worthless' to anyone - it has no reason to exist. BTC is very useful to money launderers, tax evaders, and other people doing illicit things, it's a great currency for the black market. But beyond that, it serves no purpose. It's not a currency and it's a terrible store of value as compared to any of real-estate, gold, most commodities, a 'basked of bonds of equities' or a 'basket of currencies'. It's a great intellectual exercise, and I think the 'paper value' of BTC will remain quite high for some time, but unless it sinks in as an actual currency of some economy (say, African nations where the currency is garbage), in the long-long-long run there's no reason for it to maintain it's value.
- addHocker 9y ago
  > all prices of everything need to adjust because the 'stupid currency' is fixed. Thats a price system like at the gas station, right? Sounds good to me.
  - alexasmyths 9y ago
    You're right, prices to change. But 'monetary policy' is a very valuable instrument, in fact, necessary in many occasions, such as deep recession, economic shock, or war.
- dreit1 9y ago
  When will the bitcoin haters finally realize that bitcoin is terrible for illicit transactions. The transactions is recorded forever...on a public ledger...and any money in or out of your address is traceable
  - emodendroket 9y ago
    Anonymity is about the only selling point for BTC transactions that I could ever see the appeal of from a buyer's perspective.
    - dreit1 9y ago
      Most interesting aspect to me is the deflationary aspect. Savers in today's society get punished. If you don't want to buy lot's of stuff and instead want to achieve financial freedom, then Bitcoin can be a viable alternative. Additionally I work abroad, once I realized how much is was going to cost me to send my salary back home using the traditional banking system, I quickly became a bitcoin enthusiast
      - alexasmyths 9y ago
        "Savers in today's society get punished" No. You can earn the same as inflation in a risk-free investment. You can earn more by taking a small amount of risk. Savers are not punished for anything.
aqsheehy 9y ago
Spot the libertarian
captainmuon 9y ago
I wouldn't say bitcoin holds its value. It is a hot potato, and in my opinion the most rational thing is to trade them immediately away (for other currency, darknet goods) once you hold bitcoin. Sure, the price has been going up like crazy, and you might hold on to them to go "to the moon". But if it crashes, the value can go to zero - bitcoin has no "intrinsic value" unlike gold, its value is only defined by what you can get for it. In that sense, yes, it definitely has a non-zero value now. But it might crash, be outlawed, etc. tomorrow and you can loose everything. (Another point is that "value" is notoriously ill-defined. Price? Trade value? Use value? Something else?)
- phyller 9y ago
  Good points about bitcoin, but really that holds true of everything. I don't understand why gold always gets a pass here, everyone assumes it has some magic intrinsic value. But the same rule applies. It's worth what other people are willing to give you for it. I'd wager that the value of a fresh loaf of bread has held its value more consistently than an ounce of gold over 10 years. The only advantages gold has over bitcoin is that gold has some useful chemical properties (which probably have little to do with its current price) and it has a lot longer history as being used as currency, which I think is the real reason we value gold today. It is valued because it is valued.
  - travmatt 9y ago
    IIRC correctly gold has been a popular currency because it has properties that allow it to fulfill the functions of a currency quite easily - it's uniform size and weight and overall geographic availability lend nicely to being a unit of account, while its natural scarcity lends itself to being a store of value, and its durability lends itself to both its unit of account and store of value functions. It's also worth noting that the volatility of gold production has historically played against its function as a store of value, as fluctuations in its price have had impacts on the larger economy. All of this is to say that the only reason gold has extrinsic value as money - why so many societies have seen it as money - is because it has natural properties that map reasonably well into the needed functions of a currency. It's not unique among natural currencies, rather just a first among equals.

colejohnson66 9y ago

Couldn’t that same argument apply to the stock market? People prefer holding on to stocks, but every once in a while will cash out on their increase?

sharemywin 9y ago
especially growth stocks that don't pay dividends.
emodendroket 9y ago
Nobody is talking about replacing United States dollars with stocks, are they?

SilasX 9y ago

Gresham's law is specifically about the case where people are required to treat the two moneys as equal when one has a higher real value; if they're just different goods with no parity requirement, the effect doesn't happen. (People casually refer to "bad money driving out good" whenever smart investors abandon bad markets, but that's a different dynamic from Gresham's Law proper.)

alexasmyths 9y ago

What you are referring to as 'good money' , most people would call 'stupid money'. It's a stupid idea to run a country with a fixed amount of currency - as the economy expands, more currency is needed - either that - or all prices of everything need to adjust because the 'stupid currency' is fixed. A 'well managed' currency is better than a fixed supply. Of course - the 'existential risk' is that some political cowboy will 'print money' for political reasons - this is the great problem that fiat always faces. But this can be avoided. Most major currencies are very well managed. Also - remember that they are backed by actual assets - so money is not coming out of nowhere. Almost all Euros are backed by some kind of quality asset. It's very rational to allow entities to 'trade' some kind of asset for currency at the central bank. This is actually more 'free market' than any kind of fixed currency. National currencies - irrespective of the quality of their governance, fixed or not - are extremely useful to everyone. They 'spend' that currency because it's what's used to buy stuff. Household expenditures: mortgage/rent, electricity, groceries, insurance, gas, car payments, cable/internet. Can you use BTC for any of that. Pragmatically - No. BTC is 'pragmatically worthless' to anyone - it has no reason to exist. BTC is very useful to money launderers, tax evaders, and other people doing illicit things, it's a great currency for the black market. But beyond that, it serves no purpose. It's not a currency and it's a terrible store of value as compared to any of real-estate, gold, most commodities, a 'basked of bonds of equities' or a 'basket of currencies'. It's a great intellectual exercise, and I think the 'paper value' of BTC will remain quite high for some time, but unless it sinks in as an actual currency of some economy (say, African nations where the currency is garbage), in the long-long-long run there's no reason for it to maintain it's value.

addHocker 9y ago
> all prices of everything need to adjust because the 'stupid currency' is fixed. Thats a price system like at the gas station, right? Sounds good to me.
- alexasmyths 9y ago
  You're right, prices to change. But 'monetary policy' is a very valuable instrument, in fact, necessary in many occasions, such as deep recession, economic shock, or war.
dreit1 9y ago
When will the bitcoin haters finally realize that bitcoin is terrible for illicit transactions. The transactions is recorded forever...on a public ledger...and any money in or out of your address is traceable
- emodendroket 9y ago
  Anonymity is about the only selling point for BTC transactions that I could ever see the appeal of from a buyer's perspective.
  - dreit1 9y ago
    Most interesting aspect to me is the deflationary aspect. Savers in today's society get punished. If you don't want to buy lot's of stuff and instead want to achieve financial freedom, then Bitcoin can be a viable alternative. Additionally I work abroad, once I realized how much is was going to cost me to send my salary back home using the traditional banking system, I quickly became a bitcoin enthusiast
    - alexasmyths 9y ago
      "Savers in today's society get punished" No. You can earn the same as inflation in a risk-free investment. You can earn more by taking a small amount of risk. Savers are not punished for anything.

aqsheehy 9y ago

Spot the libertarian

captainmuon 9y ago

I wouldn't say bitcoin holds its value. It is a hot potato, and in my opinion the most rational thing is to trade them immediately away (for other currency, darknet goods) once you hold bitcoin. Sure, the price has been going up like crazy, and you might hold on to them to go "to the moon". But if it crashes, the value can go to zero - bitcoin has no "intrinsic value" unlike gold, its value is only defined by what you can get for it. In that sense, yes, it definitely has a non-zero value now. But it might crash, be outlawed, etc. tomorrow and you can loose everything. (Another point is that "value" is notoriously ill-defined. Price? Trade value? Use value? Something else?)

phyller 9y ago
Good points about bitcoin, but really that holds true of everything. I don't understand why gold always gets a pass here, everyone assumes it has some magic intrinsic value. But the same rule applies. It's worth what other people are willing to give you for it. I'd wager that the value of a fresh loaf of bread has held its value more consistently than an ounce of gold over 10 years. The only advantages gold has over bitcoin is that gold has some useful chemical properties (which probably have little to do with its current price) and it has a lot longer history as being used as currency, which I think is the real reason we value gold today. It is valued because it is valued.
- travmatt 9y ago
  IIRC correctly gold has been a popular currency because it has properties that allow it to fulfill the functions of a currency quite easily - it's uniform size and weight and overall geographic availability lend nicely to being a unit of account, while its natural scarcity lends itself to being a store of value, and its durability lends itself to both its unit of account and store of value functions. It's also worth noting that the volatility of gold production has historically played against its function as a store of value, as fluctuations in its price have had impacts on the larger economy. All of this is to say that the only reason gold has extrinsic value as money - why so many societies have seen it as money - is because it has natural properties that map reasonably well into the needed functions of a currency. It's not unique among natural currencies, rather just a first among equals.