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The Evolving Economics of Bitcoin, Gold and Fiat Currencies
- derekmhewitt 9y agoThis was an interesting article, thanks for sharing it. But as an average consumer and amateur investor (at best) I'm much more interested in using Bitcoin (and other digital currencies) as a medium of exchange rather than as a store of value. For short term transactions (ex: exchange fiat for bitcoin -> transfer bitcoin to recipient) digital currencies offer a very fast, secure, and simple method for transferring value across borders that would traditionally take much longer than a few ticks of the blockchain. And over that shorter term their value is relatively stable and suitable as a medium for such exchanges.
- josh2600 9y agoDid the CME group just call bitcoin dramatically undervalued??
- cko 9y agoI didn’t read it that way. The article seems to have a balanced tone, though the conclusion is that bitcoin is kind of digital gold and lacks the economically stabilizing effect of fiat currencies.
- vslira 9y ago"While there is no logical reason to suppose that bitcoin should have the same value as gold, if it did, each bitcoin should be worth approximately $285,000, 45 times the current market price. As such, one might wonder: is bitcoin still vastly undervalued even after a 6,000,000% rally?" Only if btc's total worth equates gold's. Which is a possibility, for better or for worse
- lsd5you 9y agoYes but we don't have to industrialise the asteroid belt to dump equivalent quantities of crypto-currency into the market ...
- wyager 9y ago“Crypto-currency” isn’t the same as Bitcoin in particular. You can’t dump more bitcoin into the market; it’s fixed-supply.
- Retric 9y agoDepends on how much value you place on the trademark. We already split the miners once.
- empath75 9y agoBitcoin is currently using 0.12% of the world's electricity production -- enough to power 2 million homes.
- rihegher 9y agowhich helps mines roughly 7,740,000 USD worth of new bitcoins per day, I'm not sure how sustainable this is.
- ifdefdebug 9y agoI ask myself: is there a limit for a drawdown without return in bitcoins? - as in, if the value goes under a certain threshold, it's not profitable any more to "mine it up" again and the blockchain falls dry... or could they just lower the difficulty of mining in order to prevent that?
- biafra 9y agoThe Bitcoin network cannot know or should it care about a fiat exchange rate. Which currency should it look at? Dollar? Euro? Why? If the block frequency of ten minutes is not met, the difficulty is automatically adjusted after 2016 blocks (ca. 2 weeks) up or down.
- ifdefdebug 9y ago
- throwaway5752 9y ago"The phenomenal increase in the value of bitcoins, by 6,000,000%, over the past seven years, has taken the investing world by storm. CME Group will launch Bitcoin futures in the fourth quarter of 2017." This is promote an upcoming product.
- nikcub 9y agoTheir ads are everywhere - took me a while to notice that it's the same CME that run all of those expensive video ads that have that scammy "get rich working from home" feel to them. Their user acquisition cost must be $1k+ because barely a day passes that I don't see them somewhere - and it's a pretty broad base they deliver to since I use multiple profiles / incognito windows
- pelario 9y agoWhy the downvotes?
- marcosdumay 9y agoAren't there 4 zeroes too many in that number?
- once_inc 9y agoIn juli 2010, 1 bitcoin was worth 0.08 usd.
- jiggunjer 9y agoAgain the flawed gold comparison. You can still trade gold after the miners stop mining.
- saalweachter 9y agoI'm honestly curious what role Bitcoin has played in the relative stability of gold over the last ~five years.
- stevehawk 9y agoI'm gonna gamble and guess none
- saalweachter 9y agoI mean, suc^H^H^Hinvestors have dumped hundreds of millions if not billions into Bitcoin over that same time-frame, I assume it has to be cannibalizing something, and the "the world is ending you better buy gold it only goes up!!!" market is as good a guess as any.
- charlesdm 9y agoNo one says they had to take away money from somewhere. But most likely the stock market. With the markets being up a ton over the last ten years, most HNWIs could have easily borrowed against their shares portfolio at <2% a year and put it into crypto, if they were up for it. (Portfolio) margin debt is at an all time high. If you had the balls to lever up your portfolio 3x you would have made a killing after the 2008 crash with just a few million in capital, and that's just by investing in the stock market.
- matt4077 9y agoWhenever someone buys bitcoin, somebody is selling–the same amount, at the same price. That seller can then use those US$ or EUR they got and buy gold. There's no value "stored" in bitcoin that is missing anywhere else. It's all in your head.
- thisisit 9y agoThe whole article in a single sentence: "However volatile they may be, the reason why gold and bitcoin are perceived as stores of value is simple: their money supply doesn’t grow quickly and, in the case of bitcoin not at all, some day." Ergo, bitcoin is like gold. Hence, should be valued as gold.
- paulgb 9y agoThen shouldn't every deflationary alt-coin also be valued like gold? You can see where this is going...
- thisisit 9y agoI know, that's why I highlighted the flawed logic therein. Sure, one can talk about bitcoin and blockchain as being revolutionary but every time someone with a finance degree writes something, they go by hype and not substance.
- icahnvalyou 9y agoShouldn't every resource be valued like gold? There's a limited supply of copper... You can see where this is going. Gold is a weirdly sticky anachronism of a wealth store that never made any sense in the first place.
- bluGill 9y agoGold make sense because girls like to wear gold on their fingers, in their ears... Copper is not useful for that purpose.
- digi_owl 9y agoGold has one good property, it does not rust. Thus making tokens out them meant said tokens would last generations, and withstand the rigors of international transport. As best i recall, gold and silver were rarely popular for domestic trade. There more common materials were used. They were instead used for international trade. In the end people have come to confuse the token, a way to do trade accounting without an accountant always present, with the metal it was made of.
- genericacct 9y agoFinally a way to short bitcoin without having to worry about counterparty risk!
- anonemouse145 9y ago> Bitcoin isn't Fiat currency. > Bitcoin Cash doubles the number of coins in an instant, and future updates could do more, and the market value of each coin increases rather than halving. Choose one.
- neilwilson 9y agoNo clue at all what money is, or about. Yet another 'money is a commodity' view that just doesn't fit reality. Money is a representation of credit. That's actually what we use it for. https://medium.com/modern-money-matters/crypto-shilling-87995d1d89b0 https://medium.com/modern-money-matters/crypto-shilling-8799...
- indescions_2017 9y agoBitcoin comparison with Gold has become gospel. And with it a typical upper bound on the price estimate of a single coin in the ~$100K range. The assumption is that the total Gold market is about $10T globally and Bitcoin will displace some percentage of that. With the current Bitcoin market valuation based on exchange rate approaching $1T and 25% or so mining complete. But a much better estimation might arise from looking at global consumer demand for Digital Payments. By the year 2020 its conceivable that we are at 1T digital transactions. At an average value of $10 each, we are again speaking of roughly the size of the total market for Gold. The million dollar question is: What percentage of all digital transactions globally will be made in BTC? Approaching the problem from the FinServ lens, rather than FinTech, can radically alter your view ;)
- rublev 9y ago>Approaching the problem from the FinServ lens, rather than FinTech, can radically alter your view ;) What do you mean?
- immad 9y agoBitcoin is valued at $110b with 16.66m mined out of 21m. So ~80% mined [1] 1 - https://coinmarketcap.com/currencies/bitcoin/ https://coinmarketcap.com/currencies/bitcoin/
- saalweachter 9y agoTo evaluate the price of a Bitcoin from the perspective of its value as a unit of exchange you need to take into account the volume of the transactions and the time currency is held between being paid and being spent. If there were $1T of Bitcoin transactions each year and the coins were held for 1 year in between, then yes, the total value of all circulating Bitcoin need to be $1T. If the coins are held on average for a week, you only need $20B worth of circulating Bitcoin. When you leave out that last number, you implicitly assume whatever interval you're talking about is the transaction duration, which is usually a bad assumption.
- altern8tif 9y agoHow does Bitcoin make the transition from a gold-like store-of-value to a medium-of-exchange then? If the general consensus is that Bitcoin's value will continue to appreciate, it makes more sense for one to hoard it rather than to use it as digital currency.
- ploggingdev 9y ago> A digital currency that replaces fiat currencies as a medium exchange cannot have a fixed supply. In fact, central banks, like the Federal Reserve, might even create their own cryptocurrencies but ones that are designed to optimize economic growth. It will probably need to have constant money supply growth and preferably money supply growth that matches economic needs and not some algorithm’s hard, mathematical constraint. Finally someone acknowledges this reality. I've brought this up multiple times in Bitcoin discussions and never heard one good argument to backup the claims that Bitcoin can became a mainstream p2p fiat replacement for the masses all while having a 21 million coin limit.
- Sangermaine 9y ago>Bitcoin can became a mainstream p2p fiat replacement for the masses all while having a 21 million coin limit. Does anyone outside of the most zealous ideologues really believe this?
- wuliwong 9y agoMy anecdotal experience is most believers in the future of crypto believe that there will be a number of cryptocurrencies that will be used.
- grubles 9y agoWhy does one have to be zealous to understand bitcoins are divisible up to eight decimal places? A single bitcoin is really 100,000,000 bitcoin "satoshis" (1.00000000). "Satoshis" being the smallest unit (0.00000001). So, there really are 2,100,000,000,000,000 bitcoin units. When you purchase a single "bitcoin", you really are purchasing 100,000,000 "satoshis".
- dunk010 9y agoGold is also divisible into arbitrarily-finite (down to the atom, one would suppose, though that doesn't exactly seem practical...), but that completely misses the point of the article: that the money supply isn't large enough, so Bitcoin, like gold, becomes a store of value and is useless as a currency.
- etr-strike 9y agoI believe a fixed supply of currency is beneficial when determining price. The ability of an institution to secretly change the amount of a currency used to measure price introduces yet another variable into the valuation equation. Additionally, when the dollar was fixed on the gold standard, employers needed to be upfront and honest with their employees. When they needed to cut wages, employees knew it was happening. Much of the labor movement and union formation happened because employers needed to be honest about what they were doing. I've yet to hear a convincing argument that inflation is good for me.
- sordidasset 9y agoBut the fed doesn't change the dollar's value in secret. Indeed, wages are worth less now, but it's not because employers are having back-room chats with the central bank.
- dreamdu5t 9y agoWhat’s clear from all these comments is that economic theory is bankrupt and impotent at explaining or predicting anything. It’s quite odd constantly hearing why bitcoin can’t work or whether it can be labeled a currency according to academic theory X, yet reality doesn’t care. Bitcoin is amazing simply for showing us that monetary economists have no clothes. They’re astrologists that use math.
- matt4077 9y agoNobody is saying that bitcoin can't reach new heights every day. All it needs is enough idiots to buy. What they are saying is that it has exactly zero chances at becoming a serious rival to the US$ or other currencies as a medium of exchange. And that prediction still seems pretty accurate, considering there's just about exactly almost no transactional volume happening in bitcoin. It's also now more expensive than credit card fees for anything <$100, and it takes much longer than PayPal or Apple Pay or cache. It's also not really anonymous, but of course everyone always knew that. It's so risky to store your private keys on anything with ethernet the real pros print them and put them in bank safes. It's about as decentralised and bottom-up democratic as you can be when you're basically living at the mercy of the Chinese government, which, by the way, has shown that autocratic governments can shut it down with less effort than it took Obama to kill a fly.
- andr3w321 9y ago"What they are saying is that it has exactly zero chances at becoming a serious rival to the US$ or other currencies as a medium of exchange." There is definitely a non zero percent chance of this happening. How much % chance is debatable, but it's certainly >0.
- kareldonk 9y agoAnyone who has an issue with bitcoins 21 mil hard limit does not understand why it was created in the first place. Investigate it before you shoot yourself in the foot with cryptocurrencies that dont have this limit. Bitcoins inventor knew exactly what he/she was doing.
- Jeff_Brown 9y ago> Some fiat currencies lose their value slowly, others do so quickly. That loss of value is precisely what makes them useful. Without the fear of inflation, holders of currency tend to hoard rather than spend it. Hoarding currency depresses economic growth and creates financial instability. Economist here. That relationship is not clear. A currency skyrocketing in value induces suboptimal willingness to delay spending, yes, but one plummeting in value induces a similarly suboptimal willingness to spend too early. Moreover, a depressed economy can cause deflation, rather than the reverse: Sluggish economic activity implies weak aggregate demand (people not buying a lot of stuff), which can lead prices to fall.
- TheGrassyKnoll 9y ago> "...the Federal Reserve, might even create their own cryptocurrencies..." If that happens, wouldn't demand for Bitcoin take a hit ?
- tradersam 9y agoI don't think so. It would be the government legitimizing the industry, yet the need for non-government controlled currencies would still be extant.