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Warren buffet wrote a good piece about the expected value of buying ownership of a chunk of the us economy (i.e. shares) vs. buying gold. The former is normall

by graeme 9y ago

Warren buffet wrote a good piece about the expected value of buying ownership of a chunk of the us economy (i.e. shares) vs. buying gold. The former is normally a good investment, because it grows. Gold just sits there. It’s decent as a store of value compared to cash, but that’s about it. Google is a company. It had a high valuation because some people expected it to grow larger and earn future revenues. Bitcoin seems more like gold. What does it do? Why should it have more value tomorrow than today? The only reason I can come up with is that it has intrinsic scarcity, like gold, and can be a store of value. But this doesn’t seem very convincing - other people could make other blockchain based currencies. Can someone explain why bitcoin ought to be worth more money in te future?

panarky 9y ago
Pretty simple, really. 1) People are building business with cryptocurrencies 2) Bitcoin is the biggest, oldest, most conservative, and most reliable of the cryptocurrencies 3) Therefore, as crypto businesses grow, transaction volume increases, and more people need to hold and save in Bitcoin 4) More people holding and using it, with a supply that is capped, means the value per unit would tend to increase with growth Now maybe that growth is over-estimated, or already priced in, or speculative forces have over-shot the true value. Or maybe more people are finally waking up to the real potential, and it's actually under-valued right now. Hard for me to know. That's why it's curious that others have such great certainty.
- graeme 9y ago
  Thanks, that’s the clearest explanation I’ve received of a plausible mechanism for bitcoin having any intrinsic value. I’m not convinced that justifies it’s value, but I’ll mull this theory over when bitcoin articles come up. Based on your theory, would it be fair to say the following: 1. Like gold, bitcoin won’t be a long run value producing asset. (Unlike stocks) 2. Like gold, bitcoin may settle on some value relative to non-bitcoin 3. People investing in bitcoin are betting it has not yet reached that value, and are thus hoping it will increase in price to a future equilibrium. Obviously gold fluctuates based on market conditions, but it has rough parameters of value. Are people assuming btc has some similar level of value and will rise to it?
  - panarky 9y ago
    That's a pretty good way to describe how I think about it. Like many innovations, usage probably looks like an S-curve -- slow in the beginning, then a period of rapid growth, followed by a plateau. It's unclear where we are in the cycle, and it's definitely possible that valuations have over-shot. But it seems to me that there's something real going on in addition to the hype, and that potential could be worth a hell of a lot more than $100b globally.
biot 9y ago
Yep... the way I see it is that the blockchain is like Linux. Lots of utility and value which will continue to grow as more people explore the applications of a technology which is free for anybody to use. However, Bitcoin as a currency is like VA Linux (ticker: LNUX) whose meteoric rise was due to the hype around Linux (the OS) but it eventually tanked as it had no monopoly on the underlying technology. LNUX popped at almost 700% growth on the first day. It then rapidly tanked: https://cdn-images-1.medium.com/max/1600/1*UsaIAmwMhcngaCDNPb1hhA.png https://cdn-images-1.medium.com/max/1600/1*UsaIAmwMhcngaCDNP...

by graeme 9y ago

panarky 9y ago

Pretty simple, really. 1) People are building business with cryptocurrencies 2) Bitcoin is the biggest, oldest, most conservative, and most reliable of the cryptocurrencies 3) Therefore, as crypto businesses grow, transaction volume increases, and more people need to hold and save in Bitcoin 4) More people holding and using it, with a supply that is capped, means the value per unit would tend to increase with growth Now maybe that growth is over-estimated, or already priced in, or speculative forces have over-shot the true value. Or maybe more people are finally waking up to the real potential, and it's actually under-valued right now. Hard for me to know. That's why it's curious that others have such great certainty.

graeme 9y ago
Thanks, that’s the clearest explanation I’ve received of a plausible mechanism for bitcoin having any intrinsic value. I’m not convinced that justifies it’s value, but I’ll mull this theory over when bitcoin articles come up. Based on your theory, would it be fair to say the following: 1. Like gold, bitcoin won’t be a long run value producing asset. (Unlike stocks) 2. Like gold, bitcoin may settle on some value relative to non-bitcoin 3. People investing in bitcoin are betting it has not yet reached that value, and are thus hoping it will increase in price to a future equilibrium. Obviously gold fluctuates based on market conditions, but it has rough parameters of value. Are people assuming btc has some similar level of value and will rise to it?
- panarky 9y ago
  That's a pretty good way to describe how I think about it. Like many innovations, usage probably looks like an S-curve -- slow in the beginning, then a period of rapid growth, followed by a plateau. It's unclear where we are in the cycle, and it's definitely possible that valuations have over-shot. But it seems to me that there's something real going on in addition to the hype, and that potential could be worth a hell of a lot more than $100b globally.

biot 9y ago

Yep... the way I see it is that the blockchain is like Linux. Lots of utility and value which will continue to grow as more people explore the applications of a technology which is free for anybody to use. However, Bitcoin as a currency is like VA Linux (ticker: LNUX) whose meteoric rise was due to the hype around Linux (the OS) but it eventually tanked as it had no monopoly on the underlying technology. LNUX popped at almost 700% growth on the first day. It then rapidly tanked: https://cdn-images-1.medium.com/max/1600/1*UsaIAmwMhcngaCDNPb1hhA.png https://cdn-images-1.medium.com/max/1600/1*UsaIAmwMhcngaCDNP...