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How does the volatility not make it a bad store of value?! Surely by definition that is exactly why it is a bad store of value!

jcranmer 9y ago
But that would mean it's good for nothing except warming the planet!
- mproud 9y ago
  It’s really sad that so much power will be wasted on mining Bitcoin.
dubin 9y ago
“How can Bitcoin be a good store of value if its price is so volatile?” http://marginalrevolution.com/marginalrevolution/2017/12/can-bitcoin-good-store-value-price-volatile.html http://marginalrevolution.com/marginalrevolution/2017/12/can...
- guitarbill 9y ago
  Quoting some articles does not an argument make. The summary argument: > Volatility is a feature of Bitcoin, not a bug, and that is in part for reasons that have nothing to do with speculation or bubbliness, but rather follow from the contours of the utility function. It’s that latter point that hardly anyone understands. I'd argue this is might be correct, but also irrelevant, as many people involved in bitcoin either wanted to use it as a payment method, or are only in it for speculation, or money laundering/covert transferring of wealth. How useful is a value store where it's very difficult to actually get the value out remains to be seen, or what effect such a realisation will have on the price.
xelxebar 9y ago
I'm not intimately familiar with BTC prices, but they seem to have lots of high frequency volatility while the low frequency price changes are close to monotonic. If that's the case then it makes sense as a long term store of value.
- IncRnd 9y ago
  Yes. The number of bitcoins increases roughly linearly over time and will continue to do so for another few years. At that time, the bitcoin protocol will need to change or there will be no new bitcoins circulating. This leads to almost endless deflation, as long as bitcoin doesn't change from its current structure. There really is no asset "there" when talking about Bitcoin. Bitcoin acts purely technically and can be traded that way. Unless Bitcoin's structure changes the price will either continue to rise as a trend, or it will crash forever. Long positions and scalpers do great with Bitcoin.
malloryerik 9y ago
"Store of value" here means "investment", but people are trying to keep the veneer of currency definition. And of course it's a highly speculative investment, although whose wild volatility contains a rare spice cherished by asset managers, "high alpha", meaning that it is not related to the broader markets. In musical terms, Bitcoin sings its own song, or dances to its own beat. To diversify, as modern portfolio theory prescribes, investors seek assets whose prices don't change in relation to other prices, are uncorrelated. In today's world, most markets are highly correlated with each other, they are almost like separate instruments playing in a huge symphony. But not Bitcoin. Not for now. Bitcoin moves according to bitcoin. If bitcoin becomes more and more like "digital gold" and loses some of the volatility, however, it will also start to act more and more like physical gold on the world markets. Gold moves as a safe haven asset, and so will Bitcoin, and thereby lose its status as an investment uncorrelated to the broader markets. If you're involved in trading, you can pretty much be given a single market quote like the S&P or gold, and generally guess the direction and possibly the amount of price changes in many or most other world markets, unless there were events specific to one or another market. Usually if gold went up, for example, the Japanese yen also gained. These relationships change over time, but they are very pronounced. You can ask maybe three questions and generally extrapolate what happened over the entire world except for cases where a local event in India caused its bourse to move independently, or for example a weather event moved an agricultural commodity. Even real estate does not escape the bonds of market correlation. But... Bitcoin. Without a very large move in other assets, I doubt a well-versed market participant could tell you what happened to Bitcoin without hearing about Bitcoin itself (or maybe Ethereum...). To repeat myself, I believe this will change if BTC becomes established as a "store of value", it will join the symphony, but for that reason it will also lose its great appeal to institutional investors -- its uncorrelated quality, "pure alpha" as one well-known asset manager recently termed it (where alpha is independent returns and beta is benchmarked correlated returns). So, with its volatility, Bitcoin is maybe being thought of by institutional investors as a kind of extreme spice that can add a bit of diversified risk into their larger stew. Just dab will do ya. But as more dabs are added, the "alpha" quality will wear off and it will begin to move more and more like plain old gold. Maybe less lustrous... So maybe in investment terms as well, Bitcoin might have a scaling problem.

jcranmer 9y ago

But that would mean it's good for nothing except warming the planet!

mproud 9y ago
It’s really sad that so much power will be wasted on mining Bitcoin.

dubin 9y ago

“How can Bitcoin be a good store of value if its price is so volatile?” http://marginalrevolution.com/marginalrevolution/2017/12/can-bitcoin-good-store-value-price-volatile.html http://marginalrevolution.com/marginalrevolution/2017/12/can...

guitarbill 9y ago
Quoting some articles does not an argument make. The summary argument: > Volatility is a feature of Bitcoin, not a bug, and that is in part for reasons that have nothing to do with speculation or bubbliness, but rather follow from the contours of the utility function. It’s that latter point that hardly anyone understands. I'd argue this is might be correct, but also irrelevant, as many people involved in bitcoin either wanted to use it as a payment method, or are only in it for speculation, or money laundering/covert transferring of wealth. How useful is a value store where it's very difficult to actually get the value out remains to be seen, or what effect such a realisation will have on the price.

xelxebar 9y ago

I'm not intimately familiar with BTC prices, but they seem to have lots of high frequency volatility while the low frequency price changes are close to monotonic. If that's the case then it makes sense as a long term store of value.

IncRnd 9y ago
Yes. The number of bitcoins increases roughly linearly over time and will continue to do so for another few years. At that time, the bitcoin protocol will need to change or there will be no new bitcoins circulating. This leads to almost endless deflation, as long as bitcoin doesn't change from its current structure. There really is no asset "there" when talking about Bitcoin. Bitcoin acts purely technically and can be traded that way. Unless Bitcoin's structure changes the price will either continue to rise as a trend, or it will crash forever. Long positions and scalpers do great with Bitcoin.

malloryerik 9y ago

"Store of value" here means "investment", but people are trying to keep the veneer of currency definition. And of course it's a highly speculative investment, although whose wild volatility contains a rare spice cherished by asset managers, "high alpha", meaning that it is not related to the broader markets. In musical terms, Bitcoin sings its own song, or dances to its own beat. To diversify, as modern portfolio theory prescribes, investors seek assets whose prices don't change in relation to other prices, are uncorrelated. In today's world, most markets are highly correlated with each other, they are almost like separate instruments playing in a huge symphony. But not Bitcoin. Not for now. Bitcoin moves according to bitcoin. If bitcoin becomes more and more like "digital gold" and loses some of the volatility, however, it will also start to act more and more like physical gold on the world markets. Gold moves as a safe haven asset, and so will Bitcoin, and thereby lose its status as an investment uncorrelated to the broader markets. If you're involved in trading, you can pretty much be given a single market quote like the S&P or gold, and generally guess the direction and possibly the amount of price changes in many or most other world markets, unless there were events specific to one or another market. Usually if gold went up, for example, the Japanese yen also gained. These relationships change over time, but they are very pronounced. You can ask maybe three questions and generally extrapolate what happened over the entire world except for cases where a local event in India caused its bourse to move independently, or for example a weather event moved an agricultural commodity. Even real estate does not escape the bonds of market correlation. But... Bitcoin. Without a very large move in other assets, I doubt a well-versed market participant could tell you what happened to Bitcoin without hearing about Bitcoin itself (or maybe Ethereum...). To repeat myself, I believe this will change if BTC becomes established as a "store of value", it will join the symphony, but for that reason it will also lose its great appeal to institutional investors -- its uncorrelated quality, "pure alpha" as one well-known asset manager recently termed it (where alpha is independent returns and beta is benchmarked correlated returns). So, with its volatility, Bitcoin is maybe being thought of by institutional investors as a kind of extreme spice that can add a bit of diversified risk into their larger stew. Just dab will do ya. But as more dabs are added, the "alpha" quality will wear off and it will begin to move more and more like plain old gold. Maybe less lustrous... So maybe in investment terms as well, Bitcoin might have a scaling problem.