6 ms·

Morgan Stanley says the true price of Bitcoin might be zero

44 points by SirLJ 9y ago

turblety 9y ago
Bitcoin is either worth nothing or worth a lot more than it currently is. I think most people agree that its current valuation is very wrong.
- nerdponx 9y ago
  If businesses are expected to conduct large transactions in Bitcoin, its price has to be high, owing to the fixed supply. Otherwise there will literally wouldn't be enough Bitcoin available to make transactions work. That said, I think cryptocurrency ought to be cheap, so people don't hoard it. All this speculation hype has been fantastic for awareness, but I hope it dies down so that people can start actually transacting in cryptocurrency.
  - turblety 9y ago
    I think in a few years though people will stop referring to the currency in bitcoins and refer more to Satoshi's. A Satoshi could still be a spendable unit. Although with the fixed supply it could still be too expensive to spend. I've also heard about idea that Bitcoin could mearly be like your savings account at your bank. You would then transfer that into another digital currency to buy stuff.
    - mpeg 9y ago
      Realistically, I think Bitcoin needs leadership and marketing if it is to grow as big as other currencies, because I don't see people referring to their everyday money as "satoshis". To paraphrase AMC's HCF, I believe Bitcoin is not the thing, it's the thing that gets us to the thing.
    - thanatropism 9y ago
      An alternate digital currency would have to be more convenient than Bitcoin for transactions -- enough to make up for the transaction costs of transferring Bitcoins in first place. But that does nothing to address concerns of hoarding. Either people come up with a way to have inflation in Bitcoin, or it's going to be hoarded. This is Gresham's law, and can't be appealed.
    - ch4s3 9y ago
      Transferring to another currency to spend your money seems awfully inconvenient. You have transaction costs, time delays, and have to worry about exchange rates. How is that better than the current system?
  - saalweachter 9y ago
    Keep in mind that you need to know the duration of transactions as well as the volume. Eg, the time between an employee getting paid and the employee paying rent, or a construction project being funded and the materials purchased. If $1 trillion worth of transactions happen per year and each transaction lasts a month you need around $100 billion in currency. Ten years between transactions and you need $10 trillion. If there is less than a day between money being received and spent you need maybe $3 billion worth of currency to support a transaction volume of $1 trillion per year.
  - sputr 9y ago
    "I think cryptocurrency ought to be cheap, so people don't hoard it." More importantly it needs inflation. I just don't see how a currency with builtin deflation can ever be used for anything but a value store. I still don't get why this isn't more widely discussed. Am I missing something?
    - neom 9y ago
      You're right. I recently thought, if a bunch of very very wealthy people asked someone to create a new digital swiss bank account for them, this could be the result.
    - abritinthebay 9y ago
      It’s discussed at length by its critics. IMO bitcoin proponents can’t avoid this problem and mostly hand-wave it away with vague statements or long treatises about how the banking system should (but doesn’t) work. Blockchain is great tech and bitcoin is a wonderful speculation tool/pyramid scheme but the current situation is an anomaly (as the transaction speeds and prices are showing).
      - sputr 9y ago
        Ah, no matter how much we are aware of it filter bubble still get's us.
    - nerdponx 9y ago
      Agreed on that point as well. The irony is that controlled inflation is perfectly possible with a cryptocurrency: just keep the block reward constant over time, don't decrease it. I'll never understand the "fixed supply" thing.
- hidenotslide 9y ago
  I suspect Eugene Fama would say it is priced exactly right.
  - MsMowz 9y ago
    Fama would say it's priced accurately given the known information about it, but he would also agree that the price should change as more information is discovered about the nature of bitcoin. The efficient market hypothesis isn't about the price being "right," it's about it reflecting the available information.
gravypod 9y ago
Bitcoin is backed by nothing but trust. Just like US dollars.
- nerdponx 9y ago
  Specifically, trust that other people will accept it as a store of value. You can think of cryptocurrency as an IOU for "an equivalent amount in my home currency".
- muninn_ 9y ago
  But who are you trusting?
- earthtolazlo 9y ago
  The difference is that you can actually buy things with USD.
  - etr-strike 9y ago
    I can buy USDs with my bitcoin. Lots of them.
  - gravypod 9y ago
    The ability to buy something does not equate to value of a currency. This is a pretty bad example but if I write a check to you for $10 I have given you a $10 note. It's backed by my promise to you that I have the money. You cannot buy anything directly with the check. It's made out to your name. All you can do with that currency is trade it into a bank for another currency we all use. Another example may be gold. If I have you a gold bullion I hardly think you'd have an easy time spending it at a store (unless you're in Dubai). This doesn't mean gold doesn't have inherent value and it also doesn't mean gold is not a currency.
  - thanatropism 9y ago
    Also: you want to buy things with USD (or invest/lend) because USD kept under a mattress will deteriorate. While Bitcoin by structure is supposed to never deteriorate, just increase in value. Everyone else's saying this: the value of Bitcoin is either zero or infinity[]. This was clear way from the beginning, and while I regret not cashing in on the bubble before. [] This assuming the normal continuation of capitalism and the global concert of nations where there is openness to commerce and multiple fiat currencies. Of course, in Mencius Moldbug's dream (who first called for something like bitcoin in '08) where strong authoritarian government prevents other currencies from hanging on... it's an utopia. We might as well trade in time credits.
jshaqaw 9y ago
I’m looking forward to when tech is about creating neat new things again and not pure zero sum gambling/speculation.
- dawhizkid 9y ago
  I think the frenzy around bitcoin has just exposed the fact that many people in tech are in it for the money and don't really care about building products that positively "change the world."
  - havetocharge 9y ago
    Or confirmed what many of us knew after observing the market gyrations of the year 2000.
pimmen 9y ago
When/if Bitcoin becomes accepted everywhere and all bitcoins have been mined, but we keep producing new stuff we can buy, the value of a single bitcoin approaches infinity. That’s why I don’t like them.
- MsMowz 9y ago
  Maybe there should be a centrally agreed upon authority that can change the size of the money supply by fiat. That seems like that would fix most of the problems with Bitcoin.
  - nihonde 9y ago
    I can’t tell if you’re being sarcastic, but you’re proposing the kind of trusted centralized banking institution that Satoshi explicitly sought to eliminate. It’s literally in the first line of his whitepaper.
  - Zak 9y ago
    At a cost of being the very problem decentralized cryptocurrency was meant to solve. But a cryptocurrency doesn't have to be designed with a deflationary monetary policy hardcoded. Monero, for example has a steadily decreasing block reward that will bottom out at 0.6 instead of Bitcoin's 0. Ethereum is also designed for a steady increase in supply if I understand correctly.
  - pimmen 9y ago
    It fixes most of the problems with currencies in general, that’s why basically every single currency has this authority backing it called ”central banks”. As others have mentioned, these institutions is exactly what Satoshi wanted to supplant.
- havetocharge 9y ago
  This is a great point, that no one really discusses much. Think of BTC from the point of view of a child born today. This child has no opportunity to purchase a coin for 1, 5, 5000 or 50000 dollars. How is it an equitable system of payment, where all the rewards favour early adopters?
hal9000xp 9y ago
They still don't get it. I think partly because they live in the first world country. The initial reason why BTC took off was pure speculation based on the fact it's fixed supply + unknown but may be bright future. As speculators started gambling, people who sell drugs and other illegal goods saw a great potential in moving their money as they know they eventually can exchange it to fiats by dumping BTC to speculators. At this point BTC got its real value as self-fulfilling prophecy. Following speculators and drug dealers, wealthy people living in countries like China, Russia saw great potential to move money out of their countries. Self-fulfilling prophecy continues. If there was no war on drugs and over-regulation of cross-border money transfers, BTC would not be taken off. As first crypto-currency, BTC didn't need fast transactions, low fees etc, since there was no alternative for these people anyway. Currently, there are technically better crypto-currencies than BTC but BTC is still alive because of strong network effect and it's safety was tested by time (after all it has longest chain in the world). The whole story about discussions around BTC showed that you can have Phd in Economics and still suck at economy and simple reasoning beyond standard stuff you've been taught in university.
- WA 9y ago
  And what do these wealthy Chinese and Russians do, if they never can turn BTC back to their currency and neither can buy stuff with it?
  - 1337biz 9y ago
    Why shouldn't they be able to get Dollars or Euros for their coins?
  - ithinkinstereo 9y ago
    A lot of these funds are either illegally sourced or at risk of government seizure. Crypto provides an avenue to possibly "save" these funds. Watch as middle easterners soon flock to crypto. What's going on in KSA is a great advertisement for crypto to the 1% that live there.
    - 9y ago
jacknews 9y ago
Again, a very selective headline, since the analyst is essentially saying there are no "fundamentals" to bitcoin, nothing to really anchor it's price. Yes, the value could be zero - if no-one wants to buy it. But currently, some do, and so the "value" is whatever they are willing to pay, either in terms of dollars, or head of cattle, or whatever. Of course if "value" is defined as "intrinsic usefulness" then it perhaps is actually worth nothing at all, very much like any fiat currency (though in paper form I guess those have some "firewood" or "toilet paper" value).
htormey 9y ago
This is not a good article on bitcoin as it focuses on valuing it as a medium of exchange. Seeking alpha has a better series on the subject which provides charts and sources to back up its analysis. The above article just cites a Morgan Stanley paper without providing access to it. This part of the seeking alpha series focuses on btc usage: https://seekingalpha.com/amp/article/4122695-bitcoin-series-2-usage#click=https://t.co/XaXsedE15x https://seekingalpha.com/amp/article/4122695-bitcoin-series-... If you look at btc usage, it seems like about 97% of blockchain transactions are speculation. I.e buying/selling on exchanges as opposed to it being used to pay for goods and services. When you factor in transaction costs and the time it takes transfers to go through, it seems pretty safe to say that btc in its current form is not being used as money. This is nothing new. The question now is what if anything is btc worth as a store of value? I’d love to see an article dig into that question a bit more. All the parent article has to say on this topic is: “Like digital gold? Maybe. Does not have any intrinsic use like gold has in electronics or jewelry. But investors appear to be ascribing some value to it.” Which really doesn’t tell you much.
thisisit 9y ago
I sometimes wonder if pieces like these, trying to value bitcoin actually understand what they are doing. Cryptocurrencies are entirely new and trying to fit it within an existing fixed framework is an issue. The main question is - How do we look at it? Is it a currency, store of value, derivative, medium of exchange, technology? This valuation seems to focus on the medium of exchange and currency aspect. But there are other ways to approach it. One of the easiest and maybe amateurish way to look is through the mining and electricity costs. Sure, it is like a self fulfilling prophecy - more you mine, higher the difficulty and hence higher electricity costs, then you mine more, difficulty increases and it goes in circles. Obviously the electricity costs are alone not enough to justify the current value. But it certainly will not be zero.
red5tar 9y ago
Some don't understand bitcoin, because they think money is real.
simonblack 9y ago
We've seen the astronomic valuation of worthless objects thing before. As well as the 'This time it's different' fallacy before. I'm talking about the Dot.com boom and bust. https://en.wikipedia.org/wiki/Dot-com_bubble https://en.wikipedia.org/wiki/Dot-com_bubble

44 points by SirLJ 9y ago

Bitcoin is either worth nothing or worth a lot more than it currently is. I think most people agree that its current valuation is very wrong.

nerdponx 9y ago
If businesses are expected to conduct large transactions in Bitcoin, its price has to be high, owing to the fixed supply. Otherwise there will literally wouldn't be enough Bitcoin available to make transactions work. That said, I think cryptocurrency ought to be cheap, so people don't hoard it. All this speculation hype has been fantastic for awareness, but I hope it dies down so that people can start actually transacting in cryptocurrency.
- turblety 9y ago
  I think in a few years though people will stop referring to the currency in bitcoins and refer more to Satoshi's. A Satoshi could still be a spendable unit. Although with the fixed supply it could still be too expensive to spend. I've also heard about idea that Bitcoin could mearly be like your savings account at your bank. You would then transfer that into another digital currency to buy stuff.
  - mpeg 9y ago
    Realistically, I think Bitcoin needs leadership and marketing if it is to grow as big as other currencies, because I don't see people referring to their everyday money as "satoshis". To paraphrase AMC's HCF, I believe Bitcoin is not the thing, it's the thing that gets us to the thing.
  - thanatropism 9y ago
    An alternate digital currency would have to be more convenient than Bitcoin for transactions -- enough to make up for the transaction costs of transferring Bitcoins in first place. But that does nothing to address concerns of hoarding. Either people come up with a way to have inflation in Bitcoin, or it's going to be hoarded. This is Gresham's law, and can't be appealed.
  - ch4s3 9y ago
    Transferring to another currency to spend your money seems awfully inconvenient. You have transaction costs, time delays, and have to worry about exchange rates. How is that better than the current system?
- saalweachter 9y ago
  Keep in mind that you need to know the duration of transactions as well as the volume. Eg, the time between an employee getting paid and the employee paying rent, or a construction project being funded and the materials purchased. If $1 trillion worth of transactions happen per year and each transaction lasts a month you need around $100 billion in currency. Ten years between transactions and you need $10 trillion. If there is less than a day between money being received and spent you need maybe $3 billion worth of currency to support a transaction volume of $1 trillion per year.
- sputr 9y ago
  "I think cryptocurrency ought to be cheap, so people don't hoard it." More importantly it needs inflation. I just don't see how a currency with builtin deflation can ever be used for anything but a value store. I still don't get why this isn't more widely discussed. Am I missing something?
  - neom 9y ago
    You're right. I recently thought, if a bunch of very very wealthy people asked someone to create a new digital swiss bank account for them, this could be the result.
  - abritinthebay 9y ago
    It’s discussed at length by its critics. IMO bitcoin proponents can’t avoid this problem and mostly hand-wave it away with vague statements or long treatises about how the banking system should (but doesn’t) work. Blockchain is great tech and bitcoin is a wonderful speculation tool/pyramid scheme but the current situation is an anomaly (as the transaction speeds and prices are showing).
    - sputr 9y ago
      Ah, no matter how much we are aware of it filter bubble still get's us.
  - nerdponx 9y ago
    Agreed on that point as well. The irony is that controlled inflation is perfectly possible with a cryptocurrency: just keep the block reward constant over time, don't decrease it. I'll never understand the "fixed supply" thing.
hidenotslide 9y ago
I suspect Eugene Fama would say it is priced exactly right.
- MsMowz 9y ago
  Fama would say it's priced accurately given the known information about it, but he would also agree that the price should change as more information is discovered about the nature of bitcoin. The efficient market hypothesis isn't about the price being "right," it's about it reflecting the available information.

gravypod 9y ago

Bitcoin is backed by nothing but trust. Just like US dollars.

nerdponx 9y ago
Specifically, trust that other people will accept it as a store of value. You can think of cryptocurrency as an IOU for "an equivalent amount in my home currency".
muninn_ 9y ago
But who are you trusting?
earthtolazlo 9y ago
The difference is that you can actually buy things with USD.
- etr-strike 9y ago
  I can buy USDs with my bitcoin. Lots of them.
- gravypod 9y ago
  The ability to buy something does not equate to value of a currency. This is a pretty bad example but if I write a check to you for $10 I have given you a $10 note. It's backed by my promise to you that I have the money. You cannot buy anything directly with the check. It's made out to your name. All you can do with that currency is trade it into a bank for another currency we all use. Another example may be gold. If I have you a gold bullion I hardly think you'd have an easy time spending it at a store (unless you're in Dubai). This doesn't mean gold doesn't have inherent value and it also doesn't mean gold is not a currency.
- thanatropism 9y ago
  Also: you want to buy things with USD (or invest/lend) because USD kept under a mattress will deteriorate. While Bitcoin by structure is supposed to never deteriorate, just increase in value. Everyone else's saying this: the value of Bitcoin is either zero or infinity[]. This was clear way from the beginning, and while I regret not cashing in on the bubble before. [] This assuming the normal continuation of capitalism and the global concert of nations where there is openness to commerce and multiple fiat currencies. Of course, in Mencius Moldbug's dream (who first called for something like bitcoin in '08) where strong authoritarian government prevents other currencies from hanging on... it's an utopia. We might as well trade in time credits.

jshaqaw 9y ago

I’m looking forward to when tech is about creating neat new things again and not pure zero sum gambling/speculation.

dawhizkid 9y ago
I think the frenzy around bitcoin has just exposed the fact that many people in tech are in it for the money and don't really care about building products that positively "change the world."
- havetocharge 9y ago
  Or confirmed what many of us knew after observing the market gyrations of the year 2000.

pimmen 9y ago

When/if Bitcoin becomes accepted everywhere and all bitcoins have been mined, but we keep producing new stuff we can buy, the value of a single bitcoin approaches infinity. That’s why I don’t like them.

MsMowz 9y ago
Maybe there should be a centrally agreed upon authority that can change the size of the money supply by fiat. That seems like that would fix most of the problems with Bitcoin.
- nihonde 9y ago
  I can’t tell if you’re being sarcastic, but you’re proposing the kind of trusted centralized banking institution that Satoshi explicitly sought to eliminate. It’s literally in the first line of his whitepaper.
- Zak 9y ago
  At a cost of being the very problem decentralized cryptocurrency was meant to solve. But a cryptocurrency doesn't have to be designed with a deflationary monetary policy hardcoded. Monero, for example has a steadily decreasing block reward that will bottom out at 0.6 instead of Bitcoin's 0. Ethereum is also designed for a steady increase in supply if I understand correctly.
- pimmen 9y ago
  It fixes most of the problems with currencies in general, that’s why basically every single currency has this authority backing it called ”central banks”. As others have mentioned, these institutions is exactly what Satoshi wanted to supplant.
havetocharge 9y ago
This is a great point, that no one really discusses much. Think of BTC from the point of view of a child born today. This child has no opportunity to purchase a coin for 1, 5, 5000 or 50000 dollars. How is it an equitable system of payment, where all the rewards favour early adopters?

hal9000xp 9y ago

They still don't get it. I think partly because they live in the first world country. The initial reason why BTC took off was pure speculation based on the fact it's fixed supply + unknown but may be bright future. As speculators started gambling, people who sell drugs and other illegal goods saw a great potential in moving their money as they know they eventually can exchange it to fiats by dumping BTC to speculators. At this point BTC got its real value as self-fulfilling prophecy. Following speculators and drug dealers, wealthy people living in countries like China, Russia saw great potential to move money out of their countries. Self-fulfilling prophecy continues. If there was no war on drugs and over-regulation of cross-border money transfers, BTC would not be taken off. As first crypto-currency, BTC didn't need fast transactions, low fees etc, since there was no alternative for these people anyway. Currently, there are technically better crypto-currencies than BTC but BTC is still alive because of strong network effect and it's safety was tested by time (after all it has longest chain in the world). The whole story about discussions around BTC showed that you can have Phd in Economics and still suck at economy and simple reasoning beyond standard stuff you've been taught in university.

WA 9y ago
And what do these wealthy Chinese and Russians do, if they never can turn BTC back to their currency and neither can buy stuff with it?
- 1337biz 9y ago
  Why shouldn't they be able to get Dollars or Euros for their coins?
- ithinkinstereo 9y ago
  A lot of these funds are either illegally sourced or at risk of government seizure. Crypto provides an avenue to possibly "save" these funds. Watch as middle easterners soon flock to crypto. What's going on in KSA is a great advertisement for crypto to the 1% that live there.
  - 9y ago

jacknews 9y ago

Again, a very selective headline, since the analyst is essentially saying there are no "fundamentals" to bitcoin, nothing to really anchor it's price. Yes, the value could be zero - if no-one wants to buy it. But currently, some do, and so the "value" is whatever they are willing to pay, either in terms of dollars, or head of cattle, or whatever. Of course if "value" is defined as "intrinsic usefulness" then it perhaps is actually worth nothing at all, very much like any fiat currency (though in paper form I guess those have some "firewood" or "toilet paper" value).

htormey 9y ago

This is not a good article on bitcoin as it focuses on valuing it as a medium of exchange. Seeking alpha has a better series on the subject which provides charts and sources to back up its analysis. The above article just cites a Morgan Stanley paper without providing access to it. This part of the seeking alpha series focuses on btc usage: https://seekingalpha.com/amp/article/4122695-bitcoin-series-2-usage#click=https://t.co/XaXsedE15x https://seekingalpha.com/amp/article/4122695-bitcoin-series-... If you look at btc usage, it seems like about 97% of blockchain transactions are speculation. I.e buying/selling on exchanges as opposed to it being used to pay for goods and services. When you factor in transaction costs and the time it takes transfers to go through, it seems pretty safe to say that btc in its current form is not being used as money. This is nothing new. The question now is what if anything is btc worth as a store of value? I’d love to see an article dig into that question a bit more. All the parent article has to say on this topic is: “Like digital gold? Maybe. Does not have any intrinsic use like gold has in electronics or jewelry. But investors appear to be ascribing some value to it.” Which really doesn’t tell you much.

thisisit 9y ago

I sometimes wonder if pieces like these, trying to value bitcoin actually understand what they are doing. Cryptocurrencies are entirely new and trying to fit it within an existing fixed framework is an issue. The main question is - How do we look at it? Is it a currency, store of value, derivative, medium of exchange, technology? This valuation seems to focus on the medium of exchange and currency aspect. But there are other ways to approach it. One of the easiest and maybe amateurish way to look is through the mining and electricity costs. Sure, it is like a self fulfilling prophecy - more you mine, higher the difficulty and hence higher electricity costs, then you mine more, difficulty increases and it goes in circles. Obviously the electricity costs are alone not enough to justify the current value. But it certainly will not be zero.

red5tar 9y ago

Some don't understand bitcoin, because they think money is real.

simonblack 9y ago

We've seen the astronomic valuation of worthless objects thing before. As well as the 'This time it's different' fallacy before. I'm talking about the Dot.com boom and bust. https://en.wikipedia.org/wiki/Dot-com_bubble https://en.wikipedia.org/wiki/Dot-com_bubble