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"Rather, dollars are a temporary store of value, a means of transmitting that value from one person to another. As Buffett says, valuing bitcoin is like trying

"Rather, dollars are a temporary store of value, a means of transmitting that value from one person to another. As Buffett says, valuing bitcoin is like trying to value a paper check drawn on a bank. Pointless." I agree with the premise of the article, but isn't this quote a jump from that? Whats preventing bitcoin from being a temporary store of value to transmit from one person to another; Isn't there a second argument to be made on why its a bad _currency_ or not? I think something like this article: https://www.bloomberg.com/view/articles/2017-12-27/bitcoin-is-an-implausible-currency https://www.bloomberg.com/view/articles/2017-12-27/bitcoin-i...

billmalarky 9y ago
The author sort of covers that in this line: >I counter that just about nobody thinks of American cash as an investment, except for perhaps currency speculators. Of course that sort of ignores the fact that bitcoin investors are currency speculators...
- aetherson 9y ago
  "Nobody thinks of American cash as an investment, except for perhaps those who invest in it."
  - deleted 9y ago
    [deleted]
  - JumpCrisscross 9y ago
    > Nobody thinks of American cash as an investment, except for perhaps those who invest in it Most buyers of U.S. dollars buy it for non-speculative purposes. Out of those who speculate on it, most do so in tandem with buying bonds and borrowing. Most FX is a cousin of rates trading more than hoping your currency goes up.
    - aetherson 9y ago
      > Most buyers of U.S. dollars buy it for non-speculative purposes. Sure! I didn't say, "except for perhaps those who buy it," I said, "for those who invest in it." > Out of those who speculate on it, most do so in tandem with buying bonds and borrowing. Most FX is a cousin of rates trading more than hoping your currency goes up. I agree, but don't feel like we would split these kinds of hairs when talking about other kinds of investment. Like, do we consider shorts and arbitrage and other more sophisticated forms of dabbling in financial markets to be "not investment" because they aren't "buy a stock; hope it goes up"? Perhaps when in technical discussion, but in common parlance, I feel like this is a distinction driven by emotion.
      - coldtea 9y ago
        >Sure! I didn't say, "except for perhaps those who buy it," I said, "for those who invest in it." Well, if those are statistically insignificant outliers, then "nobody" still stands, as it's a colloquialism for "very few people" or "only stupid ones" -- it doesn't really mean "absolutely no one in the history of the world". Except if you mean people like Soros and co, speculating on national currencies (but those are few and far between too)
        njarboe 9y ago
        Those few and far between opportunities is what the consistently great investors shoot for. I think I might agree with Warren Buffet and his view of investing. If you are a professional investor, patience and rare (every few years) big bets when things look very good. Otherwise, full market index funds.
- njarboe 9y ago
  Before the interest rates crashed, many people put most of their money into saving accounts that paid more interest than inflation. They probably thought of this more as saving than investing, but what many people are looking for is a store of value that wont go down and pays a bit of interest. Historically getting 3% on very secure, gold denominated debt was the norm. Savers don't necessarily want to be investors. Most people don't have the combination of time, interest, temperament, and intelligence to invest well. You used to be able to just buy US bonds or longer term CDs and do OK, but this is no longer the case. Now the savers are encouraged to buy broad market index funds using a time averaged purchase method and never sell the dips (or buy extra during the booms). This just does not sit well for moderately risk adverse people (and this risk aversion is also a trait that makes them want to have savings). I think the smart money knows that a combination of factors has put the dollar in a less sound footing than in the past (rise of China, $20 trillion US debt, US baby boomer pension, social security, and medicaid obligations, decline in the dollar denominated global oil market, etc) and no long want to hold US dollar based assets (US bonds, US cash, US corp debt, etc). In fact you see a lot of the rich piling up US dollar debt against their assets. Regular people are now also feeling the fiat currencies are no longer a good store of value, still want to save, but don't want to be investors. So what to save? Copper ingots? Bushels of wheat? Barrels of oil? Bitcoin or some other cryptocurrency could be it. Maybe a few of them could be, but for now they look like a crazy frenzy of Ponzi schemes. The regular public is getting sucked in with many stories of 10x in a year returns and are not familiar with previous 80% crashes. If a a single cryptocurrency does become the default store of value for the masses of conservative savers then another 100x from current price levels is not unreasonable. Bitcoin seems the most likely candidate at the moment.
deleted 9y ago
[deleted]
noncoml 9y ago
> its a bad _currency_ The problems that I see are: 1. There is a finite number of bitcoins, which means you can never have inflation, or in other words the bitcoin price is only going up tomorrow. So it doesn't make sense for people to spend it. 2. Mining. It costs a lot to mine a bitcoin. Imagine if the US government had to spend 1 billion worth of energy to print 1 billion dollars. I think Bitcoin was designed to be analogous to gold. We stopped using gold as currency many years ago. But then again, I know little about economics and finance, so don't take my word for it.
- tootie 9y ago
  The political/economic climate around the time bitcoin caught on was also the Ron Paul/Austrian economics fad. They were calling the end of the USD and fiat currencies because central banks were risking hyperinflation. Lots of people were calling for a return to gold. BTC seemed even better. I think it's safe to say they were completely wrong about everything and orthodoxy won the day.
  - AznHisoka 9y ago
    Weird, is Austrian economics a fad? I always thought it was a legitimate, alternative model of economics that was just as valid (if not more) as Keynesian.
    - sprafa 9y ago
      Both the Keynesian and the Austrian models have been shown to be flawed and incomplete understandings (from what I understand of it). They can explain some things, but they break down, and in those breakdowns we had crises - keynesian thinking was abandoned after the 70s crisis, and now monetarism is being (slowly and reluctantly) abandoned after 2008. I find that the assumptions on both models, that humans can measure and act according to their own preferences, might be one of the core issues with economics today. In fact if you keep to that idea economics is more of a religion than fact. There's very little evidence that humans act rationally in economic situations. There's accumulating evidence they don't. Economics makes more sense if you come at it from psychology from my view: humans are irrational and so are markets. Rational thinking is the exception, not the norm (might be an odd idea for the HN audience, but think about everyone else...)
tbabb 9y ago
This article talks in more detail about that: http://www.bzarg.com/p/what-bitcoin-shows-us-about-how-money-works/ http://www.bzarg.com/p/what-bitcoin-shows-us-about-how-money... Bitcoin is a bad currency because it doesn't count value consistently. And it never could, because there is no central bank to regulate supply to balance an inevitably fluctuating demand.
- hisabness 9y ago
  you don't think an open market could create that equilibrium? Particularly when the coin is out of the adoption phase?
  - brucephillips 9y ago
    No. How would it?

billmalarky 9y ago

The author sort of covers that in this line: >I counter that just about nobody thinks of American cash as an investment, except for perhaps currency speculators. Of course that sort of ignores the fact that bitcoin investors are currency speculators...

aetherson 9y ago
"Nobody thinks of American cash as an investment, except for perhaps those who invest in it."
- deleted 9y ago
  [deleted]
- JumpCrisscross 9y ago
  > Nobody thinks of American cash as an investment, except for perhaps those who invest in it Most buyers of U.S. dollars buy it for non-speculative purposes. Out of those who speculate on it, most do so in tandem with buying bonds and borrowing. Most FX is a cousin of rates trading more than hoping your currency goes up.
  - aetherson 9y ago
    > Most buyers of U.S. dollars buy it for non-speculative purposes. Sure! I didn't say, "except for perhaps those who buy it," I said, "for those who invest in it." > Out of those who speculate on it, most do so in tandem with buying bonds and borrowing. Most FX is a cousin of rates trading more than hoping your currency goes up. I agree, but don't feel like we would split these kinds of hairs when talking about other kinds of investment. Like, do we consider shorts and arbitrage and other more sophisticated forms of dabbling in financial markets to be "not investment" because they aren't "buy a stock; hope it goes up"? Perhaps when in technical discussion, but in common parlance, I feel like this is a distinction driven by emotion.
    - coldtea 9y ago
      >Sure! I didn't say, "except for perhaps those who buy it," I said, "for those who invest in it." Well, if those are statistically insignificant outliers, then "nobody" still stands, as it's a colloquialism for "very few people" or "only stupid ones" -- it doesn't really mean "absolutely no one in the history of the world". Except if you mean people like Soros and co, speculating on national currencies (but those are few and far between too)
      - njarboe 9y ago
        Those few and far between opportunities is what the consistently great investors shoot for. I think I might agree with Warren Buffet and his view of investing. If you are a professional investor, patience and rare (every few years) big bets when things look very good. Otherwise, full market index funds.
njarboe 9y ago
Before the interest rates crashed, many people put most of their money into saving accounts that paid more interest than inflation. They probably thought of this more as saving than investing, but what many people are looking for is a store of value that wont go down and pays a bit of interest. Historically getting 3% on very secure, gold denominated debt was the norm. Savers don't necessarily want to be investors. Most people don't have the combination of time, interest, temperament, and intelligence to invest well. You used to be able to just buy US bonds or longer term CDs and do OK, but this is no longer the case. Now the savers are encouraged to buy broad market index funds using a time averaged purchase method and never sell the dips (or buy extra during the booms). This just does not sit well for moderately risk adverse people (and this risk aversion is also a trait that makes them want to have savings). I think the smart money knows that a combination of factors has put the dollar in a less sound footing than in the past (rise of China, $20 trillion US debt, US baby boomer pension, social security, and medicaid obligations, decline in the dollar denominated global oil market, etc) and no long want to hold US dollar based assets (US bonds, US cash, US corp debt, etc). In fact you see a lot of the rich piling up US dollar debt against their assets. Regular people are now also feeling the fiat currencies are no longer a good store of value, still want to save, but don't want to be investors. So what to save? Copper ingots? Bushels of wheat? Barrels of oil? Bitcoin or some other cryptocurrency could be it. Maybe a few of them could be, but for now they look like a crazy frenzy of Ponzi schemes. The regular public is getting sucked in with many stories of 10x in a year returns and are not familiar with previous 80% crashes. If a a single cryptocurrency does become the default store of value for the masses of conservative savers then another 100x from current price levels is not unreasonable. Bitcoin seems the most likely candidate at the moment.

deleted 9y ago

[deleted]

noncoml 9y ago

> its a bad _currency_ The problems that I see are: 1. There is a finite number of bitcoins, which means you can never have inflation, or in other words the bitcoin price is only going up tomorrow. So it doesn't make sense for people to spend it. 2. Mining. It costs a lot to mine a bitcoin. Imagine if the US government had to spend 1 billion worth of energy to print 1 billion dollars. I think Bitcoin was designed to be analogous to gold. We stopped using gold as currency many years ago. But then again, I know little about economics and finance, so don't take my word for it.

tootie 9y ago
The political/economic climate around the time bitcoin caught on was also the Ron Paul/Austrian economics fad. They were calling the end of the USD and fiat currencies because central banks were risking hyperinflation. Lots of people were calling for a return to gold. BTC seemed even better. I think it's safe to say they were completely wrong about everything and orthodoxy won the day.
- AznHisoka 9y ago
  Weird, is Austrian economics a fad? I always thought it was a legitimate, alternative model of economics that was just as valid (if not more) as Keynesian.
  - sprafa 9y ago
    Both the Keynesian and the Austrian models have been shown to be flawed and incomplete understandings (from what I understand of it). They can explain some things, but they break down, and in those breakdowns we had crises - keynesian thinking was abandoned after the 70s crisis, and now monetarism is being (slowly and reluctantly) abandoned after 2008. I find that the assumptions on both models, that humans can measure and act according to their own preferences, might be one of the core issues with economics today. In fact if you keep to that idea economics is more of a religion than fact. There's very little evidence that humans act rationally in economic situations. There's accumulating evidence they don't. Economics makes more sense if you come at it from psychology from my view: humans are irrational and so are markets. Rational thinking is the exception, not the norm (might be an odd idea for the HN audience, but think about everyone else...)

tbabb 9y ago

This article talks in more detail about that: http://www.bzarg.com/p/what-bitcoin-shows-us-about-how-money-works/ http://www.bzarg.com/p/what-bitcoin-shows-us-about-how-money... Bitcoin is a bad currency because it doesn't count value consistently. And it never could, because there is no central bank to regulate supply to balance an inevitably fluctuating demand.

hisabness 9y ago
you don't think an open market could create that equilibrium? Particularly when the coin is out of the adoption phase?
- brucephillips 9y ago
  No. How would it?