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There is an open possibility that cash will flood into BTC/ETH as a store of value in a highly volatile S&P market, replacing traditional reservoirs (eg: Japane

by ihsw2 9y ago

There is an open possibility that cash will flood into BTC/ETH as a store of value in a highly volatile S&P market, replacing traditional reservoirs (eg: Japanese/other international equities, precious metals, etc).

dragontamer 9y ago
> highly volatile S&P market Erm, S&P's implied volatility is 23.62% / 30-days. Bitcoin's volatility is over 100% / 30-days. https://www.bitmex.com/app/index/.BVOL https://www.bitmex.com/app/index/.BVOL Implied volatility and historical volatility are different, but they're at least "the same units". So please tolerate this apples-to-oranges comparison. Still, its clear that BTC is way more volatile than the S&P500, even today. In times of crisis, people move their money from high-volatility to low-volatility sources. IE: Stocks to Bonds. In times of growth, people move from low-volatility to riskier (but higher potential of gains), ie: Bonds to Stocks.
ng12 9y ago
I doubt it. Buying gold is irrational in most situations. People do it because it "feels" safe and I'd argue BTC definitely does not.
- AnimalMuppet 9y ago
  I disagree. I think gold functions, essentially, as a short on paper currencies.
  - ng12 9y ago
    I didn't say you can't make money buying gold, just that gold is driven by irrational fear.
    - AnimalMuppet 9y ago
      And I still disagree. Deciding you want a way to short paper currencies can, at times, be very rational. Does gold fulfill that function reasonably well? Yes, I think history shows that it does. So it can be very rational to buy gold. (Perhaps "short" was the wrong word. But it is where people go - with reason - when they're losing confidence in fiat currencies.)
- hyperbovine 9y ago
  Exactly. There is a reason that the BTC icon is ... a gold coin.
bmpafa 9y ago
Why BTC / ETH and not, say, bonds? I would think BTC / ETH would be anathema to someone fleeing volatility, no matter how bad the S&P got, but I am only a casual watcher of any market.
hw 9y ago
Crypto is far from being a good store of value. I'd argue it's even more volatile than the legacy markets right now. If anything, there'd be a spillover where traders and investors derisk entirely and go into fiat or the traditional store of value which is gold.
sbinthree 9y ago
No, this won't happen, fear makes people go back to old stores of value / dig in to their current ways, as opposed to seeking out new ways (usually). The circumstances that lead people to seek out new ways tend to be an absence of fear and a desire for better functionality as opposed to fear. Cryptos are much more likely than conventional securities to go to near-zero, and fearful people know that.
tedsanders 9y ago
Your comment contains a financial fallacy. Cash cannot flood "into" assets. For every buyer of an asset there is always a seller of that asset. The same number of dollars will be held regardless of the price of cryptocurrencies.
- djrogers 9y ago
  No, if I buy BTC for $1 then sell it for $2, there is now $1 more in BTC than I put in to it. If cash cannot flood 'into' an asset, then the assets value would never grow.
  - dragonwriter 9y ago
    > No, if I buy BTC for $1 then sell it for $2, there is now $1 more in BTC than I put in to it. There are no dollars in BTC, period. Dollars and BTC may both move, and in certain exchanges one may be traded for the other, but the dollars are never in BTC. (Your net worth, which you may choose to measure in dollars, may be tied up in BTC, but no actual dollars are.)
  - tedsanders 9y ago
    No worries, this is actually a pretty subtle concept because it's an instance where the properties of the aggregate are different than the properties of the individual. An individual can put cash into an asset. You can start with $1, then exchange it for BTC, and now you have $0. The amount of dollars in your accounts has gone down and the amount of BTC in your accounts has gone up. But in aggregate, this is impossible. There is a (mostly[1]) fixed supply of dollars in the world. And there is a (mostly) fixed supply of BTC in the world. When you buy BTC for $1, the $1 just moves from your account to someone else's account. Their BTC moves from their account to your account. In aggregate the amount of dollars is the same before the transaction and after. The amount of BTC is the same before the transaction and after. The reason for this is that for every buyer, there is always a seller. Every single time someone puts dollars "into" an asset, someone else is taking dollars "out of" the asset on the other side of the trade. No one has ever put dollars "into" BTC on net. Generally, prices do not go up because dollars go "into" the asset. It is fallacious to say that the stock market has gone up because dollars have gone "into" the stock market. Dollars flow through markets, they don't flow into markets. Prices reflect opinions of people making transactions, they don't reflect a history of dollars that have gone "into" an asset. To be fair, this issue is kind of pedantic and besides the main point of this thread, but I do think it's a fallacy worth being aware of. Ever since I learned of it, my financial thinking has felt clearer. [1] let's say fixed with respect to you any buy/sell transactions you may or may not execute (this would have be an asterisk, but it turned all of my text into italics)
john_moscow 9y ago
Sure, fearing overvaluation (i.e. too high price-to-earnings ratio) of stock markets, people will switch to an asset where the "earnings" part is zero by design. Sorry, but I would rather place my bets on real estate or dividend stocks (reasonably P/E'd stocks to be more precise).
this_user 9y ago
That makes no sense at all. High volatility for the SPX means +-2% a day. High volatility for crypto currencies means > 20%. Why would you try to secure your capital by moving it to something that is orders of magnitude more volatile? A store of value is by definition something that moves as little as possible.

by ihsw2 9y ago

dragontamer 9y ago

> highly volatile S&P market Erm, S&P's implied volatility is 23.62% / 30-days. Bitcoin's volatility is over 100% / 30-days. https://www.bitmex.com/app/index/.BVOL https://www.bitmex.com/app/index/.BVOL Implied volatility and historical volatility are different, but they're at least "the same units". So please tolerate this apples-to-oranges comparison. Still, its clear that BTC is way more volatile than the S&P500, even today. In times of crisis, people move their money from high-volatility to low-volatility sources. IE: Stocks to Bonds. In times of growth, people move from low-volatility to riskier (but higher potential of gains), ie: Bonds to Stocks.

ng12 9y ago

I doubt it. Buying gold is irrational in most situations. People do it because it "feels" safe and I'd argue BTC definitely does not.

AnimalMuppet 9y ago
I disagree. I think gold functions, essentially, as a short on paper currencies.
- ng12 9y ago
  I didn't say you can't make money buying gold, just that gold is driven by irrational fear.
  - AnimalMuppet 9y ago
    And I still disagree. Deciding you want a way to short paper currencies can, at times, be very rational. Does gold fulfill that function reasonably well? Yes, I think history shows that it does. So it can be very rational to buy gold. (Perhaps "short" was the wrong word. But it is where people go - with reason - when they're losing confidence in fiat currencies.)
hyperbovine 9y ago
Exactly. There is a reason that the BTC icon is ... a gold coin.

bmpafa 9y ago

Why BTC / ETH and not, say, bonds? I would think BTC / ETH would be anathema to someone fleeing volatility, no matter how bad the S&P got, but I am only a casual watcher of any market.

hw 9y ago

Crypto is far from being a good store of value. I'd argue it's even more volatile than the legacy markets right now. If anything, there'd be a spillover where traders and investors derisk entirely and go into fiat or the traditional store of value which is gold.

sbinthree 9y ago

No, this won't happen, fear makes people go back to old stores of value / dig in to their current ways, as opposed to seeking out new ways (usually). The circumstances that lead people to seek out new ways tend to be an absence of fear and a desire for better functionality as opposed to fear. Cryptos are much more likely than conventional securities to go to near-zero, and fearful people know that.

tedsanders 9y ago

Your comment contains a financial fallacy. Cash cannot flood "into" assets. For every buyer of an asset there is always a seller of that asset. The same number of dollars will be held regardless of the price of cryptocurrencies.

djrogers 9y ago
No, if I buy BTC for $1 then sell it for $2, there is now $1 more in BTC than I put in to it. If cash cannot flood 'into' an asset, then the assets value would never grow.
- dragonwriter 9y ago
  > No, if I buy BTC for $1 then sell it for $2, there is now $1 more in BTC than I put in to it. There are no dollars in BTC, period. Dollars and BTC may both move, and in certain exchanges one may be traded for the other, but the dollars are never in BTC. (Your net worth, which you may choose to measure in dollars, may be tied up in BTC, but no actual dollars are.)
- tedsanders 9y ago
  No worries, this is actually a pretty subtle concept because it's an instance where the properties of the aggregate are different than the properties of the individual. An individual can put cash into an asset. You can start with $1, then exchange it for BTC, and now you have $0. The amount of dollars in your accounts has gone down and the amount of BTC in your accounts has gone up. But in aggregate, this is impossible. There is a (mostly[1]) fixed supply of dollars in the world. And there is a (mostly) fixed supply of BTC in the world. When you buy BTC for $1, the $1 just moves from your account to someone else's account. Their BTC moves from their account to your account. In aggregate the amount of dollars is the same before the transaction and after. The amount of BTC is the same before the transaction and after. The reason for this is that for every buyer, there is always a seller. Every single time someone puts dollars "into" an asset, someone else is taking dollars "out of" the asset on the other side of the trade. No one has ever put dollars "into" BTC on net. Generally, prices do not go up because dollars go "into" the asset. It is fallacious to say that the stock market has gone up because dollars have gone "into" the stock market. Dollars flow through markets, they don't flow into markets. Prices reflect opinions of people making transactions, they don't reflect a history of dollars that have gone "into" an asset. To be fair, this issue is kind of pedantic and besides the main point of this thread, but I do think it's a fallacy worth being aware of. Ever since I learned of it, my financial thinking has felt clearer. [1] let's say fixed with respect to you any buy/sell transactions you may or may not execute (this would have be an asterisk, but it turned all of my text into italics)

john_moscow 9y ago

Sure, fearing overvaluation (i.e. too high price-to-earnings ratio) of stock markets, people will switch to an asset where the "earnings" part is zero by design. Sorry, but I would rather place my bets on real estate or dividend stocks (reasonably P/E'd stocks to be more precise).

this_user 9y ago

That makes no sense at all. High volatility for the SPX means +-2% a day. High volatility for crypto currencies means > 20%. Why would you try to secure your capital by moving it to something that is orders of magnitude more volatile? A store of value is by definition something that moves as little as possible.