7 ms·

How can Bitcoin stabilize if it's a Keynesian Beauty Contest?

36 points by whysonot 8y ago

DINKDINK 8y ago
Bitcoin doesn't need to stabilize to be successful. In the same way that the exchange rate of the hyperinflating German Mark and gold didn't need to stabilize. All bitcoin needs to do is continue to operate with it's programmed monetary policy such that its value can't be inflated away through coercion. Money is a commodity whose goal is to transport value through space and time. We are living through -- in human-species scale -- a brief 90-year experiment in the artificial elimination of a free market of monies by violence of the state (until bitcoin was invented). Artificially increasing and decreasing the supply of money in an economy has about just as much utility as artificially increasing and decreasing the supply of any other good -- which is none. Bitcoin's success narrative doesn't depend on the amount of non-scarce dollars the market is willing to trade for it ceasing to change ('stabilize'). The success narrative is: an increasing set of people understanding that the hardest money always wins. Bitcoin is one halvening away from being harder than gold and is _the_ hardest money ever in existance. Those who have taken exposure to bitcoin will have more wealth preserved than those who denominate their value in inflatable dollars. As more people see bitcoin improving the quality of life of individuals they also take exposure to bitcoin. This process doesn't need a planner nor intelligent agents, it just needs bricolage.
- craigc 8y ago
  Thank you for posting this. Not surprising to see you getting downvoted to oblivion here, but this is something that people really need to keep an open mind about.
  - fjsolwmv 8y ago
    It's downvotes because it's using false facts as a basis for opinion, and using weak logic to connect them. Fiat money is over 90years old, Bitcoin is deflationat by design, and neither of these facts matter. The open market is subject to manipulation (counterfeiting and cornering) as much as government fiat.
    - craigc 8y ago
      Can you please point out the false facts to me?
    - DINKDINK 8y ago
      What are the errors?
adrianscott 8y ago
Bitcoin is stable in reference to itself, just as USD is stable in reference to itself.
- threeseed 8y ago
  USD is also stable in reference to almost everything else. Bitcoin isn't.
  - adrianscott 8y ago
    Would you consider USD also subject to a Keynesian Beauty Contest?
    - lordnacho 8y ago
      Yes, there's a 24/5 FX market where people decide what it's worth in relation to other currencies.
      - adrianscott 8y ago
        agreed
      - brokensegue 8y ago
        The prices fluctuate not due to mere speculation (on the beauty of currencies) but the need to convert currencies to run a company or live your life (e.g. you have dollars and you need to pay your supplier in yuan).
      - fjsolwmv 8y ago
        FX markets are open all night but close on weekends?
        derekp7 8y ago
        To paraphrase Jimmy Buffet, It is always between 9:00 AM and 5:00 PM somewhere.
darawk 8y ago
It is empirically the case that Keynesian beauty pageant assets can have stable prices: e.g. gold.
mastermojo 8y ago
So the article concludes that Bitcoin can gain stability by being anchored to the price of gold. However isn't gold a "Keynesian Beauty Contest"? That is, gold is valuable because other people believe other people believe it is a store of value.
- posixplz 8y ago
  Gold also has intrinsic utility to industry. The same cannot be said for Bitcoin.
  - craigc 8y ago
    Gold isn’t valuable because of its utility to industry. It is valuable because of its scarcity.
  - charlesdm 8y ago
    That value is minimal however, in comparison to the total market cap of gold.
    - doyoulikeworms 8y ago
      I think there's something to be said about gold's utility as money. It's remarkably good at being money compared to other materials. It's easy to store, identify, divide, it's fungible, and it's scarce enough. If civilization were to collapse, I think that there's a fair chance that we'd be using gold and other precious metals as money again, whether or not it was used in the past.
      - charlesdm 8y ago
        I'm not sure I believe that. If civilization were to collapse, you'd want food, medicine, potentially gas. Potentially solar cells, and some other things. I think you'd see more traditional bartering than money being introduced again in its earliest stages.
        8y ago
andreygrehov 8y ago
There is a belief that Bitcoin is following specific pattern [0] and will stabilize in 2030 at ~$1M per coin. So far the model was pretty accurate. [0] https://1nodld1ltmqu3jimmy2xsgcu-wpengine.netdna-ssl.com/wp-content/uploads/2017/11/Bitcoin-Chart.png https://1nodld1ltmqu3jimmy2xsgcu-wpengine.netdna-ssl.com/wp-... P.S. Dear downvoters, this is not a financial advice!
- soraki_soladead 8y ago
  The data in that "model" appears to stop before the end of 2014. The last year of Bitcoin price breaks that "model". I'm also using scare quotes because those kind of "models" should be scary because they're misleading at best.
- brokensegue 8y ago
  that chart is currently off by like 100%
  - andreygrehov 8y ago
    This is chart is not off at all. There is, actually, an updated version https://cryptoslate.com/wp-content/uploads/2018/10/chart.png https://cryptoslate.com/wp-content/uploads/2018/10/chart.png. I have no idea if the trend will continue.
    - retsibsi 8y ago
      > There is, actually, an updated version https://cryptoslate.com/wp-content/uploads/2018/10/chart.png https://cryptoslate.com/wp-content/uploads/2018/10/chart.png. That's a different chart. It's closer to being accurate because it's been modified to fit more recent data.
      - mikeyouse 8y ago
        Notably, the updated version moves their $100k/BTC projection from 2021 to 2025. Yikes to anyone who thinks these tea leaves have any meaning.
mrb 8y ago
Bitcoin has actually become a lot less volatile, when measured objectively over the last few years: https://twitter.com/lsukernik/status/864920873718951937 https://twitter.com/lsukernik/status/864920873718951937 https://news.bitcoin.com/volatility-decreasing/ https://news.bitcoin.com/volatility-decreasing/
- wilg 8y ago
  Yes these two links to two images presented without comment from a cryptocurrency VC and news.bitcoin.com scream "objective" to me.
  - mrb 8y ago
    Price data is freely available from many sources for you to examine and issue your own conclusion. Here is another chart: http://images.woobull.com/2016/10/volatility-btc-vs-fiat.png http://images.woobull.com/2016/10/volatility-btc-vs-fiat.png (from https://woobull.com/bitcoin-volatility-will-match-major-fiat-currencies-by-2019/ https://woobull.com/bitcoin-volatility-will-match-major-fiat...) The long-term trend is that BTC is becoming less and less volatile.
apo 8y ago
The meaning of the word "stabilize" isn't clear from the article, despite being used 12 times in the body and once in the title. It would have been easy to make the article more clear. Simply explain what aspect of Bitcoin is supposed to stabilize. Given the unending fascination with the USD/BTC exchange rate, it can be assumed that the author is referring to this metric. The inclusion of the heading "Does the price of Bitcoin have a Nash equilibrium?" also supports this idea. However, if this is the case, why does the author include the following quote the middle of the article: Why has Amazon stabilized, and will bitcoin do the same? When Amazon shares debuted back in 1997, earnings were non-existent. […] The USD price of AMZN has in no way stabilized: http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=amzn&insttype=&freq=2&show=&time=13 http://bigcharts.marketwatch.com/quickchart/quickchart.asp?s... As you can see, it's a concave-upward curve, punctuated by various declines, all the way back to 2003. This may sound like hair-splitting, but I think there's a real possibility the author is actually talking about USD/BTC exchange rate volatility. This is an animal of a completely different stripe.
- derekp7 8y ago
  I would say that stability refers to purchasing power, and doesn't need to be a flat line. It can also be a simple math function (liner, logarithmic, exponential) which means that it is somewhat predictable. (Edit: I think a better word than "stable" may be "dependable", which is probably what the article meant). For example, the US Dollar loses purchasing power over time, but that is OK, since it is mostly at a predictable rate. But when something has wild swings up and down, and random times, then it is less suitable to either use as a currency (the stock person with the price gun will be working overtime correcting prices on everything several times a day), and it isn't that good of a store of value if there isn't any reason for it to not lose all of its value over a given period of time. The Amazon graph you linked to does look fairly stable, a nice exponential function that has very good reasons to remain so for a good period of time (not saying this or anything else is guaranteed, but at least there is something tangible behind that price).

36 points by whysonot 8y ago

Bitcoin doesn't need to stabilize to be successful. In the same way that the exchange rate of the hyperinflating German Mark and gold didn't need to stabilize. All bitcoin needs to do is continue to operate with it's programmed monetary policy such that its value can't be inflated away through coercion. Money is a commodity whose goal is to transport value through space and time. We are living through -- in human-species scale -- a brief 90-year experiment in the artificial elimination of a free market of monies by violence of the state (until bitcoin was invented). Artificially increasing and decreasing the supply of money in an economy has about just as much utility as artificially increasing and decreasing the supply of any other good -- which is none. Bitcoin's success narrative doesn't depend on the amount of non-scarce dollars the market is willing to trade for it ceasing to change ('stabilize'). The success narrative is: an increasing set of people understanding that the hardest money always wins. Bitcoin is one halvening away from being harder than gold and is _the_ hardest money ever in existance. Those who have taken exposure to bitcoin will have more wealth preserved than those who denominate their value in inflatable dollars. As more people see bitcoin improving the quality of life of individuals they also take exposure to bitcoin. This process doesn't need a planner nor intelligent agents, it just needs bricolage.

craigc 8y ago
Thank you for posting this. Not surprising to see you getting downvoted to oblivion here, but this is something that people really need to keep an open mind about.
- fjsolwmv 8y ago
  It's downvotes because it's using false facts as a basis for opinion, and using weak logic to connect them. Fiat money is over 90years old, Bitcoin is deflationat by design, and neither of these facts matter. The open market is subject to manipulation (counterfeiting and cornering) as much as government fiat.
  - craigc 8y ago
    Can you please point out the false facts to me?
  - DINKDINK 8y ago
    What are the errors?

adrianscott 8y ago

Bitcoin is stable in reference to itself, just as USD is stable in reference to itself.

threeseed 8y ago
USD is also stable in reference to almost everything else. Bitcoin isn't.
- adrianscott 8y ago
  Would you consider USD also subject to a Keynesian Beauty Contest?
  - lordnacho 8y ago
    Yes, there's a 24/5 FX market where people decide what it's worth in relation to other currencies.
    - adrianscott 8y ago
      agreed
    - brokensegue 8y ago
      The prices fluctuate not due to mere speculation (on the beauty of currencies) but the need to convert currencies to run a company or live your life (e.g. you have dollars and you need to pay your supplier in yuan).
    - fjsolwmv 8y ago
      FX markets are open all night but close on weekends?
      - derekp7 8y ago
        To paraphrase Jimmy Buffet, It is always between 9:00 AM and 5:00 PM somewhere.

darawk 8y ago

It is empirically the case that Keynesian beauty pageant assets can have stable prices: e.g. gold.

mastermojo 8y ago

So the article concludes that Bitcoin can gain stability by being anchored to the price of gold. However isn't gold a "Keynesian Beauty Contest"? That is, gold is valuable because other people believe other people believe it is a store of value.

posixplz 8y ago
Gold also has intrinsic utility to industry. The same cannot be said for Bitcoin.
- craigc 8y ago
  Gold isn’t valuable because of its utility to industry. It is valuable because of its scarcity.
- charlesdm 8y ago
  That value is minimal however, in comparison to the total market cap of gold.
  - doyoulikeworms 8y ago
    I think there's something to be said about gold's utility as money. It's remarkably good at being money compared to other materials. It's easy to store, identify, divide, it's fungible, and it's scarce enough. If civilization were to collapse, I think that there's a fair chance that we'd be using gold and other precious metals as money again, whether or not it was used in the past.
    - charlesdm 8y ago
      I'm not sure I believe that. If civilization were to collapse, you'd want food, medicine, potentially gas. Potentially solar cells, and some other things. I think you'd see more traditional bartering than money being introduced again in its earliest stages.
      - 8y ago

andreygrehov 8y ago

There is a belief that Bitcoin is following specific pattern [0] and will stabilize in 2030 at ~$1M per coin. So far the model was pretty accurate. [0] https://1nodld1ltmqu3jimmy2xsgcu-wpengine.netdna-ssl.com/wp-content/uploads/2017/11/Bitcoin-Chart.png https://1nodld1ltmqu3jimmy2xsgcu-wpengine.netdna-ssl.com/wp-... P.S. Dear downvoters, this is not a financial advice!

soraki_soladead 8y ago
The data in that "model" appears to stop before the end of 2014. The last year of Bitcoin price breaks that "model". I'm also using scare quotes because those kind of "models" should be scary because they're misleading at best.
brokensegue 8y ago
that chart is currently off by like 100%
- andreygrehov 8y ago
  This is chart is not off at all. There is, actually, an updated version https://cryptoslate.com/wp-content/uploads/2018/10/chart.png https://cryptoslate.com/wp-content/uploads/2018/10/chart.png. I have no idea if the trend will continue.
  - retsibsi 8y ago
    > There is, actually, an updated version https://cryptoslate.com/wp-content/uploads/2018/10/chart.png https://cryptoslate.com/wp-content/uploads/2018/10/chart.png. That's a different chart. It's closer to being accurate because it's been modified to fit more recent data.
    - mikeyouse 8y ago
      Notably, the updated version moves their $100k/BTC projection from 2021 to 2025. Yikes to anyone who thinks these tea leaves have any meaning.

mrb 8y ago

Bitcoin has actually become a lot less volatile, when measured objectively over the last few years: https://twitter.com/lsukernik/status/864920873718951937 https://twitter.com/lsukernik/status/864920873718951937 https://news.bitcoin.com/volatility-decreasing/ https://news.bitcoin.com/volatility-decreasing/

wilg 8y ago
Yes these two links to two images presented without comment from a cryptocurrency VC and news.bitcoin.com scream "objective" to me.
- mrb 8y ago
  Price data is freely available from many sources for you to examine and issue your own conclusion. Here is another chart: http://images.woobull.com/2016/10/volatility-btc-vs-fiat.png http://images.woobull.com/2016/10/volatility-btc-vs-fiat.png (from https://woobull.com/bitcoin-volatility-will-match-major-fiat-currencies-by-2019/ https://woobull.com/bitcoin-volatility-will-match-major-fiat...) The long-term trend is that BTC is becoming less and less volatile.

apo 8y ago

The meaning of the word "stabilize" isn't clear from the article, despite being used 12 times in the body and once in the title. It would have been easy to make the article more clear. Simply explain what aspect of Bitcoin is supposed to stabilize. Given the unending fascination with the USD/BTC exchange rate, it can be assumed that the author is referring to this metric. The inclusion of the heading "Does the price of Bitcoin have a Nash equilibrium?" also supports this idea. However, if this is the case, why does the author include the following quote the middle of the article: Why has Amazon stabilized, and will bitcoin do the same? When Amazon shares debuted back in 1997, earnings were non-existent. […] The USD price of AMZN has in no way stabilized: http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=amzn&insttype=&freq=2&show=&time=13 http://bigcharts.marketwatch.com/quickchart/quickchart.asp?s... As you can see, it's a concave-upward curve, punctuated by various declines, all the way back to 2003. This may sound like hair-splitting, but I think there's a real possibility the author is actually talking about USD/BTC exchange rate volatility. This is an animal of a completely different stripe.

derekp7 8y ago
I would say that stability refers to purchasing power, and doesn't need to be a flat line. It can also be a simple math function (liner, logarithmic, exponential) which means that it is somewhat predictable. (Edit: I think a better word than "stable" may be "dependable", which is probably what the article meant). For example, the US Dollar loses purchasing power over time, but that is OK, since it is mostly at a predictable rate. But when something has wild swings up and down, and random times, then it is less suitable to either use as a currency (the stock person with the price gun will be working overtime correcting prices on everything several times a day), and it isn't that good of a store of value if there isn't any reason for it to not lose all of its value over a given period of time. The Amazon graph you linked to does look fairly stable, a nice exponential function that has very good reasons to remain so for a good period of time (not saying this or anything else is guaranteed, but at least there is something tangible behind that price).