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It's a common misconception that Bitcoin is a safe haven. It's not. Not even Gold is a safe haven during a liquidity crisis. In sharp downturns, cash is king.

It's a common misconception that Bitcoin is a safe haven. It's not. Not even Gold is a safe haven during a liquidity crisis. In sharp downturns, cash is king. Think of Bitcoin and Gold as call options on the entire global monetary system. If Govs become insolvent, Bitcoin and Gold is there. If the masses lose faith in central banks, Bitcoin and Gold is there. If central banks debase currencies too quickly, Bitcoin and Gold is there. That is the staying power of scarcity via well known stock to flow ratios. I'm glad Bitcoin is not inversely correlated to equities, because that would mean Bitcoin went down in an equities uptrend. Being non-correlated is superior: Bitcoin marches to it's own drum. All this being said: cash is king in times of uncertainty. Bitcoin is a speculative bet that "money without masters" will become an essential part of the future monetary system. We're a long way from that still. Advice in good times and bad: maintain a deep safety net and don't get too nuts with debt or leverage.

im3w1l 7y ago
Why is there a liquidity crisis?
- Infinitesimus 7y ago
  Watch the Fed's actions: (eg: https://www.cnbc.com/2020/03/12/fed-to-pump-more-than-500-billion-into-short-term-bank-funding-expand-types-of-security-purchases.html https://www.cnbc.com/2020/03/12/fed-to-pump-more-than-500-bi... ) The Fed has been very active in repo markets since last fall and has aggressively ramped up operations. As an armchair fake-economist, that sort of thing signals that banks are reducing loans between themselves because they don't want to be low on cash when stuff hits the fan. Reducing in available loans -> pretty high interest rates -> Fed stepping in to float the cash and buy some bonds. Perhaps someone closer to the money will chime in here with corrections/details but this smells like the big banks expect unpleasant times ahead (remember this started before Covid19)
  - mardifoufs 7y ago
    Repos aren't exactly bond buybacks, they are more like temporarily loaning cash in return of a treasury bond. It has a neutral effect on the Fed's balance sheet. So overall, the money supply stays the same. It does help keep liquidity available since few banks/Institutional investors keep any significant cash reserve which is usually okay, but can be dangerous if there is a sudden run for cash. And if anything, the Fed interventionist policies are a good sign. You could argue that it is bad for the Fed to intervene in the economy during bull markets and periods of economic growth, but for situations like these the Fed can be a huge factor in avoiding a collapse of credit and liquidity. If credit stays available there is little reason to believe the economy will be affected by anything more than what the virus directly causes. So structural collapse of the financial system/job market like that of 2008 is unlikely as long as credit is readily available to corporations and banks.
glofish 7y ago
bitcoin is not really "there" the same way as gold is. The whole point of gold is that it is a tangible asset. You can hold gold in your pocket or under your mattress and it costs nothing to store it. You can't prove you have bitcoin if you don't have internet access for example. You can't have bitcoin if miners don't run their nodes. Basically, you are depending on a resource in faraway lands to let you "own" what you have. What kind of asset is that?
- deleted 7y ago
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- unhashable 7y ago
  This is another misconception. Gold can be held, yes. It also is expensive to verify, transport, and protect. This has proved problematic for holders of the past. A paper system had to be built on top of Gold, which severely diluted the value proposition as gold was confiscated and stockpiled centrally. Practically speaking, very few individuals hold gold and the utility of doing so is limited when you consider how liquidity in the gold market functions. Bitcoin is a different beast. You hold the cryptographic keys (like a password) which let you move Bitcoin to someone else’s address (under their password). You don’t trust anyone: Bitcoin is verified by math, not humans. It is tangible in the same way that owning google.com is tangible (and unarguably valuable). Bits and bytes exist on a global network and only you can move them. When compared to Gold, Bitcoin is interesting because it is highly transportable, easily divisible, and censorship resistant. Consider this: Bitcoin let’s you store $1T USD of dollars in your head, transport it anywhere in the world, and there’s not a single thing anyone else can do about it.
  - Ididntdothis 7y ago
    “Bitcoin let’s you store $1T USD of dollars in your head, transport it anywhere in the world, and there’s not a single thing anyone else can do about it.” As of now the $1T can also disappear and nobody will even notice.
basejumping 7y ago
Why is cash king?
- rabuse 7y ago
  Assets and long term-investments mean nothing during a crisis, so short-term value stores becomes a much higher priority (currency).
  - AstralStorm 7y ago
    Assets are rather useful though, depending on what they are. If it's living space, that's rental value right there. If it's production hardware, depends on what you produce, from which sources and how easy it is to reconfigure. Farming assets can become extremely valuable. If the asset is a stockpile of a good, again, some goods can become very valuable. Owned land, depends, unless it's somehow prepared it's likely not useful. Assets such as office space, hardware and supplies, not so valuable.
- lcall 7y ago
  Its value is not suddenly dropping as the same rate as the other investments. You can (hopefully) buy food with it. (But being good to your family, having low or no debt and some prudent food storage are also wise, among other things our church has counseled us for a long time). (Edit: and savings "for a rainy day".) (Edit: This is considering the definition of "cash" to be not just paper in your hand, but as a regulated currency whether paper or in a bank. Further clarification in another reply just below.)
  - tlb 7y ago
    Cash was not king during periods of hyperinflation in Germany (30s), Venezuela (ongoing), and many more. It is roughly as common as a stock market crash.
    - lcall 7y ago
      Good point. To help make such decisions, maybe one could also try to gauge the overall level of honesty, competence, and responsibility (edit: and strength given trends) of the sponsoring entity. (I have been in USD and varied bonds rather than stocks for a while now, partly due to general debt and overconfidence levels, and plan to revisit things, around August after current trends play out more.)
Zaskoda 7y ago
I suspect that by this time next year Bitcoin will be seen as a safe haven. The events that are about to play out are exactly what Bitcoin was designed for.
- unhashable 7y ago
  There is good chance that narrative re-emerges as Bitcoin proves to be consistently non-correlated. I can see that.
- m3kw9 7y ago
  Would have been happening if that was true
- arcticbull 7y ago
  And yet we lost 50% in the last half hour.
- codebolt 7y ago
  I suspect that by this time next week, one or more major exchanges will have trouble meeting dollar withdrawal demands, and it will become more and more obvious that USDT (Tether) has been printed massively out of thin air to prop up Bitcoin. Crypto currencies aren't a safe haven, they're more like a house of cards that's currently coming apart.
pas 7y ago
> That is the staying power of scarcity via well known stock to flow ratios. Could you please explain this sentence? What is a stock to flow ratio? How/why is the well-knownness of it matters? How scarcity builds on top of this?
- unhashable 7y ago
  https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25 https://medium.com/@100trillionUSD/modeling-bitcoins-value-w...
  - pas 7y ago
    Thanks! Pretty interesting, and great graphs! I don't know why you are getting downvoted :( Also, why would the price go up in May after the halving? Why would people just start to buy BTC? Okay, sure the graph say it will, and negative interest rates and so on. But gold seems to hold better. ( https://fred.stlouisfed.org/graph/?g=qlDu https://fred.stlouisfed.org/graph/?g=qlDu ) Maybe it's just because BTC is not hundreds of years old and this shock led people to cater to their primal instincts and hoard papers about shiny things. We shall see.
enlyth 7y ago
So you mean put options?
deleted 7y ago
[deleted]
jariel 7y ago
No, 'Bitcoin is not there' as a long-term safe haven, it's a totally unproven and risky asset. Yes, in a liquidity crisis, cash is king, but Gold will usually retain its value through hard times. Bitcoin is a meme compared to Gold. There are very few people who would consider it a meaningful asset, it's really a 'good economy speculation'. In a few hundred years and several massive crises if BTC is still around, then maybe. BTC is not Gold, they are not in the same category.
pldr2244 7y ago
Almost. Correction: Bitcoin is a speculative bet that “others in the future will purchase more Bitcoin”. :)
- unhashable 7y ago
  You just described every single investment. :)
  - beefield 7y ago
    I understand your comment has and smiley indicating you are not completely serious, but I think I still need to point outthat your comment is blatantly untrue. For example, see fixed income and dividend paying companies.
  - unilynx 7y ago
    Not really. Many types of investments also return value through investments or dividends.
    - garmaine 7y ago
      Many investments are a speculative bet on their future return of investments or dividends :)
Balgair 7y ago
Deep Aside: EconTalk's episode on Richard Davies' Extreme Economies is really really good (and long!). The section on how Angola Penitentiary's underground economy changed overnight from Cigarettes to Ramen/Mackerel and Bitcoin-like-cyphers is amazing stuff. https://www.econtalk.org/richard-davies-on-extreme-economies/ https://www.econtalk.org/richard-davies-on-extreme-economies...

im3w1l 7y ago

Why is there a liquidity crisis?

Infinitesimus 7y ago
Watch the Fed's actions: (eg: https://www.cnbc.com/2020/03/12/fed-to-pump-more-than-500-billion-into-short-term-bank-funding-expand-types-of-security-purchases.html https://www.cnbc.com/2020/03/12/fed-to-pump-more-than-500-bi... ) The Fed has been very active in repo markets since last fall and has aggressively ramped up operations. As an armchair fake-economist, that sort of thing signals that banks are reducing loans between themselves because they don't want to be low on cash when stuff hits the fan. Reducing in available loans -> pretty high interest rates -> Fed stepping in to float the cash and buy some bonds. Perhaps someone closer to the money will chime in here with corrections/details but this smells like the big banks expect unpleasant times ahead (remember this started before Covid19)
- mardifoufs 7y ago
  Repos aren't exactly bond buybacks, they are more like temporarily loaning cash in return of a treasury bond. It has a neutral effect on the Fed's balance sheet. So overall, the money supply stays the same. It does help keep liquidity available since few banks/Institutional investors keep any significant cash reserve which is usually okay, but can be dangerous if there is a sudden run for cash. And if anything, the Fed interventionist policies are a good sign. You could argue that it is bad for the Fed to intervene in the economy during bull markets and periods of economic growth, but for situations like these the Fed can be a huge factor in avoiding a collapse of credit and liquidity. If credit stays available there is little reason to believe the economy will be affected by anything more than what the virus directly causes. So structural collapse of the financial system/job market like that of 2008 is unlikely as long as credit is readily available to corporations and banks.

glofish 7y ago

bitcoin is not really "there" the same way as gold is. The whole point of gold is that it is a tangible asset. You can hold gold in your pocket or under your mattress and it costs nothing to store it. You can't prove you have bitcoin if you don't have internet access for example. You can't have bitcoin if miners don't run their nodes. Basically, you are depending on a resource in faraway lands to let you "own" what you have. What kind of asset is that?

deleted 7y ago
[deleted]
deleted 7y ago
[deleted]
unhashable 7y ago
This is another misconception. Gold can be held, yes. It also is expensive to verify, transport, and protect. This has proved problematic for holders of the past. A paper system had to be built on top of Gold, which severely diluted the value proposition as gold was confiscated and stockpiled centrally. Practically speaking, very few individuals hold gold and the utility of doing so is limited when you consider how liquidity in the gold market functions. Bitcoin is a different beast. You hold the cryptographic keys (like a password) which let you move Bitcoin to someone else’s address (under their password). You don’t trust anyone: Bitcoin is verified by math, not humans. It is tangible in the same way that owning google.com is tangible (and unarguably valuable). Bits and bytes exist on a global network and only you can move them. When compared to Gold, Bitcoin is interesting because it is highly transportable, easily divisible, and censorship resistant. Consider this: Bitcoin let’s you store $1T USD of dollars in your head, transport it anywhere in the world, and there’s not a single thing anyone else can do about it.
- Ididntdothis 7y ago
  “Bitcoin let’s you store $1T USD of dollars in your head, transport it anywhere in the world, and there’s not a single thing anyone else can do about it.” As of now the $1T can also disappear and nobody will even notice.

basejumping 7y ago

Why is cash king?

rabuse 7y ago
Assets and long term-investments mean nothing during a crisis, so short-term value stores becomes a much higher priority (currency).
- AstralStorm 7y ago
  Assets are rather useful though, depending on what they are. If it's living space, that's rental value right there. If it's production hardware, depends on what you produce, from which sources and how easy it is to reconfigure. Farming assets can become extremely valuable. If the asset is a stockpile of a good, again, some goods can become very valuable. Owned land, depends, unless it's somehow prepared it's likely not useful. Assets such as office space, hardware and supplies, not so valuable.
lcall 7y ago
Its value is not suddenly dropping as the same rate as the other investments. You can (hopefully) buy food with it. (But being good to your family, having low or no debt and some prudent food storage are also wise, among other things our church has counseled us for a long time). (Edit: and savings "for a rainy day".) (Edit: This is considering the definition of "cash" to be not just paper in your hand, but as a regulated currency whether paper or in a bank. Further clarification in another reply just below.)
- tlb 7y ago
  Cash was not king during periods of hyperinflation in Germany (30s), Venezuela (ongoing), and many more. It is roughly as common as a stock market crash.
  - lcall 7y ago
    Good point. To help make such decisions, maybe one could also try to gauge the overall level of honesty, competence, and responsibility (edit: and strength given trends) of the sponsoring entity. (I have been in USD and varied bonds rather than stocks for a while now, partly due to general debt and overconfidence levels, and plan to revisit things, around August after current trends play out more.)

Zaskoda 7y ago

I suspect that by this time next year Bitcoin will be seen as a safe haven. The events that are about to play out are exactly what Bitcoin was designed for.

unhashable 7y ago
There is good chance that narrative re-emerges as Bitcoin proves to be consistently non-correlated. I can see that.
m3kw9 7y ago
Would have been happening if that was true
arcticbull 7y ago
And yet we lost 50% in the last half hour.
codebolt 7y ago
I suspect that by this time next week, one or more major exchanges will have trouble meeting dollar withdrawal demands, and it will become more and more obvious that USDT (Tether) has been printed massively out of thin air to prop up Bitcoin. Crypto currencies aren't a safe haven, they're more like a house of cards that's currently coming apart.

pas 7y ago

> That is the staying power of scarcity via well known stock to flow ratios. Could you please explain this sentence? What is a stock to flow ratio? How/why is the well-knownness of it matters? How scarcity builds on top of this?

unhashable 7y ago
https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25 https://medium.com/@100trillionUSD/modeling-bitcoins-value-w...
- pas 7y ago
  Thanks! Pretty interesting, and great graphs! I don't know why you are getting downvoted :( Also, why would the price go up in May after the halving? Why would people just start to buy BTC? Okay, sure the graph say it will, and negative interest rates and so on. But gold seems to hold better. ( https://fred.stlouisfed.org/graph/?g=qlDu https://fred.stlouisfed.org/graph/?g=qlDu ) Maybe it's just because BTC is not hundreds of years old and this shock led people to cater to their primal instincts and hoard papers about shiny things. We shall see.

enlyth 7y ago

So you mean put options?

deleted 7y ago

[deleted]

jariel 7y ago

No, 'Bitcoin is not there' as a long-term safe haven, it's a totally unproven and risky asset. Yes, in a liquidity crisis, cash is king, but Gold will usually retain its value through hard times. Bitcoin is a meme compared to Gold. There are very few people who would consider it a meaningful asset, it's really a 'good economy speculation'. In a few hundred years and several massive crises if BTC is still around, then maybe. BTC is not Gold, they are not in the same category.

pldr2244 7y ago

Almost. Correction: Bitcoin is a speculative bet that “others in the future will purchase more Bitcoin”. :)

unhashable 7y ago
You just described every single investment. :)
- beefield 7y ago
  I understand your comment has and smiley indicating you are not completely serious, but I think I still need to point outthat your comment is blatantly untrue. For example, see fixed income and dividend paying companies.
- unilynx 7y ago
  Not really. Many types of investments also return value through investments or dividends.
  - garmaine 7y ago
    Many investments are a speculative bet on their future return of investments or dividends :)

Balgair 7y ago

Deep Aside: EconTalk's episode on Richard Davies' Extreme Economies is really really good (and long!). The section on how Angola Penitentiary's underground economy changed overnight from Cigarettes to Ramen/Mackerel and Bitcoin-like-cyphers is amazing stuff. https://www.econtalk.org/richard-davies-on-extreme-economies/ https://www.econtalk.org/richard-davies-on-extreme-economies...