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Winklevoss 500k Bitcoin Argument

64 points by Reechik 6y ago

Reechik 6y ago
Interesting perspective.
arcticbull 6y ago
Block reward rate: 6.25BTC. 144 blocks are mined per day. Coins are sold by miners to pay for their power and operating expenses. This means 6.25x144x500000 = $450,000,000 per day is how much new money would need to be brought in to keep the price stable. Per day. That works out to $164,250,000,000 in new money per year to keep the price stable. The more expensive bitcoin gets, the more new money has to be brought in to prop the price up. At $500K per coin $164B per year in welfare is extracted, burned up and wasted. That's the only math you need to do, tbh, when estimating future coin value. This is just pumping by the world's biggest bag holders. > ...and printing money like a banana republic. And yet, inflation is likely to achieve an effective rate of 0.44% this year.
- quattrofan 6y ago
  You aren't taking into account halving...
  - arcticbull 6y ago
    Oh, that's its own problem. After a few more halvings it won't be worth anyone's time to actually secure the network.
- nnx 6y ago
  Their timeline is "the next decade" ... by that time, Bitcoin will have proceeded two more halvings, which means the issuance rate will be only 1.5625BTC per block, so only about $40B per year is needed to reach equilibria. Regarding inflation, the Fed has just confirmed yesterday their intent to increase it, they will for the first time not fight against inflation going more than 2% yearly over a period of time even... All this money printing will end up in inflation at one point, which is also the only way to ever repay all that debt.
  - arcticbull 6y ago
    > Regarding inflation, the Fed has just confirmed yesterday their intent to increase it, they will for the first time not fight against inflation going more than 2% yearly over a period of time even... Their issue right now is they're tracking towards 0.44%, not 2% as they intend. Their goal is to increase inflation towards 2%. > All this money printing will end up in inflation at one point, which is also the only way to ever repay all that debt. This is a common misconception among armchair economists (and a great point against Bitcoin, too). The issue we're facing right now is that the velocity of money has been reduced, causing deflationary pressure (not inflation). This is typical in recessionary environments, and not at all desirable. Satoshi's will notwithstanding. Further, as long as the expansion of the broader economy outpaces the growth in deficit it doesn't actually need to be paid back. Also, more than half of US debt is domestically held.
    - ro-_-b 6y ago
      I believe it is not fair to only take into account consumer price inflation instead of asset price inflation. Asset price inflation in the US & Europe has been massive lately. BTC is obviously an asset and therefore the inflation that is relevant for the future valuation of an asset IMO is asset price inflation
      - arcticbull 6y ago
        Asset price increase is not inflation, which is literally defined relative to CPI. If we're going to talk about economics we should use broadly accepted definitions yeah? > BTC is obviously an asset... Hold on now. Nobody seems to agree on that.
        ro-_-b 6y ago
        if you look at how expensive gold is you would typically compare it in relation to other assets such as real estate or the S&P 500 and not to CPI. that's at least how I would make up my mind when is a good time to buy sell/gold. Gold/precious metals are an asset class and BTC/crypto-assets are an emerging asset class IMO also I think it is not fair that central banks only focus on CPI and not asset price. for me as a millennial it matters a lot that real estate price in central Europe are today 2x compared to what they were 10 years ago. also rent is mostly not reflected correctly in CPIs
- modeless 6y ago
  The block reward halves every ~4 years. If we assume you're correct, it means 6.25 * 144 * $11000 = $9.9 million is currently being brought in every day on average to keep the price where it is now. Again by your logic, 20 years from now after 5 halvings that same $9.9 million would support a price per Bitcoin of $352,000.
- deleted 6y ago
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- gojomo 6y ago
  But, this is likely a target for 5-10 years out - when the block reward rate will be 1/2 to 1/4 what it is today. And, they're expecting significant inflation - not just the higher-than historic inflation that the Fed is now officially pursuing, but even more. So Bitcoins might have a high nominal value - but it wouldn't be as much real (current-day) value as you're implying. For example, maybe they think Bitcoin will be $500,000/each in 2030, after 2 more block-reward halvings – and a runaway-inflation 10x reduction in the real buying power of the dollar. (That'd be an atypical 10 years historically for USD – you'd have to go back to about 1954 for $10 today to have the rough buying power of just $1 then. But not uncommon across all currencies!) A constant value doesn't quite hydro-dynamically require the inflows of other expenditures you allege. (Perception & desirability, alone, can make an asset class more $X more valuable one day, without $X actually changing hands.) But let's assume for a moment your model is "close enough". Then in this proposed interpretation of the Winkelvosses' 2030, (1.5625 bitcoin-per-block * 144 blocks=) 225 new Bitcoin will need to be bought/held at $500K each day: that's $112.5 million in 2030 dollars, not $450 million. But because of the 10x deflator, that's only $11.25 million in current-year (2020) value per day. Is an $11.25 million inflow-of-value per-day thinkable? Well, Bitcoin has gone from $0 market-cap to $211 billion (CY) in 4,254 days so far. So it's taken on an average of $49 million (CY) in increased value each day for the last ~11 years. Why wouldn't demand continue, at a lesser rate – especially if Bitcoin does turn out to be an inflation safe-haven, as it was designed to be?
- zelly 6y ago
  In a world with 500k Bitcoin the electric bill would be denominated in Bitcoin as well. No "new [fiat] money" would need to come into the market. Mining would be like any other business in the world that has expenses and pays operating expenses.
- nwah1 6y ago
  The new coins aren't immediately put onto the market. They just show up as extra coins in wallets. The miners may or may not immediately try to cash out. Probably a fair number of them don't, since why else would they be in this game to begin with if they weren't true believers? The price of bitcoin that is recorded on all the exchanges is merely the spot price. That spot price may or may not try to factor in such details as the total supply of the coins, but it is also likely that a lot of the buyers aren't factoring that in at all. And it is also likely that there isn't much depth to the spot price at any given time, and the bottom could fall out at any point with no warning, like a game of musical chairs, since there is no intrinsic value there except the speculative value.
  - garmaine 6y ago
    Mining is a marginal business. The difficulty tends to increase until the bloc reward roughly equals the cost of production.
- frank2 6y ago
  It is true that mining tends to reduce the value of a btc, but the effect is small because most of the btc that will ever be created (mined) have already been created: there are already 18.4m, and there will only ever be 21m.
- perl4ever 6y ago
  >And yet, inflation is likely to achieve an effective rate of 0.44% this year. I don't know how to construct even a vague estimate of coming inflation. On the one hand, TIPS are paying a real rate of about -0.4% for 30 freaking years. If I'm not completely confused, that's saying people think locking up your money for three decades and getting less than 90% back in constant dollars is a good deal. Which sounds like deflationary expectations. On the other hand, gold seems to be going up in the same exponential way as Apple stock. Warren Buffett supposedly was buying a gold miner. On the third hand, the Fed seems to have declared they will stop at nothing to print money as long as unemployment is high. If they want inflation to be at least 2%, surely they can get it there?
  - switch11 6y ago
    not supposedly, already bought Warrent Buffett already bought a gold miner It is a very smart move, tbh If stocks at some point start falling, everyone will rush even more to precious metals
onion2k 6y ago
I'm sure it's a coincidence, but the Winklevoss brothers claim to own ~1% of all Bitcoins mined so far, and a price of $500,000 would value their fortune at almost exactly the same as Mark Zuckerberg's net worth ($96b). I would love for them to have chosen $500,000 for that reason.
- chrisco255 6y ago
  I think they will surpass Zuck before then. They have other crypto startup investments as well, and own an exchange so they make money from trades too.
- gkoberger 6y ago
  Wow. It's crazy how many millionaires I know because of Bitcoin... and if you take all of them combined, plus every single bitcoin out there, the total ($118bn) is only slightly more than Zuckerberg alone. That's a lot of money he has.
  - 4gotunameagain 6y ago
    Nobody is worth this kind of money, nobody can produce this much wealth, and nobody should control an amount of wealth larger than the gdp of at least 120 countries.
    - mas3god 6y ago
      Its not up to you, its up to human society, and human society has decided their bitcoin is worth that much.
      - XMPPwocky 6y ago
        Just asked around and turns out we haven't, actually.
    - shajznnckfke 6y ago
      I don’t think it makes sense to compare wealth (a stock) to GDP (a flow). To be more fair, you might divide Zuck’s wealth by his life expectancy, to get his wealth per year. I’m sure there are better ways to go about it. https://en.m.wikipedia.org/wiki/Stock_and_flow https://en.m.wikipedia.org/wiki/Stock_and_flow
codecamper 6y ago
sell tesla buy bitcoin!
simula67 6y ago
There is something missing from this argument: How is Bitcoin a store of value?
- dheera 6y ago
  Flipping the question around, what makes it not a store of value? Much like gold, as long as the market looks at and goes "oh shiny!" and agrees collectively to keep its price up, it will function as a store of value. If one day I came up with a nuclear reactor that turned rocks into gold, maybe the market might drop the price of gold, and it would collapse just the same. And it will happen, just probably not in our lifetime.
- chrisco255 6y ago
  This argument is getting tiresome. What makes pork bellies a store of value? What makes shiny metal a store of value? What makes network effects of any kind a store of value? Liquidity is a value prop in and of itself. Trustlessness another. Network effects another. Continuity and network uptime another. Resilience and antifragility another. That's without even getting into the cross-border, censorship resistant, fully auditable, open source and international currency aspect of it.
  - orbifold 6y ago
    Store of value == be able to bury it in a grave for 5000 years and be sure that it will have kept its value when someone finds it. I am almost certain that bitcoin wouldn’t survive societal collapse.
    - kaibee 6y ago
      I'm highly skeptical of any store of value surviving 5000 years from now. If the apocalypse happens, you can't eat gold.
      - scotty79 6y ago
        And if asteroid mining happens, gold might be as common (in the form of alloys) as steel. You can imagine someone burying at the beginning on iron age (which happened less than 5000 years ago) big chunk of this wondrous, rare and hard to work with material. And today we are making insanely huge buildings out of it.
patatino 6y ago
I always thought my parents should have seen the potential of Microsoft and Apple back in the day. But what potential did I see? 1999: I was a teenager, so no stocks for me 2009: In my early twenties, no cash, not interested in the stock market 2020: Saw the potential of recovery, most money already tied up (house, stocks) The tech companies pulled the stock market back up. The future will be in tech. So I'm not betting against tech. I do not care much about arguments, I just buy some bitcoin because I think technology is the future. Is it blockchain? I don't know, don't care, but sure I'm not gonna miss it. Almost all people are bad at making future forecasts. So I don't.
- arcticbull 6y ago
  > I just buy some bitcoin because I think technology is the future. Is it blockchain? I don't know, don't care, but sure I'm not gonna miss it. That's a dreadful reason to invest. There's literally a universe of things you could be investing in, from literal tulip bulbs to shovels to Apple. You should have some thesis before you throw money at things.
  - patatino 6y ago
    I have, it‘s technology, like I wrote. I‘m also invested in other technologies.
    - arcticbull 6y ago
      "It's technology" means nothing. The wheel is technology. The only thing anyone's invested in is technology. You need a thesis for why you think this technology is going to yield a return in excess of the S&P, otherwise you should be invested in a risk parity adjusted pairing of the S&P and treasuries. No thesis <=> reckless investment. More like gambling, tbh. Unabashed FOMO is not an investment thesis. I don't mean to be mean -- and I know they're not super popular with the folks on this board -- but this kind of thing is why we have accredited investor rules.
      - patatino 6y ago
artfulhippo 6y ago
If both depositors and borrowers get it — depositors through higher interest rates and borrowers through lower interest rates — then it’s called dual interest rates. If lenders and shareholders get it, then it’s quantitative easing. If the people get it, then it’s helicopter money, and so on. Winners and Losers Regardless of what channel the central bank uses to inject money into the economy, the winners and losers are the same: borrowers will be rewarded at the expense of lenders and depositors. Who seriously believes that all ways of distributing new money have the same winners and losers? Who seriously believes that quantitative easing and helicopter money / UBI have the same winners? Why is this essay anything else than yet another hodler pumping their bags?
Hamuko 6y ago
Have Bitcoin supporters shifted their goal from making Bitcoin a viable currency to making Bitcoin a value store? Because I'm not seeing that in this article. The problem with Bitcoin as a value store is the value it has. I'd argue that the current Bitcoin value is based on speculation and not on anything concrete. Oil and gold obviously have very concrete practical uses, since we can use them to make our cars move, our houses warm and our computers do something. US Dollar obviously is less concrete since its value is based on people agreeing that it has a value - but it has a very large backing. Obviously there's a country where 300+ million people have agreed that the US Dollar has value and you can find someone to trade in your dollars all around the world. Also, I'm not completely impressed with the comparison between gold and Bitcoin. First of all, fixed scarcity? Is this actually a good thing? And is Bitcoin actually scarce? How does hard forking affect the scarcity? And is there a reason why any singular fork of Bitcoin is the one and true cryptocurrency? Because if there's something with no scarcity, it's cryptocurrency in general. "Software durability" also is pretty funny. I don't consider software all that durable. How much cryptocurrency has been stolen through software exploits, be it within a cryptocurrency itself or via some adjecent software, thus far? Portability and storage for Bitcoin also sound pretty good at first. However, if you're thinking about a value storage, is portability actually that good? If I want to store $500k as an asset, I don't actually want it to be that portable since I don't want anyone else be taking it. $500k in gold is like 8 kg, so at least it's not something that someone can sneak out or take from across the world. And a safe or vault have costs associated with it, that's what I want for value storage.
- ro-_-b 6y ago
  I don't believe that gold is predominantly used for practical use cases. The majority of people keep it stored somewhere in a vault. And yet it provided a good store of value over thousands of years due to its scarcity. Oil indeed has practical uses and is therefore mostly compared to Ethereum and not BTC
  - gpresot 6y ago
    Actually, roughly 55% of annual demand is for "practical" uses: jewellery and industrial products. The remainder for storing in vaults (by investors or central banks). https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/ https://www.statista.com/statistics/299609/gold-demand-by-in...
nnx 6y ago
"Software is eating the world and gold is on the menu." Nice way to put it.
CameronNemo 6y ago
Man is talking about how asteroid mining will destroy the value of gold... Has he heard of quantum computing? Would sure hate to see the bitcoin network fall to it...
- ogogmad 6y ago
  Quantum computing would only undermine the digital signature part of Bitcoin - but allegedly quantum-secure algorithms for digital signatures have been known since the '70s. You can use Merkle Signatures for instance.
- scotty79 6y ago
  Depends on whether first quantum miners will want to destroy bitcoin or just profit.
dnprock 6y ago
The problem with gold is not unlimited supply. Humans have mostly colonized planet Earth. It has become increasingly difficult to mine gold. Average Joe can no longer mine gold with a pickaxe. Gold mining now requires large capital expenditure. Space mining also requires large capital investment. The problem with gold is centralization. Large capital investment prevents smaller players to participate. Nation states also monopolize the existing gold supply. New gold from space is likely going to end up in central banks' reserve. Bitcoin faces the same problem with centralization. The hard cap makes Bitcoin even easier to manipulate. Nation states can pump and dump retail investors out of the game. Don't fight the Fed. If the Fed decides to enter the Bitcoin game, investors are going to lose. Once nation states monopolize the Bitcoin supply, we're back to the same situation like gold. Making decentralized money is not that easy. Bitcoin alone cannot fix everything.
lalaland1125 6y ago
The real issue with Bitcoin and the reason why it is different from other assets is that there is no actual source of value. A good way of thinking about this is trying to consider the values of various assets if the government was about the make it illegal to trade them. A house for instance would still be valuable because you can live in it. Facebook stock would still be valuable because it represents ownership in a real company that generates profit. Bitcoin however is useless if you can't trade it. There is literally no reason to own Bitcoin except to eventually sell it to someone else.
- ogogmad 6y ago
  You could say the same thing about gold throughout much of history. The value of Bitcoin (and historically, gold) is in its stock-to-flow, its fungibility, its divisibility, and so forth. Its use case is mainly as a potential store-of-value, and perhaps even as a medium of exchange.
  - arcticbull 6y ago
    Yes, the big difference is gold, once extracted, doesn't cost 0.5% of the entire world's electricity supply to perform 7 transactions per second, which also generate 98g of e-waste each. You can perform a practically unlimited number of transactions per second with gold. Either way, both aren't particularly useful as currency because rigid deflationary currency is bad. Deflation creates inequality, and preserves inequality over time. Rigid currencies are unable to respond to shocks. They are also unable to adapt to the addition of new market participants (births). Give me one good reason why your dollars that you earned in exchange for goods and services should be worth more tomorrow than they are today?
    - bigiain 6y ago
      > You can perform a practically unlimited number of transactions per second with gold. But but but - there's a hard upper limit!!! There's barely 3x10^19 atoms in 1 gram of gold! /s (Obviously we could trade electrons, protons, and neutrons on a side chain to scale transactions up by almost 3 orders of magnitude...)
kart23 6y ago
Sorry, the article does not make one mention of stability. This is arguably the most important value of any money store, the peace of mind that what you have today will be worth the same tomorrow. The dollar is stable because it's instability means the very collapse of society and government. >Bitcoin is not just a scarce commodity, it’s the only known commodity in the universe that has a deterministic and fixed supply. As a result, bitcoin is not subject to any of the potential positive supply shocks that gold (or any commodity for that matter) may face in the future. This doesn't mean a thing and I would argue isn't true. 4th generation Toyota Supras are also a fixed supply, yet the value of these cars has fluctuated wildly and will continue to. There won't be a single new 4th gen Supra produced. I would argue vintage cars are the most similar asset to bitcoin. Since like cars, some bitcoin is continually lost and destroyed every day. Like bitcoin, cars are simply worth whatever someone is willing to pay. The market for cars is not logical, it is purely emotional. Yes, toyota supra prices will likely not collapse anytime soon, since they look cool and there are less and less examples every day. But anyone making an argument that bitcoin is an effective money store needs to consider all the things that can go wrong, and cannot argue that bitcoin is anything better than gambling. The market is not logical, since the market is simply people, and thats the first assumption that is wrong here.
- qes 6y ago
  > cannot argue that bitcoin is anything better than gambling my net worth sure could wanna bet that's true in the aggregate as well?
jlnthws 6y ago
What about security / hacking threats? Say I have precious metal in safes at some banks, good luck to steal it from me overnight. Now imagine people get a digital wallet on their smartphone. It's now easier to rob them of their lifetime savings, in the stealthiest manner ever. Surely easier than to mine the asteroid next door. Software bugs, hardware backdoors, social engineering, or just not understanding how it works... even the most tech savvy is at risk.
- boring_twenties 6y ago
  I'm not sure how you make the leap from using a digital wallet on your smartphone to keeping all your life savings in it?
- oblivionorange 6y ago
  What kind of madman would walk around with their entire life savings in a hot wallet on their smartphone? That would be nearly as irresponsible as carrying your entire net worth around in a backpack.
deleted 6y ago
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tom_mellior 6y ago
The numerical part of this argument is... nonexistent? The only time the 500k figure appears in the article is at the very end: "Said differently, the price of bitcoin could appreciate 45x from where it is today, which means we could see a price of $500,000 U.S. dollars per bitcoin." OK, so where does this factor of 45x come from? It comes from the immediately preceding sentence: "If we are right about using a gold framework to value bitcoin, and bitcoin continues on this path, then the bull case scenario for bitcoin is that it is undervalued by a multiple of 45." Right. What is a "gold framework"? They don't say. There are some ramblings about asteroid mining and Elon Musk bringing gold back from Mars, which will "crater the price of gold". This is unclear, but I think they are trying to suggest the gold price dropping to near 0. Which seems nonsensical, since nobody will mine the asteroids if they can't expect a good return on their effort. Aaanyway, back to the 500k: We do get this right before the "gold framework" sentence: "Today, the market capitalization of above ground gold is conservatively $9 trillion." OK. So I think the reasoning they are hinting at goes something like this: - the gold price will fall to near 0 - the $9 trillion dollars currently invested in gold will all be invested in Bitcoin instead - the supply of Bitcoin is limited at 21 million - $9 trillion / 21 million Bitcoin = $429k / Bitcoin, which = $500k / Bitcoin if you squint hard enough - the above checks out if you assume a "real" supply of 18 million Bitcoin because some are lost I question most of the points listed above.
johnwheeler 6y ago
Worthless article
segmondy 6y ago
The entire thing with bitcoin that I don't get is that the owner's need to trade it for fiat currency at the end. So long as fiat currency is part of the play I don't see the value. It needs to exist without fiat currency. Govts and the central banks around the world have no power without being fiat, they need to be able to print as much as they can, and they demand for taxes in fiat. So you will eventually have to sell your bitcoin even if you most of your transactions in it, you will need to sell some and buy money to pay taxes. The Feds "saved the economy" with the massive QE, Trillion dollars stimulus. What could they have done if currency was all bitcoin?

64 points by Reechik 6y ago

Interesting perspective.

Block reward rate: 6.25BTC. 144 blocks are mined per day. Coins are sold by miners to pay for their power and operating expenses. This means 6.25x144x500000 = $450,000,000 per day is how much new money would need to be brought in to keep the price stable. Per day. That works out to $164,250,000,000 in new money per year to keep the price stable. The more expensive bitcoin gets, the more new money has to be brought in to prop the price up. At $500K per coin $164B per year in welfare is extracted, burned up and wasted. That's the only math you need to do, tbh, when estimating future coin value. This is just pumping by the world's biggest bag holders. > ...and printing money like a banana republic. And yet, inflation is likely to achieve an effective rate of 0.44% this year.

quattrofan 6y ago
You aren't taking into account halving...
- arcticbull 6y ago
  Oh, that's its own problem. After a few more halvings it won't be worth anyone's time to actually secure the network.
nnx 6y ago
Their timeline is "the next decade" ... by that time, Bitcoin will have proceeded two more halvings, which means the issuance rate will be only 1.5625BTC per block, so only about $40B per year is needed to reach equilibria. Regarding inflation, the Fed has just confirmed yesterday their intent to increase it, they will for the first time not fight against inflation going more than 2% yearly over a period of time even... All this money printing will end up in inflation at one point, which is also the only way to ever repay all that debt.
- arcticbull 6y ago
  > Regarding inflation, the Fed has just confirmed yesterday their intent to increase it, they will for the first time not fight against inflation going more than 2% yearly over a period of time even... Their issue right now is they're tracking towards 0.44%, not 2% as they intend. Their goal is to increase inflation towards 2%. > All this money printing will end up in inflation at one point, which is also the only way to ever repay all that debt. This is a common misconception among armchair economists (and a great point against Bitcoin, too). The issue we're facing right now is that the velocity of money has been reduced, causing deflationary pressure (not inflation). This is typical in recessionary environments, and not at all desirable. Satoshi's will notwithstanding. Further, as long as the expansion of the broader economy outpaces the growth in deficit it doesn't actually need to be paid back. Also, more than half of US debt is domestically held.
  - ro-_-b 6y ago
    I believe it is not fair to only take into account consumer price inflation instead of asset price inflation. Asset price inflation in the US & Europe has been massive lately. BTC is obviously an asset and therefore the inflation that is relevant for the future valuation of an asset IMO is asset price inflation
    - arcticbull 6y ago
      Asset price increase is not inflation, which is literally defined relative to CPI. If we're going to talk about economics we should use broadly accepted definitions yeah? > BTC is obviously an asset... Hold on now. Nobody seems to agree on that.
      - ro-_-b 6y ago
        if you look at how expensive gold is you would typically compare it in relation to other assets such as real estate or the S&P 500 and not to CPI. that's at least how I would make up my mind when is a good time to buy sell/gold. Gold/precious metals are an asset class and BTC/crypto-assets are an emerging asset class IMO also I think it is not fair that central banks only focus on CPI and not asset price. for me as a millennial it matters a lot that real estate price in central Europe are today 2x compared to what they were 10 years ago. also rent is mostly not reflected correctly in CPIs
modeless 6y ago
The block reward halves every ~4 years. If we assume you're correct, it means 6.25 * 144 * $11000 = $9.9 million is currently being brought in every day on average to keep the price where it is now. Again by your logic, 20 years from now after 5 halvings that same $9.9 million would support a price per Bitcoin of $352,000.
deleted 6y ago
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gojomo 6y ago
But, this is likely a target for 5-10 years out - when the block reward rate will be 1/2 to 1/4 what it is today. And, they're expecting significant inflation - not just the higher-than historic inflation that the Fed is now officially pursuing, but even more. So Bitcoins might have a high nominal value - but it wouldn't be as much real (current-day) value as you're implying. For example, maybe they think Bitcoin will be $500,000/each in 2030, after 2 more block-reward halvings – and a runaway-inflation 10x reduction in the real buying power of the dollar. (That'd be an atypical 10 years historically for USD – you'd have to go back to about 1954 for $10 today to have the rough buying power of just $1 then. But not uncommon across all currencies!) A constant value doesn't quite hydro-dynamically require the inflows of other expenditures you allege. (Perception & desirability, alone, can make an asset class more $X more valuable one day, without $X actually changing hands.) But let's assume for a moment your model is "close enough". Then in this proposed interpretation of the Winkelvosses' 2030, (1.5625 bitcoin-per-block * 144 blocks=) 225 new Bitcoin will need to be bought/held at $500K each day: that's $112.5 million in 2030 dollars, not $450 million. But because of the 10x deflator, that's only $11.25 million in current-year (2020) value per day. Is an $11.25 million inflow-of-value per-day thinkable? Well, Bitcoin has gone from $0 market-cap to $211 billion (CY) in 4,254 days so far. So it's taken on an average of $49 million (CY) in increased value each day for the last ~11 years. Why wouldn't demand continue, at a lesser rate – especially if Bitcoin does turn out to be an inflation safe-haven, as it was designed to be?
zelly 6y ago
In a world with 500k Bitcoin the electric bill would be denominated in Bitcoin as well. No "new [fiat] money" would need to come into the market. Mining would be like any other business in the world that has expenses and pays operating expenses.
nwah1 6y ago
The new coins aren't immediately put onto the market. They just show up as extra coins in wallets. The miners may or may not immediately try to cash out. Probably a fair number of them don't, since why else would they be in this game to begin with if they weren't true believers? The price of bitcoin that is recorded on all the exchanges is merely the spot price. That spot price may or may not try to factor in such details as the total supply of the coins, but it is also likely that a lot of the buyers aren't factoring that in at all. And it is also likely that there isn't much depth to the spot price at any given time, and the bottom could fall out at any point with no warning, like a game of musical chairs, since there is no intrinsic value there except the speculative value.
- garmaine 6y ago
  Mining is a marginal business. The difficulty tends to increase until the bloc reward roughly equals the cost of production.
frank2 6y ago
It is true that mining tends to reduce the value of a btc, but the effect is small because most of the btc that will ever be created (mined) have already been created: there are already 18.4m, and there will only ever be 21m.
perl4ever 6y ago
>And yet, inflation is likely to achieve an effective rate of 0.44% this year. I don't know how to construct even a vague estimate of coming inflation. On the one hand, TIPS are paying a real rate of about -0.4% for 30 freaking years. If I'm not completely confused, that's saying people think locking up your money for three decades and getting less than 90% back in constant dollars is a good deal. Which sounds like deflationary expectations. On the other hand, gold seems to be going up in the same exponential way as Apple stock. Warren Buffett supposedly was buying a gold miner. On the third hand, the Fed seems to have declared they will stop at nothing to print money as long as unemployment is high. If they want inflation to be at least 2%, surely they can get it there?
- switch11 6y ago
  not supposedly, already bought Warrent Buffett already bought a gold miner It is a very smart move, tbh If stocks at some point start falling, everyone will rush even more to precious metals

onion2k 6y ago

I'm sure it's a coincidence, but the Winklevoss brothers claim to own ~1% of all Bitcoins mined so far, and a price of $500,000 would value their fortune at almost exactly the same as Mark Zuckerberg's net worth ($96b). I would love for them to have chosen $500,000 for that reason.

chrisco255 6y ago
I think they will surpass Zuck before then. They have other crypto startup investments as well, and own an exchange so they make money from trades too.
gkoberger 6y ago
Wow. It's crazy how many millionaires I know because of Bitcoin... and if you take all of them combined, plus every single bitcoin out there, the total ($118bn) is only slightly more than Zuckerberg alone. That's a lot of money he has.
- 4gotunameagain 6y ago
  Nobody is worth this kind of money, nobody can produce this much wealth, and nobody should control an amount of wealth larger than the gdp of at least 120 countries.
  - mas3god 6y ago
    Its not up to you, its up to human society, and human society has decided their bitcoin is worth that much.
    - XMPPwocky 6y ago
      Just asked around and turns out we haven't, actually.
  - shajznnckfke 6y ago
    I don’t think it makes sense to compare wealth (a stock) to GDP (a flow). To be more fair, you might divide Zuck’s wealth by his life expectancy, to get his wealth per year. I’m sure there are better ways to go about it. https://en.m.wikipedia.org/wiki/Stock_and_flow https://en.m.wikipedia.org/wiki/Stock_and_flow

codecamper 6y ago

sell tesla buy bitcoin!

simula67 6y ago

There is something missing from this argument: How is Bitcoin a store of value?

dheera 6y ago
Flipping the question around, what makes it not a store of value? Much like gold, as long as the market looks at and goes "oh shiny!" and agrees collectively to keep its price up, it will function as a store of value. If one day I came up with a nuclear reactor that turned rocks into gold, maybe the market might drop the price of gold, and it would collapse just the same. And it will happen, just probably not in our lifetime.
chrisco255 6y ago
This argument is getting tiresome. What makes pork bellies a store of value? What makes shiny metal a store of value? What makes network effects of any kind a store of value? Liquidity is a value prop in and of itself. Trustlessness another. Network effects another. Continuity and network uptime another. Resilience and antifragility another. That's without even getting into the cross-border, censorship resistant, fully auditable, open source and international currency aspect of it.
- orbifold 6y ago
  Store of value == be able to bury it in a grave for 5000 years and be sure that it will have kept its value when someone finds it. I am almost certain that bitcoin wouldn’t survive societal collapse.
  - kaibee 6y ago
    I'm highly skeptical of any store of value surviving 5000 years from now. If the apocalypse happens, you can't eat gold.
    - scotty79 6y ago
      And if asteroid mining happens, gold might be as common (in the form of alloys) as steel. You can imagine someone burying at the beginning on iron age (which happened less than 5000 years ago) big chunk of this wondrous, rare and hard to work with material. And today we are making insanely huge buildings out of it.

patatino 6y ago

I always thought my parents should have seen the potential of Microsoft and Apple back in the day. But what potential did I see? 1999: I was a teenager, so no stocks for me 2009: In my early twenties, no cash, not interested in the stock market 2020: Saw the potential of recovery, most money already tied up (house, stocks) The tech companies pulled the stock market back up. The future will be in tech. So I'm not betting against tech. I do not care much about arguments, I just buy some bitcoin because I think technology is the future. Is it blockchain? I don't know, don't care, but sure I'm not gonna miss it. Almost all people are bad at making future forecasts. So I don't.

arcticbull 6y ago
> I just buy some bitcoin because I think technology is the future. Is it blockchain? I don't know, don't care, but sure I'm not gonna miss it. That's a dreadful reason to invest. There's literally a universe of things you could be investing in, from literal tulip bulbs to shovels to Apple. You should have some thesis before you throw money at things.
- patatino 6y ago
  I have, it‘s technology, like I wrote. I‘m also invested in other technologies.
  - arcticbull 6y ago
    "It's technology" means nothing. The wheel is technology. The only thing anyone's invested in is technology. You need a thesis for why you think this technology is going to yield a return in excess of the S&P, otherwise you should be invested in a risk parity adjusted pairing of the S&P and treasuries. No thesis <=> reckless investment. More like gambling, tbh. Unabashed FOMO is not an investment thesis. I don't mean to be mean -- and I know they're not super popular with the folks on this board -- but this kind of thing is why we have accredited investor rules.
    - patatino 6y ago

artfulhippo 6y ago

If both depositors and borrowers get it — depositors through higher interest rates and borrowers through lower interest rates — then it’s called dual interest rates. If lenders and shareholders get it, then it’s quantitative easing. If the people get it, then it’s helicopter money, and so on. Winners and Losers Regardless of what channel the central bank uses to inject money into the economy, the winners and losers are the same: borrowers will be rewarded at the expense of lenders and depositors. Who seriously believes that all ways of distributing new money have the same winners and losers? Who seriously believes that quantitative easing and helicopter money / UBI have the same winners? Why is this essay anything else than yet another hodler pumping their bags?

Hamuko 6y ago

Have Bitcoin supporters shifted their goal from making Bitcoin a viable currency to making Bitcoin a value store? Because I'm not seeing that in this article. The problem with Bitcoin as a value store is the value it has. I'd argue that the current Bitcoin value is based on speculation and not on anything concrete. Oil and gold obviously have very concrete practical uses, since we can use them to make our cars move, our houses warm and our computers do something. US Dollar obviously is less concrete since its value is based on people agreeing that it has a value - but it has a very large backing. Obviously there's a country where 300+ million people have agreed that the US Dollar has value and you can find someone to trade in your dollars all around the world. Also, I'm not completely impressed with the comparison between gold and Bitcoin. First of all, fixed scarcity? Is this actually a good thing? And is Bitcoin actually scarce? How does hard forking affect the scarcity? And is there a reason why any singular fork of Bitcoin is the one and true cryptocurrency? Because if there's something with no scarcity, it's cryptocurrency in general. "Software durability" also is pretty funny. I don't consider software all that durable. How much cryptocurrency has been stolen through software exploits, be it within a cryptocurrency itself or via some adjecent software, thus far? Portability and storage for Bitcoin also sound pretty good at first. However, if you're thinking about a value storage, is portability actually that good? If I want to store $500k as an asset, I don't actually want it to be that portable since I don't want anyone else be taking it. $500k in gold is like 8 kg, so at least it's not something that someone can sneak out or take from across the world. And a safe or vault have costs associated with it, that's what I want for value storage.

ro-_-b 6y ago
I don't believe that gold is predominantly used for practical use cases. The majority of people keep it stored somewhere in a vault. And yet it provided a good store of value over thousands of years due to its scarcity. Oil indeed has practical uses and is therefore mostly compared to Ethereum and not BTC
- gpresot 6y ago
  Actually, roughly 55% of annual demand is for "practical" uses: jewellery and industrial products. The remainder for storing in vaults (by investors or central banks). https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/ https://www.statista.com/statistics/299609/gold-demand-by-in...

nnx 6y ago

"Software is eating the world and gold is on the menu." Nice way to put it.

CameronNemo 6y ago

Man is talking about how asteroid mining will destroy the value of gold... Has he heard of quantum computing? Would sure hate to see the bitcoin network fall to it...

ogogmad 6y ago
Quantum computing would only undermine the digital signature part of Bitcoin - but allegedly quantum-secure algorithms for digital signatures have been known since the '70s. You can use Merkle Signatures for instance.
scotty79 6y ago
Depends on whether first quantum miners will want to destroy bitcoin or just profit.

dnprock 6y ago

The problem with gold is not unlimited supply. Humans have mostly colonized planet Earth. It has become increasingly difficult to mine gold. Average Joe can no longer mine gold with a pickaxe. Gold mining now requires large capital expenditure. Space mining also requires large capital investment. The problem with gold is centralization. Large capital investment prevents smaller players to participate. Nation states also monopolize the existing gold supply. New gold from space is likely going to end up in central banks' reserve. Bitcoin faces the same problem with centralization. The hard cap makes Bitcoin even easier to manipulate. Nation states can pump and dump retail investors out of the game. Don't fight the Fed. If the Fed decides to enter the Bitcoin game, investors are going to lose. Once nation states monopolize the Bitcoin supply, we're back to the same situation like gold. Making decentralized money is not that easy. Bitcoin alone cannot fix everything.

lalaland1125 6y ago

The real issue with Bitcoin and the reason why it is different from other assets is that there is no actual source of value. A good way of thinking about this is trying to consider the values of various assets if the government was about the make it illegal to trade them. A house for instance would still be valuable because you can live in it. Facebook stock would still be valuable because it represents ownership in a real company that generates profit. Bitcoin however is useless if you can't trade it. There is literally no reason to own Bitcoin except to eventually sell it to someone else.

ogogmad 6y ago
You could say the same thing about gold throughout much of history. The value of Bitcoin (and historically, gold) is in its stock-to-flow, its fungibility, its divisibility, and so forth. Its use case is mainly as a potential store-of-value, and perhaps even as a medium of exchange.
- arcticbull 6y ago
  Yes, the big difference is gold, once extracted, doesn't cost 0.5% of the entire world's electricity supply to perform 7 transactions per second, which also generate 98g of e-waste each. You can perform a practically unlimited number of transactions per second with gold. Either way, both aren't particularly useful as currency because rigid deflationary currency is bad. Deflation creates inequality, and preserves inequality over time. Rigid currencies are unable to respond to shocks. They are also unable to adapt to the addition of new market participants (births). Give me one good reason why your dollars that you earned in exchange for goods and services should be worth more tomorrow than they are today?
  - bigiain 6y ago
    > You can perform a practically unlimited number of transactions per second with gold. But but but - there's a hard upper limit!!! There's barely 3x10^19 atoms in 1 gram of gold! /s (Obviously we could trade electrons, protons, and neutrons on a side chain to scale transactions up by almost 3 orders of magnitude...)

kart23 6y ago

Sorry, the article does not make one mention of stability. This is arguably the most important value of any money store, the peace of mind that what you have today will be worth the same tomorrow. The dollar is stable because it's instability means the very collapse of society and government. >Bitcoin is not just a scarce commodity, it’s the only known commodity in the universe that has a deterministic and fixed supply. As a result, bitcoin is not subject to any of the potential positive supply shocks that gold (or any commodity for that matter) may face in the future. This doesn't mean a thing and I would argue isn't true. 4th generation Toyota Supras are also a fixed supply, yet the value of these cars has fluctuated wildly and will continue to. There won't be a single new 4th gen Supra produced. I would argue vintage cars are the most similar asset to bitcoin. Since like cars, some bitcoin is continually lost and destroyed every day. Like bitcoin, cars are simply worth whatever someone is willing to pay. The market for cars is not logical, it is purely emotional. Yes, toyota supra prices will likely not collapse anytime soon, since they look cool and there are less and less examples every day. But anyone making an argument that bitcoin is an effective money store needs to consider all the things that can go wrong, and cannot argue that bitcoin is anything better than gambling. The market is not logical, since the market is simply people, and thats the first assumption that is wrong here.

qes 6y ago
> cannot argue that bitcoin is anything better than gambling my net worth sure could wanna bet that's true in the aggregate as well?

jlnthws 6y ago

What about security / hacking threats? Say I have precious metal in safes at some banks, good luck to steal it from me overnight. Now imagine people get a digital wallet on their smartphone. It's now easier to rob them of their lifetime savings, in the stealthiest manner ever. Surely easier than to mine the asteroid next door. Software bugs, hardware backdoors, social engineering, or just not understanding how it works... even the most tech savvy is at risk.

boring_twenties 6y ago
I'm not sure how you make the leap from using a digital wallet on your smartphone to keeping all your life savings in it?
oblivionorange 6y ago
What kind of madman would walk around with their entire life savings in a hot wallet on their smartphone? That would be nearly as irresponsible as carrying your entire net worth around in a backpack.

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tom_mellior 6y ago

The numerical part of this argument is... nonexistent? The only time the 500k figure appears in the article is at the very end: "Said differently, the price of bitcoin could appreciate 45x from where it is today, which means we could see a price of $500,000 U.S. dollars per bitcoin." OK, so where does this factor of 45x come from? It comes from the immediately preceding sentence: "If we are right about using a gold framework to value bitcoin, and bitcoin continues on this path, then the bull case scenario for bitcoin is that it is undervalued by a multiple of 45." Right. What is a "gold framework"? They don't say. There are some ramblings about asteroid mining and Elon Musk bringing gold back from Mars, which will "crater the price of gold". This is unclear, but I think they are trying to suggest the gold price dropping to near 0. Which seems nonsensical, since nobody will mine the asteroids if they can't expect a good return on their effort. Aaanyway, back to the 500k: We do get this right before the "gold framework" sentence: "Today, the market capitalization of above ground gold is conservatively $9 trillion." OK. So I think the reasoning they are hinting at goes something like this: - the gold price will fall to near 0 - the $9 trillion dollars currently invested in gold will all be invested in Bitcoin instead - the supply of Bitcoin is limited at 21 million - $9 trillion / 21 million Bitcoin = $429k / Bitcoin, which = $500k / Bitcoin if you squint hard enough - the above checks out if you assume a "real" supply of 18 million Bitcoin because some are lost I question most of the points listed above.

johnwheeler 6y ago

Worthless article

segmondy 6y ago

The entire thing with bitcoin that I don't get is that the owner's need to trade it for fiat currency at the end. So long as fiat currency is part of the play I don't see the value. It needs to exist without fiat currency. Govts and the central banks around the world have no power without being fiat, they need to be able to print as much as they can, and they demand for taxes in fiat. So you will eventually have to sell your bitcoin even if you most of your transactions in it, you will need to sell some and buy money to pay taxes. The Feds "saved the economy" with the massive QE, Trillion dollars stimulus. What could they have done if currency was all bitcoin?