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Oh noes, if this starts a trend, becomes widespread, and businesses start hoarding crypto tokens instead of investing in building stuff, it could cause a great

Oh noes, if this starts a trend, becomes widespread, and businesses start hoarding crypto tokens instead of investing in building stuff, it could cause a great depression pretty much the same way gold hoarding caused the economy to collapse in 1929. When people, businesses and banks start hording tokens instead of investing in building and maintaining the production capacity of consumables, the ratio of value of tokens meant to buy consumables vs the actual production of consumables gets out of wack. When the music stops, people realize that others are sitting on tons of seemingly valuable tokens but stuff to buy with them is getting scarce because capacity is not being maintained, they reverse their trade, prices of stuff go up, volatility ensues in an incredibly destructive cycle. Too much savings being tied to tokens instead of assets that create real value is an economy wide coordination failure, a terrible Nash equilibrium. It can be hard to solve because it's a prisoner's dilemma where the first people to invest in real production are disadvantaged so everyone hoards tokens instead. This is what central banks are designed to prevent. We don't want cryptocoins to cause another great depression like gold tied currencies did almost a hundred years ago.

whb07 6y ago
I cannot tell if this is sarcasm or not. But I’ll assume it’s not: You cannot eat gold or bitcoin. The “hoarders” at some point will want to consume be it a pizza or a lambo. Then there’s those who invest in ways to get more... what for it.. gold or bitcoin so they go out and purchase picks and shovels. Crazy stuff, extremely complicated when I write it as such. Btw, the FED made a trivial recession into a “great” one back in 1929.
- BenoitEssiambre 6y ago
  I am dead serious. The FED did cause the great depression and a lot of it had to do with currency being tied too closely to a deflationary token (gold). >You cannot eat gold or bitcoin. That is precisely the problem. The economy can get into a bad equilibrium where hoarding intrinsically valueless tokens displaces investing in productive assets. This state can persist because the firsts to invest in productive things are at a disadvantage to the token hoarders (at least for some time). >The “hoarders” at some point will want to consume be it a pizza or a lambo. Yes, then it becomes a game of "catch the peak" because when people realize all these tokens are sitting on the sideline but production has declined and there isn't much to purchase with the tokens, and that if they want to buy something at a good price they better be quick, the cycle can reverse explosively. It's important for aggregate savings to be (at least indirectly) tied to things you "can eat" or the production thereof.
  - whb07 6y ago
    The "economy" is some number larger than (2^999999999999999999999999999999999) of decisions done at every second. Unless you or some cabal of godly beings exist they cannot determine whats a "good" equilibrium in the first place. Furthermore, to describe descriptions good/bad to a market is against the definition of a market. It is what it is. A high price signal lets others that they should come in and get involved and thus bring the price down one way or another. Being humble is a good thing. I cannot understand how certain ideologies or peoples always proclaim to know whats best for a stranger.
    - tobmlt 6y ago
      Just commenting to let you know that at least one other person on hacker news knows marginal revolution style economics/moral philosophy/classical liberalism and finds it more compelling than the alternatives seen to date. No offense meant to those who see it otherwise.
      - whb07 6y ago
        There are... dozens of us! I always find it weird when a group purports to know what the price of cacao should be halfway across the world when they’ve never stepped on to a finca in Ecuador.
        tobmlt 6y ago
        Cheers, and spot on. I think a good deal of the hate Bitcoin gets is due to people not having much to go on when trying to think about currency generally. Without anything to stand on but the status quo, feelings seem to take over, and they are generally negative, motivating quickly thought up objections, in the mean, anyway.
    - BenoitEssiambre 6y ago
      Even Milton Friedman, champion of free market capitalism recognized that widely used currencies were special because they are the yard sticks everything else is measured against. That's why for example, he proposed as a free market alternative to government currencies, a currency based on a k-percent rule (https://en.wikipedia.org/wiki/Friedman%27s_k-percent_rule https://en.wikipedia.org/wiki/Friedman%27s_k-percent_rule) which would avoid the problems with deflationary currencies. Someone should make a crypto Friedman coin based on this. Of course this would remove the ponzi, get-rich-quick aspect, so most wouldn't care for it.
- shortandsweet 6y ago
  I can't tell if your post is sarcasm or not. Look at Apple, or any other large tech company. Hoarding billions in cash. Business lives to suck up any dollar possible and refuses to spend unless absolutely necessary because they are scared of risk or loss. They find their niche and that's it. Notice how there's no more research divisions in companies anymore? Like old school ATT.
  - whb07 6y ago
    No such thing as “hoarding”. That’s just a low thought argument like calling everyone you disagree with a racist. Think of how many people’s retirement account owns Apple shares directly / indirectly. With Apple having $100b in cash, some portion of their valuation reflects that fact. So perhaps, Apple would be worth N% less if it just distributed all the cash tomorrow back to shareholders, correct? The point I’m making is that, the owners of the shares now own more valuable shares and thus benefit. The guy who is 95 leaves on his will that his favorite charity should get his Apple shares. Now there’s a very real example that counters your “hoarding” claims on the assumption that no one benefits from their savings. Not only that, Apple doesn’t keep the cash in a basement with dragons. But you’ve thought that one out I’m auree
    - neop1x 6y ago
      Apple is making less and less repairable machines to force you upgrade sooner btw...
  - BenoitEssiambre 6y ago
    Sure but cash is held in banks and banks lend that out to be reinvested elsewhere (this investment channel is moderated by central banks). Not so with cryptocoins, it's just pure accumulation of tokens.
    - whb07 6y ago
      The people who have $10 Trillion in gold savings beg to differ. There is a growing market for loans using crypto as collateral. Using crypto to transact frees up the added financial costs required for charities, non profits , and regular businesses to thrive.
gnrlst 6y ago
I agree. What's also absurd is that Tesla raised $5B and now is parking 30% of that in Bitcoin, which we all know has a unique history of volatility. This is not going to end well.
- xyst 6y ago
  If the reports of BTC going to 100K by EOY are true, they just turned $1.5B into ~$4.5B.
  - rospaya 6y ago
    I'm curious how they calculated that considering the extreme volatility of BTC.
    - delaaxe 6y ago
      Look up "stock to flow" model for BTC
  - shawabawa3 6y ago
    > reports of BTC going to 100K by EOY uh...reports is a very generous word for speculative guesses If btc was definitely going to 100K by EOY, it would already be worth at least 90k today
- byerobh 6y ago
  Not unique, and if anything, becoming time-tested.
sygma 6y ago
> businesses start hoarding crypto tokens instead of investing in building stuff Share buybacks. Tech businesses are buying their own shares to pump the stock price (and their options' value) rather than investing in building stuff.
- BenoitEssiambre 6y ago
  Share buybacks end up reinvested. This is not the same.
nickik 6y ago
Accusing Tesla of not investing enough is pretty rich.
somedude895 6y ago
> gold hoarding caused the economy to collapse in 1929 You have a source for that? > When people, businesses and banks start hording tokens instead of investing in building and maintaining the production capacity of consumables Central banks are pumping money into the economy at an incredible rate. There's no shortage of credit or liquidity anywhere.
- BenoitEssiambre 6y ago
  It's possible that the central banks are going to save us this time. One of the problem of 1929 was that the central banks got in on the token hoarding and exacerbated the dangerous dynamics. I still find this move by Tesla somewhat ominous, this being the new roaring 20s and all.
  - d23 6y ago
    > gold hoarding caused the economy to collapse in 1929 You have a source for that?
    - BenoitEssiambre 6y ago
      "The gold standard was the primary transmission mechanism of the Great Depression..." https://en.wikipedia.org/wiki/Great_Depression#The_gold_standard_and_the_spreading_of_global_depression https://en.wikipedia.org/wiki/Great_Depression#The_gold_stan... I mean it wasn't strictly gold hoarding it was gold tied currencies hoarding.
      - capableweb 6y ago
        You're confusing two different things. What was initially claimed: > gold hoarding caused the economy to collapse in 1929 This makes it sound like gold caused the economy to collapse. But your quote is referring to the Great Depression spreading world wide, so it's quite different. Don't think there is any definite and agree-upon source of what caused the Great Depression, many things interacting together for sure. You can't say that gold hoarding caused the economy to collapse though.
lawn 6y ago
> the same way gold hoarding caused the economy to collapse in 1929. You state this is if it was a fact, but it's not. There are some theories that puts the blame on the gold standard, but there are many others and there's no consensus in the economic community on which is more correct.
astrolince 6y ago
You can't invest everything you have, that generates bad investment decisions that doesn't generate products that the market actually demands, it destroys the economy
- BenoitEssiambre 6y ago
  Note that on the aggregate, all savings are either investment (infrastructure/inventory etc), or some form of promise/IOUs from others (indirectly backed by their future labor). A certain amount of promise type savings is normal for inter generational consumption transfers (retirees depending on the young working instead of them). But when too many people's savings are in the form of promises and everybody owe each other their savings, do people really have much savings?
usehackernews 6y ago
All global companies with cash reserves try to maximize returns via currency and other investments and hedges.
strgcmc 6y ago
The insight here is, why not both? Old economies lurched from hard/gold-backed currencies to fiat. Why not build an economy that exists on multiple layers, and has both options? Use fiat to make short-term transactions and investments. Use hard crypto to fund the things you think are so valuable, they are worth overcoming the deflationary pressure for. Moving away from all-or-nothing systems is kind of the point.
minusSeven 6y ago
Every 12 years we have been having a great depression anyway which had nothing to do with crypto. What exactly changes in the great depression caused by crypto hoarding?
runeks 6y ago
Commodity money has existed for thousands of years. There is a much better explanation for the 1929 crash than "gold broke all of the sudden". In short: The international gold standard did not collapse during the 1930’s because of its inner contradictions — as schools inculcate the idea into all students. The truth is that the victorious powers inadvertently caused the collapse of the gold standard (with a 13-year lag) by disallowing its clearing system, the international bill market, to reopen for business after the cessation of hostilities in 1918. [1] [1] https://professorfekete.com/articles/AEFNewAustrianSchoolOfEconomics.pdf https://professorfekete.com/articles/AEFNewAustrianSchoolOfE... This makes sense if you study the functioning of the bill of exchange, which is a form of commercial credit that solves the problem of workers wanting weekly wages for producing a consumer good that takes months to sell: https://professorfekete.com/articles/AEFMonEcon101Lecture5.pdf https://professorfekete.com/articles/AEFMonEcon101Lecture5.p...
JamisonM 6y ago
The problem with raising the fundamental issues with Bitcoin on HN is that you end up debating the history of hard currencies and their various and well-studied failures with a bunch of folks that believe the opposite, running over the same old ground over and over again. A deflationary currency system of any kind, if it absorbs a significant amount of the world economy's assets, is going to be a disaster and at this point all we can do is hope it won't happen.

whb07 6y ago

I cannot tell if this is sarcasm or not. But I’ll assume it’s not: You cannot eat gold or bitcoin. The “hoarders” at some point will want to consume be it a pizza or a lambo. Then there’s those who invest in ways to get more... what for it.. gold or bitcoin so they go out and purchase picks and shovels. Crazy stuff, extremely complicated when I write it as such. Btw, the FED made a trivial recession into a “great” one back in 1929.

BenoitEssiambre 6y ago
I am dead serious. The FED did cause the great depression and a lot of it had to do with currency being tied too closely to a deflationary token (gold). >You cannot eat gold or bitcoin. That is precisely the problem. The economy can get into a bad equilibrium where hoarding intrinsically valueless tokens displaces investing in productive assets. This state can persist because the firsts to invest in productive things are at a disadvantage to the token hoarders (at least for some time). >The “hoarders” at some point will want to consume be it a pizza or a lambo. Yes, then it becomes a game of "catch the peak" because when people realize all these tokens are sitting on the sideline but production has declined and there isn't much to purchase with the tokens, and that if they want to buy something at a good price they better be quick, the cycle can reverse explosively. It's important for aggregate savings to be (at least indirectly) tied to things you "can eat" or the production thereof.
- whb07 6y ago
  The "economy" is some number larger than (2^999999999999999999999999999999999) of decisions done at every second. Unless you or some cabal of godly beings exist they cannot determine whats a "good" equilibrium in the first place. Furthermore, to describe descriptions good/bad to a market is against the definition of a market. It is what it is. A high price signal lets others that they should come in and get involved and thus bring the price down one way or another. Being humble is a good thing. I cannot understand how certain ideologies or peoples always proclaim to know whats best for a stranger.
  - tobmlt 6y ago
    Just commenting to let you know that at least one other person on hacker news knows marginal revolution style economics/moral philosophy/classical liberalism and finds it more compelling than the alternatives seen to date. No offense meant to those who see it otherwise.
    - whb07 6y ago
      There are... dozens of us! I always find it weird when a group purports to know what the price of cacao should be halfway across the world when they’ve never stepped on to a finca in Ecuador.
      - tobmlt 6y ago
        Cheers, and spot on. I think a good deal of the hate Bitcoin gets is due to people not having much to go on when trying to think about currency generally. Without anything to stand on but the status quo, feelings seem to take over, and they are generally negative, motivating quickly thought up objections, in the mean, anyway.
  - BenoitEssiambre 6y ago
    Even Milton Friedman, champion of free market capitalism recognized that widely used currencies were special because they are the yard sticks everything else is measured against. That's why for example, he proposed as a free market alternative to government currencies, a currency based on a k-percent rule (https://en.wikipedia.org/wiki/Friedman%27s_k-percent_rule https://en.wikipedia.org/wiki/Friedman%27s_k-percent_rule) which would avoid the problems with deflationary currencies. Someone should make a crypto Friedman coin based on this. Of course this would remove the ponzi, get-rich-quick aspect, so most wouldn't care for it.
shortandsweet 6y ago
I can't tell if your post is sarcasm or not. Look at Apple, or any other large tech company. Hoarding billions in cash. Business lives to suck up any dollar possible and refuses to spend unless absolutely necessary because they are scared of risk or loss. They find their niche and that's it. Notice how there's no more research divisions in companies anymore? Like old school ATT.
- whb07 6y ago
  No such thing as “hoarding”. That’s just a low thought argument like calling everyone you disagree with a racist. Think of how many people’s retirement account owns Apple shares directly / indirectly. With Apple having $100b in cash, some portion of their valuation reflects that fact. So perhaps, Apple would be worth N% less if it just distributed all the cash tomorrow back to shareholders, correct? The point I’m making is that, the owners of the shares now own more valuable shares and thus benefit. The guy who is 95 leaves on his will that his favorite charity should get his Apple shares. Now there’s a very real example that counters your “hoarding” claims on the assumption that no one benefits from their savings. Not only that, Apple doesn’t keep the cash in a basement with dragons. But you’ve thought that one out I’m auree
  - neop1x 6y ago
    Apple is making less and less repairable machines to force you upgrade sooner btw...
- BenoitEssiambre 6y ago
  Sure but cash is held in banks and banks lend that out to be reinvested elsewhere (this investment channel is moderated by central banks). Not so with cryptocoins, it's just pure accumulation of tokens.
  - whb07 6y ago
    The people who have $10 Trillion in gold savings beg to differ. There is a growing market for loans using crypto as collateral. Using crypto to transact frees up the added financial costs required for charities, non profits , and regular businesses to thrive.

gnrlst 6y ago

I agree. What's also absurd is that Tesla raised $5B and now is parking 30% of that in Bitcoin, which we all know has a unique history of volatility. This is not going to end well.

xyst 6y ago
If the reports of BTC going to 100K by EOY are true, they just turned $1.5B into ~$4.5B.
- rospaya 6y ago
  I'm curious how they calculated that considering the extreme volatility of BTC.
  - delaaxe 6y ago
    Look up "stock to flow" model for BTC
- shawabawa3 6y ago
  > reports of BTC going to 100K by EOY uh...reports is a very generous word for speculative guesses If btc was definitely going to 100K by EOY, it would already be worth at least 90k today
byerobh 6y ago
Not unique, and if anything, becoming time-tested.

sygma 6y ago

> businesses start hoarding crypto tokens instead of investing in building stuff Share buybacks. Tech businesses are buying their own shares to pump the stock price (and their options' value) rather than investing in building stuff.

BenoitEssiambre 6y ago
Share buybacks end up reinvested. This is not the same.

nickik 6y ago

Accusing Tesla of not investing enough is pretty rich.

somedude895 6y ago

> gold hoarding caused the economy to collapse in 1929 You have a source for that? > When people, businesses and banks start hording tokens instead of investing in building and maintaining the production capacity of consumables Central banks are pumping money into the economy at an incredible rate. There's no shortage of credit or liquidity anywhere.

BenoitEssiambre 6y ago
It's possible that the central banks are going to save us this time. One of the problem of 1929 was that the central banks got in on the token hoarding and exacerbated the dangerous dynamics. I still find this move by Tesla somewhat ominous, this being the new roaring 20s and all.
- d23 6y ago
  > gold hoarding caused the economy to collapse in 1929 You have a source for that?
  - BenoitEssiambre 6y ago
    "The gold standard was the primary transmission mechanism of the Great Depression..." https://en.wikipedia.org/wiki/Great_Depression#The_gold_standard_and_the_spreading_of_global_depression https://en.wikipedia.org/wiki/Great_Depression#The_gold_stan... I mean it wasn't strictly gold hoarding it was gold tied currencies hoarding.
    - capableweb 6y ago
      You're confusing two different things. What was initially claimed: > gold hoarding caused the economy to collapse in 1929 This makes it sound like gold caused the economy to collapse. But your quote is referring to the Great Depression spreading world wide, so it's quite different. Don't think there is any definite and agree-upon source of what caused the Great Depression, many things interacting together for sure. You can't say that gold hoarding caused the economy to collapse though.

lawn 6y ago

> the same way gold hoarding caused the economy to collapse in 1929. You state this is if it was a fact, but it's not. There are some theories that puts the blame on the gold standard, but there are many others and there's no consensus in the economic community on which is more correct.

astrolince 6y ago

You can't invest everything you have, that generates bad investment decisions that doesn't generate products that the market actually demands, it destroys the economy

BenoitEssiambre 6y ago
Note that on the aggregate, all savings are either investment (infrastructure/inventory etc), or some form of promise/IOUs from others (indirectly backed by their future labor). A certain amount of promise type savings is normal for inter generational consumption transfers (retirees depending on the young working instead of them). But when too many people's savings are in the form of promises and everybody owe each other their savings, do people really have much savings?

usehackernews 6y ago

All global companies with cash reserves try to maximize returns via currency and other investments and hedges.

strgcmc 6y ago

The insight here is, why not both? Old economies lurched from hard/gold-backed currencies to fiat. Why not build an economy that exists on multiple layers, and has both options? Use fiat to make short-term transactions and investments. Use hard crypto to fund the things you think are so valuable, they are worth overcoming the deflationary pressure for. Moving away from all-or-nothing systems is kind of the point.

minusSeven 6y ago

Every 12 years we have been having a great depression anyway which had nothing to do with crypto. What exactly changes in the great depression caused by crypto hoarding?

runeks 6y ago

Commodity money has existed for thousands of years. There is a much better explanation for the 1929 crash than "gold broke all of the sudden". In short: The international gold standard did not collapse during the 1930’s because of its inner contradictions — as schools inculcate the idea into all students. The truth is that the victorious powers inadvertently caused the collapse of the gold standard (with a 13-year lag) by disallowing its clearing system, the international bill market, to reopen for business after the cessation of hostilities in 1918. [1] [1] https://professorfekete.com/articles/AEFNewAustrianSchoolOfEconomics.pdf https://professorfekete.com/articles/AEFNewAustrianSchoolOfE... This makes sense if you study the functioning of the bill of exchange, which is a form of commercial credit that solves the problem of workers wanting weekly wages for producing a consumer good that takes months to sell: https://professorfekete.com/articles/AEFMonEcon101Lecture5.pdf https://professorfekete.com/articles/AEFMonEcon101Lecture5.p...

JamisonM 6y ago

The problem with raising the fundamental issues with Bitcoin on HN is that you end up debating the history of hard currencies and their various and well-studied failures with a bunch of folks that believe the opposite, running over the same old ground over and over again. A deflationary currency system of any kind, if it absorbs a significant amount of the world economy's assets, is going to be a disaster and at this point all we can do is hope it won't happen.