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It's a bit worrisome that we are inching towards the scenario where companies may be tempted at an economy wide scale to reduce investment in production in ord

It's a bit worrisome that we are inching towards the scenario where companies may be tempted at an economy wide scale to reduce investment in production in order to hoard cryptocoins instead. It caused the great depression when businesses switched to hoarding gold tied currency instead of producing in the 1930s. Now I'm not sure that crypto coins without being jacked up by central banks (like gold was during the great depression) are a powerful enough force to cause the type of havoc that gold did. Then again, the potentially stronger network/memetic effects of cryptocoins, along with the amplification factor from markets being synchronized through instant all-encompassing global communications nowadays might make them dangerous to the economy even without central bank involvement. We saw how much people can get hypnotized by these things during the Gamestop episode. I don't think unsophisticated investors' hoarding is enough to cause big problems but it is a bit unsettling that Tesla and other companies are jumping on the cryptocoin train. If enough businesses follow suit, you get into scary territory (It would also be worrisome if companies widely moved to add billions in gold to their balance sheet but I thought the lesson had been learned in the 1930s with gold). In theory, if central banks stay stimulative enough through all this, you can have growth in both crypto and businesses. As long as these central banks don't blink at the sight of what may look like crypto bubbles.

ur-whale 6y ago
> It's a bit worrisome that we are inching towards the scenario where companies may be tempted at an economy wide scale to reduce investment in production Yes, fully agree. But then ask yourself: aside from COVID, who created the economic conditions that lead corporations to decide that stashing treasury as Bitcoin is better than investing in the "productive" part of the economy. QE, interests rates at near zero, corporate bonds near worthless, stock market at stratospheric 2000-like levels, real estate easily taxed to death ... how do you protect your treasury other than stashing it in hard assets (crypto, gold, commodities)?
- BenoitEssiambre 6y ago
  The important thing for the aggregate economy is that when people want "hard assets", that these assets can tangibly support future consumption, not just something everybody hopes to trade later for consumption but real stuff such as businesses, inventory, production capacity etc. When too many people hoard pure financial promises or crypto tokens and all believe that it's true wealth, bad things happens. People indirectly owe each other all their savings.
  - BenoitEssiambre 6y ago
    >QE, interests rates at near zero, corporate bonds near worthless, stock market at stratospheric 2000-like levels... To be clear, the above is good, if interest rates on government paper were above risk adjusted market returns for new capital this would gridlock the economy. Stock market being high incentivizes creating new capital. > how do you protect your treasury other than stashing it in hard assets (crypto, gold, commodities)? The government should not create artificial assets that "protects" wealth from being subject to the real economy because people divesting from the economy destroys the economy. Now there is a question whether the market will choose to go into crypto and divest from the real economy anyways. The reason this is a question is that people have been known to pile into bubbles in the past, and this is the tricky part, on some level they are not totally irrational in doing so. To the individual, being early in a long running bubble is advantageous. When you do it, and do it first, you gain. Everybody doing it however, may cost you and your friends, family's and everybody's careers. It's a prisoner's dilemma, a bad Nash equilibrium. It's Moloch.
esotericn 6y ago
Well, I don't know about where you are, but over in the UK the Government isn't doing us any favours on this front. We've just been through a year of businesses being forced to close whilst their landlords continue to collect rent, and everyone seems to think the latter is just an amusing oversight. In that sort of environment, it's far more logical for me to just buy hard assets and sit on them; it's been made very clear that we're going to just force that to be the winning side of the trade via legislation.
paulpan 6y ago
I think the second order effect will be from companies that accumulate too much cryptocurrency - only to see its value vaporize. Impact could be systemic if companies start to essentially gamble with their treasure chests. Example: what happens if other companies followed the likes of Tesla and MicroStrategy? Sure the $1.5B Tesla invested is pittance in the context of their market capitalization, but if Bitcoin price crashes 80% then they've lost $1.2B. Even Microstrategy, with its alleged 85% of its cash reserves in Bitcoin, might well go under if the Bitcoin price drops even 50%. A "run on Bitcoin" could become a real thing and as impacted companies are forced to cut production and expenses to offset the losses, it creates a domino effect across the economy.
- TheDurfAbides 6y ago
  I had been looking recently for a way to invest in companies doing interesting things with the blockchain. I came across the ETF called BLOK. It’s largest holding is with Microstrategy .... because they hold a lot of Bitcoin. It’s really unfortunate to see something like that. They aren’t doing anything with the blockchain (that I know of), yet are the largest holding in a blockchain ETF because they have a bunch of Bitcoin. Hopefully we don’t start seeing more and more companies hodling in hopes of making their balance sheets look better.
- BenoitEssiambre 6y ago
  Note that in a way, this is a best case scenario, at least if it happens early. Extra volatility in the crypto coin market disincentivizes hoarding. So while it might hurt specific companies that over do it, it may prevent an economy wide gridlock where all companies are hoarding coins instead of investing in real production. In a way, volatility caused by corrections is a natural cure for the bad Nash equilibrium. It's when the correction mechanism stops happening that things can build up into dangerous situations. That's why when governments tried to stabilize gold in the 1930s, preventing it from naturally correcting into a volatile asset, it caused the great depression.
tippytippytango 6y ago
They are just moving non-productive cash sitting around doing nothing and swapping it for an asset. It's just diversification, not diverting from production.
- BenoitEssiambre 6y ago
  Cash, if it's in a bank an not under a mattress, gets reinvested by the bank so it's not the same thing.
  - kharak 6y ago
    If the bank issues credit to customers with that cash, you're right. If it buys stock, it's the same thing.

ur-whale 6y ago

> It's a bit worrisome that we are inching towards the scenario where companies may be tempted at an economy wide scale to reduce investment in production Yes, fully agree. But then ask yourself: aside from COVID, who created the economic conditions that lead corporations to decide that stashing treasury as Bitcoin is better than investing in the "productive" part of the economy. QE, interests rates at near zero, corporate bonds near worthless, stock market at stratospheric 2000-like levels, real estate easily taxed to death ... how do you protect your treasury other than stashing it in hard assets (crypto, gold, commodities)?

BenoitEssiambre 6y ago
The important thing for the aggregate economy is that when people want "hard assets", that these assets can tangibly support future consumption, not just something everybody hopes to trade later for consumption but real stuff such as businesses, inventory, production capacity etc. When too many people hoard pure financial promises or crypto tokens and all believe that it's true wealth, bad things happens. People indirectly owe each other all their savings.
- BenoitEssiambre 6y ago
  >QE, interests rates at near zero, corporate bonds near worthless, stock market at stratospheric 2000-like levels... To be clear, the above is good, if interest rates on government paper were above risk adjusted market returns for new capital this would gridlock the economy. Stock market being high incentivizes creating new capital. > how do you protect your treasury other than stashing it in hard assets (crypto, gold, commodities)? The government should not create artificial assets that "protects" wealth from being subject to the real economy because people divesting from the economy destroys the economy. Now there is a question whether the market will choose to go into crypto and divest from the real economy anyways. The reason this is a question is that people have been known to pile into bubbles in the past, and this is the tricky part, on some level they are not totally irrational in doing so. To the individual, being early in a long running bubble is advantageous. When you do it, and do it first, you gain. Everybody doing it however, may cost you and your friends, family's and everybody's careers. It's a prisoner's dilemma, a bad Nash equilibrium. It's Moloch.

esotericn 6y ago

Well, I don't know about where you are, but over in the UK the Government isn't doing us any favours on this front. We've just been through a year of businesses being forced to close whilst their landlords continue to collect rent, and everyone seems to think the latter is just an amusing oversight. In that sort of environment, it's far more logical for me to just buy hard assets and sit on them; it's been made very clear that we're going to just force that to be the winning side of the trade via legislation.

paulpan 6y ago

I think the second order effect will be from companies that accumulate too much cryptocurrency - only to see its value vaporize. Impact could be systemic if companies start to essentially gamble with their treasure chests. Example: what happens if other companies followed the likes of Tesla and MicroStrategy? Sure the $1.5B Tesla invested is pittance in the context of their market capitalization, but if Bitcoin price crashes 80% then they've lost $1.2B. Even Microstrategy, with its alleged 85% of its cash reserves in Bitcoin, might well go under if the Bitcoin price drops even 50%. A "run on Bitcoin" could become a real thing and as impacted companies are forced to cut production and expenses to offset the losses, it creates a domino effect across the economy.

TheDurfAbides 6y ago
I had been looking recently for a way to invest in companies doing interesting things with the blockchain. I came across the ETF called BLOK. It’s largest holding is with Microstrategy .... because they hold a lot of Bitcoin. It’s really unfortunate to see something like that. They aren’t doing anything with the blockchain (that I know of), yet are the largest holding in a blockchain ETF because they have a bunch of Bitcoin. Hopefully we don’t start seeing more and more companies hodling in hopes of making their balance sheets look better.
BenoitEssiambre 6y ago
Note that in a way, this is a best case scenario, at least if it happens early. Extra volatility in the crypto coin market disincentivizes hoarding. So while it might hurt specific companies that over do it, it may prevent an economy wide gridlock where all companies are hoarding coins instead of investing in real production. In a way, volatility caused by corrections is a natural cure for the bad Nash equilibrium. It's when the correction mechanism stops happening that things can build up into dangerous situations. That's why when governments tried to stabilize gold in the 1930s, preventing it from naturally correcting into a volatile asset, it caused the great depression.

tippytippytango 6y ago

They are just moving non-productive cash sitting around doing nothing and swapping it for an asset. It's just diversification, not diverting from production.

BenoitEssiambre 6y ago
Cash, if it's in a bank an not under a mattress, gets reinvested by the bank so it's not the same thing.
- kharak 6y ago
  If the bank issues credit to customers with that cash, you're right. If it buys stock, it's the same thing.