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> This article seems to intentionally ignore the core reason for cryptocurrencies; escaping inflation I'm extremely confused by this argument that I see again

by tome 6y ago

> This article seems to intentionally ignore the core reason for cryptocurrencies; escaping inflation I'm extremely confused by this argument that I see again and again. If you want to avoid your assets losing value to inflation that you can buy assets that are resistant to inflation, such as stocks, real estate, land, gold, inflation-adjusted bonds ... I just don't see that cryptocurrencies are particularly useful for that. What's the deal here?

rybosworld 6y ago
I think the major point is that Bitcoin seems to benefit disproportionately from inflation. It may be the case that it's the single best hedge against inflation. But yes, there are lot's of things that protect against inflation.
- tome 6y ago
  > Bitcoin seems to benefit disproportionately from inflation Does it? On what basis would one know that? Why should it benefit from inflation more than gold, say?
  - rybosworld 6y ago
    My argument would be it's the only thing on that list of inflation hedges that has a fixed supply. Lot's of gold is mined each year. Houses are built. Stock is issued, etc. Bitcoin has a well-established upper limit.
    - tome 6y ago
      > [Bitcoin is] the only thing on that list of inflation hedges that has a fixed supply. Aha! That brings me to my next question. In what sense does bitcoin actually have a fixed supply? Sure, a loose coalition of people agree for it to have a fixed supply at the moment, but if enough of the miners, core developers, etc. agree they can change the rules arbitrarily, viz. hard forks. Why should we believe that bitcoin really has a fixed supply, just because everyone has roughly stuck to the rules so far?
      - rybosworld 6y ago
        That's mostly a matter of economic incentives. It's technically possible but it's similar to the idea of a rich person lighting a pile of money on fire. If a proposal to raise the cap is introduced, price would react negatively, hurting miners, and making it more (relatively) expensive to mine. It's unlikely there is any scenario where it is economically feasible to try to raise the supply cap.
        notahacker 6y ago
        A [relative] lack of block rewards to earn hurts miners too...
        tome 6y ago
        Can you point me to some more thorough analysis of your claim? I've heard such things before but I've never seen it modelled and worked through. Until I see such an analysis I can't help thinking the argument is "we've thought about it a bit and it seems like it will be OK".
      - ur-whale 6y ago
        Every single thing you said applies to the greenback. Therein lies your answer: if a large enough number of people place faith into something, it "takes".
  - smeej 6y ago
    Nobody knows how much gold is in the earth, much less in not-so-distant asteroids. The supply of gold might, technically, be "fixed" in the sense that no more of it is being created, but more of it could be discovered at any time. Bitcoin's supply is mathematically demonstrably fixed. Nobody's ever going to discover a new vein of Bitcoin in the earth's crust, or on an asteroid.
    - caeril 6y ago
      We know to a pretty good approximation how much gold is in the earth, and where it is. That's not even a minor consideration for mining geologists and engineers anymore. The primary limitation as of now is ore quality, which directly dictates how much energy is required for smelting, and we have a good idea of the decline curve thereof. We know roughly when it will be economically profitable to extract the stuff from seawater, which isn't too far off. In the end, it's a question of energy. Very similar to proof-of-work tokens like BTC, in that regard.
      - smeej 6y ago
        We certainly think we know. But we've thought an awful lot of things as a human species that turned out not to be true. Gold is presumably scarce. Bitcoin is provably scarce.
        splistud 6y ago
        You are wrong about gold, either learn or drop that, its not central to your argument. A lot of things are scarce. Some of those things are valued. Bitcoins may or may not be valued in the future, and if they are it is unknown at what price point they might be valued. Scarcity is only part of the equation.
        smeej 6y ago
        Alright. I tried to do this. I'm certainly open to learning. But it looks like I'm actually going to need citations from you because everything I'm finding so far confirms that we do NOT know how much gold exists in the earth, or where it might be found, or whether it will become economically feasible to extract it. All we know is that discoveries are slowing down.[0][1][2][3] I've tried to read a variety of sources, from a scientific journal to a metals dealer to a mainstream news outlet to an industry-focused site. By all means, though, if you have citations for your confident claims that you're willing to provide, I'll be happy to read them too. [0] Earthquakes are still forming new veins: https://www.nature.com/articles/ngeo1759 https://www.nature.com/articles/ngeo1759 [1] There may or may not be large undiscovered veins left, especially under the ocean and in Antarctica (and we don't know whether new technology will make them easier to discover and mine): https://www.providentmetals.com/knowledge-center/precious-metals-resources/global-gold-supply-predictions.html https://www.providentmetals.com/knowledge-center/precious-me... [2] New technologies are gaining adoption that could reveal veins that were undiscoverable before: https://www.bbc.com/news/business-54230737 https://www.bbc.com/news/business-54230737 [3] There's no reason to believe the discovery of large gold mines is nearing its end: https://www.mining.com/web/were-a-long-long-way-from-running-out-of-gold/ https://www.mining.com/web/were-a-long-long-way-from-running...
  - firmnoodle 6y ago
    The argument is that Bitcoin not only has a provable total fixed supply & rate of future supply and that it has more utility than gold because it's easier to transfer and harder to fake.
    - ur-whale 6y ago
      > harder to fake Also harder to take.
aarongray 6y ago
Real estate has clearly been shown to not be resistant to inflation over the past year.
- tome 6y ago
  Could you elaborate?
  - aarongray 6y ago
    Home prices in my area are up around 15% over the past year.
    - tome 6y ago
      I'm confused. That suggests that real estate is very much resistant to inflation.
      - aarongray 6y ago
        Haha I was wrong, I see what you were saying now. I thought you were saying that resistance == unaffected. But you were saying that the price of real estate rises when inflation occurs, so buy it before inflation happens. My bad. :)
    - Kranar 6y ago
      That makes real estate investments a good defense against inflation. A good defense against inflation are assets whose price increases at a rate higher than the rate of inflation. A bad defense would be an asset whose price increases at a rate lower than that of inflation.
      - lvs 6y ago
        I'm not sure anyone in this thread knows what inflation is. If the cost of housing rises, that is inflationary against all other fungible assets that could be used to purchase housing. That is, one requires a larger quantity of all assets -- dollars, crypto, stocks, bodily fluids, etc. -- to acquire a roof over one's head. Only if the cost to purchase housing is somehow lower by holding value in a particular asset could you get ahead of the inflationary pressure caused by rising housing prices. Too many cryptonuts think inflation just means "money supply." That is play time economics.
pingpongchef 6y ago
Stocks and bonds are still coupled to fiat currencies and will be directly impacted by their perceived deficiencies when compared to crypto. Hard assets like real estate, land, gold don't fit that bill, but each of their own tradeoffs. Right now cryptocurrencies are making gains against those hard assets so they are more attractive. An investor may wish to diversify among some or all of these options.
- vkou 6y ago
  Stocks are not coupled to fiat, fiat is just the common medium of exchange for them. Nobody will stop me from trading my GOOG share for a goat, or a baseball card, if I so choose. Stocks are coupled to the productive output of the firm the stock is issued by, which is coupled to it's real world productivity - which, again, for convenience is measured in a fiat currency.
  - JumpCrisscross 6y ago
    > Nobody will stop me from trading my GOOG share for a goat, or a baseball card, if I so choose. Nitpick, but the SEC would object to that. That said, American securities regulation has a unique philosophy, i.e. every securities trade must be registered and follow a narrow book of rules unless specifically exempted. Your broader point, of financial and real assets being proven hedges against inflation, stands.
    - tome 6y ago
      The transaction must be denominated in dollars, but must dollars actually change hands? I don't think so. Companies buy other companies with stock issues all the time.
      - JumpCrisscross 6y ago
        > transaction must be denominated in dollars, but must dollars actually change hands? I believe it's the other way around. It can be denominated in anything, but trading e.g. the deed to your house for some Apple stock is a no no. (Doesn't have to be U.S. dollars, though.)
oxymoran 6y ago
A)I don’t have $150k+ To just go invest in land or real estate that I’m not going to reside in. B)Are stocks and bonds inflation resistant if they are priced in the inflating currency? Not just normal year over year inflation but the type of inflation that happens when you debase a currency. Regardless, I already own these, the first rule of investing is diversification. C)gold is inflation resistant and tangible so I agree that is the best option if you are truly worried about SHTF but it’s also heavy and more expensive to secure. Bitcoin, in my opinion, is a hedge on the hegemony of the US dollar which I see weakening going forward. The US dollar is the global reserve currency thanks to the global oil industry. That gives the US a lot of power. But between the switch away from oil, the weakening of the dollar, and the rise of China the US currency dominance looks to be coming to an end. There is no other currency that could act as a global reserve currency except China, which would essentially make China the worlds superpower. That is where Bitcoin comes in: it can be the new global currency instead of China when the US dollar loses its place. Gold and paper only has value because we imagine that they have value, I don’t see how Bitcoin is any more or less imaginary.
- kgwgk 6y ago
  > B)Are stocks and bonds inflation resistant if they are priced in the inflating currency? The parent comment said "inflation-adjusted bonds". If you don't know what that means, look it up. As for stocks, they are priced in an inflating currency in the same way that real estate or dogecoin are priced in an inflating currency.
- tome 6y ago
  A) REITs exist https://en.wikipedia.org/wiki/Real_estate_investment_trust https://en.wikipedia.org/wiki/Real_estate_investment_trust B) Yes, stocks are not directly affected by the currency in which they are nominally denominated! Yes, inflation-adjusted bonds are not affected by inflation in the currency in which they are denominated, assuming you believe RPI to be a good measure of inflation. C) You can buy gold without having to store it yourself! For example SGLN or https://www.bullionvault.com/ https://www.bullionvault.com/ (no connection other than being a happy customer) > Bitcoin, in my opinion, is a hedge on the hegemony of the US dollar which I see weakening going forward If you really wanted a hedge on the US dollar you could buy oil, gold, JPY, EUR, CHF, GBP. Buying the hugely volatile asset called bitcoin doesn't seem like a good way to hedge USD. > Gold and paper only has value because we imagine that they have value No, gold has value because of demand in industrial process and jewellry. "Paper" has value because governments can demand you to pay it to them in return for participating in economic activity within their borders. If these arguments are really what bitcoin supporters believe about the value of bitcoin then the whole bitcoin enterprise is in for a big shock.
tgsovlerkhgsel 6y ago
They're very similar to gold in this regard. They have a value because people think they have a value. They're a lot easier to store, transport and transact with than gold bars though. And I have my doubts whether Bitcoin mining is more destructive than gold mining. It's possible (it's a LOT of energy), but gold mining is also pretty nasty.
- webinvest 6y ago
  Bitcoin mining is not destructive. The production of electricity via Coal, natural gas, oil, and biomass is. It makes more sense to ban the direct source of these carbon dioxide emissions than the downstream users of the electricity. Cryptocurrency mining is very compatible with renewable energy sources because it can be mined from anywhere, the energy usage is very predictable, and the mining can tolerate rare occurrences of loosing power. The publicly traded company RIOT sources 100% of it’s bitcoin mining energy from renewable sources. Also, as a comparison, nearly all the gold mining machinery runs on gasoline.
ahallock 6y ago
There seems to be an inverse correlation between the value of BTC and DXY.

by tome 6y ago

rybosworld 6y ago

I think the major point is that Bitcoin seems to benefit disproportionately from inflation. It may be the case that it's the single best hedge against inflation. But yes, there are lot's of things that protect against inflation.

tome 6y ago
> Bitcoin seems to benefit disproportionately from inflation Does it? On what basis would one know that? Why should it benefit from inflation more than gold, say?
- rybosworld 6y ago
  My argument would be it's the only thing on that list of inflation hedges that has a fixed supply. Lot's of gold is mined each year. Houses are built. Stock is issued, etc. Bitcoin has a well-established upper limit.
  - tome 6y ago
    > [Bitcoin is] the only thing on that list of inflation hedges that has a fixed supply. Aha! That brings me to my next question. In what sense does bitcoin actually have a fixed supply? Sure, a loose coalition of people agree for it to have a fixed supply at the moment, but if enough of the miners, core developers, etc. agree they can change the rules arbitrarily, viz. hard forks. Why should we believe that bitcoin really has a fixed supply, just because everyone has roughly stuck to the rules so far?
    - rybosworld 6y ago
      That's mostly a matter of economic incentives. It's technically possible but it's similar to the idea of a rich person lighting a pile of money on fire. If a proposal to raise the cap is introduced, price would react negatively, hurting miners, and making it more (relatively) expensive to mine. It's unlikely there is any scenario where it is economically feasible to try to raise the supply cap.
      - notahacker 6y ago
        A [relative] lack of block rewards to earn hurts miners too...
      - tome 6y ago
        Can you point me to some more thorough analysis of your claim? I've heard such things before but I've never seen it modelled and worked through. Until I see such an analysis I can't help thinking the argument is "we've thought about it a bit and it seems like it will be OK".
    - ur-whale 6y ago
      Every single thing you said applies to the greenback. Therein lies your answer: if a large enough number of people place faith into something, it "takes".
- smeej 6y ago
  Nobody knows how much gold is in the earth, much less in not-so-distant asteroids. The supply of gold might, technically, be "fixed" in the sense that no more of it is being created, but more of it could be discovered at any time. Bitcoin's supply is mathematically demonstrably fixed. Nobody's ever going to discover a new vein of Bitcoin in the earth's crust, or on an asteroid.
  - caeril 6y ago
    We know to a pretty good approximation how much gold is in the earth, and where it is. That's not even a minor consideration for mining geologists and engineers anymore. The primary limitation as of now is ore quality, which directly dictates how much energy is required for smelting, and we have a good idea of the decline curve thereof. We know roughly when it will be economically profitable to extract the stuff from seawater, which isn't too far off. In the end, it's a question of energy. Very similar to proof-of-work tokens like BTC, in that regard.
    - smeej 6y ago
      We certainly think we know. But we've thought an awful lot of things as a human species that turned out not to be true. Gold is presumably scarce. Bitcoin is provably scarce.
      - splistud 6y ago
        You are wrong about gold, either learn or drop that, its not central to your argument. A lot of things are scarce. Some of those things are valued. Bitcoins may or may not be valued in the future, and if they are it is unknown at what price point they might be valued. Scarcity is only part of the equation.
        smeej 6y ago
        Alright. I tried to do this. I'm certainly open to learning. But it looks like I'm actually going to need citations from you because everything I'm finding so far confirms that we do NOT know how much gold exists in the earth, or where it might be found, or whether it will become economically feasible to extract it. All we know is that discoveries are slowing down.[0][1][2][3] I've tried to read a variety of sources, from a scientific journal to a metals dealer to a mainstream news outlet to an industry-focused site. By all means, though, if you have citations for your confident claims that you're willing to provide, I'll be happy to read them too. [0] Earthquakes are still forming new veins: https://www.nature.com/articles/ngeo1759 https://www.nature.com/articles/ngeo1759 [1] There may or may not be large undiscovered veins left, especially under the ocean and in Antarctica (and we don't know whether new technology will make them easier to discover and mine): https://www.providentmetals.com/knowledge-center/precious-metals-resources/global-gold-supply-predictions.html https://www.providentmetals.com/knowledge-center/precious-me... [2] New technologies are gaining adoption that could reveal veins that were undiscoverable before: https://www.bbc.com/news/business-54230737 https://www.bbc.com/news/business-54230737 [3] There's no reason to believe the discovery of large gold mines is nearing its end: https://www.mining.com/web/were-a-long-long-way-from-running-out-of-gold/ https://www.mining.com/web/were-a-long-long-way-from-running...
- firmnoodle 6y ago
  The argument is that Bitcoin not only has a provable total fixed supply & rate of future supply and that it has more utility than gold because it's easier to transfer and harder to fake.
  - ur-whale 6y ago
    > harder to fake Also harder to take.

aarongray 6y ago

Real estate has clearly been shown to not be resistant to inflation over the past year.

tome 6y ago
Could you elaborate?
- aarongray 6y ago
  Home prices in my area are up around 15% over the past year.
  - tome 6y ago
    I'm confused. That suggests that real estate is very much resistant to inflation.
    - aarongray 6y ago
      Haha I was wrong, I see what you were saying now. I thought you were saying that resistance == unaffected. But you were saying that the price of real estate rises when inflation occurs, so buy it before inflation happens. My bad. :)
  - Kranar 6y ago
    That makes real estate investments a good defense against inflation. A good defense against inflation are assets whose price increases at a rate higher than the rate of inflation. A bad defense would be an asset whose price increases at a rate lower than that of inflation.
    - lvs 6y ago
      I'm not sure anyone in this thread knows what inflation is. If the cost of housing rises, that is inflationary against all other fungible assets that could be used to purchase housing. That is, one requires a larger quantity of all assets -- dollars, crypto, stocks, bodily fluids, etc. -- to acquire a roof over one's head. Only if the cost to purchase housing is somehow lower by holding value in a particular asset could you get ahead of the inflationary pressure caused by rising housing prices. Too many cryptonuts think inflation just means "money supply." That is play time economics.

pingpongchef 6y ago

Stocks and bonds are still coupled to fiat currencies and will be directly impacted by their perceived deficiencies when compared to crypto. Hard assets like real estate, land, gold don't fit that bill, but each of their own tradeoffs. Right now cryptocurrencies are making gains against those hard assets so they are more attractive. An investor may wish to diversify among some or all of these options.

vkou 6y ago
Stocks are not coupled to fiat, fiat is just the common medium of exchange for them. Nobody will stop me from trading my GOOG share for a goat, or a baseball card, if I so choose. Stocks are coupled to the productive output of the firm the stock is issued by, which is coupled to it's real world productivity - which, again, for convenience is measured in a fiat currency.
- JumpCrisscross 6y ago
  > Nobody will stop me from trading my GOOG share for a goat, or a baseball card, if I so choose. Nitpick, but the SEC would object to that. That said, American securities regulation has a unique philosophy, i.e. every securities trade must be registered and follow a narrow book of rules unless specifically exempted. Your broader point, of financial and real assets being proven hedges against inflation, stands.
  - tome 6y ago
    The transaction must be denominated in dollars, but must dollars actually change hands? I don't think so. Companies buy other companies with stock issues all the time.
    - JumpCrisscross 6y ago
      > transaction must be denominated in dollars, but must dollars actually change hands? I believe it's the other way around. It can be denominated in anything, but trading e.g. the deed to your house for some Apple stock is a no no. (Doesn't have to be U.S. dollars, though.)

oxymoran 6y ago

A)I don’t have $150k+ To just go invest in land or real estate that I’m not going to reside in. B)Are stocks and bonds inflation resistant if they are priced in the inflating currency? Not just normal year over year inflation but the type of inflation that happens when you debase a currency. Regardless, I already own these, the first rule of investing is diversification. C)gold is inflation resistant and tangible so I agree that is the best option if you are truly worried about SHTF but it’s also heavy and more expensive to secure. Bitcoin, in my opinion, is a hedge on the hegemony of the US dollar which I see weakening going forward. The US dollar is the global reserve currency thanks to the global oil industry. That gives the US a lot of power. But between the switch away from oil, the weakening of the dollar, and the rise of China the US currency dominance looks to be coming to an end. There is no other currency that could act as a global reserve currency except China, which would essentially make China the worlds superpower. That is where Bitcoin comes in: it can be the new global currency instead of China when the US dollar loses its place. Gold and paper only has value because we imagine that they have value, I don’t see how Bitcoin is any more or less imaginary.

kgwgk 6y ago
> B)Are stocks and bonds inflation resistant if they are priced in the inflating currency? The parent comment said "inflation-adjusted bonds". If you don't know what that means, look it up. As for stocks, they are priced in an inflating currency in the same way that real estate or dogecoin are priced in an inflating currency.
tome 6y ago
A) REITs exist https://en.wikipedia.org/wiki/Real_estate_investment_trust https://en.wikipedia.org/wiki/Real_estate_investment_trust B) Yes, stocks are not directly affected by the currency in which they are nominally denominated! Yes, inflation-adjusted bonds are not affected by inflation in the currency in which they are denominated, assuming you believe RPI to be a good measure of inflation. C) You can buy gold without having to store it yourself! For example SGLN or https://www.bullionvault.com/ https://www.bullionvault.com/ (no connection other than being a happy customer) > Bitcoin, in my opinion, is a hedge on the hegemony of the US dollar which I see weakening going forward If you really wanted a hedge on the US dollar you could buy oil, gold, JPY, EUR, CHF, GBP. Buying the hugely volatile asset called bitcoin doesn't seem like a good way to hedge USD. > Gold and paper only has value because we imagine that they have value No, gold has value because of demand in industrial process and jewellry. "Paper" has value because governments can demand you to pay it to them in return for participating in economic activity within their borders. If these arguments are really what bitcoin supporters believe about the value of bitcoin then the whole bitcoin enterprise is in for a big shock.

tgsovlerkhgsel 6y ago

They're very similar to gold in this regard. They have a value because people think they have a value. They're a lot easier to store, transport and transact with than gold bars though. And I have my doubts whether Bitcoin mining is more destructive than gold mining. It's possible (it's a LOT of energy), but gold mining is also pretty nasty.

webinvest 6y ago
Bitcoin mining is not destructive. The production of electricity via Coal, natural gas, oil, and biomass is. It makes more sense to ban the direct source of these carbon dioxide emissions than the downstream users of the electricity. Cryptocurrency mining is very compatible with renewable energy sources because it can be mined from anywhere, the energy usage is very predictable, and the mining can tolerate rare occurrences of loosing power. The publicly traded company RIOT sources 100% of it’s bitcoin mining energy from renewable sources. Also, as a comparison, nearly all the gold mining machinery runs on gasoline.

ahallock 6y ago

There seems to be an inverse correlation between the value of BTC and DXY.