5 ms·

For what is worth, there's a huge blast radius if any of the top 3 collapse, with Tether (as the 3rd) likely having the smallest one - think of what happens to

by Tenoke 5y ago

For what is worth, there's a huge blast radius if any of the top 3 collapse, with Tether (as the 3rd) likely having the smallest one - think of what happens to everything else when bitcoin crashes or even dips significantly.

Havoc 5y ago
>think of what happens to everything else when bitcoin crashes or even dips significantly. No idea about the rest, but I'm buying. Conceptually I think this has gained critical mass. i.e. There are enough people with enough belief to make crash to zero unlikely
- Tenoke 5y ago
  Sure, but the exact same is true if there's a crash due to Tether's demise.
  - Havoc 5y ago
    Fair point
SkyMarshal 5y ago
Bitcoin crashes and dips all the time. It's lost over 80% of its value at least four times since it launched, plus the recent big 50% drawdown. It slows the cryptoeconomy for a year or so, but doesn't stop it, and then there's another bubble again ~2yrs later. Bitcoin's high but natural volatility is not the same thing as the price collapsing due to the system itself fundamentally breaking. For example, the Global Financial Crisis was the result of the system itself fundamentally breaking, not natural volatility, and its blast radius was immense. Tether or other major stablecoin collapsing due to being exposed as a fraud, or a fractional reserve with no reserves, or similar, would be more analogous to the GFC. And the blast radius could be worse than any of Bitcoin's 80% drawdowns, both economically and wrt to regulatory and legal attention.
- BenoitEssiambre 5y ago
  While tether is shady as hell, the fact that it is not deflationary, that the weaknesses in its balance sheets are more visible and that it is tied to a monetary policy that doesn't encourage hoarding makes it tamer than deflationary coins in many ways. Yeah if it collapses, some other cryptocoins are going to be more volatile than usual but even Musk tweets can do that (and this volatility may actually help prevent these coins from becoming systemically important and dangerous). Deflationary coins on the other hand are super insidious, they can get hoarded on a wider scale to the point of displacing productive investment in the economy. With deflationary coins it's not the volatility that's dangerous, it's the lack of it creating gridlocks in other investment markets. This happened before when there was attempts at stabilizing gold and it caused the Great Depression: https://benoitessiambre.com/specter.html https://benoitessiambre.com/specter.html
  - SkyMarshal 5y ago
    > Deflationary coins on the other hand are super insidious, they can get hoarded on a wider scale to the point of displacing productive investment in the economy. With deflationary coins it's not the volatility that's dangerous, it's the lack of it creating gridlocks in other investment markets. I worry about this too. Essentially, new money creation can go toward financing three objectives - production (manufacturing & innovation), consumption, or asset speculation. If you have a financial system that’s financing mainly production, and somewhat consumption, you achieve widespread and equitable growth without inflation. This is the ideal. It’s how the Japanese rebuilt their economy after WWII, based on the theories of Osamu Shimomura, focusing new money creation on production. But if your financial system is financing mainly consumption, you get inflation without growth. And if it’s financing mainly asset speculation, you get financial instability and crisis, wealth concentration, and inflation. This is all from Richard Werner’s work and research [1][2]. Deflationary cryptocurrency, at least in its early days, is financing mostly asset speculation. However, that may be an unavoidable part of bootstrapping a new kind of money technology. But as your blog mentions, at some time in the future it will reach a steady state, no more rapid appreciation, and then what. One of the big public debates is about whether transaction fees alone will be enough to finance mining and thus security of the network, after both the mining subsidy ends and the price appreciation levels off. Another less public debate is how “HODLers” may then need to reinvest more of their gains into building value-adding services for the network to continue economic growth, despite the individual incentive being to hoard. I don’t think the story has been completely written on deflationary cryptocurrencies, and am still watching to see how they deal with this eventual problem. But the sound money religion surrounding some of them is preventing an honest assessment of these problems. [1]:https://professorwerner.org/ https://professorwerner.org/ [2]: https://www.researchgate.net/profile/Richard-Werner https://www.researchgate.net/profile/Richard-Werner

by Tenoke 5y ago

Havoc 5y ago

>think of what happens to everything else when bitcoin crashes or even dips significantly. No idea about the rest, but I'm buying. Conceptually I think this has gained critical mass. i.e. There are enough people with enough belief to make crash to zero unlikely

Tenoke 5y ago
Sure, but the exact same is true if there's a crash due to Tether's demise.
- Havoc 5y ago
  Fair point

SkyMarshal 5y ago

Bitcoin crashes and dips all the time. It's lost over 80% of its value at least four times since it launched, plus the recent big 50% drawdown. It slows the cryptoeconomy for a year or so, but doesn't stop it, and then there's another bubble again ~2yrs later. Bitcoin's high but natural volatility is not the same thing as the price collapsing due to the system itself fundamentally breaking. For example, the Global Financial Crisis was the result of the system itself fundamentally breaking, not natural volatility, and its blast radius was immense. Tether or other major stablecoin collapsing due to being exposed as a fraud, or a fractional reserve with no reserves, or similar, would be more analogous to the GFC. And the blast radius could be worse than any of Bitcoin's 80% drawdowns, both economically and wrt to regulatory and legal attention.

BenoitEssiambre 5y ago
While tether is shady as hell, the fact that it is not deflationary, that the weaknesses in its balance sheets are more visible and that it is tied to a monetary policy that doesn't encourage hoarding makes it tamer than deflationary coins in many ways. Yeah if it collapses, some other cryptocoins are going to be more volatile than usual but even Musk tweets can do that (and this volatility may actually help prevent these coins from becoming systemically important and dangerous). Deflationary coins on the other hand are super insidious, they can get hoarded on a wider scale to the point of displacing productive investment in the economy. With deflationary coins it's not the volatility that's dangerous, it's the lack of it creating gridlocks in other investment markets. This happened before when there was attempts at stabilizing gold and it caused the Great Depression: https://benoitessiambre.com/specter.html https://benoitessiambre.com/specter.html
- SkyMarshal 5y ago
  > Deflationary coins on the other hand are super insidious, they can get hoarded on a wider scale to the point of displacing productive investment in the economy. With deflationary coins it's not the volatility that's dangerous, it's the lack of it creating gridlocks in other investment markets. I worry about this too. Essentially, new money creation can go toward financing three objectives - production (manufacturing & innovation), consumption, or asset speculation. If you have a financial system that’s financing mainly production, and somewhat consumption, you achieve widespread and equitable growth without inflation. This is the ideal. It’s how the Japanese rebuilt their economy after WWII, based on the theories of Osamu Shimomura, focusing new money creation on production. But if your financial system is financing mainly consumption, you get inflation without growth. And if it’s financing mainly asset speculation, you get financial instability and crisis, wealth concentration, and inflation. This is all from Richard Werner’s work and research [1][2]. Deflationary cryptocurrency, at least in its early days, is financing mostly asset speculation. However, that may be an unavoidable part of bootstrapping a new kind of money technology. But as your blog mentions, at some time in the future it will reach a steady state, no more rapid appreciation, and then what. One of the big public debates is about whether transaction fees alone will be enough to finance mining and thus security of the network, after both the mining subsidy ends and the price appreciation levels off. Another less public debate is how “HODLers” may then need to reinvest more of their gains into building value-adding services for the network to continue economic growth, despite the individual incentive being to hoard. I don’t think the story has been completely written on deflationary cryptocurrencies, and am still watching to see how they deal with this eventual problem. But the sound money religion surrounding some of them is preventing an honest assessment of these problems. [1]:https://professorwerner.org/ https://professorwerner.org/ [2]: https://www.researchgate.net/profile/Richard-Werner https://www.researchgate.net/profile/Richard-Werner