14 ms·

Why gold and Bitcoin are popular

93 points by ca98am79 5y ago

dcolkitt 5y ago
I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto. I know many here are stridently anti-crypto, but there is some not very likely but plausible future where Bitcoin or Ethereum become the global reserve asset. Much the same way gold was in the 19th century or IMF drawing rights have operated at certain points post Breton Woods. This is entirely different than the scalability limits that stand in the way of Bitcoin becoming a consumer currency. In this future, only major central banks and financial institutions would hold physical Bitcoin. Consumers would use either Bitcoin backed scrip issued by a bank. Or fiat currency where global confidence largely stems from the central bank’s BTC reserves. I’d give this future a 1% of happening in the next 15 years. And conditional on it occurring, I’d estimate the price of BTC would likely increase by two orders of magnitude. From a pure expected value standpoint that makes crypto one of the most compelling asset classes around.
- babyshake 5y ago
  This lines up with the "hyperbitcoinization" narrative. It is pretty interesting to consider from a game theory perspective what sequence of events might cause this outcome to occur.
- tekstar 5y ago
  > I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto. crypto, especially bitcoin, is an intentional environmental disaster. I don't want to invest 1% of my money into an intentional environmental disaster.
  - thundergolfer 5y ago
    Exactly the reason I don't invest. My risk appetite is more than enough to take on Bitcoin/Ethereum investment, but the environmental impact relative to its utility outside of speculative investment is insane. Did you mean to say "international environmental disaster"? I don't know in which way it's intentional that Bitcoin destroys the environment. The damage seems incidental.
    - gwicks56 5y ago
      I don't understand this argument. There are lots of things people like to do that use a lot of energy that I think are stupid. Like why to people in the West drive such stupidly large cars? Surely the answer to clean the inputs, not the use case? Trying to control what people can do is just going to make the transition to a clean future impossible, because you will piss lots of people off, and make then enemies. Bitcoin uses a lot of energy because that's it's security model. Trucks use a lot of energy because they are huge. Seems a lot more productive to concentrate on moving electricity to be a clean world input ( say a carbon tax), or move to electric vehicles ( say via tax credits), than to police the actual end usage.
      - tekstar 5y ago
        I also don't drive a really big car, and I think it's stupid as well. So, now we're at two things I don't do because they're bad for the environment.
      - jcpham2 5y ago
        Internet brainwashing “ but it uses electricity” never mind the fact proof of work is on it’s fourth generation of hardware and the price absolutely coo relates with the cost to play the game. We’re opining about a system that finally, for the first time in the history of man, might accurately price the cost of the electricity consumed to power the system. It’s pretty mind boggling but that’s the internet for you.
      - TheDong 5y ago
        Bitcoin is fairly unique in its energy use. Almost every other use of resources will try to be more efficient if it can be. If, for example, it were possible to create steel alloy in a way that took 1% less energy or made less waste (and thus was presumably cheaper at scale), the trucks would use this slightly more efficient steel. On the other hand, Bitcoin relies on wasting a certain monetary value of energy for the security of the network. Its waste is adversarial. If we manage to produce 2x the electricity tomorrow and it becomes significantly cheaper, that just means a 51% attack also became much cheaper so people need to waste even more energy mining. I can't think of any other uses of energy offhand that so actively resist any improvements. I can think of other intentional forms of waste (like dumping toxic waste, "rolling coal", etc), but I can't think of any that are aligned such that making upstream production of a resource more efficient then requires producing even more waste and environmental damage.
  - rawtxapp 5y ago
    Look at it this way, if Bitcoin/crypto fails, then you have nothing to worry about, since they'll just go away and there will be no environmental concerns. In this scenario, you lose the 1% you invested. If they succeed on the other hand at becoming world reserve currency, then that energy usage will be justified since it's replacing something that takes even more energy (current fiat system). In this scenario, your 1% investment has probably grown to be a much larger % of your portfolio.
    - im_down_w_otp 5y ago
      I've never seen an energy consumption breakdown of what it takes to run the branches of the Federal Reserve or the Treasury. Do you have any primary source material on that?
      - gwicks56 5y ago
        The USA dollar is the settlement currency of the world. Which means you are really looking at the energy use of the Army/Navy/Air-force. If, in this hypothetical future, BTC became the settlement record.
        ramchip 5y ago
        I don't follow this reasoning - why would moving to BTC as a global settlement currency make armed forces obsolete?
        wwweston 5y ago
        If you assume: (a) the energy of the Army/Navy/Air-force supports nothing other than US currency (b) no force would be necessary to back compliance with entries in a crypto ledger
        jayd16 5y ago
        As if BTC would somehow eliminate the army, navy and air-force.
      - FpUser 5y ago
  - kragen 5y ago
    This is goofy. The worldwide Bitcoin network uses about 12 GW, mostly renewable, because Bitcoin mining is unprofitable if it's using anything but the absolute cheapest electricity, and scalable renewable electricity is about a third the price of fossil-fuel electricity now, with the gap constantly widening. By comparison, China built 71.7 GW(p!) of new wind energy capacity last year, and the world economy uses 18000 GW. Worrying about today's Bitcoin mining is as silly as worrying about plastic straws. Maybe in the future Bitcoin mining could become an environmental disaster, but today it's insignificant. Further details in https://news.ycombinator.com/item?id=27449443 https://news.ycombinator.com/item?id=27449443 and https://hbr.org/2021/05/how-much-energy-does-bitcoin-actually-consume https://hbr.org/2021/05/how-much-energy-does-bitcoin-actuall....
    - jcranmer 5y ago
      > The worldwide Bitcoin network uses about 12 GW, mostly renewable, because Bitcoin mining is unprofitable if it's using anything but the absolute cheapest electricity, and scalable renewable electricity is about a third the price of fossil-fuel electricity now, with the gap constantly widening. If I'm following this right, the only evidence for Bitcoin being mostly based on renewable energy is because people believe it's uneconomical to not be renewable, and not based on any actual attempt to figure out what energy types are actually being used by large mining groups? Because, especially when you compare across international countries, retail prices are only vaguely correlated with production prices. Many places subsidize the crap out of energy prices, and electricity in a subsidized place could well be much cheaper than in a non-subsidized place, even if the first plant is burning coal and other plant is using wind. For some specific data points, I believe a large clutch of miners operated out of Inner Mongolia, whose electricity capacity increases in recent years has been dominated by coal-fired power plants (because it's a coal-rich region that doesn't give two whits about environmental effects). I'll also note that there was a story a few weeks back about a coal powered plant being recommissioned solely for mining bitcoin.
      - kragen 5y ago
        > If I'm following this right, the only evidence for Bitcoin being mostly based on renewable energy is because people believe it's uneconomical to not be renewable, and not based on any actual attempt to figure out what energy types are actually being used by large mining groups? Nope, sounds like you didn't look at the references I linked at all. If you want to follow something right, try reading the references, or at least casually skimming them. https://coinshares.com/insights/beware-of-lazy-research-bitcoin-mining-update https://coinshares.com/insights/beware-of-lazy-research-bitc... is one of the sources for the percentages cited in the Harvard Business Review article explaining their methodology (in 02018). It's the polar opposite of what you're saying. It's also true that there are fundamental economic reasons that Bitcoin mining is mostly done with renewable energy; it's not just a weird coincidence. But it's not just a theoretical prediction. > retail prices are only vaguely correlated with production prices. Many places subsidize the crap out of energy prices Yeah, that does happen. Also, outright theft happens; the cheapest energy is energy that you steal. But it turns out that unprofitable subsidies and stolen energy aren't very scalable, because places where the government pays for most of the energy ① tend to have strict oversight of industrial-scale operations, ② don't generate much electricity in the first place, and ③ tend to consider entrepreneurs criminals by default because they increase wealth inequality, so they shut them down when they get found out. When Bitcoin mining (or, say, Litecoin mining) starts to scale up in such places, as it did here in Argentina some years back, the energy subsidies have a way of evaporating. > I'll also note that there was a story a few weeks back about a coal powered plant being recommissioned solely for mining bitcoin No, that was gas; my comments on it are https://news.ycombinator.com/item?id=27450889 https://news.ycombinator.com/item?id=27450889. You're right that there are a variety of unusual circumstances that can make fossil-fueled Bitcoin mining profitable at small scales in one or another place, so it's easy to find anecdotes of it. But it's not the majority of the network.
  - ohhhhhh 5y ago
    no, your toaster is
  - kerng 5y ago
    I see both sides throw random facts and numbers around when it comes to energy consumption - so the truth is probably somewhere in between. It's an issue, and its gonna get better over time. So I'm less sure if it's really that big of a problem. Just because I walked by a Chase bank right now... I mean, wouldn't it safe more energy if banks would start turning off their lights from 5pm to 8am and on weekends also?
  - ostenning 5y ago
    The hypocrisy on this topic is unbelievable. I don't know what your portfolio looks like, but most people are happy to invest in blue chip stocks and indices that contain some of the worlds largest polluters, but, of course, as soon as they hear the word BTC, they cast judgement and throw the baby out with the bath water. If you actually cared about the environment, you would be attempting to invest money into disruptive technologies like BTC that can move money away from traditional banks that have literally funded global corruption, wars, genocide and (surprise surprise), ecocide. It makes no sense whatsoever and what it tells me is that you're just regurgitating the same dribble that you heard with no critical thought of your own
  - matheusmoreira 5y ago
    Why do people keep posting this? I have no idea where this meme came from. It's not even 1% of global energy consumption. Cryptocurrencies in general are absolutely not environmental disasters. I agree, bitcoin is a useless coin but it's not even close to having any real environmental impact. Investment in environmental disasters? I'd suggest the developed world stop trading with China but we all know people can't live without cheap consumer products, including the computers we're using to post our opinions. How about we drop the USD instead? It's literally backed by petroleum and the US military. Hard to think of anything with a bigger environmental impact. It should be easy, right? Just quote petroleum prices in cryptocurrency. Simple... The hard part is surving the inevitable US invasion and destruction of your country.
- adventured 5y ago
  > I’d estimate the price of BTC would likely increase by two orders of magnitude I broadly agree that there's no great reason not to allocate 1-5% (I'd go higher on the range, depending on personal context) to crypto. However there's no scenario where Bitcoin can increase in value by two orders of magnitude. Literally, there is no scenario that can actually occur that will get it there. You're talking about ~$75-$100 trillion in value depending on where Bitcoin is at in a given week or month. You know what compares well to that? All the public stock holdings on planet Earth, which is just under that line. Bitcoin is going to be worth more than every publicly traded company in existence, from the US to China and everything inbetween. Not a chance that can ever happen. The odds are zero.
  - adh636 5y ago
    The bond market is over 100 trillion. Why would people buy bonds returning low fixed interest rates in depreciating currencies if bitcoin with a fixed total supply becomes the global reserve currency? Gold is currently at a 10 trillion dollar market cap, and is a pretty small part of the global financial system at this point. The odds are absolutely not zero.
  - intrasight 5y ago
    He was predicting BTC-USD not BTC-SPX
- arcticbull 5y ago
  Yes, but gold was an awful reserve, which is why we got rid of it. Replacing it, now, with the benefit of hindsight, with a digital version of an awful reserve isn't a game plan.
  - lowkey 5y ago
    I've read a fair share of Austrian Economics and they certainly don't believe that gold was an awful reserve. I have yet to hear a credible argument against the use of gold as a global reserve currency other than the fact that countries can cheat by lying about their reserves such as they did during WWI. If you have reasoning to back your claim that gold was an awful reserve currency, I would love to hear it.
    - tablespoon 5y ago
      > I've read a fair share of Austrian Economics and they certainly don't believe that gold was an awful reserve. Have you read a fair share of other schools of Economics, or did you just focus on Austrian?
      - lowkey 5y ago
        I’ve read Keynes et al as well. None of them make a compelling case against the gold standard. Here is former Fed chair Alan Greenspan’s bullish case for the Gold standard for example [1] [1] http://www.altavra.com/docs/thirdparty/gold-and-economic-freedom-alan-greenspan.pdf?__cf_chl_jschl_tk__=1a52f784cea3df48eabd7cb0c05982040b880963-1623651423-0-AVT6dcrUuTtAfljBcQQvENsHagJQmo7zZGMrn2MgsX3kZVYAaq7Upj3bppElt6aRjlz2AY_GPV4F73MmsDVXprGDlFYaamsigmiZjn5rl5zStayELKAoHx4IXAHjFqEQ--Spel4tyHIAm-vqlgY-en1KaVWRGepu9w1EIwOQVlEBVPYJkPlPNWWt5gAz9ssj1s7hfm2nWICyExcUz5uqq-c3Ycjd4Lf2mdYXBZ7mfETjq6uHkrta-vAXEOHNBtyaGih2YSn1C7AGCgbnpFpYhXmfpEaAjYtCiWzYuaObIA8PZNzTvMKR3EQB3hM9zXeIDn82vSnjH4tkGtwzMZomL7nB8eyop1n9k3AJEW_wpjcNt65mybceMlxazR8UoWFQBRm3-7dlfe_xiqryS7e5BsxEiG3VjMMJ4E9nV-WoP3vUSRSAwmLLayNy7aejPu8MAps5dlxTjKaNDghQ2grkWJOCOtm62XKDl-f6MjJoHSBw http://www.altavra.com/docs/thirdparty/gold-and-economic-fre...
        imtringued 5y ago
- vbtemp 5y ago
  I target about 2.5% of my portfolio to be crypto. Another 2.5% gold and silver. It's kind of amusing and baffling watching all these people speak with such certainty and conviction. If crypto currencies collapse, meh, oh well. If they spike another order of magnitude, nice, I'll just sell to keep my allocation on target. Like you, it just seems prudent to have limited downside (ie a crypto collapse won't ruin you.. at all) but also having some exposure to big positive swings, and never basing ones hopes and dreams on it. Anyway, here's to enjoying the show. Edit: when you disclose something like this, and people get viciously defensive about it, it usually means you're on course (see comments below).
  - arcticbull 5y ago
    There's an entire universe of things you can invest in. Picking crypto with no real thesis except one day the entire world may be transacting 7tx/sec isn't really a good one. If you allocate 1% to every longshot you will be broke. Should I allocate 1% of my portfolio to Dentacoin in case dentists on the blockchain become the future of dental work? Especially knowing that 80% of all trading volume is against Tether, which is 3% backed by money. 95% of all trading volume in the space is fictitious, according to an ETF that tried to list a few years ago.
    - rawtxapp 5y ago
      Once again, lightning network is here and functional with growing adoption (1ml.com) and that's what they are using in El Salvador. LN can achieve almost instant and practically free Bitcoin payments.
      - arcticbull 5y ago
        Do they though? Because that's not really what I'm hearing. Strike is, in the US, a custodial US dollar wallet. You give them dollars and they keep them as dollars. You send them to another person in the US and they just amend their internal ledger. When you try and send them to El Salvador things go pear shaped. They: (1) Buy Bitcoin with those dollars. (2) Use a private LN network that they don't let anyone else onto because it made it totally un-workable according to their CEO. (3) To send those Bitcoin between their own two accounts. (4) And then buy Tether with them in El Salvador. You remember, the dollars that are actually 3% dollars. Strike is somehow the absolute worst case for the people of El Salvador. Centralized, permissioned, censorable (it's not available in Hawaii or New York) and backed by Tether. Not a coin that's likely to have the money (USDC) but Tether, who admits they don't. El Salvador by the way, is a dictatorship mandating their citizens use of Bitcoin. Where's the win exactly? [1] https://davidgerard.co.uk/blockchain/2021/06/11/el-salvador-passes-its-bitcoin-law-and-its-a-tether-scam/ https://davidgerard.co.uk/blockchain/2021/06/11/el-salvador-...
- JumpCrisscross 5y ago
  > it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto This isn’t a great heuristic. It green lights every high-gain proposal, irrespective of the risks, actual rewards and odds of success.
- rawtxapp 5y ago
  This is literally one of the first things that Hal Finney pointed out couple days after Bitcoin was announced publicly[1]. 1: https://twitter.com/DocumentingBTC/status/1363504478532624387/photo/1 https://twitter.com/DocumentingBTC/status/136350447853262438...
  - andrewmcwatters 5y ago
    > Then the total value of the currency should be equal to the total value of all the wealth in the world. These people flat out don't understand how currency works. They don't understand where it comes from, how it's created, how it's destroyed, or what gives it intrinsic value.
    - rawtxapp 5y ago
      He made that prediction when Bitcoin was worth a big 0. Back then if you told anyone that one day it would achieve prices of 63k$ per coin, they would have told you you're just crazy, yet here we are. Let's see where we are in 10-20 years from now.
- bottled_poe 5y ago
  > I’d give this future a 1% of happening in the next 15 years. This will never happen. Governments won’t allow loss of control and the planet can’t support it either. If Bitcoin is not banned in all western nations within 10 years I will be very surprised.
  - R0b0t1 5y ago
    It doesn't matter what they will allow. What matters is what will happen. Science fiction has explored the idea of transnational, nation-like organizations that have more real importance than an actual country. If nations reject bitcoin I suspect that is where we're going to go.
    - bottled_poe 5y ago
      Fiction is an odd place to put the trust of your future wealth. Personally, I feel very confident that those who currently hold real power will end up on top. I.e. those with a powerful military and police force who are capable of enforcing actual change. Same as it ever was.
      - R0b0t1 5y ago
        They can't enforce actual change if they can't touch it.
  - fighterpilot 5y ago
    Tens of millions of voters own crypto now. Rational policy != feasible policy.
  - kerng 5y ago
    I think a ban is questionable and likely backfires for those in charge. Also banning based on what grounds? The US and many others see it as an investable asset. Governments will likely start to buy/mine large amounts... that's seems more likely at this point. I'd be surprised if the US government isn't doing this very soon (or has already)
- eli 5y ago
  Here's the argument: I give this much MUCH less than 1% chance of happening.
- ramchip 5y ago
  I think the major argument against that is ethical. I wouldn't invest in something that has disastrous consequences on the environment, even if the expected returns are great.
  - deleted 5y ago
    [deleted]
  - atweiden 5y ago
    Much of what passes for human industry is essentially just strip mining the planet of its natural resources. I’d recommend watching Sir David Attenborough’s A Life On Our Planet for a sobering view of the ecological footprint of non-Bitcoin human economic activity, which presumably you invest in one way or the other. Moving to a global deflationary economic system per Bitcoin would at least disincentivize the rampant consumerism destroying this planet via disincentivizing capital investment and spending.
- kerng 5y ago
  Chances of Bitcoin being still around in 10 years and valued accordingly are a lot higher than 1%. The first 10 years were way more difficult and challenging. The market will chose, some governments will try to fight it, but its much easier for governments to stock up Bitcoin reserves and embrace it. Bitcoin now is basically too big to fail.
  - jshen 5y ago
    Nope.
  - senectus1 5y ago
    > Bitcoin now is basically too big to fail. That phrase, are you really going to use that without a /s ?
  - JackFr 5y ago
    Bitcoin could disappear tomorrow and the biggest impact to the economy would be Tesla’s stick price.
    - atweiden 5y ago
      That’s rather uncharitable; the fallout would at least be similar to what would happen to the holders of SGD, NZD, DKK, and dozens of other currencies smaller than Bitcoin were they to implode. [1]: https://fiatmarketcap.com/ https://fiatmarketcap.com/
      - arcticbull 5y ago
        There's no such thing as market cap of a currency - just circulating supply denominated in itself. Each of those economies would be devastated and left unable to conduct commerce. Bitcoin though? A handful of speculators.
- bpodgursky 5y ago
  I hold a decent amount of Eth for this reason, but I actually think the biggest risk to either Bitcoin or Eth as an investment asset is not that crypto will fail, but that it will succeed enough that enough that institutional crypto users are sophisticated enough to create altcoins (or just hard forks) for these kind of banking-reserve use-cases. Market cap for crypto can go up by 100x but crypto overall could still be inflationary by adding new niche crypto asset classes.
- sasaf5 5y ago
  > I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto. The much larger than 1% probability of the current mainstream crypto being replaced by whatever new crypto is hyped in the future. Or the chance of "crypto" simply debasing itself out of existence with an infinite supply of new tokens.
- rat87 5y ago
  > I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto. sure if you like to gamble > I know many here are stridently anti-crypto, but there is some not very likely but plausible future where Bitcoin or Ethereum become the global reserve asset. Much the same way gold was in the 19th century or IMF drawing rights have operated at certain points post Breton Woods. not very plausible at all. As for a gold standard it was abandoned for good reason. You don't want a standard that is artificially limited and artificially limiting the economy, that's how you get a Great Depression
eschaton 5y ago
The answer is simpler than the article suggests: People who hoard precious metals or cryptocurrency have fallen for the financial-economic equivalent of Flat Earth propaganda, but unlike Flat Earth propaganda many people are not sufficiently literate in finance or economics to defend against such a destructive meme.
- BuyMyBitcoins 5y ago
  I feel like you’re being way too harsh on the people who buy gold and silver. The fact is both of those commodities do tend to hold onto their value very well over long stretches of time. Sure, investing in an index fund would have yielded more money but we only know that in hindsight. It’s not universally true that the stock market gets people the best returns. The fact is that gold and silver, while dumb and simple elements, will last longer than any company or government will. And there is some value in that. I don’t fault risk averse people for investing in scarce resources.
  - atweiden 5y ago
    > Sure, investing in an index fund would have yielded more money but we only know that in hindsight. As an aside, the S&P 500 is down since 1970 as measured in gold [1]. [1]: http://pricedingold.com/sp-500/ http://pricedingold.com/sp-500/
    - imtringued 5y ago
      Let's all buy gold and do nothing. We'll be rich!
    - Breza 5y ago
      I wonder how different the analysis would be if you'd bought shares in 1970 and reinvested all your dividends.
  - Breza 5y ago
    Well said. I don't have any gold in my portfolio but I don't begrudge people who do. The risk of ruin is pretty darn small, so even if you give up money versus an index fund, you're unlikely to lose much value over the long run.
ausbah 5y ago
this was probably one of the most knowledgeable articles I have read on this site I hope someday I would have the domain knowledge of something to write like the author
easymovet 5y ago
Baffling that tech types here aren’t grasping digital money, basicaly a self custody PGP key with value, and instead defending the status quo with poorly researched FUD like layer 1 scaling limits, power usage, and fear of regulators!? You guys sound like Paul Krugman, meanwhile Tesla and MicroStrategy are taking all the trending bitcoins off the table… the only point I disagree with LynAlydn, who wrote a great article, is that Bitcoin doesn’t offer yield. You can get yield on Bitcoin by either loaning it out or staking in in the lightning network to collect fees for providing liquidity.
- andrewmcwatters 5y ago
  What does being a "tech type" have anything to do with currency?
  - easymovet 5y ago
    “Software eating the world” now applies to money.
- rawtxapp 5y ago
  I've seen this a lot with my own circle of friends, I think there's a few reasons why "techies" don't like it as much: - they already trust the government and their institutions and don't see the need for it, - they hear all the FUD and don't want/have time to research further, - maybe some feeling of having missed out (especially for those that knew about it very early on or sold it for very cheap), - seeing some "stupid loud mouths" who yolo'd and made a lot of money in it. It's very interesting to see.
  - gruez 5y ago
    >- they already trust the government and their institutions and don't see the need for it, Strange given that most americans don't trust their government (https://www.pewresearch.org/politics/2021/05/17/public-trust-in-government-1958-2021/ https://www.pewresearch.org/politics/2021/05/17/public-trust...) Maybe trust in government is correlated with how well you're doing, and techies tend to be doing very well?
zaptheimpaler 5y ago
> In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive I can't believe policymakers have the gall to even consider substantially negative interest rates. That is just beyond f*** up. Proposing shit like that is a big part of the reason why people believe in crypto - these idiots can decide to steal the returns of your past labor with zero accountability or democratic process behind it. As much as I dislike Bitcoin, this kind of stuff really just pisses me off so much. This dissatisfaction with central banks is the heart of why people believe in crypto. All my life, I've struggled and worked incredibly hard to build financial security - who the hell are they to take it away without my permission? We just wake up one day and find cryptic IMF papers about this shit and are expected to shut up and deal with it? Maybe 5% of people even understand what negative interest rates would mean, 5% of those are even aware that they are being considered as policy objectives. Central bank fucks just aren't getting the message - this is about a failure of democracy. Where is the messaging about this? Where is my chance to vote or debate on whether we should do this? Who put them in charge? Everyone who is excited about central bank controlled "digital money" - please take some to consider the policy implications. It's not just new and better technology - the tech is cool but unimportant. It is a serious and irreversible shift of power towards even more undemocratic systems.
- ineptech 5y ago
  I think your vitriol is misplaced; the whole point of a negative interest rate is to stimulate the economy, i.e. increase the value of your investments, which presumably would be good for someone who has built financial security. Suppose for example that a -4% rate spurs a 1% economic boost - that would only be bad for you if you keep more than 20% of your wealth sitting around in your checking account. I'm not saying it would work, as in successfully grow the economy, necessarily. Not my area, and it'd depend on the country and the recession and so forth. Just saying, the "central bank fucks" who toyed with this idea were trying to make people money, not take it away.
cwyers 5y ago
The article's premise is that people want to buy gold and Bitcoin because they are both stores of value and they're bearer assets, which means that you don't need a third party to store them for you. That seems... somewhat suspect as an explanation, given that most people who have substantial holdings in either store them with a third party. I think that there's not much in common between most current gold holders (who are looking to hedge against drops in other markets), and current crypto holders, who are often speculators,hoping for big returns on investment.
- easymovet 5y ago
  Not just because they are a bearer asset but because their scarcity retains purchasing power orders of magnitude better than paper money.
  - smt88 5y ago
    Wait, what? Bitcoin retains purchasing power? Better than money? Can you explain? In what real-world scenario does Bitcoin have stable purchasing power?
    - eldfgl 5y ago
      Dude have you ever even owned a single satoshi
    - easymovet 5y ago
      I’m not claiming a fact, I’m quoting the article since you made a statement that didn’t accurately represent it.
  - rualca 5y ago
    > (...) their scarcity retains purchasing power orders of magnitude better than paper money. Bitcoin market price tanked from 54k to 29k a few weeks ago, and currently is still around 30k. That's not exactly what I would call retaining purchasing power.
    - 5y ago
Clewza313 5y ago
I'm a strong cryptoskeptic, but this is the most convincing argument for enduring relevance that I've seen yet. Nevertheless, I'm going to wait for Tether to blow up first before I get back in, because there's $63B worth of funny money propping up the current valuation.
paulpauper 5y ago
Over the past century, the strongest currencies, like the Swiss franc and US dollar, lost over 95% of their value. The average currency lost more than that, like around 98-99%. The worst currencies lost 100% of their value. This only applies to foreign currencies relative to the US dollar, not the dollar itself given that the dollar is considered the universal, global unit of wealth. It's like saying that a 1kg weights .3k on mars. A kg is a kg anywhere. What she means to say is that "the US dollar has lost its purchasing power due to inflation" which she does later but still misleading. But this still it not quite the same as saying the dollar lost its value. The nice thing about owning dollars is even in spite of loss of purchasing power due to CPI, you have no forex risk. Foreign currencies not only losing purchasing power due to inflation but also due to falling against the US dollar. And for longer-term savings instruments, here is a chart of the inflation-adjusted forward annualized rate of return of buying 10-year Treasury notes that year and holding them to maturity. You can see the three decades where bondholders got massacred, because the underlying dollars were devalued. During those times, anyone who bought Treasuries and held to maturity received annualized real returns of as low as -4% or -5% during the full duration of the note. Again, all she did was cherry pick two bad periods. Over the past 100 years, 10-year bonds have tended to produce positive real returns. Bitcoin and gold are popular but this does not make them good investments or a good hedge against inflation. Beanie babies were popular too. Overall, stocks have proven to be the best hedge against inflation. The S&P 500 has gained more than enough this year to overcome all inflation. Compare the charts of the total S&P 500 , nasdaq, or DJIA with any other asset class and stocks tend to win hands-down with few exceptions between.
- isoskeles 5y ago
  Central banks never held beanie baby reserves, whereas thousands of tons of gold are held among central bank reserves. Why do you suppose they hold it?
  - rsj_hn 5y ago
    It is the remnant of pre-fiat money era when foreign trade was settled via specie flows. Although it was no longer possible for individuals to show up at the Fed and demand some gold for the dollar, it was still possible for nations to do that under the Bretton Woords system setup by Keynes to manage postwar international trade. When France demanded a large gold shipment from the U.S. to settle accounts, Nixon exited Bretton Woods agreement. However that lack of convertability still left central banks with lots of Gold reserves that were no longer required to clear trade deficits, so they mostly sat on them. Some central banks decided to sell some of their gold and others bought some, but it is now basically another asset (like Beanie Babies) although gold lasts a lot longer and is more durable, and central banks have spent 100 years collecting it prior to the end of Bretton Woods. For more info, see https://www.imf.org/external/about/histend.htm https://www.imf.org/external/about/histend.htm Fun Fact: Many people still think that foreign trade is settled via specie flows, which is why they get all confused about how the US will "pay back" China, when of course China has already been paid (in dollars) and those dollars are not convertible to anything else. If China wants to, for example, use those dollars to retire its own RMB debt, it will need to sell those dollars for something like oil on the international commodity markets, and then sell the oil to its own people for their RMB, and then use those RMB to retire their own bonds. But of course China does not rely on anyone else to supply it with RMB anymore than the US relies on China to supply it with dollars. Once you take settlement of specie flows out of the mix, there is little reason to hold dollars other than sentimentality for the old metallic era.
eldfgl 5y ago
Lyn does great work. This is one of the most objective and well balanced pieces on this topic I have read.
andrewmcwatters 5y ago
All currencies are supposed to infinitely lose value, gradually over time, in order to encourage labor to continue. So, yeah, they’re all supposed to lose “100%” of their value, except that’s a weird way to quantify the value of currencies because to claim a percentage of it has been lost is an absolute measure, and not a relative one. If you said a currency lost 4% of its value year-over-year that would be high, sure. If you said a currency lost 25% of its value… so what? Relative to what? That’s not an important measurement. Cryptocurrencies are popular because “the sucker’s going up.” If they didn’t, they’d be little more interesting than PayPal transactions.
- Breza 5y ago
  > If they didn’t, they’d be little more interesting than PayPal transactions. I'd be a lot more excited about Bitcoin if it were that boring. If the speculators got out, it could be a viable payment method for everyday purchases. I bailed on Bitcoin in 2017 and didn't look back.
- errantmind 5y ago
  I disagree with your statement that all currencies are 'supposed' to be devalued. That is the conventional wisdom, but I've found no facts this is necessary. A deflationary currency may encourage some people to save instead of spend, and that will contract parts of the economy, but it is also more sustainable over the long run. I don't want to be 'encouraged' to buy a bunch of stuff I don't need, including being forced to invest in overpriced assets like stocks and real estate, simply because my currency is constantly losing value.
  - deleted 5y ago
    [deleted]
  - andrewmcwatters 5y ago
    I don't think you understand. It naturally happens as people create money (debt) to purchase things on their own volition. If people seek goods and services, debt will exist, and money supply will grow, devaluing the currency naturally. The only way you can avoid this is with a fixed money supply (e.g. the gold standard.) And when you fix the money supply, the owners of capital, versus a central bank, control the effective market average interest rate. Thats absolutely not a world you want to live in.
mgh2 5y ago
The article addresses one key aspect in fiat that is parallel to gold: inflation - gold being 1-2% (in par with population growth), fiat 2-4% - while one preserves value, the other expands it, by fueling production. I have read a lot about crypto recently, and yet the community cannot answer this: How do you account for the global population growth (and consequently GDP growth) that is constantly in need for a relatively stable exchange medium for value of goods produced? More people > more production > more money. Money is a tool to fuel production. Controlled devaluation fuels growth, AS LONG as it is backed by actual production - counter this with popular examples quoted: Germany (WWII), Venezuela, Greece, Argentina, etc. dramatically devalued their currency WITHOUT an increase in production. The problem with any limited supply is that it benefits and incentivizes hoarders and non-producers, having nonbeneficial effects for society as a whole. Please provide information that help answer this question, I am still researching.
- razius 5y ago
  > dramatically devalued their currency WITHOUT an increase in production Which is the argument that FED is doing right now. See M1: https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL and think of this, is the US that much more productive? > The problem with any limited supply is that it benefits and incentivizes hoarders and non-producers, having nonbeneficial effects for society as a whole. Hoarding of what? Don't you need money to buy gold / bitcoin?

93 points by ca98am79 5y ago

I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto. I know many here are stridently anti-crypto, but there is some not very likely but plausible future where Bitcoin or Ethereum become the global reserve asset. Much the same way gold was in the 19th century or IMF drawing rights have operated at certain points post Breton Woods. This is entirely different than the scalability limits that stand in the way of Bitcoin becoming a consumer currency. In this future, only major central banks and financial institutions would hold physical Bitcoin. Consumers would use either Bitcoin backed scrip issued by a bank. Or fiat currency where global confidence largely stems from the central bank’s BTC reserves. I’d give this future a 1% of happening in the next 15 years. And conditional on it occurring, I’d estimate the price of BTC would likely increase by two orders of magnitude. From a pure expected value standpoint that makes crypto one of the most compelling asset classes around.

babyshake 5y ago
This lines up with the "hyperbitcoinization" narrative. It is pretty interesting to consider from a game theory perspective what sequence of events might cause this outcome to occur.
tekstar 5y ago
> I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto. crypto, especially bitcoin, is an intentional environmental disaster. I don't want to invest 1% of my money into an intentional environmental disaster.
- thundergolfer 5y ago
  Exactly the reason I don't invest. My risk appetite is more than enough to take on Bitcoin/Ethereum investment, but the environmental impact relative to its utility outside of speculative investment is insane. Did you mean to say "international environmental disaster"? I don't know in which way it's intentional that Bitcoin destroys the environment. The damage seems incidental.
  - gwicks56 5y ago
    I don't understand this argument. There are lots of things people like to do that use a lot of energy that I think are stupid. Like why to people in the West drive such stupidly large cars? Surely the answer to clean the inputs, not the use case? Trying to control what people can do is just going to make the transition to a clean future impossible, because you will piss lots of people off, and make then enemies. Bitcoin uses a lot of energy because that's it's security model. Trucks use a lot of energy because they are huge. Seems a lot more productive to concentrate on moving electricity to be a clean world input ( say a carbon tax), or move to electric vehicles ( say via tax credits), than to police the actual end usage.
    - tekstar 5y ago
      I also don't drive a really big car, and I think it's stupid as well. So, now we're at two things I don't do because they're bad for the environment.
    - jcpham2 5y ago
      Internet brainwashing “ but it uses electricity” never mind the fact proof of work is on it’s fourth generation of hardware and the price absolutely coo relates with the cost to play the game. We’re opining about a system that finally, for the first time in the history of man, might accurately price the cost of the electricity consumed to power the system. It’s pretty mind boggling but that’s the internet for you.
    - TheDong 5y ago
      Bitcoin is fairly unique in its energy use. Almost every other use of resources will try to be more efficient if it can be. If, for example, it were possible to create steel alloy in a way that took 1% less energy or made less waste (and thus was presumably cheaper at scale), the trucks would use this slightly more efficient steel. On the other hand, Bitcoin relies on wasting a certain monetary value of energy for the security of the network. Its waste is adversarial. If we manage to produce 2x the electricity tomorrow and it becomes significantly cheaper, that just means a 51% attack also became much cheaper so people need to waste even more energy mining. I can't think of any other uses of energy offhand that so actively resist any improvements. I can think of other intentional forms of waste (like dumping toxic waste, "rolling coal", etc), but I can't think of any that are aligned such that making upstream production of a resource more efficient then requires producing even more waste and environmental damage.
- rawtxapp 5y ago
  Look at it this way, if Bitcoin/crypto fails, then you have nothing to worry about, since they'll just go away and there will be no environmental concerns. In this scenario, you lose the 1% you invested. If they succeed on the other hand at becoming world reserve currency, then that energy usage will be justified since it's replacing something that takes even more energy (current fiat system). In this scenario, your 1% investment has probably grown to be a much larger % of your portfolio.
  - im_down_w_otp 5y ago
    I've never seen an energy consumption breakdown of what it takes to run the branches of the Federal Reserve or the Treasury. Do you have any primary source material on that?
    - gwicks56 5y ago
      The USA dollar is the settlement currency of the world. Which means you are really looking at the energy use of the Army/Navy/Air-force. If, in this hypothetical future, BTC became the settlement record.
      - ramchip 5y ago
        I don't follow this reasoning - why would moving to BTC as a global settlement currency make armed forces obsolete?
      - wwweston 5y ago
        If you assume: (a) the energy of the Army/Navy/Air-force supports nothing other than US currency (b) no force would be necessary to back compliance with entries in a crypto ledger
      - jayd16 5y ago
        As if BTC would somehow eliminate the army, navy and air-force.
    - FpUser 5y ago
- kragen 5y ago
  This is goofy. The worldwide Bitcoin network uses about 12 GW, mostly renewable, because Bitcoin mining is unprofitable if it's using anything but the absolute cheapest electricity, and scalable renewable electricity is about a third the price of fossil-fuel electricity now, with the gap constantly widening. By comparison, China built 71.7 GW(p!) of new wind energy capacity last year, and the world economy uses 18000 GW. Worrying about today's Bitcoin mining is as silly as worrying about plastic straws. Maybe in the future Bitcoin mining could become an environmental disaster, but today it's insignificant. Further details in https://news.ycombinator.com/item?id=27449443 https://news.ycombinator.com/item?id=27449443 and https://hbr.org/2021/05/how-much-energy-does-bitcoin-actually-consume https://hbr.org/2021/05/how-much-energy-does-bitcoin-actuall....
  - jcranmer 5y ago
    > The worldwide Bitcoin network uses about 12 GW, mostly renewable, because Bitcoin mining is unprofitable if it's using anything but the absolute cheapest electricity, and scalable renewable electricity is about a third the price of fossil-fuel electricity now, with the gap constantly widening. If I'm following this right, the only evidence for Bitcoin being mostly based on renewable energy is because people believe it's uneconomical to not be renewable, and not based on any actual attempt to figure out what energy types are actually being used by large mining groups? Because, especially when you compare across international countries, retail prices are only vaguely correlated with production prices. Many places subsidize the crap out of energy prices, and electricity in a subsidized place could well be much cheaper than in a non-subsidized place, even if the first plant is burning coal and other plant is using wind. For some specific data points, I believe a large clutch of miners operated out of Inner Mongolia, whose electricity capacity increases in recent years has been dominated by coal-fired power plants (because it's a coal-rich region that doesn't give two whits about environmental effects). I'll also note that there was a story a few weeks back about a coal powered plant being recommissioned solely for mining bitcoin.
    - kragen 5y ago
      > If I'm following this right, the only evidence for Bitcoin being mostly based on renewable energy is because people believe it's uneconomical to not be renewable, and not based on any actual attempt to figure out what energy types are actually being used by large mining groups? Nope, sounds like you didn't look at the references I linked at all. If you want to follow something right, try reading the references, or at least casually skimming them. https://coinshares.com/insights/beware-of-lazy-research-bitcoin-mining-update https://coinshares.com/insights/beware-of-lazy-research-bitc... is one of the sources for the percentages cited in the Harvard Business Review article explaining their methodology (in 02018). It's the polar opposite of what you're saying. It's also true that there are fundamental economic reasons that Bitcoin mining is mostly done with renewable energy; it's not just a weird coincidence. But it's not just a theoretical prediction. > retail prices are only vaguely correlated with production prices. Many places subsidize the crap out of energy prices Yeah, that does happen. Also, outright theft happens; the cheapest energy is energy that you steal. But it turns out that unprofitable subsidies and stolen energy aren't very scalable, because places where the government pays for most of the energy ① tend to have strict oversight of industrial-scale operations, ② don't generate much electricity in the first place, and ③ tend to consider entrepreneurs criminals by default because they increase wealth inequality, so they shut them down when they get found out. When Bitcoin mining (or, say, Litecoin mining) starts to scale up in such places, as it did here in Argentina some years back, the energy subsidies have a way of evaporating. > I'll also note that there was a story a few weeks back about a coal powered plant being recommissioned solely for mining bitcoin No, that was gas; my comments on it are https://news.ycombinator.com/item?id=27450889 https://news.ycombinator.com/item?id=27450889. You're right that there are a variety of unusual circumstances that can make fossil-fueled Bitcoin mining profitable at small scales in one or another place, so it's easy to find anecdotes of it. But it's not the majority of the network.
- ohhhhhh 5y ago
  no, your toaster is
- kerng 5y ago
  I see both sides throw random facts and numbers around when it comes to energy consumption - so the truth is probably somewhere in between. It's an issue, and its gonna get better over time. So I'm less sure if it's really that big of a problem. Just because I walked by a Chase bank right now... I mean, wouldn't it safe more energy if banks would start turning off their lights from 5pm to 8am and on weekends also?
- ostenning 5y ago
  The hypocrisy on this topic is unbelievable. I don't know what your portfolio looks like, but most people are happy to invest in blue chip stocks and indices that contain some of the worlds largest polluters, but, of course, as soon as they hear the word BTC, they cast judgement and throw the baby out with the bath water. If you actually cared about the environment, you would be attempting to invest money into disruptive technologies like BTC that can move money away from traditional banks that have literally funded global corruption, wars, genocide and (surprise surprise), ecocide. It makes no sense whatsoever and what it tells me is that you're just regurgitating the same dribble that you heard with no critical thought of your own
- matheusmoreira 5y ago
  Why do people keep posting this? I have no idea where this meme came from. It's not even 1% of global energy consumption. Cryptocurrencies in general are absolutely not environmental disasters. I agree, bitcoin is a useless coin but it's not even close to having any real environmental impact. Investment in environmental disasters? I'd suggest the developed world stop trading with China but we all know people can't live without cheap consumer products, including the computers we're using to post our opinions. How about we drop the USD instead? It's literally backed by petroleum and the US military. Hard to think of anything with a bigger environmental impact. It should be easy, right? Just quote petroleum prices in cryptocurrency. Simple... The hard part is surving the inevitable US invasion and destruction of your country.
adventured 5y ago
> I’d estimate the price of BTC would likely increase by two orders of magnitude I broadly agree that there's no great reason not to allocate 1-5% (I'd go higher on the range, depending on personal context) to crypto. However there's no scenario where Bitcoin can increase in value by two orders of magnitude. Literally, there is no scenario that can actually occur that will get it there. You're talking about ~$75-$100 trillion in value depending on where Bitcoin is at in a given week or month. You know what compares well to that? All the public stock holdings on planet Earth, which is just under that line. Bitcoin is going to be worth more than every publicly traded company in existence, from the US to China and everything inbetween. Not a chance that can ever happen. The odds are zero.
- adh636 5y ago
  The bond market is over 100 trillion. Why would people buy bonds returning low fixed interest rates in depreciating currencies if bitcoin with a fixed total supply becomes the global reserve currency? Gold is currently at a 10 trillion dollar market cap, and is a pretty small part of the global financial system at this point. The odds are absolutely not zero.
- intrasight 5y ago
  He was predicting BTC-USD not BTC-SPX
arcticbull 5y ago
Yes, but gold was an awful reserve, which is why we got rid of it. Replacing it, now, with the benefit of hindsight, with a digital version of an awful reserve isn't a game plan.
- lowkey 5y ago
  I've read a fair share of Austrian Economics and they certainly don't believe that gold was an awful reserve. I have yet to hear a credible argument against the use of gold as a global reserve currency other than the fact that countries can cheat by lying about their reserves such as they did during WWI. If you have reasoning to back your claim that gold was an awful reserve currency, I would love to hear it.
  - tablespoon 5y ago
    > I've read a fair share of Austrian Economics and they certainly don't believe that gold was an awful reserve. Have you read a fair share of other schools of Economics, or did you just focus on Austrian?
    - lowkey 5y ago
      I’ve read Keynes et al as well. None of them make a compelling case against the gold standard. Here is former Fed chair Alan Greenspan’s bullish case for the Gold standard for example [1] [1] http://www.altavra.com/docs/thirdparty/gold-and-economic-freedom-alan-greenspan.pdf?__cf_chl_jschl_tk__=1a52f784cea3df48eabd7cb0c05982040b880963-1623651423-0-AVT6dcrUuTtAfljBcQQvENsHagJQmo7zZGMrn2MgsX3kZVYAaq7Upj3bppElt6aRjlz2AY_GPV4F73MmsDVXprGDlFYaamsigmiZjn5rl5zStayELKAoHx4IXAHjFqEQ--Spel4tyHIAm-vqlgY-en1KaVWRGepu9w1EIwOQVlEBVPYJkPlPNWWt5gAz9ssj1s7hfm2nWICyExcUz5uqq-c3Ycjd4Lf2mdYXBZ7mfETjq6uHkrta-vAXEOHNBtyaGih2YSn1C7AGCgbnpFpYhXmfpEaAjYtCiWzYuaObIA8PZNzTvMKR3EQB3hM9zXeIDn82vSnjH4tkGtwzMZomL7nB8eyop1n9k3AJEW_wpjcNt65mybceMlxazR8UoWFQBRm3-7dlfe_xiqryS7e5BsxEiG3VjMMJ4E9nV-WoP3vUSRSAwmLLayNy7aejPu8MAps5dlxTjKaNDghQ2grkWJOCOtm62XKDl-f6MjJoHSBw http://www.altavra.com/docs/thirdparty/gold-and-economic-fre...
      - imtringued 5y ago
vbtemp 5y ago
I target about 2.5% of my portfolio to be crypto. Another 2.5% gold and silver. It's kind of amusing and baffling watching all these people speak with such certainty and conviction. If crypto currencies collapse, meh, oh well. If they spike another order of magnitude, nice, I'll just sell to keep my allocation on target. Like you, it just seems prudent to have limited downside (ie a crypto collapse won't ruin you.. at all) but also having some exposure to big positive swings, and never basing ones hopes and dreams on it. Anyway, here's to enjoying the show. Edit: when you disclose something like this, and people get viciously defensive about it, it usually means you're on course (see comments below).
- arcticbull 5y ago
  There's an entire universe of things you can invest in. Picking crypto with no real thesis except one day the entire world may be transacting 7tx/sec isn't really a good one. If you allocate 1% to every longshot you will be broke. Should I allocate 1% of my portfolio to Dentacoin in case dentists on the blockchain become the future of dental work? Especially knowing that 80% of all trading volume is against Tether, which is 3% backed by money. 95% of all trading volume in the space is fictitious, according to an ETF that tried to list a few years ago.
  - rawtxapp 5y ago
    Once again, lightning network is here and functional with growing adoption (1ml.com) and that's what they are using in El Salvador. LN can achieve almost instant and practically free Bitcoin payments.
    - arcticbull 5y ago
      Do they though? Because that's not really what I'm hearing. Strike is, in the US, a custodial US dollar wallet. You give them dollars and they keep them as dollars. You send them to another person in the US and they just amend their internal ledger. When you try and send them to El Salvador things go pear shaped. They: (1) Buy Bitcoin with those dollars. (2) Use a private LN network that they don't let anyone else onto because it made it totally un-workable according to their CEO. (3) To send those Bitcoin between their own two accounts. (4) And then buy Tether with them in El Salvador. You remember, the dollars that are actually 3% dollars. Strike is somehow the absolute worst case for the people of El Salvador. Centralized, permissioned, censorable (it's not available in Hawaii or New York) and backed by Tether. Not a coin that's likely to have the money (USDC) but Tether, who admits they don't. El Salvador by the way, is a dictatorship mandating their citizens use of Bitcoin. Where's the win exactly? [1] https://davidgerard.co.uk/blockchain/2021/06/11/el-salvador-passes-its-bitcoin-law-and-its-a-tether-scam/ https://davidgerard.co.uk/blockchain/2021/06/11/el-salvador-...
JumpCrisscross 5y ago
> it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto This isn’t a great heuristic. It green lights every high-gain proposal, irrespective of the risks, actual rewards and odds of success.
rawtxapp 5y ago
This is literally one of the first things that Hal Finney pointed out couple days after Bitcoin was announced publicly[1]. 1: https://twitter.com/DocumentingBTC/status/1363504478532624387/photo/1 https://twitter.com/DocumentingBTC/status/136350447853262438...
- andrewmcwatters 5y ago
  > Then the total value of the currency should be equal to the total value of all the wealth in the world. These people flat out don't understand how currency works. They don't understand where it comes from, how it's created, how it's destroyed, or what gives it intrinsic value.
  - rawtxapp 5y ago
    He made that prediction when Bitcoin was worth a big 0. Back then if you told anyone that one day it would achieve prices of 63k$ per coin, they would have told you you're just crazy, yet here we are. Let's see where we are in 10-20 years from now.
bottled_poe 5y ago
> I’d give this future a 1% of happening in the next 15 years. This will never happen. Governments won’t allow loss of control and the planet can’t support it either. If Bitcoin is not banned in all western nations within 10 years I will be very surprised.
- R0b0t1 5y ago
  It doesn't matter what they will allow. What matters is what will happen. Science fiction has explored the idea of transnational, nation-like organizations that have more real importance than an actual country. If nations reject bitcoin I suspect that is where we're going to go.
  - bottled_poe 5y ago
    Fiction is an odd place to put the trust of your future wealth. Personally, I feel very confident that those who currently hold real power will end up on top. I.e. those with a powerful military and police force who are capable of enforcing actual change. Same as it ever was.
    - R0b0t1 5y ago
      They can't enforce actual change if they can't touch it.
- fighterpilot 5y ago
  Tens of millions of voters own crypto now. Rational policy != feasible policy.
- kerng 5y ago
  I think a ban is questionable and likely backfires for those in charge. Also banning based on what grounds? The US and many others see it as an investable asset. Governments will likely start to buy/mine large amounts... that's seems more likely at this point. I'd be surprised if the US government isn't doing this very soon (or has already)
eli 5y ago
Here's the argument: I give this much MUCH less than 1% chance of happening.
ramchip 5y ago
I think the major argument against that is ethical. I wouldn't invest in something that has disastrous consequences on the environment, even if the expected returns are great.
- deleted 5y ago
  [deleted]
- atweiden 5y ago
  Much of what passes for human industry is essentially just strip mining the planet of its natural resources. I’d recommend watching Sir David Attenborough’s A Life On Our Planet for a sobering view of the ecological footprint of non-Bitcoin human economic activity, which presumably you invest in one way or the other. Moving to a global deflationary economic system per Bitcoin would at least disincentivize the rampant consumerism destroying this planet via disincentivizing capital investment and spending.
kerng 5y ago
Chances of Bitcoin being still around in 10 years and valued accordingly are a lot higher than 1%. The first 10 years were way more difficult and challenging. The market will chose, some governments will try to fight it, but its much easier for governments to stock up Bitcoin reserves and embrace it. Bitcoin now is basically too big to fail.
- jshen 5y ago
  Nope.
- senectus1 5y ago
  > Bitcoin now is basically too big to fail. That phrase, are you really going to use that without a /s ?
- JackFr 5y ago
  Bitcoin could disappear tomorrow and the biggest impact to the economy would be Tesla’s stick price.
  - atweiden 5y ago
    That’s rather uncharitable; the fallout would at least be similar to what would happen to the holders of SGD, NZD, DKK, and dozens of other currencies smaller than Bitcoin were they to implode. [1]: https://fiatmarketcap.com/ https://fiatmarketcap.com/
    - arcticbull 5y ago
      There's no such thing as market cap of a currency - just circulating supply denominated in itself. Each of those economies would be devastated and left unable to conduct commerce. Bitcoin though? A handful of speculators.
bpodgursky 5y ago
I hold a decent amount of Eth for this reason, but I actually think the biggest risk to either Bitcoin or Eth as an investment asset is not that crypto will fail, but that it will succeed enough that enough that institutional crypto users are sophisticated enough to create altcoins (or just hard forks) for these kind of banking-reserve use-cases. Market cap for crypto can go up by 100x but crypto overall could still be inflationary by adding new niche crypto asset classes.
sasaf5 5y ago
> I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto. The much larger than 1% probability of the current mainstream crypto being replaced by whatever new crypto is hyped in the future. Or the chance of "crypto" simply debasing itself out of existence with an infinite supply of new tokens.
rat87 5y ago
> I think it’s hard to make the argument against allocating somewhere on the order of 1% of your portfolio to crypto. sure if you like to gamble > I know many here are stridently anti-crypto, but there is some not very likely but plausible future where Bitcoin or Ethereum become the global reserve asset. Much the same way gold was in the 19th century or IMF drawing rights have operated at certain points post Breton Woods. not very plausible at all. As for a gold standard it was abandoned for good reason. You don't want a standard that is artificially limited and artificially limiting the economy, that's how you get a Great Depression

eschaton 5y ago

The answer is simpler than the article suggests: People who hoard precious metals or cryptocurrency have fallen for the financial-economic equivalent of Flat Earth propaganda, but unlike Flat Earth propaganda many people are not sufficiently literate in finance or economics to defend against such a destructive meme.

BuyMyBitcoins 5y ago
I feel like you’re being way too harsh on the people who buy gold and silver. The fact is both of those commodities do tend to hold onto their value very well over long stretches of time. Sure, investing in an index fund would have yielded more money but we only know that in hindsight. It’s not universally true that the stock market gets people the best returns. The fact is that gold and silver, while dumb and simple elements, will last longer than any company or government will. And there is some value in that. I don’t fault risk averse people for investing in scarce resources.
- atweiden 5y ago
  > Sure, investing in an index fund would have yielded more money but we only know that in hindsight. As an aside, the S&P 500 is down since 1970 as measured in gold [1]. [1]: http://pricedingold.com/sp-500/ http://pricedingold.com/sp-500/
  - imtringued 5y ago
    Let's all buy gold and do nothing. We'll be rich!
  - Breza 5y ago
    I wonder how different the analysis would be if you'd bought shares in 1970 and reinvested all your dividends.
- Breza 5y ago
  Well said. I don't have any gold in my portfolio but I don't begrudge people who do. The risk of ruin is pretty darn small, so even if you give up money versus an index fund, you're unlikely to lose much value over the long run.

ausbah 5y ago

this was probably one of the most knowledgeable articles I have read on this site I hope someday I would have the domain knowledge of something to write like the author

easymovet 5y ago

Baffling that tech types here aren’t grasping digital money, basicaly a self custody PGP key with value, and instead defending the status quo with poorly researched FUD like layer 1 scaling limits, power usage, and fear of regulators!? You guys sound like Paul Krugman, meanwhile Tesla and MicroStrategy are taking all the trending bitcoins off the table… the only point I disagree with LynAlydn, who wrote a great article, is that Bitcoin doesn’t offer yield. You can get yield on Bitcoin by either loaning it out or staking in in the lightning network to collect fees for providing liquidity.

andrewmcwatters 5y ago
What does being a "tech type" have anything to do with currency?
- easymovet 5y ago
  “Software eating the world” now applies to money.
rawtxapp 5y ago
I've seen this a lot with my own circle of friends, I think there's a few reasons why "techies" don't like it as much: - they already trust the government and their institutions and don't see the need for it, - they hear all the FUD and don't want/have time to research further, - maybe some feeling of having missed out (especially for those that knew about it very early on or sold it for very cheap), - seeing some "stupid loud mouths" who yolo'd and made a lot of money in it. It's very interesting to see.
- gruez 5y ago
  >- they already trust the government and their institutions and don't see the need for it, Strange given that most americans don't trust their government (https://www.pewresearch.org/politics/2021/05/17/public-trust-in-government-1958-2021/ https://www.pewresearch.org/politics/2021/05/17/public-trust...) Maybe trust in government is correlated with how well you're doing, and techies tend to be doing very well?

zaptheimpaler 5y ago

> In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive I can't believe policymakers have the gall to even consider substantially negative interest rates. That is just beyond f*** up. Proposing shit like that is a big part of the reason why people believe in crypto - these idiots can decide to steal the returns of your past labor with zero accountability or democratic process behind it. As much as I dislike Bitcoin, this kind of stuff really just pisses me off so much. This dissatisfaction with central banks is the heart of why people believe in crypto. All my life, I've struggled and worked incredibly hard to build financial security - who the hell are they to take it away without my permission? We just wake up one day and find cryptic IMF papers about this shit and are expected to shut up and deal with it? Maybe 5% of people even understand what negative interest rates would mean, 5% of those are even aware that they are being considered as policy objectives. Central bank fucks just aren't getting the message - this is about a failure of democracy. Where is the messaging about this? Where is my chance to vote or debate on whether we should do this? Who put them in charge? Everyone who is excited about central bank controlled "digital money" - please take some to consider the policy implications. It's not just new and better technology - the tech is cool but unimportant. It is a serious and irreversible shift of power towards even more undemocratic systems.

ineptech 5y ago
I think your vitriol is misplaced; the whole point of a negative interest rate is to stimulate the economy, i.e. increase the value of your investments, which presumably would be good for someone who has built financial security. Suppose for example that a -4% rate spurs a 1% economic boost - that would only be bad for you if you keep more than 20% of your wealth sitting around in your checking account. I'm not saying it would work, as in successfully grow the economy, necessarily. Not my area, and it'd depend on the country and the recession and so forth. Just saying, the "central bank fucks" who toyed with this idea were trying to make people money, not take it away.

cwyers 5y ago

The article's premise is that people want to buy gold and Bitcoin because they are both stores of value and they're bearer assets, which means that you don't need a third party to store them for you. That seems... somewhat suspect as an explanation, given that most people who have substantial holdings in either store them with a third party. I think that there's not much in common between most current gold holders (who are looking to hedge against drops in other markets), and current crypto holders, who are often speculators,hoping for big returns on investment.

easymovet 5y ago
Not just because they are a bearer asset but because their scarcity retains purchasing power orders of magnitude better than paper money.
- smt88 5y ago
  Wait, what? Bitcoin retains purchasing power? Better than money? Can you explain? In what real-world scenario does Bitcoin have stable purchasing power?
  - eldfgl 5y ago
    Dude have you ever even owned a single satoshi
  - easymovet 5y ago
    I’m not claiming a fact, I’m quoting the article since you made a statement that didn’t accurately represent it.
- rualca 5y ago
  > (...) their scarcity retains purchasing power orders of magnitude better than paper money. Bitcoin market price tanked from 54k to 29k a few weeks ago, and currently is still around 30k. That's not exactly what I would call retaining purchasing power.
  - 5y ago

Clewza313 5y ago

I'm a strong cryptoskeptic, but this is the most convincing argument for enduring relevance that I've seen yet. Nevertheless, I'm going to wait for Tether to blow up first before I get back in, because there's $63B worth of funny money propping up the current valuation.

paulpauper 5y ago

Over the past century, the strongest currencies, like the Swiss franc and US dollar, lost over 95% of their value. The average currency lost more than that, like around 98-99%. The worst currencies lost 100% of their value. This only applies to foreign currencies relative to the US dollar, not the dollar itself given that the dollar is considered the universal, global unit of wealth. It's like saying that a 1kg weights .3k on mars. A kg is a kg anywhere. What she means to say is that "the US dollar has lost its purchasing power due to inflation" which she does later but still misleading. But this still it not quite the same as saying the dollar lost its value. The nice thing about owning dollars is even in spite of loss of purchasing power due to CPI, you have no forex risk. Foreign currencies not only losing purchasing power due to inflation but also due to falling against the US dollar. And for longer-term savings instruments, here is a chart of the inflation-adjusted forward annualized rate of return of buying 10-year Treasury notes that year and holding them to maturity. You can see the three decades where bondholders got massacred, because the underlying dollars were devalued. During those times, anyone who bought Treasuries and held to maturity received annualized real returns of as low as -4% or -5% during the full duration of the note. Again, all she did was cherry pick two bad periods. Over the past 100 years, 10-year bonds have tended to produce positive real returns. Bitcoin and gold are popular but this does not make them good investments or a good hedge against inflation. Beanie babies were popular too. Overall, stocks have proven to be the best hedge against inflation. The S&P 500 has gained more than enough this year to overcome all inflation. Compare the charts of the total S&P 500 , nasdaq, or DJIA with any other asset class and stocks tend to win hands-down with few exceptions between.

isoskeles 5y ago
Central banks never held beanie baby reserves, whereas thousands of tons of gold are held among central bank reserves. Why do you suppose they hold it?
- rsj_hn 5y ago
  It is the remnant of pre-fiat money era when foreign trade was settled via specie flows. Although it was no longer possible for individuals to show up at the Fed and demand some gold for the dollar, it was still possible for nations to do that under the Bretton Woords system setup by Keynes to manage postwar international trade. When France demanded a large gold shipment from the U.S. to settle accounts, Nixon exited Bretton Woods agreement. However that lack of convertability still left central banks with lots of Gold reserves that were no longer required to clear trade deficits, so they mostly sat on them. Some central banks decided to sell some of their gold and others bought some, but it is now basically another asset (like Beanie Babies) although gold lasts a lot longer and is more durable, and central banks have spent 100 years collecting it prior to the end of Bretton Woods. For more info, see https://www.imf.org/external/about/histend.htm https://www.imf.org/external/about/histend.htm Fun Fact: Many people still think that foreign trade is settled via specie flows, which is why they get all confused about how the US will "pay back" China, when of course China has already been paid (in dollars) and those dollars are not convertible to anything else. If China wants to, for example, use those dollars to retire its own RMB debt, it will need to sell those dollars for something like oil on the international commodity markets, and then sell the oil to its own people for their RMB, and then use those RMB to retire their own bonds. But of course China does not rely on anyone else to supply it with RMB anymore than the US relies on China to supply it with dollars. Once you take settlement of specie flows out of the mix, there is little reason to hold dollars other than sentimentality for the old metallic era.

eldfgl 5y ago

Lyn does great work. This is one of the most objective and well balanced pieces on this topic I have read.

andrewmcwatters 5y ago

All currencies are supposed to infinitely lose value, gradually over time, in order to encourage labor to continue. So, yeah, they’re all supposed to lose “100%” of their value, except that’s a weird way to quantify the value of currencies because to claim a percentage of it has been lost is an absolute measure, and not a relative one. If you said a currency lost 4% of its value year-over-year that would be high, sure. If you said a currency lost 25% of its value… so what? Relative to what? That’s not an important measurement. Cryptocurrencies are popular because “the sucker’s going up.” If they didn’t, they’d be little more interesting than PayPal transactions.

Breza 5y ago
> If they didn’t, they’d be little more interesting than PayPal transactions. I'd be a lot more excited about Bitcoin if it were that boring. If the speculators got out, it could be a viable payment method for everyday purchases. I bailed on Bitcoin in 2017 and didn't look back.
errantmind 5y ago
I disagree with your statement that all currencies are 'supposed' to be devalued. That is the conventional wisdom, but I've found no facts this is necessary. A deflationary currency may encourage some people to save instead of spend, and that will contract parts of the economy, but it is also more sustainable over the long run. I don't want to be 'encouraged' to buy a bunch of stuff I don't need, including being forced to invest in overpriced assets like stocks and real estate, simply because my currency is constantly losing value.
- deleted 5y ago
  [deleted]
- andrewmcwatters 5y ago
  I don't think you understand. It naturally happens as people create money (debt) to purchase things on their own volition. If people seek goods and services, debt will exist, and money supply will grow, devaluing the currency naturally. The only way you can avoid this is with a fixed money supply (e.g. the gold standard.) And when you fix the money supply, the owners of capital, versus a central bank, control the effective market average interest rate. Thats absolutely not a world you want to live in.

mgh2 5y ago

The article addresses one key aspect in fiat that is parallel to gold: inflation - gold being 1-2% (in par with population growth), fiat 2-4% - while one preserves value, the other expands it, by fueling production. I have read a lot about crypto recently, and yet the community cannot answer this: How do you account for the global population growth (and consequently GDP growth) that is constantly in need for a relatively stable exchange medium for value of goods produced? More people > more production > more money. Money is a tool to fuel production. Controlled devaluation fuels growth, AS LONG as it is backed by actual production - counter this with popular examples quoted: Germany (WWII), Venezuela, Greece, Argentina, etc. dramatically devalued their currency WITHOUT an increase in production. The problem with any limited supply is that it benefits and incentivizes hoarders and non-producers, having nonbeneficial effects for society as a whole. Please provide information that help answer this question, I am still researching.

razius 5y ago
> dramatically devalued their currency WITHOUT an increase in production Which is the argument that FED is doing right now. See M1: https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL and think of this, is the US that much more productive? > The problem with any limited supply is that it benefits and incentivizes hoarders and non-producers, having nonbeneficial effects for society as a whole. Hoarding of what? Don't you need money to buy gold / bitcoin?