4 ms·
There is actually no upside limit, but there is a fundamental downside limit of zero. What justifies oil being $130 dollars a barrel vs $100? The answer is als
by datadata 4y ago
There is actually no upside limit, but there is a fundamental downside limit of zero.
What justifies oil being $130 dollars a barrel vs $100? The answer is also nothing.
- rchaud 4y agoI wonder if comments like this are representative of the average crypto buyer. "The value of real commodities used in daily productive activity, is also entirely made up".
- datadata 4y agoBut it is entirely made up, it entirely depends on someone buying the oil and the price they are willing to pay. The fact that there is in principle a use for oil does not mean that there is a buyer, especially since oil is not truly fungible in that it has storage and transit costs. As an example, oil famously via future contracts traded at negative $37 during the covid crisis, meaning that you would have to pay someone to take oil off your hands. The fact that it is used in daily productive activity might be an argument that oil should in theory have a > 0 price, however the actual price is still made up by a market! There is still not a way to say that the intrinsic value of oil must be X dollars.
- adam_arthur 4y agoYeah, I'm sure supply and demand mechanics around production and consumption of oil don't influence the price. I actually never considered that!
- datadata 4y agoHow can you measure the intrinsic value of oil other than with a market? I agree it should have a non zero value in theory, but my point is that the price of anything is determined only by what someone else is willing to pay for it. The fundamental value could be $1000 a barrel or $0.01 a barrel, the only way to find out is to have a market. Also, just because the fundamental value is > 0, it does not mean that the price must be > 0. If there is no buyer or no functional market, the price can be exactly 0.
- adam_arthur 4y agoPeople are willing to pay up to the perceived value for themselves. That's how an equilibrium price is determined. If I can make $10/hour running a generator, then I'm willing to pay up to $10 in fuel to operate it
- datadata 4y agoI think that's just an extra step in your argument about intrinsic value. Now you have to analyze why the price of energy is $10/hour. That transaction is just another thing determined by a market where there isn't actually intrinsic value that sets the price, but another buyer. You can analyze this series of transactions forever, but you won't ever arrive at a point where the intrinsic value of something is what sets a price directly. Note: I completely agree with you on the concept of an equilibrium price being a real thing, I just don't think equilibrium is determined by intrinsic value.
- adam_arthur 4y agoThe buyers and sellers reach an equilibrium price, determined by a market, yet justified by the intrinsic value of what you're purchasing.
- dorgo 4y agoback to first principles. We have wishes and desires. If we can't get everything we want in quantities we want then we prioritise. I want good food, some mobility and a lot entertaiment. Oil is needed for mobility. Take the average over priorities of the population and you know the price for oil. Markets are just there to determine desires/priorities of the population.
- datadata 4y agoI agree with all of this, when I said "nothing" I meant just that "intrinsic value" is not what determines the price of something, in response to the parent's assertion about intrinsic value setting a price floor on oil