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Big Mike
Trad climber
BC
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Apr 18, 2018 - 08:29am PT
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Explain fiat please.
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Reilly
Mountain climber
The Other Monrovia- CA
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Apr 18, 2018 - 08:42am PT
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OK, Here’s The Economist’s Buttonwood article:
Catching the bitcoin bug
SINCE the heady days of late 2017 and January of this year, crypto-currencies have gone into retreat. Bitcoin, the best-known example, is now worth just a third of its value at its peak (see chart).
But there remain plenty of true believers in digital currencies. They point out that prices are still well above where they were in 2016. And interest from institutional investors is still strong enough for analysts to want to make sense of the crypto-phenomenon.
The latest bank to take a shot is Barclays, which devotes a lot more of its “Equity Gilt Study 2018” to the impact of technological change on finance and the economy than it does to either equities or gilts. Its report describes crypto-technology as “a solution still seeking a problem”.
It identifies four challenges in particular. The first is trust. In most countries, consumers and businesses have faith in the currencies issued by the government. The second is sovereignty: the potential for tax avoidance and loss of financial control means that neither governments nor central banks will be keen to see private crypto-currencies take off.
A third challenge is privacy. Although they can be used pseudonymously, crypto-currencies are less reliably anonymous than cash since the blockchain that lies behind them records all transactions. If a pseudonym is cracked, the user’s purchase history is revealed. A fourth relates to the ability to undo a transaction in cases of error or fraud—blockchain transactions are hard to reverse.
On top of all these problems is the fact that existing alternatives seem to work perfectly well. It is easy to make payments and transfer money in an instant.
So what is the appeal of digital newcomers? Private crypto-currencies can be attractive in societies where trust is low, or where governments are unwilling or unable to provide reliable means of exchange—in wartime or during periods of sovereign default, for example. Barclays also suggests that in countries where opportunities to invest are limited, “crypto-currencies may be one of the few ways to diversify savings out of domestic assets.”
None of these conditions applies in rich countries. But they hold in some emerging markets. There could also be demand in the developed world from criminals (although they now strongly favour cash). By making generous assumptions about the size of these low-trust and criminal markets, Barclays comes up with a maximum total value for all crypto-currencies of $660bn-780bn. That is roughly where they were priced at the beginning of 2018.
Maximum value is not the same as fair value. Surveys indicate that most people who buy bitcoin are doing so as an investment. Just 8% of Americans who hold bitcoin do so for purchases or payments. That suggests the main motive for buying crypto-currencies is speculation, which also explains their spectacular recent rise and fall, as with so many bubbles before them, from tulips to dotcom stocks.
Speculative bubbles are hard to model—how to find a rational way to assess irrationality? But Barclays uses the ingenious parallel of an infectious disease. A bubble starts with a small number of asset owners (the “infected”). New buyers are drawn in (or catch the bug) because they witness price increases and fear they will miss out. A large share of the population is immune and will never succumb.
Buyers use a combination of the current price and an extrapolation of the recent increase in price to estimate their expected target value. The faster the price rises, the wilder investors’ hopes and the more the infection spreads. Eventually the market runs out of potential participants and the price rise slows. Once it starts to fall, holders lose hope of big gains and start to sell. The epidemic dies out.
The Barclays model fits the history of the bitcoin price pretty well. And it suggests that the long-term outlook for the value of crypto-currencies is bleak. After all, plenty of people will have bought in the past few months, when enthusiasm was at its height. Some will have taken extra risk to buy the currency, via spread betting or other types of gambling. Instead of the riches they expected, they will be nursing losses. Some will be keen to sell their holdings. But new buyers will be harder to tempt now that crypto-currencies no longer look like a one-way bet.
All of this is good news. Perhaps the blockchain will turn out to be useful for other purposes—for example, recording property transactions. But it has been hard to think about such potential innovations when all the attention was focused on an ever-rising price. The crypto-fever has finally broken.
Apr 14th 2018
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Big Mike
Trad climber
BC
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Apr 18, 2018 - 12:02pm PT
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Fiat money does not have use value, and has value only because a government maintains its value, or because parties engaging in exchange agree on its value.[1]
Thank you Tami that illustrates my point quite well.
I will extend it to Bitcoin.
Bitcoin does not have use value, and has value only because a people maintains its value, because parties engaging in exchange agree on its value and because it is scarce, price will only rise in the future.
edit
but yes it is volatile as f*ck.
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Reilly
Mountain climber
The Other Monrovia- CA
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Apr 18, 2018 - 01:28pm PT
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Didjyall read my The Economist article? It’s a bloomin’ virus y’all!
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MH2
Boulder climber
Andy Cairns
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Apr 18, 2018 - 04:02pm PT
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It’s a bloomin’ virus y’all!
Sterilize the internet!
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Big Mike
Trad climber
BC
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Apr 18, 2018 - 05:20pm PT
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Tami, I have studied up on the tulip mania. apparently it was the options contacts that really tipped the scale there. The commodity market was never really oversold. The nice thing about btc is it doesn't go bad like tulips so you just hodl it and trade to multiply it until it goes back up again.
better than stocks imho because i actually get to hodl the coin instead of paper that represents something.
Reilly, the internet was a virus too.
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Reilly
Mountain climber
The Other Monrovia- CA
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Apr 18, 2018 - 05:23pm PT
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Dude, take some advice: collateralized debt obligations. At least they’re real.
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Banks
Trad climber
Santa Monica, CA
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Apr 18, 2018 - 05:27pm PT
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As climbers, we cringe when we read news reports about climbing. The reports are often laughably inaccurate and do a poor job of even grasping the basics of what climbing is all about.
Well, I cringe the same way whenever I see an article about Bitcoin and cryptocurrency. They are just as funny and inaccurate, and some even come with a dash of deceit. That article that Reilly posted is just another example of a major financial institution trying to put the genie back in the bottle. Bitcoin is a threat to the big banks and they are doing their best to discredit it. Meanwhile, behind the scenes, those same financial institutions are furiously working on their own blockchains and are opening cryptocurrency trading desks to try to service the mountains of money that their clients are wanting to pour into the market. As always, if you want to know what is really going on, just follow the money.
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Big Mike
Trad climber
BC
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Apr 18, 2018 - 05:54pm PT
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Reilly, debt sure is real. The fed has a ton of it, and the us treasury market is telling us that no one is buying it. how high will the interest rates go before they start pulling liquidity from the dow to buy them back down?
How much debt can you pile on debt before your creditors cut you off entirely? I prefer to have my savings in sound money like gold and crypto. Gold is about to explode and so will Bitcoin.
In the next five years the fed will be insolvent.
edit
In the early 2000s, CDOs were generally diversified,[7] but by 2006–2007—when the CDO market grew to hundreds of billions of dollars—this changed. CDO collateral became dominated not by loans, but by lower level (BBB or A) tranches recycled from other asset-backed securities, whose assets were usually subprime mortgages.[8] These CDOs have been called "the engine that powered the mortgage supply chain" for subprime mortgages,[9] and are credited with giving lenders greater incentive to make subprime loans,[10] leading to the 2007-2009 subprime mortgage crisis.[11]
hmm no thanks.
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Reilly
Mountain climber
The Other Monrovia- CA
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Apr 19, 2018 - 01:56pm PT
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The day that the world stops buying US debt will be the day we officially become a second rate country. Don’t hold yer breath. My point was purely illustrative (OK, and sarcastic) in that as arcane as CDO’s are they are bona fide tools and have value, at least as defined by economists, if not sociologists. I strongly suggest you read Nobel laureate Robert Shiller’s Irrational Exhuberance and his more recent Phishing For Phools if you really want to understand asset valuation and, hence, bubbles.
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Stellarin
Sport climber
USA
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Apr 21, 2018 - 04:28am PT
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I think that time of the bitcoin stuff has gone and if you want to know about it just to make some money, it's better to go directly to Forexee and trade without taking a lot of useless stuff for your head. Plus it's easy to find any information, guides and everything about how to make money on forex on the internet...
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Winemaker
Sport climber
Yakima, WA
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Apr 21, 2018 - 06:45am PT
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If everyone could make money trading currency they would; if everyone could make sh#t grapes into great wine they would. There would be no bad wine or poor people in the world. There is some last greatest fool...........
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Banks
Trad climber
Santa Monica, CA
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Oh look. Dinosaur denigrating something he doesn't understand and doesn't care to understand while the world passes him by. Cool.
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Reilly
Mountain climber
The Other Monrovia- CA
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Oh, yeah, Munger and Buffet have no understanding of markets.
A market is a market, whatever yer selling, until it isn’t, or unless yer selling turds.
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Banks
Trad climber
Santa Monica, CA
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Of course they understand markets. And if I want advice on value investing, I'll listen to Warren and friends. But when it comes to technology and Bitcoin, something they don't invest in and have said they don't understand and don't care to understand, I'll pass. They also are heavily invested in banks and the financial sector. All the more reason to keep the status quo.
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Ed Hartouni
Trad climber
Livermore, CA
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https://www.nytimes.com/2018/05/04/upshot/should-the-fed-create-fedcoin-to-rival-bitcoin-a-former-top-official-says-maybe.html
“Not that it would supplant and replace cash,” he said, “but it would be a pretty effective way when the next crisis happens for us to maybe conduct monetary policy.”
He added that blockchain technology, which allows reliable, decentralized record keeping of transactions, could be useful in the payment systems operated by the Fed, which enable the transfer of trillions of dollars between banks.
“It strikes me that a central bank digital currency might have a role to play there,” Mr. Warsh, who is now a distinguished visiting fellow at the Hoover Institution at Stanford, told several reporters Thursday evening.
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Reilly
Mountain climber
The Other Monrovia- CA
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Banks, a key component of all, or most, economic functions is utility.
The blockchain technology has utility, Bitcoin does not, unless yer a money launderer.
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Banks
Trad climber
Santa Monica, CA
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Bitcoin has plenty of utility. As a store of value, as a unit of account, as a currency.
As for money laundering, our banks are the biggest money launderers around.
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Reilly
Mountain climber
The Other Monrovia- CA
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As a store of value
...to criminals and the criminal mafia who have access to massive amounts of electricity
necessary to ‘mine’ it. Electricity which could benefit millions of poor people. Bitcoin
has zero utility to 99.9% of us who choose to live legally, aside from the odd IRS entry.
Those evil banks, while not without their faults, do provide masses of utility to most of us.
In fact, the rise of micro-banks in the Third World has been a yuge blessing.
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