Yes, agreed that they'll have to end up jacking up the money supply by about 500%. But my point is that if they do that without letting bond rates float, there'll be no feedback-loop that requires exponential printing; instead, a period of high linear printing is required. Yes, 500% money supply inflation is horrible, but doing so over a number of years, and then following up with 10%/yr to cover ongoing deficits is not hyperinflation. So the Yen will depreciate A LOT, but not like the disaster scenario many are predicting. And I still don't see any mechanism for JGB yield increases assuming the BoJ is committed to large-inflation (which it has to be, and has indicated strongly with their dozen rounds of QE over the last decade).
Maybe you are right, maybe they will just have big inflation for a number of years. On the other hand, no government ever choses hyperinflation, it's just that when inflation gets too bad, people start to inform themselves and realise the shaky belief-basis that fiat currency value relies on. If enough people decide they don't want that risk and get rid of their cash as soon as they can, you have hyperinflation, no matter what central banks decide. So the question still stands: Why is Bass betting on higher rates? What does he think the mechanism is? I do not think he thinks the BoJ will fail to buy the debt. In his own investor letter he points out that the BoJ is currently buying 56% of new issues. So it's clear to him they're willing to be the entire market...
Consider it a hedge against the Yen depreciation trade. |
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Yes, he is indeed betting on a JGB rate rise and Yen devaluation, according to his statements and investor letters. It's the interest rate rise specifically that I don't really see the mechanism for, given the extent to which the BoJ has demonstrated willingness to simply buy all the bonds.
It's inevitable that the Yen gets massively devalued. That's pretty obvious. However, I still don't clearly see how that necessarily impacts JGB rates, as stated above. What's exactly is the mechanism? Furthermore, 50% base-money inflation for a few years, *without massive bond yield spikes* could absolutely be absorbed by an economy, especially a structurally deflating economy. It's the exponential feedback loop that high bond rates create which causes true hyperinflation.
So I don't think my original question has been answered yet. What's the mechanism that's going to spike rates? What's Kyle Bass's answer to that? Again - I'm sure there's a good answer; Kyle is no slouch.
You are right that the BoJ could buy up all bonds, and interest rates would not be affected, so it does not necessarily impact the JGB rates. But then the BoJ would have to print up a lot more base money to buy these newly issued bonds. I don't know the numbers, but as japan has been deflating for many years now, I would guess that corporate and household debt is low compared to base money. While you can keep inflating money, you can't keep deflating the money supply. If all loans are paid off or defaulted on, you just get the base money (correct me if I am wrong). Therefore, I think it is a reasonable assumption to make that if the BoJ keeps printing large amounts of money, this base money inflation will translate into higher price inflation (once monetary inflation forces overcome balance sheet reduction deflationary forces). If interest rates are kept constant, this will make JGBs terrible investments (little yield in an inflationary environment), so the public will sell them, and the BoJ will have to buy all of it up. This would increase money supply drastically. I had a quick look at the numbers, and if I am using the correct ones, this would add roughly 500% to the monetary base. Hyperinflation much? This could happen. Alternatively, if the BoJ feels that inflation is getting out of control, they could let interest rates rise, which would however bankrupt the government. So (unless they grow out of their problems), either they will hyperinflate their currency, or they will default on their bonds. Bass is taking both bets (so he is betting against them growing out of their problems, or against them maintaining the status quo for a prolonged period). |
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They need a so high quantity of BTC that it would result in a 51% attack before they reach in the necessary infinite money
What are you talking about? A 51% attack has to do with mining power, not with the amount of BTCs you have. Niko reasoned in another thread that a 51% attack would probably cost 10-50 million to accomplish at the moment (I look up the link later), so in my mind, at the moment, it is not cheap but quite feasible for a goverment or a large corporation to perform such a task. |
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Is human nature playing out in patterns, or is the pattern played out in human nature?
It's the same thing, there is only 1 reality, no matter which words you chose to label it. (After you've found the answer i want to sincerely apologise for the waste of your time)
Three hail marys and you are forgiven my son. |
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I think you are seriously overestimating the effect of the amount of coins already in existence. Bitcoins growth ability or level of development has little to do with that.
Sure late adopters will transfer wealth to early adopters, so what? That is not going to stop anybody. As long as they see it as a means to transfer funds more cheaply, have currency that isn't inflated away etc., why not buy it? I mean, if bitcoin gets adopted, then it will rise in price, and knowing typical human psychology, people will want to buy even more. It could easily become one of the biggest bubbles ever. I still think we are a long long way from there.
How far could bitcoin appreciation go? Well, I think in the most rosy situation, in which bitcoin survives all hurdles (no security failure, no government outlawing it, no better alternative, scalability goes great ... etc.), and should all governments accept bitcoin as legal tender as well (so it is the only type of money left), bitcoin could go to roughly 600k worth of todays USDs purchasing power....
No, I am not crazy, yes it is an extremely optimistic scenario (you were asking how far this could go). The calculation is quite easy: just take world global currency reserves (12.5 trillion $) and divide that by 21 million BTC. Money velocity is low right now, so when this normalises it should reduce purchasing power of money, but on the other hand, I did not even take into account the monetary value that BTCs could take from gold (which would drive it up to a million $/BTC , assuming golds price would be entirely derived from monetary value).
By the way, to answer your initial question, I think we are still early adopters. Whether bitcoin will survive it to another stage is another question entirely...
EDIT: I mistyped the value earlier on.
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Why do you guys keep calling bitcoin a currency? It is not a currency.
We probably do that because it IS a currency. You do not transfer USD or euros.... I agree that for the moment, for merchants, it is way more interesting to immediately reconvert the bitcoins to traditional currencies again, to avoid exchange rate risks. The more bitcoin is used, the more attractive this will become as liquidity improves ('bid-ask' spreads go down), exchange fees and payment processor fees will get more competitive etc. . But in the end, bitcoin is a currency, and is being bought by some as a store of value, so don't call it just a new paypal. |
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I have another thought: It could be regarded as a digital asset which is very secure and can hedge against inflation, since it is not issued by any government, the risk of default is zero. But first the exchange should be well regulated and accepted by pension funds
And if lot of people put their savings into BTC, it will reduce the unemployment (they dare to spend more since their retirement is secured now), and inflation will be low (Fed does not need to print more money to stimulate spending)
I don't think bitcoin can be considered very secure at the moment, but I think you have a valid point that in the future, if bitcoin has grown and has shown itself to be secure, people might consider it a very safe way to keep their savings. Due to the inherent inflation-protection, this would indeed reduce fear of loss of purchasing power in economically bad times (such as exists among several economically interested people today). This could indeed lead to lower volatility in spending behavior, as this would probably be less correlated with the economic cycle. You mention unemployment a lot, and the effect monetary policy has on this. First of all, I think it is important to realize that employment rates don't necessarily say a lot. I am not talking about differences in U3 or U6 or whatever. Just that it is actually quite easy to have 0% unemployment. The question is if the jobs created are productive or meaningful jobs. It would be very easy for a goverment to decree that everyone who doesn't have a job will now get paid for the job of "stone-smasher", consisting of finding stones and smashing them to little pieces with a hammer... There would be no unemployment, but obviously living conditions would go down as many people go about smashing stones, while necessary products and services are being underproduced or under-offered. This might sound ridiculous, but although I am not sure if this is historically correct, I believe a similar situation existed in many communistic countries, where there would be a lot of unnecessary functions created to get full employment (I have heard accounts of small shop having many employees, most of them just sitting around, from time to time working the register or putting some foods in a bag, then sitting around some more). Now, with inflationary monetary policy and low interest rates, lending is encouraged. This reduces the threshold for companies to be profitable, so certain companies that would not be profitable if they had to pay a lot of interest on their loan can now start up after all. As they need employees, unemployment will be reduced. However, high inflation risk and low lending rates also enhances the risk of malinvestment, in which bad companies get money that is put to work unproductively, which is destructive for the economy. Therefore, boom conditions will often lead to recessions. My guess is that in a BTC economy, if the deflation isn't too strong, overall economical growth will be somewhat lower, but there will be less booms and busts, so the system should be more stable. |
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Bitcoin have potential to be a much better ROI. But is also higher risk.
I agree, if bitcoin works out and gets adopted, the gain would likely be much higher. Then again, bitcoin is still quite experimental, so chances of complete failure are non-neglible. They both have small market caps compared to possible demand, so volatility will be high, but bitcoin has this to an even more extreme extent. |
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The market's best estimate of expected future price is current price. Exchange rates could go up or down. However, the effects of exchange rate movements on attack probability are ambiguous.
I agree that the best estimate of expected future price is current price, but I think BTC price will go up in the case it doesn't go to zero (or very low) because the project fails for some reason. So the current price takes into account the possibility of failure. Absence of failure over a prolonged period provides reassurance, and should have positive impact on price. There are two elements: 1) How much does it cost to attack? 2) What is the expected gain from attacking?
The exchange rate would increase both simultaneously.
That would be completely true if the objective was to steal BTC value, but in case of rival companies, the expected gain is the retention of current profits, so it would not have a linear correlation with BTC value. |
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If paypal or visa fees threatened by bitcoin, then they can purchase BFL. They can then 1) Sell BFL equipment to recoup the company's purchase price and then 2) Conduct a 51% attack expropriating mining rights from their customers. Realistic attack costs are currently less than US$500,000. These costs will fall over time.
If those numbers are a good estimate, then that is disturbing.... Why do you think these costs would fall over time? Because of the block halving? I would think you have to take exchange rates into account as well. If BTCs go up in value, then difficulty will rise as well. |
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IMHO, the regression theorem is wrong. It was a good rule in the past, but it is not set in stone.
I think it just describes the fact that people won't accept something as money that can be printed/created to infinity straight away.
Once they get used to commodity money, you can slowly transition to fiat money in small increments without them denouncing the system, like slowly boiling a frog.
Bitcoin does not have this problem because the inflation rate is fixed, and there is no central authority to decide otherwise.
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In this case we would have to ask, what is the maximum amount of money a single entity is prepared to spend in order to attack the network. This might be a harder value to determine.
It might be harder to determine, but it is more informative than comparing to a certain supercomputer I think. With sufficient funds, a bigger supercomputer can allways be built, so it makes more sense to start from the money. The question then becomes, for whom would it be profitable to attack the bitcoin system (so who is hurt by bitcoin, by how much, and how does this compare to the costs for attacking bitcoin, and this for various timepoints as bitcoin grows). |
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I think you ask an important question Yogi, but I agree with Niko's approach. Looking at it in dollar terms makes more sense and will remain correct in the future. Thanks for the calculations, Niko, I was looking for something similar. 10-50 million is a lot of money for small-timers, but if paypal or visa or... would feel really threatened by bitcoin, it seems to me that they could quite easily spend this kind of money. Not sure just how devastating a 51% attack would be to the bitcoin project though. Would it be lights out, or just a (big) bump in the road? Also, how easy would it be to perform a 51% attack anonymously? Would it be possible to pinpoint the origin of the attack, and follow the money to the culprit? I have absolutely no idea about these things  . |
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Bitpay was very easy to set up on my website and make a couple sales here and there with bitcoins.
k, tx for the info |
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While I think BitPay is a handy solution for merchants (especially for those that aren't hardcore bitcoin enthusiasts), you do not have direct deposit as an option for my country. I was also wondering what the daily minimum means in practice. |
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What about a space battleship?  Those are awesome investments ! I have several, mostly because I have a tendency to crash into hostile planets.... |
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I honestly believe that the only truly safe investment is in land, because then at least if the worst happens you can always just live off the food you grow there, everything else is relative to the time you're in.
And then your property gets nationalized, or taxed to death.... I don't think there is a single investment that is completely foolproof. |
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I read somewhere that for gold to be as a reserve, like a gold standard, each fiat $ backed by gold, an once of gold sould be priced arround 33 000 $ instead less than 2000 like those years.
Based on the numbers found on these websites, I am calculating 10176$ / troy ounce of gold reserves. I am somewhat surprised though, I seem to remember it being higher, so either my memory is wrong, or I am using the wrong resources. They would be fools not to buy up some gold prior to going to gold standard though, so this would give a number between the current price and 10176$. http://research.stlouisfed.org/fred2/series/BASE/http://en.wikipedia.org/wiki/Gold_reserve#Officially_reported_gold_holdings |
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Neither of those 2 have a real value. You can't eat them, you can't drink them. Without food and drink, people die. Something that
does not solve existential problems on it's own is worthless.
I will be very happy to accept your worthless, unedible dollar bills then. I' ll even give you a cookie for all of them. if situation goes that bad, you'll most likely be robbed or even killed.
True, but depends on just how bad the situation gets. if you would read the whole thread, i also suggests "frozen carrots" as a store of value.
i might lack knowledge of history, but you clearly don't read very well.
You sir, are a funny man ! |
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Now imagine case of severe global economic collapse, that will force many people to spend their savings for basic needs. It can be assumed, that large amount of gold will be sold for curriences that allow buying goods and services.
Now wich of these industries is capable of absorbing large amount of gold?
I belive the answer is: Neither one.
- As luxury goods industies are drasticallly shrinking during crysis, you cant count on high jewelerry production, do you?
- Cost of gold is really small part of cost of a final electronic product, therefore you cant count that due to large gold supply increase, production of computers rises considerably.
- Only one that left is speculative/investive demand, and I dont think, that it can guarantee stable prices. Rather bubbles instead.
I think you are right that several people that have gold might have to sell their gold for basic needs in economically hard times. However, there is a larger force in the opposite direction. During economical difficult times (like now in western world) central banks will often print a large amount of money to give government sufficient purchasing power (as these governments have often accumulated a large amount of debt, and have fiscal deficits going on). This has the capacity to severely undermine the purchasing power of your fiat money (although this depends on the amount of printing versus balance sheet reduction and reduced money velocity). As people grow aware of this, they try to protect their savings by trading their fiat currency for hard assets (gold, silver, land, real estate etc.). This causes a larger amount of wealth to be transferred to gold compared to fiat currencies. If this wealth transfer is larger than the reduced availability of goods and services in bad times, your gold will buy you more stuff. The thing to remember is, while there are middle class families struggling to survive, selling their grandmothers jewels, there are also a lot of rich people with a lot of wealth who do not want to see their savings printed into oblivion. |
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