its not just propoganda though...look what happened to BTC during cypress.
if the USD falls, it will be the financial news of the century,
and it is quite likely there will be a massive interest in bitcoin.
That's due to a bank run. Had nothing to do with failure of Euro. People were worried they couldn't get their money out of the banks if banks became insolvent. The reason there was a crisis in Cyprus is because their debt is denominated in Euros and ECB didn't bail them out |
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@ Peter R That analysis has so many flaws...
The analysis was hugely simplified to illustrate the benefit of hedging using simple math. I explained that in the post. I also showed that even if you assign a 95% probability to the value of bitcoin going to zero, it can still be useful as part of a wealth-preservation strategy. That's not how probabilities work though. You didn't show anything except you made up some random numbers and drew conclusions from them. All you said was if you invested 5% of your portfolio in BTC today it could return 20X or zero. You came up w 5% because you believe thats an appropriate amount of risk attributed to random probabilities 5% vs 95%. Buying BTC is not a hedge against demise of USD. If you think USD will fall then you should short USD. If you think BTC will rise then you should long BTC. There is no correlation as a trade It's actually hard to price USD without being paired to something. Its easier if you compaired BTC to gold or some other commodity so you can analyze the prices in USD. Throw up 2 charts and see if there is correlation or not. I think the only reason you believe there is a correlation of BTC & USD is because the propaganda of BTC is anti-Central Banking. BTC pumpers always talk about demise of fiat money. Gold pumpers say the same thing to pump gold price. |
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I would argue that buying BTC is in fact a hedge against USD. Many people have used Gold as a hedge in the same way. Since BTC (and Gold) are priced in USD, you are in effect "taking the other side of the trade". On the one hand, you hope your USD holds its value. But if it doesn't, your BTC increase. Gold isn't used as a hedge against USD. You are thinking of rotation. When investors rotate or re-allocate their funds on the belief of rising or falling prices amongst different asset classes. A lot of investors rotate from equities to gold & vice versa. "Taking other side of trade" is literal. Its being both long & short on a trade simultaneously. Normally your initial position is long term and your hedge is short term. |
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@ Peter R
That analysis has so many flaws
(1) You assume that Bob has only 2 choices (BTC yes or no) when he could diversify his portfolio in many asset classes
(2) Standard deviation is determined by using historical data not random numbers projected into the future
(3) Probability isn't randomly calculated like that. 5% lose all money vs 95% not lose all money? Say what?
(4) I think someone else defined "store of value" = low volatility. I'm not sure how you are defining "store of value". Sounds like you are saying BTC is a store of value because it could go to x20 or not. This sounds like a "speculative" bet not a "store of value" bet. You are speculating that demise of USD will drive up BTC price.
(5) Buying BTC is not a hedge against USD. That's not how hedges work. A hedge is when you take trade AND you also take the opposite of that trade to mitigate your risk. The easiest way to hedge is using options. But there is no options market on BTC so the point is moot
"but I have never found a rational case where it is not wise to store at least a small portion of your wealth in bit coin"
How about in the case the price crashes and you lose your money? If you have the assumption BTC will forever go up in price then by all means invest. But don't claim that the price can't crash or even go to zero.
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If you can, then just short all the shitcoins. sounds like easy money. What does shorting means? Shorting is selling something that you don't own. For example when BTC was $1200. You borrow 1BTC from a HODLer and you sell it for $1200. When the price drops to $500 you buy back 1BTC from the open market for $500 and return to the person you borrowed + premium. You just pocketed $700 minus the cost to borrow |
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OK I just read that zero hedge article. Theres no way to know whether or not Putin has $40B in a Swiss Bank account. I couldn't find any articles that theorized how he would have amassed this fortune. I'm curious to know if anyone have any links. The only source I found is attributed an interview where some guy claims Putin "controlled" 37% of the oil company Surgutneftegaz and 4.5% of natural gas monopoly Gazprom. The $40B is the price of the stake -- NOT cash. Putin brushed this off as rumors when asked about it. http://www.bloombergview.com/articles/2013-09-17/vladimir-putin-the-richest-man-on-earthBut regarding rich people parking their money in BTC. How did they become a billionaire in the first place? Maybe they founded a company and hold stock, or maybe they are some type of dealer. The point being, these people wouldn't view money as simply cash. Makes no sense for them to hold cash beyond the amount they need for operational expense. If we assume that these rich people view money as investments. What motive would they have for holding large amounts of cash? They could diversify their portfolio in stocks, bonds, commodities, real estate & cash. The only reason for holding cash is for liquidity. BTC has little liquidity so it's not a good substitute for cash. Also, the main incentive for using Swiss Banks is because Swiss Banking laws allow for secrecy. Can the US govt freeze Swiss Bank accounts? I don't know their banking laws enough to say. Can any govt freeze your BTC account? If they can't then you have a legitimate case for using BTC to hide money from govts. That means Karpelles can steal your BTCs and runaway to non-extradition countries If Putin does indeed have a Swiss Bank account of $40B, and he's worried about the US .gov freezing it. I don't see why buying BTCs solve his problem. Wouldn't he buy gold and hide it in a vault in Siberia? |
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The speculative component is based on mainly one thing: The arbitrary limit on supply of bitcoin at 21M. For real adoption to occur current holders have to spend their holdings. But the only reason they own BTC is for speculation. There is no incentive for spending. They can loan out their holdings and act as a bank. But its suicidal to borrow a deflationary currency.
I believe 3 possibilities of future of BTC based on observing history of banking:
1. Bitcoin functions as "gold": Colored coins are created by independent 'banks' that hold a reserve of BTC. This would allow the market to price BTC as a commodity money. If any individual colored coin fails the user could convert his holdings back into BTC and move on to the next colored coin. In this money system the cryptos might exist for niche uses. BTC is still priced in fiat. This would be best scenario for BTC to stay around.
2. Bitcoin functions as "currency": All alt-coins compete for consumer adoption. In a free market the best coins stick around and the ones not useful eventually go extinct. Whether it'll be BTC or some other alt-coin that dominates this economy, nobody can say. In this scenario, cryptos are also priced in fiat but they would have niche uses. This scenario view crypto as a technology more so than money
3. Bitcoin as "banking": The original dream of Satoshi Nakamoto. Bitcoin competes and eventually replace fiat. I find this scenario the most unlikely because it only benefits speculators. Govt's & business (the dominant users of money) would not want a unstable deflationary money. The non-speculating average Joe would not want this either. His assets are in the form of salary, 401-Ks, mortgages - things which would be harmed by deflationary currency. Some huge catastrophic event would have to occur in order for this scenario to play out. Its possible that BTC become widespread to the national level for some small nation state w currency problems. But I can only imagine a anarchy state embracing this. Any state that has a govt would need central controls on its own currency if it's to engage in foreign trade.
It is possible that a hybrid of any of these scenarios could exist in the same world. BTC as 'banking" in a tiny nation state w/ currency problems. BTC as "gold" for niche e-commerce applications (convertible airline miles, convertible online casino chips, etc..). BTC as "currency" for black market use, or whatever it was mostly used for before the speculators drove up the price.
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Using money to make more money?
This is a left over notion from the credit based economy in which the presence of inflation biases every aspect of our economic decision making. With fiat, one must use money because it will certainly be worth less in the future. Notably, you can lend it out and gain both principal and interest back. One could buy an income producing asset and realize a stream of income that will likely sum to more than the original cost.
In the Bitcoin Economy, these biases are the opposite of what one should do. Deflation is weird and we must wrap our minds around what it means. For starters, lending and credit do not work in the Bitcoin Economy. The rate of deflation for the near future is greater than the investment return that one could gain. This is obvious when examining the repeated failure of bitcoin-denominated securities.
Forget about the idea of you making money. In the Bitcoin economy, only mining pools make money. Rather, you earn money. Your currency increases in value simply by holding on to it.
Bitcoin is for saving and prudent spending upon necessities. This guideline applies to enterprises as well as individuals. Let me recast a common economic activity in Bitcoin terms to illustrate the point.
Bitcoin Household Mortgages - Not.
There are no mortgages nor long term lending in the Bitcoin Economy. Not now, probably not ever. Buy now and pay later has never really been a good idea. In the economy we are working towards, a substantial asset, whether a necessity or income-producing, is purchased on installments. You get the title for your home in exchange for a good faith promise to make periodic payments for a contracted duration of time. The amount of the payments decreases with the deflation rate, or is otherwise linked with your ability to pay. If you miss your payments, the property or collateral reverts to the seller, less the adjusted equity you have paid in.
No debt, no banks, no problems.
Sounds like you are promoting "sitting on your ass" economics. |
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I find these kinds of rationalizations to be hilarious. Bitcoin will succeed on it's own merits, not because "zomg wall street/putin/buffet/gates/justin bieber" are going to discover bitcoin and invest in it.
I've witnessed some crazy pumps in pennystock land but nothing as outrageous as bitcoin land. This idea of Putin moving his $40B into BTC is just nuts. Usually when someone is said to be worth $40B. It's probably the net of their assets. Not a pile of cash sitting in a bank somewhere. It's probably distributed in stocks, bonds, real estates, cash. If someone has $40B in the first place then they most likely know a thing or two about finance |
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the dollar started as a receipt for gold thus its value was the same as the value of gold you could get for it.
over time to finance public works and war the government started printing more dollars and eventually had to give less and less gold per dollar in existence (they couldn't print gold to back up the paper).
eventually in 1971 the government had so little gold and so much paper in circulation that it had to stop redeeming paper for gold altogether.
since then more and more paper was printed the the purchasing power is declining ever since.
No it didn't. The dollar was merely a weight of silver. Later on they fixed a specific silver to gold ratio, which led to redefining the dollar in terms of gold. The government has always fucked around with what money was, namely in the interests of the usury(capitalist) class centered in New York. Gold was replaced with the government bond as a "risk free asset". Essentially the Fed and the Treasury began engaging in check kiting in the 1920's. By the 70's this scheme was fully accepted. "Fiat" is not really fiat. It is in places like Zimbabwe, however in the US it is credit money. Every single credit dollar in existence is backed by collateral. The federal reserve asset column consists of mainly US government bonds. What are US government bonds? These are future claims on the sweat equity of 310 million Americans. So every dollar the fed lends into existence is collateralized by the future productivity of American's which will be extracted via taxation. Now ask yourself, does future productivity have "intrinsic value"? Of course it does. Do you understand this concept? It is not by decree. It is not by coercion. It is by DEBT. The collateral "backing" the credit(dollars) gives them value. If the collateral is of poor or dubious quality the value of the dollars decreases(inflation). Total debt + interest also exceeds available dollar credits in existence, this places an almost perpetual BID for them. Someone in the economy is constantly in need of dollars to repay old debts. Commercial banks essentially produce dollar derivatives. They lend out claims to federal reserve dollars, every-time you get a loan for XYZ. What are those claims backed by? The collateral you post(house, car) and your sweat equity(income). When these institutions engage in counterfeiting of credit you get inflation. For this system to work it requires perpetual economic growth, as new wealth must act as collateral for new loans. Hence the obsession with constant GDP expansion. Obviously, this is impossible. The economy never grows as fast as the rate of interest. This places a certain class of people(usury) to essentially rent seek. When the economy can no longer produce new wealth fast enough they simply begin recollateralizing existing assets. Ie homes, stocks, education, sweat equity gets revalued(hence inflation occurs). Anything that can be borrowed against must rise in price in perpetuity to expand the total debt pool. When this system begins breaking down 2008 happens. Hyperdeflation will occur before hyperinflation. The end game is when you cannot trade a US government bond for gold. Meaning there is no exchange rate between Gold and US treasuries. No bid. That is when the credit dollar system implodes. We are still far away from this scenario, and it does not have to happen. Also since the majority of global fiat currencies are pyramided off of the dollar, the USD will be the LAST to fail. So betting on the US dollar to collapse, you won't survive the journey. Bitcoin will also be next to worthless under this scenario. Why? Because bitcoin requires a sophisticated civilized society to function. It requires electricity, high bandwith, communication, smart phone networks. Under a fiat collapse trade essentially grinds to a halt, multilateral trade turns into bilateral trade ie BARTER. The last thing people will be concerned about will be some virtual units on the internet that have no value outside of their exchange. All of you hoping on a fiat collapse, are essentially cheering on your own misery. +1 great post! |
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Bitcoin is a paradigm shift but its distribution (marketing) scheme is very problematic. I know you thought my post was TL;DR. But I think the problem is you don't quite understand the economics of banking & money which I was trying to explain
De-centralized banking --> Not new
Metallism money theory --> Not new
Public Ledger --> New
Ripple is not paradigm shift like bitcoin but it takes the most innovative thing about bitcoin and applying that to the ACTUAL banking practices.
I can't think of a good metaphor. But suppose when MP3s was invented some idealists had big ideas about revolutionizing the music industry. But it wasn't until iTunes that MP3s became mainstream. It didn't disrupt the status quo. Sure it might have given a spotlight to some underground musicians that couldn't have happened befoe MP3s. But probably the effect of MP3s was it increased the overall market size so you have more Katy Perrys & Justin Biebers as a result.
Crypto is exciting but most of the players are too focussed on bitcoin. Ripple to me has the correct attitude to take crypto mainstream. Only time will tell if they can do it or not. They have the right attitude to attract incumbent institutions
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peter,
ripple uses gateway iou's, yes. an iou is only as good as the gateway. so let's say the royal bank of scotland and mt.gox become gateways, which of the two would you rather use?
With bitcoin it is simple: Bitcoin is a peer-to-peer electronic cash system that allows users to store, transport and exchange funds with other users across the world, without the assistance of a third party or the permission of an authority. There is no counter-party risk. Its great if both people want to exchange BTC wallet-to-wallet. But suppose you want to send BTC-->EU? Don't you think that Ripple meets your need? |
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This issue is like Macs claiming they have less virus than PCs. There's more scams in fiat becasue there's more users of fiat. Scams are a human issue, not a currency design issue
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@ Peter R
That's what I got from reading their website. I'm not trying to pump Ripple or anything like that. I find their proposal intriguing so I want to understand it myself.
1) I think that is partially correct. They say the Ripple network is designed to exchange money. All money as essentially IOUs but it misleading to say like that. In their primer they say there is same counter party risk at the "gateway". So depends if your "gateway" is Citibank or Mt Gox. You should decide based on reputation I suppose. But they do claim that there is no counter party risk when using XRP as a "bridge currency". If you use Ripple to transfer USD-->XRP-->EU, there is no counter party risk
2) XRP is a currency to be used as bridge if the network can't find a market maker to facilitate the exchange. There is a current exchange rate 1 XRP = 0.0063 USD. But they say their priority is adoption rather than investment. I would treat it as valueless token.
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I would say most people don't understand how banking works in general.
True, though they understand it well enough to use it, which is most certainly not true for ripple. What they know is they don't like ATM fees or foreign transaction fees, etc. I see Ripple having more potential as an institutional tool rather than a consumer facing product.
Alright then, since I'm not a bank or in the business of providing banking services, why do I ever (in fact frequently) hear about ripple. Again the targeting of the message and the message itself seems misdirected and confused. I guess its discussed here because the XRP is a crypto currency and Ripple Labs is trying to promote their business. Ripple makes a lot of sense if you understand balance sheet operations & double entry book keeping. Its how money travels For example: Me --> Chase --> Citibank --> You. As I understand it, this gets replaced by : Me --> Ripple Network --> You When the money travels from one node to another it is noted as an asset on one balance sheet & a liability on the other's balance sheet. The confusion is that the XRP & BTC are both defined as "crypto currencies" but they are marketed/ promoted from different views. XRP acts a token to make the Ripple transfer possible. In this sense it behaves like a currency should. Think of a casino in an agnostic location where people from all countries come to play. XRP is similar to a poker chip. It only exist to allow different currencies to play. The plastic token itself has no value but it might have numbed printed on it like 5, 10, 100 In contrast bit coin is promoted as thrice; commodity/money/currency. To make matters more confusing, most people don't understand the difference between gold (commodity), gold coins or convertible notes (money), USD (currency denomination). Bitcoin tries to be commodity/money/currency in one entity. If you follow this "Metallism" view. Miners should mine "bits". The currency that is called "BTC" are backed by "bits". And its "money" value should be priced on the supply/demand of these "bits" (as opposed to being priced in USD). Imagine traveling back in time. Each nation's banks hold reserves of specie (gold or silver). The banks print notes that are convertible to specie. The notes are denominated in local currencies like Dollar, Francs, Pounds, Deustch Marks,etc.. No matter what number is printed on the coin or note, the money derives its value from the commodity that backs it. Currency is the representation of that money. The reason this existed is enable foreign trade. Gold is gold. I can accept your currency because I can covert it to gold and my currency is also backed by gold. The market agrees that gold is top of the money hierarchy in value so there is always a demand for gold. Even within the US during the Free Banking era, each bank printed its own convertible notes back by reserves in specie. Schumpeter categorize 2 philosophical traditions of money: Chartalism & Metallism. Crypto (especially Bitcoin) be would philosophically in-line with the Metallism tradition. Like Metallism, Bitcoin promoters believes that (1) state issued fiat money has no intrinsic value, (2) state created money devalues money through inflation, (3) money should be priced by laissez-faire markets as opposed to a central authority However, there is a BIG contradiction here. Metallism would not define crypto (especially Bitcoin) as money because it not convertible to something of intrinsic value. Metallism would define Bitcoin as "fiat" in the sense that it came to existence out of nothing. The only difference is that instead of being created by the state authority, it was created by an unknown person/ group calling itself Satoshi Nakamoto. But technically each BTC is created from "mining". So technically its intrinsic value is derived from "mining", not a quantified physical asset like an ounce of gold. In other words, BTC's intrinsic value is digital alchemy- zeros & ones. In essence the same way that Central Banks create money - by keystroke. Ripple seems to recognize this contradictory quality of crypto as a commodity/money/currency. I believe that's why it's "pre-mined". It seems to me Ripple sees the potential in crypto not as a competing currency to existing fiats. Rather, Ripple is exploring the use of crypto as protocol to transfer fiat. Regardless of denomination; Dollar, Euro, RMB, Bitcoin, Dogecoin, Litecoin, etc.. Ripple doesn't have a philosophical view of money just a banking view of money. Ripple is a privately owned company so that makes XRPs similar to a private bank issued currency. Except Ripple is nothing like a bank so XRPs are to be treated as tokens. You are not supposed to hoard XRPs and store your money in it. If big banks use Ripples system to transfer money then the XRP would be invisible to the end user. This is what I gather from reading their website. But yes its confusing because they have Ripple wallets that you need to deposit BTC to use so it seems like its a bit coin competitor |
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Ripple was designed to meet present needs and to move in the direction its designers believed would be beneficial.
This is not limited to this thread (or countless other essentially identical threads). Beyond this forum, I've talked to a lot of other people both online and offline who really have no understanding of what ripple does or how it benefits them at all. I would say most people don't understand how banking works in general. What they know is they don't like ATM fees or foreign transaction fees, etc. I see Ripple having more potential as an institutional tool rather than a consumer facing product. Consumers just want to make payments easier. If Ripple can be adopted by big banks to make transactions easier for consumers then it'll succeed if not then it won't. |
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Whether we are talking about MtGox, Ripple, TradeFortress, Bitstamp, Coinbase or bitcoins in cold storage, this is how I see things: 1. If I am the sole controller of the private key to 25 BTC, then there is no counter-party risk. 2. If I am not the sole controller of the private key for "my" 25 BTC, then what I essentially "own" is some sort of IOU and there must be counter-party risk. I believe it is wise to ensure that I can measure what that risk actually is should I choose to use the third-party service. Correct me if I'm wrong but that Ripple IOU exists only to do the exchange. So why is there counter party risk?
In the IOU. Once the exchange is finished there is no risk.
If you no longer hold the IOU and instead are the sole controller of the private key to 25 BTC there is no longer any counter-party risk. Right.. But that risk only lasts for the duration of the exchange. No? |
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I think the United States could get out of debt if it simply stopped spending so much money.
For whatever reason there seems to be complete apathy
when it comes to balancing the budget. Maybe that is on purpose.
It used to all really bother me, but now that I have some bitcoins,
I don't care what they do their stupid currency.
the governments wont stop buying things. for these reasons 1. its not their debt. no MP, senator, governor is saying they owe money, they say 'the peoples debt' making them not personally liable 2. if they buy large buildings. houses, warehouses filled with many years of food, water and ammo. then when the dollar crashes they can still run the country. so buying crap 'the people dont need like enough warships, missiles and planes to survive 25 years of war, is in their interest 3. they know they cant repay the debt so they might aswell profit from it, and then make it obsolete. i know many people in credit card debt, that before claiming bankruptcy, they get more credit and buy things, hide it all.. and then claim bankruptcy, knowing they can live the high life and not repay. this is what the governments are doing, on a grander scale National debt & household debt are not the same thing. In macro economics, you can have debt as big as you want as long as the debt is denominated in the currency you can print. Japan's debt is 300% of their GDP. The worst thing for people is unemployment not debt |
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There is one little problem with the payment of taxes as an argument for giving fiat currency its initial value. Tax authorities have taken all sorts of things over the centuries for non payment of taxes. Here is just a small sample from the US Government. http://www.treasury.gov/auctions/IRS/index.html. My favourite example is brothels https://en.wikipedia.org/wiki/Mustang_Ranch. Are brothels a form of fiat currency in the United States because the IRS seized one? Taxes didn't give USD its initial value. But in the present day, taxes insures a demand for USD |
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Let me try again: XRP is not an IOU….with Ripple, instead of your IOU's being trapped and controlled by a central entity, you can move them freely…In Ripple, an IOU is not a means by which you can buy something now, and pay later. It's a representation of actual assets you own. When you exchange those IOU's, the asset balance is transferred to the new owner. The IOU simply determines who now owns that balance.
Sounds like it involves IOUs to me. and that's a good thing. XRP, however, is not an IOU. It's an asset that exist within the network and stored without counter-party risk. Exactly. Ripple does involve IOUs which means there is counter-party risk. If I hold a Ripple IOU for $100,000, then that $100,000 is at risk. The statement that "xrp has no counter-party risk" is disingenuous. No one really cares about xrp, they care about losing the value stored in the IOUs (which you admit do have counter-party risk). If digital hawala networks prove useful, we could have iRipple, youRipple, heRipples and sheRipples. Xrps on any particular xrp ledger seem to me to be essentially valueless. The point of these kinds of networks is a means of exchanging IOUs between trusted parties. Correct me if I'm wrong but that Ripple IOU exists only to do the exchange. So why is there counter party risk? Once the exchange is finished there is no risk. Lets say I wanted to send you $100,000. That $100K leaves my bank account and goes into the Ripple gateway, then gets converted to XRP, then goes into your account as $100K. Where is the risk? |
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