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April 16, 2017, 09:05:43 PM |
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Fundamentalist Long-Positioned Money Investment
TLDR: Invest in monies that you expect can handle more uses than it currently does while maintaining lower usage cost (such as transaction fees) than established competition.
1. Calculating How Good a Money Is For a Use Case
Money is a tool used to transfer market purchasing power. Market participants prefer to use a money that has the greatest expected rate of return.
Return = spend value / (purchase value + use cost)
Rate of Return = 100% * (1 - Return ^ (1/(spend date - purchase date)))
In a more stable money market, the rate of return is likely negative for most users. Rate of Return can then be viewed as a transfer efficiency. In a less stable money market, the choice of which money to use is an entrepreneurial decision, because the exchange rate at time of spend is in the future and not known with certainty at the time of acquisition. Such entrepreneurial decisions were the original source of Bitcoin's market value.
Value over time is not an exact measurement given man's changing goals and context. Never the less, we measure "use cost" and "value" in the least volatile currency, adjusted for inflation. "use cost" can include costs other than transaction fees, such as the labor and time. When predicting the efficiency of using a money option, its spend value would have some probability distribution depending on the user's expectations. Insuring against risk of loss would have a use cost.
One of the least volatile currencies (at least on a day to day basis) is the US Dollar. According to BASENS, GFDEBTN, and shadowstats.com CPI inflation (1980 method), all three are consistent with USD's purchasing power decreasing at about 8% per year since the year 2000, unlike official numbers of around 2%. You are free to use your own measure of inflation. I use money supply inflation, since it is the least arbitrary and hardest to manipulate. Given 8%, if you want to use USD as a benchmark to measure market value, you need to account for 8% inflation. If you maintain ownership of $100 USD for a year, then you also have to account for the costs of giving $8 of purchasing power to corrupt bankers and politicians.
2. Market Dynamics with Competing Currencies
Money efficiency is important, because people look for the most efficient money available for each of their use cases. Each use of a money temporarily consumes some portion of the money's supply. The greater the demand for being able to use the money's supply, the higher the money's market cap, the more a given fraction of the money supply is worth.
If a new money can fulfill all of an established money's uses while still offering a better efficiency, then I'd expect it to eventually absorb the other money's users (and market cap). I'd call this a voluntary "monopolization", which can overcome the transient "network effect" via entrepreneurial investment. Instead, if its efficiency decreases during the process of increasing in usage, if the efficiency of both currencies become equal, then both currencies will be used in parallel. If a new money can't fulfill any use case better than any other currency to any extent, then it likely will be worthless.
Each money has a different efficiency for a particular use case. A trade partner may value an offered currency at a different exchange rate than others at a popular local exchange (network effect). A money may have a different cost to meet the use case's specific requirements on security, anonymity, transfer speed, value storage duration, distance, and other factors. Hence a competing money might be used only because it can be more efficient in a niche use case.
3. Concluding Investment Strategy
An entrepreneur looking to invest long term in monies would look for a money that can still handle significantly more uses while still having a better transfer efficiency than established monies in its niche use case(s).
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