Does much of gold's market cap eventually go to Bitcoin?

[niko]

Cypherdoc, many thanks. I sent you a PM to bug you with more questions (that's what you get for being helpful), so we can stay on topic here.

[cypherdoc]

the wallet that is generated within Armory is deterministic based on a seed and a chain code.  this is distinctly different from the Satoshi client.  this is kept as an offline wallet on a computer only accessible by the owner of a large store in the back room.  "watching wallets"  of this same offline wallet are  placed on computers at the cashier checkout stands.  these watching wallets have the capability of generating a brand new address for each customer that comes thru the store when paying for an item.  these watching wallets do not have private keys associated with them so the cashiers can't steal the btc.  the cool thing about the owner's offline wallet and the cashiers watching wallet is that they generate the same addresses ad nauseum sequentially from the seed and chain code.  the only difference again is that the cashiers watching wallets don't have the private keys.

edit:  i didn't say this quite correctly.  each cashier would have a watching wallet connected to its paired distinct offline deterministic wallet.

Hmm.  I'm going to have to read his source.  That doesn't seem possible to me, unless it is really generating the list of private keys and deleting them.

from etotheipi:

To create a full wallet, you create a Private Key (Priv[0]) and a chaincode (C).
Priv[0] and C  is your full wallet (two 32-byte integers)
Pub[0] and C  is your watching-only wallet (a 32-byte integer, and a point on the ECDSA curve, which is 2 32-byte integers)

All subsequent keys are produce (roughly) by Priv[i+1] = C*Priv,  or Pub[i+1]=C*Pub

[phelix]

Let's assume half of the gold market cap would go into Bitcoin...

According to http://en.wikipedia.org/wiki/Gold I extrapolate the amount of gold ever extracted to be at least 172,000 tonnes. After a little calculation the market cap of this at current gold price is: $9,724,379,108,640

/21,000,000

/2

$231,533 per BTC

 

[Melbustus]

Let's assume half of the gold market cap would go into Bitcoin...

According to http://en.wikipedia.org/wiki/Gold I extrapolate the amount of gold ever extracted to be at least 172,000 tonnes. After a little calculation the market cap of this at current gold price is: $9,724,379,108,640

/21,000,000

/2

$231,533 per BTC

 

Well... These calcs are always wildly speculative, but what the hell:

First, you need to try and isolate the "investment" value of gold versus its industrial, and arguably, jewelry usage, if you want to be *a little* conservative about it... According to wikipedia (http://en.wikipedia.org/wiki/Gold_reserve), 16% of total mined gold is used for private (ie, non-central-bank) investment. Using your 172,000 total mined tonnage figure, that's 27,520 tons as private investment.

Let's also say that bitcoin only snags 2% of gold's private investment demand:

2% of 27,520 tons = 550.4 tons = 17,612,800 ounces = $31,253,913,600.

Divided by 21,000,000 BTC = $1488 / BTC

[niko]

Let's assume half of the gold market cap would go into Bitcoin...

According to http://en.wikipedia.org/wiki/Gold I extrapolate the amount of gold ever extracted to be at least 172,000 tonnes. After a little calculation the market cap of this at current gold price is: $9,724,379,108,640

/21,000,000

/2

$231,533 per BTC

 

Well... These calcs are always wildly speculative, but what the hell:

First, you need to try and isolate the "investment" value of gold versus its industrial, and arguably, jewelry usage, if you want to be *a little* conservative about it... According to wikipedia (http://en.wikipedia.org/wiki/Gold_reserve), 16% of total mined gold is used for private (ie, non-central-bank) investment. Using your 172,000 total mined tonnage figure, that's 27,520 tons as private investment.

Let's also say that bitcoin only snags 2% of gold's private investment demand:

2% of 27,520 tons = 550.4 tons = 17,612,800 ounces = $31,253,913,600.

Divided by 21,000,000 BTC = $1488 / BTC

This is reasonable, just keep in mind that 2% is an arbitrary number, not an estimate of anything.

[n8rwJeTt8TrrLKPa55eU]

This is reasonable, just keep in mind that 2% is an arbitrary number, not an estimate of anything.

I can give you a slightly less arbitrary number, which is the percentage of my own gold holdings versus bitcoin holdings.  I'm fully allocated in both for the long term, and don't intend to buy (or sell) any more gold or bitcoins unless their fundamentals change.  So you've got (assuming I'm typical in terms of risk profile, a big assumption) at least one data point in terms of how much bitcon a goldbug might target in order to diversify their portfolio.

My ratio is approx 10:1 in favor of gold.  So:

9% of 27,520 tons = 2476 tons = 79232000oz = $140399104000

Divided by 21,000,000 BTC = $6685/ BTC

It would be interesting if other gold holders posted they target Gold:BTC ratios on this thread. A ratio is a relatively safe, obscure, and private number to post because it doesn't disclose your position size.  If enough people are willing to respond, I could also create another thread with a poll.

[cypherdoc]

This is reasonable, just keep in mind that 2% is an arbitrary number, not an estimate of anything.

I can give you a slightly less arbitrary number, which is the percentage of my own gold holdings versus bitcoin holdings.  I'm fully allocated in both for the long term, and don't intend to buy (or sell) any more gold or bitcoins unless their fundamentals change.  So you've got (assuming I'm typical in terms of risk profile, a big assumption) at least one data point in terms of how much bitcon a goldbug might target in order to diversify their portfolio.

My ratio is approx 10:1 in favor of gold.  So:

9% of 27,520 tons = 2476 tons = 79232000oz = $140399104000

Divided by 21,000,000 BTC = $6685/ BTC

It would be interesting if other gold holders posted they target Gold:BTC ratios on this thread. A ratio is a relatively safe, obscure, and private number to post because it doesn't disclose your position size.  If enough people are willing to respond, I could also create another thread with a poll.

here's another former gold bugs perspective:  my ratio is approx 20:1.  in favor of Bitcoin.  how's that for ya?

[niko]

@cypherdoc: why am I not surprised? 

Anyway, these estimates perhaps provide a theoretical, long-term equilibrium if all the people turned into btc enthusiasts like us: the btc share would then be 10%-95%. I'd argue that this equilibrium will never be reached, and realistic estimate would be few percent at best.
 This amounts to several thousands of today's usd per coin. This is assuming coins are not used for trading goods and services, which they are.

[n8rwJeTt8TrrLKPa55eU]

here's another former gold bugs perspective:  my ratio is approx 20:1.  in favor of Bitcoin.  how's that for ya?

Somewhere between the two of us, probably lies a representative average

[Melbustus]

It would be interesting if other gold holders posted they target Gold:BTC ratios on this thread. A ratio is a relatively safe, obscure, and private number to post because it doesn't disclose your position size.  If enough people are willing to respond, I could also create another thread with a poll.

Well, my own ratio of PMs to Bitcoin is roughly 1:1. But obviously we're going to skew heavily in this community...

Regardless, I used Gold:BTC of 49:1 (ie, 2% gold) in my example above in order to hopefully be a little conservative about these calcs... Even so - I've often stated that bitcoin's exchange rate is unstable between $1 and $100. However, running these calcs, and some other estimates involving transactional utility, I'm thinking more and more that it's valid to say bitcoin's exchange rate is unstable between $1 and $1000.

The success cases increasingly look like $1000+. Fail case is obviously pennies. Intermediate scenarios don't look all that likely. Anyone care to refute that; eg, can you make a reasonable case for some adoption model that yields $/BTC stable at something like $50/BTC long-term (assume 2012 dollars to get the fiat-inflation variable out for the moment)?

[n8rwJeTt8TrrLKPa55eU]

The success cases increasingly look like $1000+. Fail case is obviously pennies. Intermediate scenarios don't look all that likely. Anyone care to refute that; eg, can you make a reasonable case for some adoption model that yields $/BTC stable at something like $50/BTC long-term (assume 2012 dollars to get the fiat-inflation variable out for the moment)?

Agree with your assessment.  Binary outcome.  Either this rocket goes all the way to the moon, or it explodes before exiting the atmosphere (and all the pieces burn up on re-entry).  No middle ground.  Zero value if fatal algorithmic flaw is found, or some new cryptocurrency outcompetes it on features or mindshare.  But otherwise, even the crappiest adoption scenario (declared illegal worldwide, full-on government repression, usage in black markets and criminal contexts only) still yields potential demand in the billions and a price $1000+.  

[niko]

The success cases increasingly look like $1000+. Fail case is obviously pennies. Intermediate scenarios don't look all that likely. Anyone care to refute that; eg, can you make a reasonable case for some adoption model that yields $/BTC stable at something like $50/BTC long-term (assume 2012 dollars to get the fiat-inflation variable out for the moment)?

Agree with your assessment.  Binary outcome.  Either this rocket goes all the way to the moon, or it explodes before exiting the atmosphere (and all the pieces burn up on re-entry).  No middle ground.  Zero value if fatal algorithmic flaw is found, or some new cryptocurrency outcompetes it on features or mindshare.  But otherwise, even the crappiest adoption scenario (declared illegal worldwide, full-on government repression, usage in black markets and criminal contexts only) still yields potential demand in the billions and a price $1000+.  

Interesting discussion pertaining to "all or nothing" - https://bitcointalk.org/index.php?topic=99689.0

[n8rwJeTt8TrrLKPa55eU]

Interesting discussion pertaining to "all or nothing" - https://bitcointalk.org/index.php?topic=99689.0

Yeah, some folks perceive the government crackdown case as "nothing", but clearly that could still be a $1000+ valuation scenario simply through underground usage, a massively profitable "all" for anyone holding coins today.  At least in my mind, "nothing" excusively means that technical or feature problems drive Bitcoin to zero marketshare among cryptocurrencies, since clearly at least one cryptocurrency will forever be necessary.  The cryptocurrency concept is just too useful and is here to stay, whether it's Bitcoins or some 2nd generation coin.

To that point, someone in the thread you referenced, mentioned something tremendously insightful that might be easily overlooked, and which is yet another fantastic selling point for Bitcoin: in countries with highly regulated medical environments (e.g. UK NHS, USA Obamacare/FDA), Bitcoins are a kind of medical insurance.  Silk Road gets lots of negative press, but not all illegal drugs and treatments are recreational; it's completely conceivable that someday you or I might have a disease or condition whose treatment is not available through legal channels, either due to an experimental nature, price controls, or ideological issues.  

Regular insurance won't cover you if you desperately need to buy "illegal" medical goods and services.  What can you buy today, that will give you access to black market medications and treatments tomorrow?  Answer: Bitcoin.  The following bullet points sound like humorous hyperbole, but can be made with a straight face:

• Do you live in the USA or European nanny state? Bitcoins are an essential part of a medical insurance portfolio.
  
• Having Bitcoins might save your life.
  
• Not having Bitcoins might be hazardous to your health.

[n8rwJeTt8TrrLKPa55eU]

Just came across yet another interesting newsitem that can be used to persuade goldbugs that they should love Bitcoins and that intangibility can be an asset, and not a libability, versus gold.

Historically gold has been the prreferred method used by refugees to transport savings when fleeing dictatorships.  We've all heard the stories of Jews in the 30s or Vietnamese in the 70s escaping oppression and starting new lives thanks to carefully hiddden gold.

But try crossing borders with your Krugerrands once this technology gets deployed worldwide:

PTI Introduces New Metal Detector to Detect Precious Metals Inside the Human Body
http://www.sbwire.com/press-releases/pti-introduces-new-metal-detector-to-detect-precious-metals-inside-the-human-body-176363.htm

[sunnankar]

I will add one more form of risk; that of security.

i used to have 2 safes full of pm's.  when i was not home or travelling, i used to worry about someone breaking into the safes as my one and only level of security.

now, with Bitcoin and w/o getting too specific, i think in terms of having five levels of security built in revolving around the safe door, multiple distributed copies, passworded usb keys, self destruct capabilities, encrypted wallets.

The security risk is another extremely important issue and you have highlighted how Bitcoin is far superior to gold in that regard if handled with technical competence.

Another part of this thread that I think has been overlooked is the amount of market cap in 'censorship resistant' assets.

For example, how much of Scream's $120m sale is from its artistic value and how much from its 'censorship resistant' nature? After all, fine art can be rolled up and moved around the world pretty easily and that property is likely the greatest factor for the high bids. Same thing with diamonds, gems, trophy real estate properties, collectibles like first edition books, coins, etc.

When HNWI can store capital in bitcoins instead of having to resort to these less efficient manners then I think the sale prices for them will also come down significantly.

[sunnankar]

To that point, someone in the thread you referenced, mentioned something tremendously insightful that might be easily overlooked, and which is yet another fantastic selling point for Bitcoin: in countries with highly regulated medical environments (e.g. UK NHS, USA Obamacare/FDA), Bitcoins are a kind of medical insurance.

Popular financial blogger Robert Wenzel actually brought this issue up when discussing Bitcoins.

[n8rwJeTt8TrrLKPa55eU]

Popular financial blogger Robert Wenzel actually brought this issue up when discussing Bitcoins.

Yep it is a credit to his insight, coming from a skeptical viewpoint, to understand intuitively that Bitcoin's value rises proportionally to government issuance of regulations and restrictions.  Each time a new law gets passed deeming something illegal anywhere on the planet, Bitcoin expands its potential market.

All the Austrians and Miseans will come around to our viewpoint within the next few years.  It's impossible to be so smart about so many things, yet remain stupid about Bitcoin.  This I know, from my own experience

[nobbynobbynoob]

All the Austrians and Miseans will come around to our viewpoint within the next few years.  It's impossible to be so smart about so many things, yet remain stupid about Bitcoin.  This I know, from my own experience

The obvious skepticism of some of them influenced me and kept me away from Bitcoin for some time. But not anymore.

[Spaceman_Spiff]

The obvious skepticism of some of them influenced me and kept me away from Bitcoin for some time. But not anymore.

Same here, I first heared about bitcoin around januari 2011, but most people I listened to were pretty dismissive of it, so I didn't really put much effort into figuring it out in depth [I think there was an initial emotional reaction too ("this could be a better monetary alternative than gold, this could threaten my gold investment, so I don't want it to be true...")], and forgot about it afterwards.  
Would have been nice to buy in at 0.3 $ instead of 13$ though   .

[nobbynobbynoob]

Sure, but when one BTC was worth pennies there was precious little to indicate that it would be worth dollars, other than pure speculation. The scenario isn't that different today: there is currently no reason right now to think that one BTC will be worth thousands of today's (not tomorrow's possibly hyperinflated-by-the-Bernank') dollars, other than guesswork...