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Author Topic: cryptocurrencies are not just stores of value, they are networks  (Read 1577 times)
dinofelis
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June 05, 2017, 09:14:21 AM
 #41

I doubt a bit if you should multiply velocity by five respect to fiat currencies. But even if you take a "normal" velocity of 10 then the "fair price" would be below $200, so BTC would be at least 10x overvalued.

Well, the reason for that is essentially that most merchants convert almost directly received bitcoins into fiat.  If that would be the only difference between fiat behaviour and bitcoin behaviour, it would already multiply velocity by 2 (the "holding time to spend" of merchants being essentially zero, instead of being the usual delays between them receiving money, and paying their providers).  But also buyers of bitcoin are, if they only use bitcoin as a currency, usually only acquiring coins relatively quickly before spending them, which would make me think that there too, there's a speed-up as compared to people receiving fiat (their salary) and holding it until they spend it.  But I agree that this is just guess work.  The real conclusion is that the market cap and the price of bitcoin is essentially speculative, and that the value of it that comes from the demand to be used as a currency, is a negligible fraction of the market price.

Now, in how much this speculative value is only market's best guess at its *future* currency usage, or in how much this speculative value is essentially "purely speculative", unrelated to its "Fisher value" due to demand as a usage of a currency, is open ; however, my own guess is that indeed, it is essentially purely speculative. 

The reason for that is that we see that too with other crypto currencies (alt coins).  There, the relationship between market price and "Fisher utility price" is even much much more distorted.  Now, I know the statement of bitcoin maximalists that there is only one "real" crypto, that's bitcoin, and all the rest is shit, but that's not realistic.  Alt coins are just as well crypto as bitcoin is.  Given that alt coins are visibly entirely "purely speculative", there's no reason to assume that bitcoin's price is ALSO not "purely speculative".

This is why I think that the "real world economic value" (for a currency, that's exactly Fisher's price calculation) has really nothing to do with the market price.

Now, of course, both explanations meet in the "delusionally story about the future".  You can say that alts, just as well as bitcoin, have the potential to have one day a HUGE real-world economic value, if ever they "replace fiat", or "they replace contracts", or "they replace finance" or whatever delusional story ; so the market is only guessing at this huge potential.
If you see it that way, the market is making a rational guess about the future real-world value.  If you think these stories are delusional (which I think they are), then this is just a cheap justification of pure speculation without any fundamentals behind it.

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Meuh6879
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June 05, 2017, 10:03:07 PM
 #42

they can adopt Blockchain (so Bitcoin base network) ... but they must pay the fees even if they only use the 100 000 000 satoshis as a marker (or timeline) in 1 BTC.

that's why i love bitcoin and the fees strategies.
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June 06, 2017, 01:10:40 AM
 #43

Well, the reason for that is essentially that most merchants convert almost directly received bitcoins into fiat.[...]
But also buyers of bitcoin are, if they only use bitcoin as a currency, usually only acquiring coins relatively quickly before spending them, which would make me think that there too, there's a speed-up as compared to people receiving fiat (their salary) and holding it until they spend it.

You are right, but on the other hand, there are entities that are holding Bitcoins much longer than they would hold cash and bank account balances - the "hodlers" and "long time investors", and afaik also exchanges and payment processors are holding a large part of their holdings ("cold storage") for several weeks or months. At least exchanges have only a low volatility risk if they don't run a fractional reserve.

Quote
my own guess is that indeed, it is essentially purely speculative.[...] The reason for that is that we see that too with other crypto currencies (alt coins).  There, the relationship between market price and "Fisher utility price" is even much much more distorted.

Totally right. As you correctly mention later - the altcoin speculation is fueled by hopes that some of these coins will be some day "the next Bitcoin" and so the speculation is related to at least a "dream" of future usage.

But if this is pure delusion or not is not so clear for me. It's obvious that a Bitcoin clone without any new feature or only a new algorithm, like most of the lower positions, will have only a very limted usage (except perhaps for some niche-oriented coins, e.g. those targeting a specific video game community). But myself I think there is a possibility for a scenario where cryptocurrencies are much more used than today and the market is more fragmented, with 7 or 10 big players that are doing really well (and not only on Coinmarketcap).

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fathur.aza
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June 06, 2017, 03:10:31 AM
 #44

This is what keeps the money and network what do you think?
dinofelis
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June 06, 2017, 04:14:28 AM
 #45

You are right, but on the other hand, there are entities that are holding Bitcoins much longer than they would hold cash and bank account balances - the "hodlers" and "long time investors", and afaik also exchanges and payment processors are holding a large part of their holdings ("cold storage") for several weeks or months. At least exchanges have only a low volatility risk if they don't run a fractional reserve.

Yes, but that is not a currency usage.  People don't hodl bitcoin because they bought some stash of coins to spend them on the internet, buying stuff.  They hodl bitcoin because they want to see the price rise.  Actually, I must be one of the few who bought a modest stash of bitcoin to buy stuff on the internet (VPN and VPS services essentially) - but its value increases so much that I put them aside, and I'm not using them any more as a currency, but also as a greater-fool betting stash.

I mean: one could buy, say, 10 BTC at a certain point, because one has foreseen to spend about 10 BTC in the next few months on things on the internet: then we are in your case, of holding times of currency being long.  But one could also buy 10 BTC because it could rise in value, and one doesn't want to "miss the train to the moon".  Then one is speculating in a greater-fool game.  I think that most "long held coins" are of the last category, and are not "just a practical measure of buying a heap of coins to spend them over the next few months".

Quote
But if this is pure delusion or not is not so clear for me. It's obvious that a Bitcoin clone without any new feature or only a new algorithm, like most of the lower positions, will have only a very limted usage (except perhaps for some niche-oriented coins, e.g. those targeting a specific video game community). But myself I think there is a possibility for a scenario where cryptocurrencies are much more used than today and the market is more fragmented, with 7 or 10 big players that are doing really well (and not only on Coinmarketcap).

Almost all of these systems have fundamental problems, which make that they cannot go mainstream for the usage they claim ; on the other hand, they all have a clear, and unlimited, already active, usage: pure speculation.  I don't believe in any of the announced dreams of crypto, whether it is "replacing fiat", or "replacing justice/contracts", or whatever on a mainstream scale.  But they are ALREADY doing what they do best: being the BACKING of IOU on exchanges, to gamble on in a speculative game, like the entire financial market of derivatives.  THIS is the real invention of crypto: a new kind of speculative derivatives market.  The real trading is not on chain (nobody cares about that chain), but is with IOU on clearing houses (exchanges).  The chain only backs the IOU of the clearing houses, and allows the transfer between financial institutions, and clearing houses.  THAT's crypto.  The announced applications of the block chain don't matter (payments with bitcoin, contracts with eth, world computer with golem, ....).  Only big transfers between big financial players and clearing houses matters, and EVERY block chain can do that.

We are indeed witnessing a revolution, but one in the financial speculative sector.  Instead of betting on the production of rice or the sales of cars, one has now invented a totally new market of financial speculative products: crypto IOU on exchanges.  THAT is what has been invented.  Not "currencies", "smart contracts", "distributed storage", "pay-for social networks", or whatever these chains CLAIM.  Just tokens on which to speculate on exchanges.

There's about 10 times the world's economy in "speculative assets" (the derivatives market).  There's a great thirst for these things.  This is why crypto will catch on: it will be the unregulated gamblings' feast of the financial world.

That said, the crypto ecosystem is in full experimental mode, and maybe some day something useful comes out of it that can go mainstream.  This will most probably NOT be a "mainstream freedom thing", but some kind of authorities-endorsed stuff on one hand, and niche applications on the other.

Crypto is much more fragile than one thinks.  The naive "single block chain" flow with cryptographic protection is too naive a picture.  Hell, Satoshi didn't even think that alt coins would see the daylight.  As a state, one cannot allow the whole economy to depend on obscure cartels that can decide, and are under unknown influence.  Bitcoin can never be allowed to become a replacement for a national (or international) currency - first of all, bitcoin's design isn't made to do this, contrary to claims of the opposite by its creator - but it would put a country's economy at the whims of unknown entities under the unverifiable influence of foreign powers.  For instance, imagine that Europe would have a de facto replacement of the Euro by bitcoin.  Then Europe's economy would even be much more dependent on what happens in China.  There would be huge incentives on the Chinese side to control the mining cartels over there, and they wouldn't miss out on it.  Unless Europe would engage in a "mining war" with China, war it cannot win, and which would transform 3/4 of the economy in "mining producing assets", China would dictate the European monetary policy (by modifying of course bitcoin's emission protocol they would hold firmly in their hands).  The only solution for Europe would be to fork off bitcoin, and make a kind of proof of central bank coin, where blocks are signed off by a central authority or something.

*this* is the kind of crypto that may one day see the light: centralized transparent crypto.  Authorities would dream of being able to see all its citizens/victims transactions.  People would also see authorities' transactions, which would be the "democratic concession" in order to have total financial control over the people.
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