A long term fundamental analysis of bitcoin

[johnyj]

The medium of saving property is the most important character of bitcoin. In a fiat money inflated world, there is no reliable long term medium of saving: House will depreciation, gold is not convenient to use, bond have risk of default, stock will crash when recession strikes ... Bitcoin is almost a perfect store of value due to its technology advantage and limited supply

In the future, when bitcoin becomes the medium of majority people's life saving, the value of bitcoin will still keep rising, because there is no limit to the amount that people can save. Maybe for 1% of the rich people, they have already saved enough, but 99% would still like to save for the future (Saving does not mean cutting spending, it is just a sign of very high productivity: You can't spend as much as you produce, so you save the rest into bitcoin). This will also solve today and future's problem of over production

Bitcoin will have the highest credit rating on the planet: Even a country/government can disappear, but a network protocol will not

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[johnyj]

I also thought about this myself.. a currency that final encourages saving rather than investing.

Exactly, saving is the first step, then investment can happen, but investment should use risk capital. In such a system all the risk have already been paid, the financial stability is extremly strong

[LaggedOnUser]

Bitcoin may or may not be deflationary in practice.  For one thing, forks and clones can always be made, increasing the virtual money supply beyond the goods that it is being spent on... that's inflation.  For another thing, Bitcoin is a technology, which is subject to the same rapid depreciation as other technologies.  That is, for all we know, someone may have a superior replacement to Bitcoin already in development, that will make everyone drop Bitcoin and move to it.  Bitcoin pretends to be deflationary with its fixed supply of coins, but that only remains true as long as it is able to crowd out alternatives, and as long as people want to continue using it.  Alternative currencies generally do not have a long lifespan.

Also, your analysis of alternatives to Bitcoin is not persuasive.  Yes, homes depreciate, but they are still attractive because you can live in them and avoid paying rent.  Yes, the use of physical gold in trade is not especially convenient in modern terms compared to paper currency or credit cards.  But gold is still attractive as a long-term savings vehicle, with a market thousands of times larger, more well established, and with a longer history than Bitcoin.

Finally, nothing prevents investment as a form of saving in regular currency.  You can always save money in national currencies like the US dollar, and at most times, get real returns.  People fail to save, however, not because saving is not attractive, but because they prefer short-term consumption, an issue of human nature and not of the currency.

[johnyj]

Bitcoin may or may not be deflationary in practice.  For one thing, forks and clones can always be made, increasing the virtual money supply beyond the goods that it is being spent on... that's inflation.  For another thing, Bitcoin is a technology, which is subject to the same rapid depreciation as other technologies.  That is, for all we know, someone may have a superior replacement to Bitcoin already in development, that will make everyone drop Bitcoin and move to it.  Bitcoin pretends to be deflationary with its fixed supply of coins, but that only remains true as long as it is able to crowd out alternatives, and as long as people want to continue using it.  Alternative currencies generally do not have a long lifespan.

Also, your analysis of alternatives to Bitcoin is not persuasive.  Yes, homes depreciate, but they are still attractive because you can live in them and avoid paying rent.  Yes, the use of physical gold in trade is not especially convenient in modern terms compared to paper currency or credit cards.  But gold is still attractive as a long-term savings vehicle, with a market thousands of times larger, more well established, and with a longer history than Bitcoin.

Finally, nothing prevents investment as a form of saving in regular currency.  You can always save money in national currencies like the US dollar, and at most times, get real returns.  People fail to save, however, not because saving is not attractive, but because they prefer short-term consumption, an issue of human nature and not of the currency.

I'm shorting gold, but I dare not short bitcoin

[mestar]

Bitcoin is almost a perfect store of value due to its technology advantage and limited supply

Wait... What?

Your store of value is about to eat 50% of its value in mining costs in the next 4 years.  The bitcoin network is a terribly expensive network to run, at least for now.  It's a really poor store of value.

[johnyj]

Bitcoin is almost a perfect store of value due to its technology advantage and limited supply

Wait... What?

Your store of value is about to eat 50% of its value in mining costs in the next 4 years.  The bitcoin network is a terribly expensive network to run, at least for now.  It's a really poor store of value.

Everything that can act as a store of value will ultimately be generated by certain amount of effort (energy), that's the reason when gold price was very low, there were many miners shutdown the mine

[Jobe7]

On forking and making lots of btc for inflation purposes - No, does not work. You would create a 2nd currency of which you'd have to raise the value of from scratch, you can not 'mix' your new forked btc with the prime btc.. just does not compute.

As an example .. try putting both your hands in exactly the same spot at the same time, no, not on top of each other, in EXACTLY the same spot, so that your hands and everything with them would merge, and even then your 'double-hand' would not be the same as the primary hand.

On the "omgosh electricity so expensive!" - Have you checked the profit ratio of the miners ...?

[alexeft]

Bitcoin is almost a perfect store of value due to its technology advantage and limited supply

Wait... What?

Your store of value is about to eat 50% of its value in mining costs in the next 4 years.  The bitcoin network is a terribly expensive network to run, at least for now.  It's a really poor store of value.

Then again, if you consider how much electricity is being used to run banks, bitcoin might look too cheap!

[ManBearPig]

The medium of saving property is the most important character of bitcoin. In a fiat money inflated world, there is no reliable long term medium of saving: House will depreciation, gold is not convenient to use, bond have risk of default, stock will crash when recession strikes ... Bitcoin is almost a perfect store of value due to its technology advantage and limited supply

In the future, when bitcoin becomes the medium of majority people's life saving, the value of bitcoin will still keep rising, because there is no limit to the amount that people can save. Maybe for 1% of the rich people, they have already saved enough, but 99% would still like to save for the future (Saving does not mean cutting spending, it is just a sign of very high productivity: You can't spend as much as you produce, so you save the rest into bitcoin). This will also solve today and future's problem of over production

Bitcoin will have the highest credit rating on the planet: Even a country/government can disappear, but a network protocol will not

Some massive generalisations there not to mention just plain wrong statements.

What country are you living in where property prices consistently depreciate?!

[LaggedOnUser]

The medium of saving property is the most important character of bitcoin. In a fiat money inflated world, there is no reliable long term medium of saving: House will depreciation, gold is not convenient to use, bond have risk of default, stock will crash when recession strikes ... Bitcoin is almost a perfect store of value due to its technology advantage and limited supply

In the future, when bitcoin becomes the medium of majority people's life saving, the value of bitcoin will still keep rising, because there is no limit to the amount that people can save. Maybe for 1% of the rich people, they have already saved enough, but 99% would still like to save for the future (Saving does not mean cutting spending, it is just a sign of very high productivity: You can't spend as much as you produce, so you save the rest into bitcoin). This will also solve today and future's problem of over production

Bitcoin will have the highest credit rating on the planet: Even a country/government can disappear, but a network protocol will not

Some massive generalisations there not to mention just plain wrong statements.

What country are you living in where property prices consistently depreciate?!

Housing depreciation is the cost of physical maintenance (paint, plumbing, new appliances, new roof...)  Overall, the price generally appreciates despite this due to persistent economic inflation.  If Bitcoin were a comparable asset to a house, both would appreciate, but the Bitcoins would cost less to maintain since all you have to do is store them electronically.  Thus Bitcoin would have a minor advantage over housing in that regard.

[rhinospray]

In a fiat money inflated world, there is no reliable long term medium of saving: House will depreciation, gold is not convenient to use, bond have risk of default, stock will crash when recession strikes ... Bitcoin is almost a perfect store of value due to its technology advantage and limited supply

When you buy a house, you are paying the salary of the workers that build it, the margins of the constructor, creating business for the raw material producers, etc...By doing this you are creating wealth that it disseminates by the society. When you buy bonds you allow countries to build infrastructures that ease and accelerate commercial development. When you buy stocks you help sound enterprises to expand, investigate, grow, create employment and pay your salary. Money in movement creates wealth.

When your just store your Money in gold, bitcoin or under your bed, you are effectively taking out all that power to actively create wealth from the economy, and you are actually producing an economic slowdown. You just become an economic parasite that not only do not contribute to economy, but benefit from the work, intelligence and the willingness to take risk of all the others that are making your country grow and be a better place to live, while doing nothing.

Controlled and not artificially manipulated inflation is a socially good think, because it damages the hoarders that don't produce nothing, and obliges them to lend, invest or use their money if they don't want to see  it slowly disappear. Deflation is socially bad because it produces just the opposite.

What bitcoin should have done for the economy is to eliminate credit card processors, the banks and the political and economical barriers and at the some time protect you from artificial inflation. All that money that otherwise would end making the rich richer, would be injected to the social economy, accelerating wealth creation and distribution. That's the VALUE I thought bitcoin had, and that's why I adopted it.

As it is now, bitcoin is just $1,400m of wealth taken from economy and kept in a freezer. Just a poorer version of gold, way more risky and with no industrial uses. If global economy collapses, gold still would be valuable, unlike bitcoin.

I spent the last weeks painfully collecting and analyzing the few and fractional real data that exist about bitcoin economy: what it shows is that in the most optimistic case the monthly commercial revenue is now $35m, mostly from socially undesirable activities like gaming and drugs. Sure It will grow if bitcoin does not collapse before, very fast at the beginning but after that, we already have data from other similar game-changing technology like online commerce that took 10 years to multiply by 4 its volume. No way that the real value of bitcoins reach the one assumed by its market capitalization in at least 5 years.

[internationalaw]

I also thought about this myself.. a currency that final encourages saving rather than investing.

That's a a great point Flibbr. Our world would be much better off with more saving rather than spending

[Peter Lambert]

I also thought about this myself.. a currency that final encourages saving rather than investing.

Exactly, saving is the first step, then investment can happen, but investment should use risk capital. In such a system all the risk have already been paid, the financial stability is extremly strong

This is a good point. People talk about how savings or 'hoarding' cuts money out of the economy, so it is bad, but maybe it is actually good for the economy to have some low-risk savings slowing things down. That way, when the inevitable boom-bust cycle turns downward the effect is smaller. It is a matter of pacing, like running a long race, if you start running too fast you will collapse.

[Etlase2]

When your just store your Money in gold, bitcoin or under your bed, you are effectively taking out all that power to actively create wealth from the economy, and you are actually producing an economic slowdown. You just become an economic parasite that not only do not contribute to economy, but benefit from the work, intelligence and the willingness to take risk of all the others that are making your country grow and be a better place to live, while doing nothing.

Controlled and not artificially manipulated inflation is a socially good think, because it damages the hoarders that don't produce nothing, and obliges them to lend, invest or use their money if they don't want to see  it slowly disappear. Deflation is socially bad because it produces just the opposite.

What bitcoin should have done for the economy is to eliminate credit card processors, the banks and the political and economical barriers and at the some time protect you from artificial inflation. All that money that otherwise would end making the rich richer, would be injected to the social economy, accelerating wealth creation and distribution. That's the VALUE I thought bitcoin had, and that's why I adopted it.

Well said. Check out the link in my sig; you might find something more to your liking.

[charleshoskinson]

This thread is really near and dear to my heart. I've spent a huge sum of time trying to decide how to even begin to analyze the fundamentals of a currency like Bitcoin. It behaves like a commodity money in terms of a finite backbone, yet is entirely indexed to user supply and demand. It has enormously compelling features like pseudo-anonymity and a decentralized infrastructure, yet only a few actors have huge control over the network.

We would need some sort of Bitcoin CPI to decide the rate of deflation, yet without a more diversified distribution of the money supply and financial products like options, the volatility of Bitcoin would mask any regular measurement. I've resigned myself to just attempting to develop a probabilistic measure for when a coin has been lost of near permanently removed from circulation.   

[jdbtracker]

But is it truly deflationary? or are we simply mentally biased to view something that appreciates in value as... we could in a way say that it is subjectively Intrinsic Value Inflationary.

If a currency is designed using the Keynesian model to spread the wealth, to invest all the time, What happens if we over invest? What happens if we continuously invest in someone else's future because we don't have enough to invest in ourselves? e.g. sending all our money to China and in an effort to keep spending borrow money from them to stave off the inevitable slowly creeping hidden hyperinflation that is draining our accounts. Does this even make sense?

If the money supply is not fixed at a point at what point do we abandon the dollar because we have to carry million dollar bills? Are my kids going to be confused when I talk to them about pennies and dimes, because they have never seen them or have use of them?

Does it mean we forfeit our homes? our business? our own dreams to chase after the next big thing because our buying power is slowly eroding and what we believe in is not worth it anymore?

Does it mean I have to put my kids to work like in a third world country because my buying power keeps falling and raising wages would make it too painfully obvious that we live in a society that worships inflation?

What happens when the society is so depleted of their bank accounts that they themselves must become hyperactive/ stressed / preoccupied with the thought: who do I need to rob/cheat/swindle today? and when is the fed going to print some more money so I can fight for a piece of that pie being handed out by the ones at the top?

In a inflationary market how much debt is good dept? will we be looking at our bank accounts proud that we only owe 1 million dollars that we will never repay compared to our neighbour who does not earn enough? When will a smaller amount of debt indicate the wealth of an individual? And with ever falling purchasing power at what point do we realize that we truly will never be able to pay it back?

When will we realize that true value grows within ourselves, that our own goals and dreams are worth investing in?

We do not have to abandon our dreams because the guys closest to the money bag are telling us what is valuable or not... we the people should decide that.

[johnyj]

When your just store your Money in gold, bitcoin or under your bed, you are effectively taking out all that power to actively create wealth from the economy, and you are actually producing an economic slowdown. You just become an economic parasite that not only do not contribute to economy, but benefit from the work, intelligence and the willingness to take risk of all the others that are making your country grow and be a better place to live, while doing nothing.

You can tell central banks: You are just a money printer that not only do not contribute to economy, but benefit from the work, intelligence and the willingness to take risk of all the others that are making your country grow and be a better place to live, while doing nothing 

Controlled and not artificially manipulated inflation is a socially good think, because it damages the hoarders that don't produce nothing, and obliges them to lend, invest or use their money if they don't want to see  it slowly disappear. Deflation is socially bad because it produces just the opposite.

Inflation is slavery, you will never feel safe even you have made enough saving to spend the rest of your life, since your saving are eaten by inflation year by year. In such an environment you have to continously work/invest like a slave. From when did people lose the freedom of retire with a decent amount of saving?

[johnyj]

What happens when the society is so depleted of their bank accounts that they themselves must become hyperactive/ stressed / preoccupied with the thought: who do I need to rob/cheat/swindle today? and when is the fed going to print some more money so I can fight for a piece of that pie being handed out by the ones at the top?

The only benefit of the fiat money is that you have a relatively stable price for daily consumptions, since FED evaluate CPI to decide their monetary policy. But now I start to doubt that a big part of this stability comes from people's consensus, not controlled money supply

FED has printed almost 4x more money since 2008, but CPI never rised by 4x, and GDP barely rised by 10% or something. This is simply because majority of these money went into the pockets of the commercial banks in exchange for their MBS. Banks successfully sold those MBS to the money printer, without those huge effort of market manipulation, the house price will crash like crazy, maybe down 90%