The fiat-money bubble!

[lazyturtle]

Hello everyone.

There is much discussion around the price of bitcoins. Some seem to believe it could fly to a million, while some believe its just a big speculation bubble ready to burst.

My personal theory is that cryptocurrency is not the bubble, but rather the needle that will burst the fiat money bubble. Trough history we have always had an easy way to attribute value to things without it. Those who believe that fiat money is the only true way often attribute their opinion to the fact that fiat money is substainsable because of its centralized nature and its history of being used as a represantation of value.

The fact that bitcoin was created in the aftermath of the 2008 financial crises clearly shows it's intent. I believe Satoshi saw how a centralized regulated market can't be substainable thanks to the egotistical and evil sides we humans all posses.

Decentralized currencies will IMO be the future. I can't peg bitcoin to a certain price it will reach in the future as i usually don't speculate that way, but rather i just develop a bias on a subject and try to indentify the crowds bias as this is what acctualy IS the trend.
The trend for decentralized currencies is bullish overall, with some currencies being more exciting then others. Invest in the cryptocurrency you believe in and do your homework, lets bring the fiat-money world down once and for all!! 

Please share your opinion on the subject, this is my first post and just wanted to share my thoughts, thank you =)

LazyTurtle

[deisik]

My personal theory is that cryptocurrency is not the bubble, but rather the needle that will burst the fiat money bubble. Trough history we have always had an easy way to attribute value to things without it. Those who believe that fiat money is the only true way often attribute their opinion to the fact that fiat money is substainsable because of its centralized nature and its history of being used as a represantation of value

Right now it is (for the most part, at least)

Bitcoin and other cryptocurrencies fit well into the definition of a financial bubble. I could even claim that Bitcoin is a sort of tulipomania. Just like tulips, bitcoins are useful for some purpose, namely, for transferring value around the world while completely bypassing centralized (read controlled) entities like banks, but Bitcoin current price is by no means determined by this utility. Most of Bitcoin value today comes from sheer speculation. Whether Bitcoin bubble is going to pop eventually or its real use as a currency will finally match its use as a speculative vehicle is not clear as of yet

[21kevin21]

No one can predict what exactly will happen in the future. In the event of a nuclear war, they can turn off electricity and the Internet, no currency will have value.

[lazyturtle]

My personal theory is that cryptocurrency is not the bubble, but rather the needle that will burst the fiat money bubble. Trough history we have always had an easy way to attribute value to things without it. Those who believe that fiat money is the only true way often attribute their opinion to the fact that fiat money is substainsable because of its centralized nature and its history of being used as a represantation of value

Right now it is (for the most part, at least)

Bitcoin and other cryptocurrencies fit well into the definition of a financial bubble. I could even claim that Bitcoin is a sort of tulipomania. Just like tulips, bitcoins are useful for some purpose, namely, for transferring value around the world while completely bypassing centralized (real controlled) entities like banks, but Bitcoin current price is by no means determined by this utility. Most of Bitcoin value today comes from sheer speculation. Whether Bitcoin bubble is going to pop eventually or its real use as a currency will finally match its use as a speculative vehicle is not clear as of yet

Good answer, always fun to hear others opinion. =)
I agree with you, bitcoin does fit well in the definition of a bubble as it is completly speculative. But what about fiat money? We have seen again and again trough history how fiat money has just blew up in a bubble, happend with the german mark after world war 2 and then the zimbabwean dollar. Does this not show that fiat moneys value also comes trough speculation? the only diffrence being that it can much more easily be controlled, manipulated and abused to hurt individuals, while cryptocurrencies also are speculative in there value, it does have the security fiat-money does not against corruption and protecting the individual.

Perhaps you could call fiat and crypto money for bubbles, with the crypto having one extra layer of soap as it is decentralized.

You did change my opinion a bit tough, i do agree with you that cryptocurrency  is in a bubble, as you said the definition fits perfetcly, so thanks for contributting to my wisdom , i did write a bit blatantly that cryptos arent bubbles but that was a misrepresantion of my opinion haha, thanks:)

I believe the speculation that money needs a centralized controlling force IS part of the bubble and that is what is ready to burst, as peoples confidence in government is steadily declining(i believe).

[lazyturtle]

No one can predict what exactly will happen in the future. In the event of a nuclear war, they can turn off electricity and the Internet, no currency will have value.

That is so true, and thats why i own a safe at home stocked with gold, silver and canned food haha! Diversify, never believe in just one thing as nobody can ever now

[deisik]

Right now it is (for the most part, at least)

Bitcoin and other cryptocurrencies fit well into the definition of a financial bubble. I could even claim that Bitcoin is a sort of tulipomania. Just like tulips, bitcoins are useful for some purpose, namely, for transferring value around the world while completely bypassing centralized (real controlled) entities like banks, but Bitcoin current price is by no means determined by this utility. Most of Bitcoin value today comes from sheer speculation. Whether Bitcoin bubble is going to pop eventually or its real use as a currency will finally match its use as a speculative vehicle is not clear as of yet

Good answer, always fun to hear others opinion. =)
I agree with you, bitcoin does fit well in the definition of a bubble as it is completly speculative. But what about fiat money? We have seen again and again trough history how fiat money has just blew up in a bubble, happend with the german mark after world war 2 and then the zimbabwean dollar. Does this not show that fiat moneys value also comes trough speculation? the only diffrence being that it can much more easily be controlled, manipulated and abused to hurt individuals, while cryptocurrencies also are speculative in there value, it does have the security fiat-money does not against corruption and protecting the individual

I think that no, the fiat money value doesn't come about via speculation

But I'm still curious how you can even imagine that. It is more or less clear how people speculate with bitcoins (basically, "buy low, sell high"). It is possible as long as Bitcoin price is rising, i.e. new users constantly bringing their hard-earned dollars, euro, or whatever to the market and buy bitcoins in the hope of selling them at a higher price. I suspect there cannot be bubbles of that kind with fiat currencies. The examples you give refer to severe currency devaluations. Obviously, the latter have nothing to do with speculative bubbles, though the end result is essentially the same (i.e. dramatic loss of value)

[darkangel11]

No one can predict what exactly will happen in the future. In the event of a nuclear war, they can turn off electricity and the Internet, no currency will have value.

That is so true, and thats why i own a safe at home stocked with gold, silver and canned food haha! Diversify, never believe in just one thing as nobody can ever now

Just don't let anyone know. Study shows that most preppers wouldn't survive with all their stacked food and gadgets because in case of a collapse scenario they'd quickly get raided and robbed, maybe also killed in the process.
Bitcoin can be called a bubble, because its price will depend on acceptance. It's now worth more than it should be because people believe in it, but it all could change within weeks.

[VTCutch]

No one can predict what exactly will happen in the future. In the event of a nuclear war, they can turn off electricity and the Internet, no currency will have value.

That is so true, and thats why i own a safe at home stocked with gold, silver and canned food haha! Diversify, never believe in just one thing as nobody can ever now

Diversity is needed, but as for me all of their savings to keep in the safe is also dangerous. It is necessary to lay out on different cells.

[Iranus]

A bubble in economics is when the price of an asset differs dramatically from its intrinsic value.  In theory, Bitcoin's intrinsic value as a currency is defined by how much of its value is for people who are buying it and selling it in order to use it as a currency.  Bitcoin's price, in that sense, is in a giant bubble because most of its price is a speculative investment.

However, gold's price for example is also not currently defined by anything - it's just based on its use as an asset.  I could give someone a gold ingot in exchange for a resource, but it would be expensive to take it from one place to another, and the same applies to Bitcoin.  Gold's intrinsic value is also actually lower than its price, but that's because it is something that people would reasonably put money into to protect themselves from the risk of fiat currency.  This is what means that neither Bitcoin nor gold are in a bubble.

However, fiat currency is also not in a bubble for practical purposes because it's also the case that people might want to spend it but they also hold it, and wait for things to happen to it in the future, and sometimes trade it.  So basically, neither is necessarily in a bubble, and it's very difficult to tell if a large price rise is a bubble or just an increase in confidence.  The only case when any of these things could be in a bubble is when there's a very dramatic price rise with little reasonable explanation, such as Bitcoin at the end of 2013.

[grobura]

No one can predict what exactly will happen in the future. In the event of a nuclear war, they can turn off electricity and the Internet, no currency will have value.

That is so true, and thats why i own a safe at home stocked with gold, silver and canned food haha! Diversify, never believe in just one thing as nobody can ever now

Just don't let anyone know. Study shows that most preppers wouldn't survive with all their stacked food and gadgets because in case of a collapse scenario they'd quickly get raided and robbed, maybe also killed in the process.
Bitcoin can be called a bubble, because its price will depend on acceptance. It's now worth more than it should be because people believe in it, but it all could change within weeks.

If you look globally, then any currency can be called a bubble. People just decided that these pieces of paper have value. And everyone agrees with this. This of course is meaningless when there is a war

[hello_good_sir]

That is a really interesting point of view I think, I have never thought about this that way, that actually bitcoin and other cryptocurrencies may become that "needle" that will pop-up the "fiat bubble".
It would mean that bitcoin will be used in the future as a main payment method, and also as a main currency. It may also happen to some altcoin, there is also a possibility in which the most known and trusted cryptocurrency will be some particular alt ( let's say, not yet designed ) that will cover behind some really powerful technology.

But I wouldn't even expect that to happen in 20 years, that is just too short period of time to see fiat money dissapearing, in favour of cryptocurrencies.

[deisik]

However, gold's price for example is also not currently defined by anything - it's just based on its use as an asset.  I could give someone a gold ingot in exchange for a resource, but it would be expensive to take it from one place to another, and the same applies to Bitcoin.  Gold's intrinsic value is also actually lower than its price, but that's because it is something that people would reasonably put money into to protect themselves from the risk of fiat currency. This is what means that neither Bitcoin nor gold are in a bubble

I don't quite see your point

You say that gold price is not defined by anything, but then is there anything which price is defined by something else? And with what the price of the latter is defined then? If we follow this logic, we should necessarily conclude that there cannot be bubbles at all. But in this case the whole notion becomes meaningless. If we, nevertheless, proceed from the fact that bubbles do really happen (since otherwise this notion wouldn't come about), we should define or find out a criterion which would allow us to tell between bubbles and non-bubbles

[mrcash02]

I think Bitcoin and fiat can exist together very well, there isn't necessity to kill fiat to rise Bitcoin. It's not good to have only one main currency on the world, that can feed evil forces which can control the currency, and this way, they will control the world. When we have many currencies being used by different people it's harder to be controlled by others.

Decentralization can lead us to centralization anyway... The most powerful man in the world is the one who conquered the centralization by the decentralized way.

[lazyturtle]

Right now it is (for the most part, at least)

Bitcoin and other cryptocurrencies fit well into the definition of a financial bubble. I could even claim that Bitcoin is a sort of tulipomania. Just like tulips, bitcoins are useful for some purpose, namely, for transferring value around the world while completely bypassing centralized (real controlled) entities like banks, but Bitcoin current price is by no means determined by this utility. Most of Bitcoin value today comes from sheer speculation. Whether Bitcoin bubble is going to pop eventually or its real use as a currency will finally match its use as a speculative vehicle is not clear as of yet

Good answer, always fun to hear others opinion. =)
I agree with you, bitcoin does fit well in the definition of a bubble as it is completly speculative. But what about fiat money? We have seen again and again trough history how fiat money has just blew up in a bubble, happend with the german mark after world war 2 and then the zimbabwean dollar. Does this not show that fiat moneys value also comes trough speculation? the only diffrence being that it can much more easily be controlled, manipulated and abused to hurt individuals, while cryptocurrencies also are speculative in there value, it does have the security fiat-money does not against corruption and protecting the individual

I think that no, the fiat money value doesn't come about via speculation

But I'm still curious how you can even imagine that. It is more or less clear how people speculate with bitcoins (basically, "buy low, sell high"). It is possible as long as Bitcoin price is rising, i.e. new users constantly bringing their hard-earned dollars, euro, or whatever to the market and buy bitcoins in the hope of selling them at a higher price. I suspect there cannot be bubbles of that kind with fiat currencies. The examples you give refer to severe currency devaluations. Obviously, the latter have nothing to do with speculative bubbles, though the end result is essentially the same (i.e. dramatic loss of value)

Well you are assuming two things here and i will try to give you my opinion. Let me try and explain why i can imagine fiat money being a speculative bubble, english is second language so give me a break on the spelling. =)

Your first assumption that fiat money value is not a result of market speculation, could you elaborate what you believe are the true factors for a currencies value? You seem like you now your economics and i am always eager to hear everyone opinion.

My assumption here is that fiat-money with floating exchanges truly get their value determined from speculation. I aslo believe fixed exchanges have a element of speculation in them, as the government has to speculate to set a fixed value. This can be seen in the case with England 1967 when Harold Wilson devalued the pound. England basically speculated then that the devaluation was needed to stimulate the economy, but no substainsable evidence is to be found to show that the devaluation improved the growth. Acctually it was quite slow in the UK after the devaluation, witch was the opposite to what England was trying to do, thus we can see that even governments speculate the value when they set it, and can never truly know what effect it will have.

I recently read a report from Riksbanken (the central bank of sweden) in witch the report explored what truly drives the value of floating exchanges. They tried to explain the value as an effect of growth using diffrent stats (gdp,cpi etc...) but in all cases the random walk model prevailed (the market moves randomly).

They also explored the inflation theory, that inflation is what determines the value, but this also was hard to prove to be totaly excluded from speculation as inflation is a pretty abstract value. Sure CPI and diffrent stats can give us a general feeling of the inflation, but this still is speculative (IMO).

The report did not ofcourse try every possibility that could effect a currencies value, so ofcourse there could be unexplored topics that could explain what drives the price, but their conclusion was that when a currency get a floating exchange, big actors and small actors will speculate on the price. The price moves by liqidity in the market, witch comes from actors speculating in what they believe the currency is worth relative to another.

There is no physical relation that a healthy country automaticaly should have a currency that is worth more then a country that is unhealthy witch often is the standard explanation of why a country has a stronger currency. This according to basic economics should be determined by demand and supply, and when you have a centralized force governing the supply of money (by being able to print it), we as smaller actors really have to speculate as we can never know when our government might drastically increase supply (as Germany did) and dilute the value to the point that we are standing there with paper money that does not hold any real physical value then the one we attribute to it.

The german case was not a case of devaluation. Devaluation is when a country change their fixed exchange rate to another value then the current (like england 1967).

What Germany exeperienced is called hyperinflation, witch basically is when money supply increases extremly with no growth in the country to sustain or explain it. This IMO shows speculative elements in the fiat money value. As i said earlier, we constantly speculate on currencies value because we do not truly now what factors drive the exchange, and we can never know if the supply drastically increases, witch would render the money useless as it has no true physical use other then the value we give it.

Your second assumption is that the speculation in crypto currencies more or less only comes from buy low, sell high mentality while fiat money does not.

I dont really agree with that that is the only driving factor, but i understand your point. I think that you basically mean that fiat-currencies have something substanaible that aids traders to make speculative descisions on the value, while crypto currencies dont really have that and people are just buying and selling coins randomly because they think it will be worth more or less tomorow on the chart.

I personally know alot of people (including myself) who basically just keeps buying bitcoins at what ever price because we believe in the idea the our government cant control a economy fairly and intelligently, and see bitcoin as a hedge against the government. I started buying bitcoins in 2012 and i am just holding and holding and holding witch is quite common in the bitcoin community IMO (might be wrong here).

The daytrading speculative elements of buying low and selling high is extremly clear in stocks, currencies and commodities. Some of the biggest actors (hedge fund, banks) speculating in currencies use algo trading. A preprogrammed robot making descisions of a value according to mathematical points of interest, that IMO is extremly speculative and really has no ground to what the real value should be (this exists very much in currency hedge funds, atleast the once i have visited).
I assume you mention the "buy low, sell high" mentality because you believe it exists in crypto currencies but not fiat money, is just wanted to explain why i think this might be so.

I could only find the report from Riksbanken in Swedish, but i will try to find a translated version so i can share it with you if it would be of interest, quite exciting research report =)

LazyTurtle

[lazyturtle]

I think Bitcoin and fiat can exist together very well, there isn't necessity to kill fiat to rise Bitcoin. It's not good to have only one main currency on the world, that can feed evil forces which can control the currency, and this way, they will control the world. When we have many currencies being used by different people it's harder to be controlled by others.

Decentralization can lead us to centralization anyway... The most powerful man in the world is the one who conquered the centralization by the decentralized way.

I think you make a really good point here, and i totally agree. A coexistence is always best, it kinda refers back to the whole "diversify to minimize risk". The more diffrent factors, the less the impact if one goes corrupt. =)

[lazyturtle]

However, gold's price for example is also not currently defined by anything - it's just based on its use as an asset.  I could give someone a gold ingot in exchange for a resource, but it would be expensive to take it from one place to another, and the same applies to Bitcoin.  Gold's intrinsic value is also actually lower than its price, but that's because it is something that people would reasonably put money into to protect themselves from the risk of fiat currency. This is what means that neither Bitcoin nor gold are in a bubble

I don't quite see your point

You say that gold price is not defined by anything, but then is there anything which price is defined by something else? And with what the price of the latter is defined then? If we follow this logic, we should necessarily conclude that there cannot be bubbles at all. But in this case the whole notion becomes meaningless. If we, nevertheless, proceed from the fact that bubbles do really happen (since otherwise this notion wouldn't come about), we should define or find out a criterion which would allow us to tell between bubbles and non-bubbles

I personally set the criterion for a bubble to assets who have a value without a tangible usage. For exemple, if you reset the whole world and put one man in a forest, he probaly wont start to seek out fiat money, but more probaly he would search for food, shelter etc...

Things that come in scarcity can be victims of over speculation, but not truly be bubbles IMO. As the nature of scarciscity attributes true value to assets as they one day will be used up.
Fiat money doesnt really have that scarcity, or that tangible need, it truly just is a speculative value for paper that can be exchanged for goods. IMO hyperinflation bascially is a fiat money bubble popping!

Gold have some diffrences and similarties with fiat money. It is a asset that dont really do anything but sit there and look pretty and get a attributed value (like fiat money). Sure it can be used for electronics but other more easily obtained minerals exist for those usages.

I would say price is defined by supply and demand, witch comes from scarcity. Without scarcity we have a neverending supply (more or less) as we do with fiat money.

Gold is scarce and therefore i would rather own that then paper money, but i would rather own a farm then gold haha =)

[lazyturtle]

No one can predict what exactly will happen in the future. In the event of a nuclear war, they can turn off electricity and the Internet, no currency will have value.

That is so true, and thats why i own a safe at home stocked with gold, silver and canned food haha! Diversify, never believe in just one thing as nobody can ever now

Just don't let anyone know. Study shows that most preppers wouldn't survive with all their stacked food and gadgets because in case of a collapse scenario they'd quickly get raided and robbed, maybe also killed in the process.
Bitcoin can be called a bubble, because its price will depend on acceptance. It's now worth more than it should be because people believe in it, but it all could change within weeks.

Yea thats true, gotta keep it to myself.=) I wouldnt call myself a prepper i actually try to have a positive outlook on the world but it just feels best having some food and such for emergencies, but theres food for like a month so not super serious about that, haha!

Yes cryptocurrency value at the moment really is speculative. What is your opinion on fiat money?  Do you believe it could exist in a bubble, or do you believe it can only be the victim of over speculation, and not a "true bubble"? I find discussing the diffrences between fiat and crypto really exciting and love to hear everybodys opinion.

[Iranus]

However, gold's price for example is also not currently defined by anything - it's just based on its use as an asset.  I could give someone a gold ingot in exchange for a resource, but it would be expensive to take it from one place to another, and the same applies to Bitcoin.  Gold's intrinsic value is also actually lower than its price, but that's because it is something that people would reasonably put money into to protect themselves from the risk of fiat currency. This is what means that neither Bitcoin nor gold are in a bubble

You say that gold price is not defined by anything, but then is there anything which price is defined by something else?

Yes.  Stocks, investment trusts and pretty much everything else is based on the value of a company or something else which either has an idea or amount of business.  These things usually have intrinsic value from that idea or business, and if they didn't, the price would be in a bubble.

And with what the price of the latter is defined then?

Stop using words that you think are clever in the wrong context.  You use "namely" in about 90% of your posts wrongly, I've seen you on all the sig spam threads.  Anyway, if you're talking about "anything which price is defined by something else" the answer is "anything with intrinsic value".

If we follow this logic, we should necessarily conclude that there cannot be bubbles at all.

No, I'm saying that the reason Bitcoin isn't a bubble is because it can reasonably be considered an asset as well as a currency and that's part of its value.  The reason that it's an asset is because of scarcity - the same reason that gold has its value.

[lazyturtle]

That is a really interesting point of view I think, I have never thought about this that way, that actually bitcoin and other cryptocurrencies may become that "needle" that will pop-up the "fiat bubble".
It would mean that bitcoin will be used in the future as a main payment method, and also as a main currency. It may also happen to some altcoin, there is also a possibility in which the most known and trusted cryptocurrency will be some particular alt ( let's say, not yet designed ) that will cover behind some really powerful technology.

But I wouldn't even expect that to happen in 20 years, that is just too short period of time to see fiat money dissapearing, in favour of cryptocurrencies.

Glad you found it interesting =)

Yea the time until this would happend really is impossible to predict, but fiat wont exactly disappear any time soon. Perhaps we will see both fiat and crypto go hand in hand in the future, neither popping the other but working in symbios.

Or perhaps the fiat will merge with the crypto. Perhaps the future will give us BitDollars, BitEuros and BitSeks... The possibilities really are endless, thats why its one of the most fascinating topics to discuss in my opinion:)

[lazyturtle]

No one can predict what exactly will happen in the future. In the event of a nuclear war, they can turn off electricity and the Internet, no currency will have value.

That is so true, and thats why i own a safe at home stocked with gold, silver and canned food haha! Diversify, never believe in just one thing as nobody can ever now

Just don't let anyone know. Study shows that most preppers wouldn't survive with all their stacked food and gadgets because in case of a collapse scenario they'd quickly get raided and robbed, maybe also killed in the process.
Bitcoin can be called a bubble, because its price will depend on acceptance. It's now worth more than it should be because people believe in it, but it all could change within weeks.

If you look globally, then any currency can be called a bubble. People just decided that these pieces of paper have value. And everyone agrees with this. This of course is meaningless when there is a war

This is exactly my point so i completly agree.=)
 Fiat money doesnt have a tangible value and a twisted supply/demand process. Cryptocurrencies might not have a tangible value, but atleast the supply/demand process is more stable as the supply is pre-set. This ofcourse has it's own challenges, but still is better then governments being able to offer neverending supply at will.