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Author Topic: What is the time value of Bitcoin?  (Read 1356 times)
theonewhowaskazu
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November 01, 2013, 06:43:48 PM
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Logically, since Bitcoin is 'faster' than USD (easier to transfer and with less restrictions), the time value of Bitcoin should be greater than that of the USD. However, on places like Bitfinex, you can borrow BTC for much cheaper than USD. Why?

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MelodyRowell
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November 02, 2013, 04:16:10 AM
 #2

Logically, since Bitcoin is 'faster' than USD (easier to transfer and with less restrictions), the time value of Bitcoin should be greater than that of the USD. However, on places like Bitfinex, you can borrow BTC for much cheaper than USD. Why?

Nah, USD is easier to buy things, BTC on the other hand have no charge back and easily get scammed from company like BFL...
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November 02, 2013, 04:24:29 AM
 #3

Time value isn't related to the speed of transactions it is the difference in value between a currency unit today and a currency unit in the future.

If I gave you a choice:
a) I will pay you $100 today
b) I will pay you $100 in 365 days.


Which would you pick?  Obviously "a" right.  Nobody would pick b, that would be a time-value of zero.  Present dollars aren't valued any more than dollars in the future so nobody would opt to delay payment for no "compensation" the compensation for time is the time value of money.

So imagine the same scenario I owe you $100 but I will let you set the 365 day repayment "price".  I will pay you $100 today OR I will pay you X dollar in 365 days.  For you personally there probably is a value (say $120) where the two are considered equal.    

For example if you believe $100 repaid today = $120 repaid in 365 days then you would favor the extended repayment if I offered a value higher than $120 and favor the immediate repayment if I offered a value lower than $120.


The difference (X-100) is the time value of money. The time value money is going to vary from person and situation however in economics we are interested in the aggregate or average.    I think you can now figure out why the time value of BTC is lower.
BitchicksHusband
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November 02, 2013, 11:23:27 PM
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Time value isn't related to the speed of transactions it is the difference in value between a currency unit today and a currency unit in the future.

If I gave you a choice:
a) I will pay you $100 today
b) I will pay you $100 in 365 days.


Which would you pick?  Obviously "a" right.  Nobody would pick b, that would be a time-value of zero.  Present dollars aren't valued any more than dollars in the future so nobody would opt to delay payment for no "compensation" the compensation for time is the time value of money.

So imagine the same scenario I owe you $100 but I will let you set the 365 day repayment "price".  I will pay you $100 today OR I will pay you X dollar in 365 days.  For you personally there probably is a value (say $120) where the two are considered equal.    

For example if you believe $100 repaid today = $120 repaid in 365 days then you would favor the extended repayment if I offered a value higher than $120 and favor the immediate repayment if I offered a value lower than $120.


The difference (X-100) is the time value of money. The time value money is going to vary from person and situation however in economics we are interested in the aggregate or average.    I think you can now figure out why the time value of BTC is lower.

But,

If I gave you a choice:
a) I will pay you BTC100 today
b) I will pay you BTC100 in 365 days.

Which would you pick?

OK, now, I will give you:

a) I will pay you BTC100 worth of USD today
b) I will pay you BTC100 worth of USD in 365 days.

That's easier, right.  So I'm not sure it works the same for bitcoin.

1BitcHiCK1iRa6YVY6qDqC6M594RBYLNPo
theonewhowaskazu
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November 02, 2013, 11:32:17 PM
 #5

Time value isn't related to the speed of transactions it is the difference in value between a currency unit today and a currency unit in the future.

Not true. Even if 1 BTC today will buy 1 shovel and 1 BTC tomorrow will still buy the same shovel (representing no change in the currency unit), 1 BTC today is still better than 1 BTC tomorrow because I can spend that BTC today OR tomorrow rather than just tomorrow, so there is still a time value to BTC.

And logically, if it takes me 10 minutes to complete a transaction, rather than 1 day, that 1 BTC I borrowed can change hands many more times, representing much more opportunity, correct? Thus, isn't the time-value of a "faster" currency inherently more than the time value of a slower one?

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November 02, 2013, 11:41:31 PM
 #6

It is not LOGICAL, cuz they are expectnig to increas a value of BTC. IF a 1 BTC worths 204$ today in one month maybe it will worth 1000$ and how much money will you have to give back?!?!

SO it is better to give it today
theonewhowaskazu
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November 03, 2013, 12:02:54 AM
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It is not LOGICAL, cuz they are expectnig to increas a value of BTC. IF a 1 BTC worths 204$ today in one month maybe it will worth 1000$ and how much money will you have to give back?!?!

SO it is better to give it today

I don't even know what you're saying. It matters not if BTC increases or decreases in value, since your debt is denominated in BTC.

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Gerald Davis


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November 03, 2013, 12:29:10 AM
 #8

Time value isn't related to the speed of transactions it is the difference in value between a currency unit today and a currency unit in the future.

Not true. Even if 1 BTC today will buy 1 shovel and 1 BTC tomorrow will still buy the same shovel (representing no change in the currency unit), 1 BTC today is still better than 1 BTC tomorrow because I can spend that BTC today OR tomorrow rather than just tomorrow, so there is still a time value to BTC.

I guess you didn't read anything but the first line that is exactly what I was saying.

Quote
And logically, if it takes me 10 minutes to complete a transaction, rather than 1 day, that 1 BTC I borrowed can change hands many more times, representing much more opportunity, correct? Thus, isn't the time-value of a "faster" currency inherently more than the time value of a slower one?

No.  Time value has absolutely nothing to do with speed of the currency.   I feel stupid for wasting my time.
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November 03, 2013, 01:03:49 AM
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Time value isn't related to the speed of transactions it is the difference in value between a currency unit today and a currency unit in the future.

Not true. Even if 1 BTC today will buy 1 shovel and 1 BTC tomorrow will still buy the same shovel (representing no change in the currency unit), 1 BTC today is still better than 1 BTC tomorrow because I can spend that BTC today OR tomorrow rather than just tomorrow, so there is still a time value to BTC.

I guess you didn't read anything but the first line that is exactly what I was saying.

Quote
And logically, if it takes me 10 minutes to complete a transaction, rather than 1 day, that 1 BTC I borrowed can change hands many more times, representing much more opportunity, correct? Thus, isn't the time-value of a "faster" currency inherently more than the time value of a slower one?

No.  Time value has absolutely nothing to do with speed of the currency.   I feel stupid for wasting my time.

I did read what you're saying, and you were essentially saying that the time value of money is the interest, which is sort of obvious.

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Gerald Davis


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November 03, 2013, 02:17:58 AM
 #10

If it is obvious then you already have your answer on why the time value of money for BTC is lower than USD.
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November 03, 2013, 05:11:19 AM
 #11

Gentlemen, D&T provided an accurate explanation for the "time-value of money" that any economist would agree with.  When you use a phrase like "time-value of money" you are using it in a very specific way and it has a very precise meaning; D&T was exactly correct. 

That being said, perhaps theonewhowaskazu has a point.  All other things being equal, a "faster" currency perhaps would be expected to have a higher interest rate.  With an extremely slow currency (confirmation times = 1 week), I wouldn't be willing to pay as much interest, since I'd probably have to hold the currency longer than I wanted to.  With an extremely fast currency, my bank would be eager to borrow it from me (and pay slightly more), since they could "sweep" it wherever and whenever it was needed. 

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rampalija
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November 03, 2013, 07:47:58 AM
 #12

if ppl are more interested in BTC his price will grow up, thats all LOGIC
theonewhowaskazu
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November 06, 2013, 06:20:54 PM
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If it is obvious then you already have your answer on why the time value of money for BTC is lower than USD.

I don't even know what you're saying any more.

"Time Value of a currency" = interest rate for that currency (assuming no risk of lender not paying back).

Value of money to be paid immediately = Utility of that currency today + utility of that currency tomorrow & onward.

Value of money to be paid tomorrow = Utility of that currency tomorrow & onward.

Time value of a currency = Value of money to be paid immediately - Value of money to be paid tomorrow = Utility of that currency to be spent today.

Utility of that currency to be spent today is proportional to the number of things that currency can be used to purchase.

Obviously a fast currency can be used to purchase more things than a slow currency, because it changes hands faster.

Thus time value is proportional to the speed of the currency, so a faster currency should have a greater interest rate.

Btc doesn't which implies that something else isn't equal other than the speed of the currency. What is that thing?

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November 07, 2013, 06:16:52 PM
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If it is obvious then you already have your answer on why the time value of money for BTC is lower than USD.

I don't even know what you're saying any more.

"Time Value of a currency" = interest rate for that currency (assuming no risk of lender not paying back).

Value of money to be paid immediately = Utility of that currency today + utility of that currency tomorrow & onward.

Value of money to be paid tomorrow = Utility of that currency tomorrow & onward.

Time value of a currency = Value of money to be paid immediately - Value of money to be paid tomorrow = Utility of that currency to be spent today.

Utility of that currency to be spent today is proportional to the number of things that currency can be used to purchase.

Obviously a fast currency can be used to purchase more things than a slow currency, because it changes hands faster.

Thus time value is proportional to the speed of the currency, so a faster currency should have a greater interest rate.

Btc doesn't which implies that something else isn't equal other than the speed of the currency. What is that thing?


I think you're misunderstanding what time value of money means.  It is a way to measure the opportunity cost, to the subject, of the difference between (i) having a dollar now and (ii) getting that dollar later.  By opportunity cost, I mean there are consequences to the subject in each case that do not exist in the other case.  If you have a dollar now (case (i)), you could  invest it or lend it and earn more dollars.  In case (ii), you can't do that since you don't have the dollar.  Further, with an inflationary currency, your purchasing power diminishes over time. 

It is not an attribute of the currency itself.  If you take out a USD and set it on your desk right now, it has no "time value."  It is worth exactly $1. 

BTC has a lower time value than USD (indeed, a negative time-value) because it appears to be incredibly deflationary, and because there is not a well-developed credit market denominated in BTC.  Mostly the former.
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November 07, 2013, 06:26:05 PM
 #15

Credit and debt are things which can barely struggle to exist in a deflationary currency. Investing in the currency is generally your best investment overall. Money under the mattress > lending it out because it is essentially riskless investing to just stick it under the mattress. It is a completely different paradigm from that which we are accustomed.

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November 08, 2013, 03:50:25 PM
 #16

I borrow BTC all the time, when I want to short it against fiat.  Which is...let me see....never.

Give a man a fish and he eats for a day.  Give a man a Poisson distribution and he eats at random times independent of one another, at a constant known rate.
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