Peter Schiff: Gold vs. Bitcoin

[freet0pian]

Bitcoin hasn't got intrinsic value, neither does litecoin, namecoin, peercoin, etc.

What does have value is the idea of a p2p cryptocurrency. All these posts and nobody states this, why?

I think Schiff has a bit of a blinder problem, but so do most people on this thread.

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[MoonShadow]

What Peter means when he says that bitcoins (the currency) has no intrinsic value, he really means that it has no non-monetary use.  In this sense, he is correct.  Bitcoin has no non-monetary use.  However, Bitcoin (the system/netwrok) does have features/characteristics that have usefulness beyond the context of a simple means of exchange, and all of those features require the use of bitcoins (the currency) to utilize.  In this sense, Bitcoin does have an 'intrinsic value' in the economic sense.  While I can't pay my taxes with it, I certainly can do many useful things with it, that no other curerncy in history can do without third party help.

Such as create blockchain enforcable contracts...
https://en.bitcoin.it/wiki/Contracts

And, perhaps eventually, the transfer of asset titles...

https://docs.google.com/document/d/1AnkP_cVZTCMLIzw4DvsW6M8Q2JC0lIzrTLuoWu2z1BE/edit?pli=1
http://www.newscientist.com/article/dn24620-bitcoin-moves-beyond-mere-money.html

And the (terriblely underused) transaction scripting system promises to do much, much more

I, for one, do see value in a completely impartial, automated and near zero cost system that not only replaces most of the functions of brick * mortor banks, but most of the functions of the county clerck as well.

I totally agree with all that. I think Bitcoin as a technology has huge potential. But in my mind that just cements the idea that the current price is a huge bubble even more.

Pretty much anything people say to defend Bitcoin's intrinsic value is stuff that Bitcoin is capable of, and may be doing in the future. Transfer of titles, contracts, even distributed corporations, it all sounds awesome. Even as a payment system it sounds awesome. How you wouldn't want to take a huge bag of gold with you to the airport, but taking some BTC with you is trivial. It all makes sense. But none of it is possible right now. And yet right now the price is continually rising to tremendous levels.

The argument is that Bitcoin currently has no intrinsic value. Not that it won't have it in the future, or that the technology sucks in general. I'm personally at awe of what this tech can do. But just currently, in this moment in time, none of that stuff is happening. It's barely even being used as a way to pay for things. So like I said, that means that the current price is driven by speculation, which cements the idea of a bubble even further.

But that's not true either.  While I metnioned some huge things yet to be implimented well, the one thing that is inarguablely in use is the distance transfer and settlement functin of the Bitcoin netowrk.  This can be compareed favorablely to any banking transfer system or to Western Union, or Paypal.  No one would argue that these other systems don't have their own values, as reflected in their profit margins and market capitalizations; however those functions are characteristic of uisng bitcoins as a medium of exchange, and also drive some minimum demand for bitcoins if for that reason only.  That alone doesn't contribute to any significant 'intrinsic' value of the currency, but it contributes some, because markets do value those functions and the only way to access those same functions permitted by they bitcoin network at very low cost is to own (and therefore hold) some bitcoins yourself.

[beckspace]

Hey, doesn't MS-DOS or Windows have intrinsic value? Nevertheless, Bill Gates is the wealthiest man in the world, selling intangible lines of code for 30 years now.

[BigJohn]

What Peter means when he says that bitcoins (the currency) has no intrinsic value, he really means that it has no non-monetary use.  In this sense, he is correct.  Bitcoin has no non-monetary use.  However, Bitcoin (the system/netwrok) does have features/characteristics that have usefulness beyond the context of a simple means of exchange, and all of those features require the use of bitcoins (the currency) to utilize.  In this sense, Bitcoin does have an 'intrinsic value' in the economic sense.  While I can't pay my taxes with it, I certainly can do many useful things with it, that no other curerncy in history can do without third party help.

Such as create blockchain enforcable contracts...
https://en.bitcoin.it/wiki/Contracts

And, perhaps eventually, the transfer of asset titles...

https://docs.google.com/document/d/1AnkP_cVZTCMLIzw4DvsW6M8Q2JC0lIzrTLuoWu2z1BE/edit?pli=1
http://www.newscientist.com/article/dn24620-bitcoin-moves-beyond-mere-money.html

And the (terriblely underused) transaction scripting system promises to do much, much more

I, for one, do see value in a completely impartial, automated and near zero cost system that not only replaces most of the functions of brick * mortor banks, but most of the functions of the county clerck as well.

I totally agree with all that. I think Bitcoin as a technology has huge potential. But in my mind that just cements the idea that the current price is a huge bubble even more.

Pretty much anything people say to defend Bitcoin's intrinsic value is stuff that Bitcoin is capable of, and may be doing in the future. Transfer of titles, contracts, even distributed corporations, it all sounds awesome. Even as a payment system it sounds awesome. How you wouldn't want to take a huge bag of gold with you to the airport, but taking some BTC with you is trivial. It all makes sense. But none of it is possible right now. And yet right now the price is continually rising to tremendous levels.

The argument is that Bitcoin currently has no intrinsic value. Not that it won't have it in the future, or that the technology sucks in general. I'm personally at awe of what this tech can do. But just currently, in this moment in time, none of that stuff is happening. It's barely even being used as a way to pay for things. So like I said, that means that the current price is driven by speculation, which cements the idea of a bubble even further.

But that's not true either.  While I metnioned some huge things yet to be implimented well, the one thing that is inarguablely in use is the distance transfer and settlement functin of the Bitcoin netowrk.  This can be compareed favorablely to any banking transfer system or to Western Union, or Paypal.  No one would argue that these other systems don't have their own values, as reflected in their profit margins and market capitalizations; however those functions are characteristic of uisng bitcoins as a medium of exchange, and also drive some minimum demand for bitcoins if for that reason only.  That alone doesn't contribute to any significant 'intrinsic' value of the currency, but it contributes some, because markets do value those functions and the only way to access those same functions permitted by they bitcoin network at very low cost is to own (and therefore hold) some bitcoins yourself.

Oh, and I totally 100% agree with that. But ask yourself this question: Does that functionality alone, coupled with the limited ways to spend BTC, justify a $1,000 per coin price-tag?

If BTC was trading at above the old ~$20-$30 mark I'd totally understand. But at x50 times as much? Even with gold being hoarded by governments and central banks with huge power, it's "only" at maybe x10-x20 times its intrinsic value as for its uses in jewellery and electronics. How is it possible that Bitcoin is approaching the price of gold, while there's such tremendous pressure on gold from such powerful sources?

Again, I'm just trying to say that the current price is extremely higher than it "should" be, not that it should have a price of zero. It definitely should be worth something. I'm just not sure what that something is, but I feel it can't possibly be thousands of dollars just yet.

[MoonShadow]

What Peter means when he says that bitcoins (the currency) has no intrinsic value, he really means that it has no non-monetary use.  In this sense, he is correct.  Bitcoin has no non-monetary use.  However, Bitcoin (the system/netwrok) does have features/characteristics that have usefulness beyond the context of a simple means of exchange, and all of those features require the use of bitcoins (the currency) to utilize.  In this sense, Bitcoin does have an 'intrinsic value' in the economic sense.  While I can't pay my taxes with it, I certainly can do many useful things with it, that no other curerncy in history can do without third party help.

Such as create blockchain enforcable contracts...
https://en.bitcoin.it/wiki/Contracts

And, perhaps eventually, the transfer of asset titles...

https://docs.google.com/document/d/1AnkP_cVZTCMLIzw4DvsW6M8Q2JC0lIzrTLuoWu2z1BE/edit?pli=1
http://www.newscientist.com/article/dn24620-bitcoin-moves-beyond-mere-money.html

And the (terriblely underused) transaction scripting system promises to do much, much more

I, for one, do see value in a completely impartial, automated and near zero cost system that not only replaces most of the functions of brick * mortor banks, but most of the functions of the county clerck as well.

I totally agree with all that. I think Bitcoin as a technology has huge potential. But in my mind that just cements the idea that the current price is a huge bubble even more.

Pretty much anything people say to defend Bitcoin's intrinsic value is stuff that Bitcoin is capable of, and may be doing in the future. Transfer of titles, contracts, even distributed corporations, it all sounds awesome. Even as a payment system it sounds awesome. How you wouldn't want to take a huge bag of gold with you to the airport, but taking some BTC with you is trivial. It all makes sense. But none of it is possible right now. And yet right now the price is continually rising to tremendous levels.

The argument is that Bitcoin currently has no intrinsic value. Not that it won't have it in the future, or that the technology sucks in general. I'm personally at awe of what this tech can do. But just currently, in this moment in time, none of that stuff is happening. It's barely even being used as a way to pay for things. So like I said, that means that the current price is driven by speculation, which cements the idea of a bubble even further.

But that's not true either.  While I metnioned some huge things yet to be implimented well, the one thing that is inarguablely in use is the distance transfer and settlement functin of the Bitcoin netowrk.  This can be compareed favorablely to any banking transfer system or to Western Union, or Paypal.  No one would argue that these other systems don't have their own values, as reflected in their profit margins and market capitalizations; however those functions are characteristic of uisng bitcoins as a medium of exchange, and also drive some minimum demand for bitcoins if for that reason only.  That alone doesn't contribute to any significant 'intrinsic' value of the currency, but it contributes some, because markets do value those functions and the only way to access those same functions permitted by they bitcoin network at very low cost is to own (and therefore hold) some bitcoins yourself.

Oh, and I totally 100% agree with that. But ask yourself this question: Does that functionality alone, coupled with the limited ways to spend BTC, justify a $1,000 per coin price-tag?

If BTC was trading at above the old ~$20-$30 mark I'd totally understand. But at x50 times as much? Even with gold being hoarded by governments and central banks with huge power, it's "only" at maybe x10-x20 times its intrinsic value as for its uses in jewellery and electronics. How is it possible that Bitcoin is approaching the price of gold, while there's such tremendous pressure on gold from such powerful sources?

Again, I'm just trying to say that the current price is extremely higher than it "should" be, not that it should have a price of zero. It definitely should be worth something. I'm just not sure what that something is, but I feel it can't possibly be thousands of dollars just yet.

Of course I can't argue that Bitcoin's current market price is due to such funcationality.  I can't make that argument for any particular price, after all that is what the pricing mechanism actually does for us.

However, the same can be said for gold.  If one could seperate gold's intrinsic value from it's monetary value, how much would it be?  No one really knows, but it's certainly less than it's currency market value, since the monetary value is in there as well.  Gold is horded by governments & cnetral bankers because of it's moneteary value, not because it makes great radiation shielding.  Personally, I wouldn't say that gold would have an industirial value higher than silver does; particuarly since industry has already consumed enough silver that the above ground, refined stocks of gold exceeds that of silver.  The natural ratio of scarcity ( 16.5 times as much silver as gold) is wrong in our modern context.

BTW, that's one reason that I favor silver over gold in my personal stocks; because if gold ever does lose it's monetary value in the market, there's more of it available than silver, and silver has more known industrial uses.  The other is that silver has very real anti-microbial properties that makes it more useful after TEOTWAWKI for my own family than gold would be.

PS, please excuse my dexlexia, I'm having a particularly bad day.

[superduh]

http://money.cnn.com/2013/11/22/investing/gold-prices/index.html?hpt=hp_t2

peter isn't going to know what hit him. he may be looking for a new job soon
gold is going back down to ~300. the bitcoin rises!

peter: "It's Tulip Mania 2.0, not Gold 2.0,"

[omega33]

I would prefer gold
if bitcoin rises higher than gold, I would cashout my bitcoins for gold

[Dr Bloggood]

Edit: To give you some numbers: all the gold in the world is worth ~$8T.  Bitcoin is currently valued at ~$9B.  So the market seems to be saying Bitcoin should supplant 9/8000 ~ 0.1% of gold's role in the economy.  The speculators just disagree with this number, and think it should be higher.

Great post, and with your edit you put it on a mathematical level! That's exactly how it is!

[Dr Bloggood]

The issue being raised is quite simple. What makes up Bitcoin's current price?

Again: Confidence in it (plus speculation, true).

I don't know if you are familiar with the stock concept of value/growth, but something doesn't have to be cheap to be a good investment (value), it's also fine if it has a lot of future potential and that potential does indeed unfold in the future (growth). You are right: If you don't believe in BCs value catching up to it's price, you maybe shouldn't invest in it. At current prices, I'm willing to make a bet that it will catch up though.

So what I'm saying is, don't just disregard the "future" argument, because it is a huge one!

And we can't chalk it up to inflation or people fleeing from fiat, because we're not seeing a similar move in other assets. So again we're left with speculation.

I couldn't disagree more strongly on that statement. At the moment, almost everything is in a bubble: Money supply, stocks, bonds, real estate, and you can see it especially well with the skyrocketing art prices (record Francis Bacon sale recently) and diamond prices. The only thing that comes to my mind right now that's not in a bubble (let's leave BC aside) is precious metals, and that's because they have been surpressed relentlessly almost every single day, maybe like no other asset in financial history ever before.

[randayh]

I too respect Schiff.

However, I remember a youtube video of him was saying the same thing two years ago when BTC was in the single digits. If I would have listened to him then I would have made the worst discussion of my life. I believe the same would be true now.

[solex]

I too respect Schiff.

However, I remember a youtube video of him was saying the same thing two years ago when BTC was in the single digits. If I would have listened to him then I would have made the worst discussion of my life. I believe the same would be true now.

Earlier this year Karl Denninger at market-ticker called Bitcoin a "Bit Con" and advised his readers "Don't buy". Those that listened have done themselves out of a 1,000% gain since then.

[amincd]

Bitcoin is an indestructible and uncensorable data store that costs units of its currency to use. These qualities come from the massive amount of proof of work backing it, which would be extremely costly to replicate in a duplicate network.

It has intrinsic value.

[Dr Bloggood]

Bitcoin is an indestructible and uncensorable data store that costs units of its currency to use. These qualities come from the massive amount of proof of work backing it, which would be extremely costly to replicate in a duplicate network.

It has intrinsic value.

Or, in other words: It creates confidence in it. That's its intrinsic value.

Many ways to express that thought.

[Seth Otterstad]

To sum up why Schiff's "intrinsic value" argument about bitcoin is wrong:

1) His argument applies to 80% of gold's value.  If each bitcoin were backed with one oz of silver, an $850 price would not somehow be justified just because there is intrinsic value behind it.

2) Somali paper currency continues to be accepted with no central bank.  Paper is a reasonable medium of exchange, even without backing.  Something can be good money even if that is the only thing it can be used for.

3) If industrial uses of gold were taken away, it would still be used as currency and the value would not drop all that much.

4) Peter is over two years late predicting that eventually everyone will want to cash out all at once and the value will crash.  It already crashed from $30 down to $2 in 2011, and it worked just as well after it crashed.  Of course he used his standard method of predicting a crash while saying he doesn't know when it will crash or how high it will go so he can still claim to be right if it crashes from $5,000 to $1,000.

5) He is clearly ignorant of the fact that 30,000 merchants accept bitcoin, up 1000% over last year.  If everyone wants to buy stuff with their coins, as Peter predicts, they can spend them at bitcoin accepting merchants.

6) His argument relies on an incorrect super strict interpretation of Mises' regression theorem.  "Intrinsic value" is a synonym for "utility" or "use-value", which bitcoin has plenty of.

7) Bitcoin's blockchain will be used to transfer asset titles and to create enforceable contracts.  There is plenty of intrinsic value in an indestructable and uncensorable piece of data that can be copied, but not counterfeited.

8 ) Schiff claimed that shifting the decimal point in bitcoin was the same as printing money.  Lol at him.

Continuing to listen to someone who demonstrates such a high level of ignorance about economics is not very good in my opinion.  Honestly, I think it's an embarrassment to humanity that this guy gets enough attention to have several threads with his name in the title on this forum.  Here's a response I made in another Peter Schiff thread here:

Investors have to have a time-frame to make any money at investing.  Saying "the US dollar will go to zero" is like saying "the sun is going to burn out".  No one will disagree with you if you give an infinite time-frame for it to happen.  The dollar is SUPPOSED to go to zero eventually.  Continuing to listen to Peter Schiff because "he'll be right eventually" will cause you to lose a lot of money.  How long will Schiff listeners keep listening to his bearish rants while ignoring 134% stock market heaters and 10,000% bitcoin price increases?  Just listen to someone else.  Find someone who knows when to be bearish and bullish on various assets, instead of a permabear who might lose for 100 years before he makes money.  Even better, watch an economics course on Khan Academy for free.

Every once in a while, he does put a time-frame on his predictions and winds up looking like an even bigger idiot.

"I think sometime in 2011, if we make it out of 2011 maybe 2012, that we're going to have a crisis.... Interest rates are going to rise sharply in the US." -- Peter Schiff
http://www.youtube.com/watch?v=Nv-Q9NxKWKI

There are reports of investors losing 70% with Peter Schiff in 2008.  Try watching these videos if you still think he was "right":

http://www.youtube.com/watch?v=4h_mEK91FWs
http://www.businessinsider.com/2009/1/peter-schiffs-clients-got-hosed-this-year-too
http://avaresearch.com/avanew/articles/713/The-Embarrassing-Track-Record-of-Robert-Prechter-Part-1.html
http://avaresearch.com/avanew/articles/302/Peter-Schiff-Wrong-on-the-Economy-Wrong-on-Healthcare-Part-1.html
http://www.youtube.com/watch?v=EBNbdqp0-TI
http://www.youtube.com/watch?v=oUbhAbqKjOo
http://www.youtube.com/user/AntiSchiff

[tvbcof]

Peter Schiff = one-trick pony who gets it right roughly on par with a coin toss.  Victimizes dull libertarians.  <shrug>

[justusranvier]

http://www.youtube.com/watch?v=mFcTJAQ7zc4

[tvbcof]

http://www.youtube.com/watch?v=mFcTJAQ7zc4

Thx for the link.  I only watched 13 min due to monthly data quota, but will watch the rest after midnight.

Impressions:  Schiff does as Schiff does...breaks into the other guy's point after a few words, then blathers on saying the same brain-dead thing multiple times.  So far Stephen has missed some obvious counter-arguments which is frustrating.  Maybe he'll hit a few later in the show.

OTOH, what do I care if Schiff's sheep continue to take a shearing? <shrug>

[rocks]

It will be interesting to watch Peter and Erik Voorhees debate sometime after gold parity is achieved and held for a bit.

[bitcoinpsftp]

Might be that he's biased, might be that he's not.  But it was interesting.  Thanks for posting