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Author Topic: Could speculative currencies' "market cap" exceed the "wealth of the world"?  (Read 1160 times)
Kluge
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November 27, 2013, 09:26:56 AM
 #1

It is 2250. Virtual currencies are now used everywhere. There is competition, primarily between Americoin, Eurocoin, and Asiacoin.

These three currencies are still 100% controlled by market forces. Because of their deflationary nature (if only because production of goods/services accelerates with time, without an increase in coins), there is still a tendency to hoard.

One Americoin is worth one Eurocoin, and one Eurocoin is worth one Asiacoin. We'll say, combined, there are 10,000 equal-value "coins." All goods which could be sold on Earth (which, for the sake of the discussion, is the only place goods and services can be "extracted" from) which could be on the market equate to 9000 total coins at market value (we'll disregard arguments involving consumables). Thus, due to the tendency to hoard, all coins are "overvalued" by 10% because we are factoring in future value.

Does this create a scenario where coins are, due to the desire to hoard, partially valued based on future value?

(If not completely obvious) I'm having trouble wrapping my mind around the mechanics here, because it seems quite similar to a debt instrument. Bitcoin, like any "useless money," is effectively an IOU, right? Even though it's not guaranteed, by the market expecting a higher future value and factoring that in to present price, isn't the increase in price really a LOT like interest, which relies on future generations having more wealth to add to the pool?

(sorry I couldn't form a more coherent question)

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Kluge
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November 27, 2013, 09:07:06 PM
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Bump. Anyone get what I'm saying here, or is it just a dumb question?

I'm suggesting that at a future time, the price of coins become quite stable, but that they fairly consistently rise in value year-over-year. If everyone factors in the future price increase and hoards, it seems to me like a "global bond," where we'd basically be taking out loans based on expectations of ourselves and our kids, assuming their productivity increases (whereas with a deflationary currency, "lazy" people, who don't care to work more than necessary, may not even have incentive to work if they can live off the "interest").

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November 27, 2013, 11:17:25 PM
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Bump. Anyone get what I'm saying here, or is it just a dumb question?

I'm suggesting that at a future time, the price of coins become quite stable, but that they fairly consistently rise in value year-over-year. If everyone factors in the future price increase and hoards, it seems to me like a "global bond," where we'd basically be taking out loans based on expectations of ourselves and our kids, assuming their productivity increases (whereas with a deflationary currency, "lazy" people, who don't care to work more than necessary, may not even have incentive to work if they can live off the "interest").

limited growth, the limited coin supply creates infinite adjust ability, it will eventually fluctuate very little if it reaches a good equilibrium with all the other coins.

so in the scenario where there are 3 main coins it would depend on the zones strengths, same as any currency, they will float against each other according to market forces, shifting, resources and allocatable work units according to it's market strength. Sometimes even the specific flow of an industry is enough to shift the value of a currency in it's favour, eg: China has all the rare earth metals, if we cannot find other deposits on the planet... they will shift the currency in their favour simply by having something we really want to trade for.

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November 27, 2013, 11:46:01 PM
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Bump. Anyone get what I'm saying here, or is it just a dumb question?

I'm suggesting that at a future time, the price of coins become quite stable, but that they fairly consistently rise in value year-over-year. If everyone factors in the future price increase and hoards, it seems to me like a "global bond," where we'd basically be taking out loans based on expectations of ourselves and our kids, assuming their productivity increases (whereas with a deflationary currency, "lazy" people, who don't care to work more than necessary, may not even have incentive to work if they can live off the "interest").

limited growth, the limited coin supply creates infinite adjust ability, it will eventually fluctuate very little if it reaches a good equilibrium with all the other coins.

so in the scenario where there are 3 main coins it would depend on the zones strengths, same as any currency, they will float against each other according to market forces, shifting, resources and allocatable work units according to it's market strength. Sometimes even the specific flow of an industry is enough to shift the value of a currency in it's favour, eg: China has all the rare earth metals, if we cannot find other deposits on the planet... they will shift the currency in their favour simply by having something we really want to trade for.
Okay - let's ignore there being three coins and say there's just one global currency - bitcoin. Let's say they've all been mined.

I'm looking at how the tendency to hoard affects bitcoins' market value. Because bitcoins are deflationary by nature, their "ability" to appreciate in value* is factored into their current market price, right? It's like a loan, where if everyone expects 10% value* increase in a year, but you factor time into that, so maybe you currently only value bitcoins at "105%" of their current value*.

If the market expects bitcoins, with a high level of confidence, to increase in "value"* year-over-year, the present market value could exceed the "wealth of the world" (the market value of all goods presently on Earth, and services which could be rendered within, say, a day). Since the market would be banking on bitcoins being more valuable*, would this effectively make bitcoin an instrument of debt? How does the market bring this "overvaluation" of bitcoin from going crazy**?

*maybe one coin this year buys a energy-harvesting space satellites, but in 10 years, it buys two energy-harvesting space satellites with equal specs.

**Maybe bitcoins' market cap could buy 2x or 3x the "wealth of the world." So, maybe you control 1% of all bitcoins, but you could purchase 5% of "everything" on Earth with it, because everyone else is hoarding, expecting the value of their coins to increase.

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November 28, 2013, 12:05:56 AM
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I think that is a very interesting question and have no clue what the answer is.  That being said it seems reasonable enough.  My thinking is the current market price of a bitcoin is not really the value of every bitcoin currently held but the value of the last bitcoin bought or sold.  In your scenario it seems unlikely that someone could sell/spend 1% of the total # of coins without changing the market price of a coin.  Those coins were being held by a single entity so as they are spent/sold they act as a huge stimulus to demand for good/services, driving the price up, thereby lowering the value of each coin in circulation.
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November 28, 2013, 12:42:10 AM
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The generated wealth of [cryptocurrency] leads to an increase of my purchasing power. So i tend to spend more money. It circulates without a lot of bubbles  Cool

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November 28, 2013, 12:48:21 AM
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Global GDP is much slower more like ~1.8% annually.  If Bitcoin replaced all other forms of currency and was used universally everywhere the purchasing power would only rise by the rise in global economy.  Fixed money supply value (in real terms) of goods and services rising ~2% means the purchasing power of one unit of currency would rise ~2%.  So there won't be a scenario where it is growing 10% annually (in real terms) forever.

Also it isn't necessary for currency to exceed the wealth of the world, I don't think that has ever happened.  Right now, global Currency (M0) is ~$5T, even if we use a broader definition of money M1 is something on the order of ~$25T, and M2 is ~$75T.  In comparison (real) Global GDP is ~$75T and the best estimates on global wealth are >$240T.

In this hypothetical scenario a lot depends on how much Bitcoin displaces.  Its closest equivalent is M0 but you can the argument that it would displace a large portion of the money multiplier (or drive it down) and thus the Bitcoin Money supply (in this dubious single currency scenario) might be something on the order of M1.  Still global wealth would be at least a magnitude more.  In other words the global money supply might be 21M BTC but global wealth (in all forms) would be something like 210M BTC.

So in short.  No.
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November 28, 2013, 12:58:11 AM
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Global GDP is much slower more like ~1.8% annually.  If Bitcoin replaced all other forms of currency and was used universally everywhere the purcashing power would only rise by the rise in global economy.  So there won't be a scenario where it is growing 10% annually (in real terms) forever.

Also it isn't necessary for currency to exceed the wealth of the world.  Global Currency (M0) is ~$5T, even if we use a broader definition of money M1 is something on the order of ~$25T, and M2 is ~$75T.  Global GDP is ~$75T and the best estimates on global wealth are >$240T.

In this hypothetical scenario a lot depends on how much Bitcoin displaces.  Its closest equivalent is M0 but you can the argument that it would displace a large portion of the money multiplier (or drive it down) and thus the Bitcoin Money supply (in this dubious single currency scenario) might be something on the order of M1.  Still global wealth would be at least a magnitude more.  In other words the global money supply might be 21M BTC but global wealth (in all forms) would be something like 210M BTC.

So in short.  No.
Thanks. Displacement is a good term, and where I was having a hangup. A "valuable" stone is still currency in some form. Everything, in a sense, is money. I'll think about what you wrote some more.

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November 28, 2013, 01:14:01 AM
 #9

Here is what I think.

Once cryptocoins are the primary form of mainstream money, their value (if supply is permanently limited) will be what you can spend them for; they won't be deflationary any more, except to the extent that the economy grows.  They'll appear to be inflationary if the economy is shrinking.

What you've got if you've got a coin then is just fairly ordinary money, except that in the long run, it represents a "share" of the economy itself, with its value growing and shrinking in exact proportion to how the economy grows and shrinks. And the economy is likely to grow not-much faster than today if you're ruling out off-earth growth.

That means your Americoin (or Eurocoin, or Asiacoin) represents a chunk of wealth that grows at the same average rate as all the businesses in the world.  It's like being invested in the biggest index fund ever. 

So, if you've spotted a business you think will do *better* than most, you're wise to invest your coin.  But that's actually difficult to do. And if you don't trust your judgment about which companies to invest in, you'll do no worse than average by just holding your coins.

I think that this is actually a pretty good future.  If average human beings can do as well by just having coins as the average among the heavily invested wealthy elite, it might be a lot more equitable.



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November 28, 2013, 02:32:04 AM
 #10

Wealth is a relative thing.

Governments are suddenly deciding that printing more money equals wealth, which could not be further from the truth.

You cannot print your way to wealth, as countless countries have found out throughout history, much to their dismay.

So, in theory, the value of BTC could exceed the wealth of the world, if the value goes up by the amount of % that governments are printing, and overshoots by some percentage.

But eventually, it would stabilize.
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November 28, 2013, 03:23:17 AM
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Short answer = Yes.  During last part of Japanese bubble I believe a few square mile blocks of the forbidden city were valued at more then the entire state of California.  Bitcoin is a limited currency but it's price is basically like a stock so the last trade gets extrapolated to the entire value which obviously is incorrect but if it's widely used then your scenario is certainly possible.  That would be a good time to sell.   Wink
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November 28, 2013, 04:39:15 AM
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Short answer = Yes.  During last part of Japanese bubble I believe a few square mile blocks of the forbidden city were valued at more then the entire state of California.  Bitcoin is a limited currency but it's price is basically like a stock so the last trade gets extrapolated to the entire value which obviously is incorrect but if it's widely used then your scenario is certainly possible.  That would be a good time to sell.   Wink

I guess it would suck if they start accurately tracking economic flow of goods in real time... You can basically figure out exactly where the wealth of a nation is located at all times, value may be way less then we'd guess. ;(

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November 28, 2013, 04:42:04 AM
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Short answer = Yes.  During last part of Japanese bubble I believe a few square mile blocks of the forbidden city were valued at more then the entire state of California.  Bitcoin is a limited currency but it's price is basically like a stock so the last trade gets extrapolated to the entire value which obviously is incorrect but if it's widely used then your scenario is certainly possible.  That would be a good time to sell.   Wink

I guess it would suck if they start accurately tracking economic flow of goods in real time... You can basically figure out exactly where the wealth of a nation is located at all times, value may be way less then we'd guess. ;(
This roughly was how the ancient world functioned with gold.  When the balance of trade got out of whack countries sent ships loaded with gold to each other.  Of course if a country refused then the lender had to go visit them in person with sharp objects to collect the debt.  Hehe maybe there'll be future "Bitcoin Wars".
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November 28, 2013, 10:11:58 AM
 #14

It has nothing to do with GDP, value of all capital, value of durable consumer goods, magnitude of trade, velocity of money, value of gold, value of existing money.

It is only the sum of the value that all participants wants to hold in reserve, that is saving for long term, or just having readily available for the short term.

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