Another topic about Bitcoin and inflation: show me if I'm wrong

[LeGaulois]

If you disagree, explain your point of view

When you observe the Bitcoin market, it is much more used as a financial asset than as an alternative currency. ( Except for countries like El Salvador and others but that is very minimal and the emergence of digital currencies from central banks will not really move things in the right direction). Even in El Salvador, where it is rarely used, it is a bit of a failure, speaking about adoption.

It is a fact that people perceive Bitcoin &co as an asset class in which they can invest and get a return on investment. The higher % possible (why not I heard Santa is real) even if they need to buy the latest shitcoin of the week! Which makes cryptos behave following a speculative logic. If a market attracts investors, it becomes volatile, while if the market attract people with a real need, it won't be the same. Yes, still volatile but a lot lot less.


Store of value ≠ Save haven Bitcoin has no place in both

Similarly, Bitcoin cannot be considered a store of value as we cannot (for the time being) use it to buy goods or services.
The function of a safe-haven asset is to withstand a crisis without losing value. Did Bitcoin survive? Not really. In fact, you may notice that the market is increasingly correlated to traditional finance (the result of considering Bitcoin as an investment instrument).

Whereas a store of value must be able to maintain its purchasing power over time. Where is the purchasing power protection for people who invested all their savings when the price was 60k, 50k, 40k, 30k?
Inflation is the role of central banks to regulate/limit/brake it. How do you want it to be the same with Bitcoin?

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[NeuroticFish]

It is a fact that people perceive Bitcoin &co as an asset class in which they can invest and get a return on investment. The higher % possible (why not I heard Santa is real) even if they need to buy the latest shitcoin of the week! Which makes cryptos behave following a speculative logic. If a market attracts investors, it becomes volatile, while if the market attract people with a real need, it won't be the same. Yes, still volatile but a lot lot less.

While I do agree that most see crypto as a speculative asset, I don't agree that the investors and speculators are the main reason for the volatility. Gold also attracts investors and speculators and the volatility is rather small.

Similarly, Bitcoin cannot be considered a store of value as we cannot (for the time being) use it to buy goods or services.

Gold or art are investments seen as store of value, yet they cannot really be used to buy goods and services.

The function of a safe-haven asset is to withstand a crisis without losing value. Did Bitcoin survive? Not really. In fact, you may notice that the market is increasingly correlated to traditional finance (the result of considering Bitcoin as an investment instrument).

The easier an asset can be sold, the more the chance it will lose value it's price will drop; I think that this is one of the reasons art and gold tend to look somewhat better when there's crisis.

Whereas a store of value must be able to maintain its purchasing power over time. Where is the purchasing power protection for people who invested all their savings when the price was 60k, 50k, 40k, 30k?
Inflation is the role of central banks to regulate/limit/brake it. How do you want it to be the same with Bitcoin?

Bitcoin historically is great investment for long term - minimum 4 years period. I think that it's not a store of value yet though. I expect though that in the future it will be shifting though from a very volatile asset to a more traditional store of value, where people won't have to wait for 4 years to be pretty much certain they're not losing.

[jackg]

The function of a safe-haven asset is to withstand a crisis without losing value. Did Bitcoin survive? Not really. In fact, you may notice that the market is increasingly correlated to traditional finance (the result of considering Bitcoin as an investment instrument).

It's quite a weird market though because bonds (including just government bonds) didn't survive well either.


Most investors now are looking to invest in global infrastructure that can drive their own increases market share/dominance (I don't know if we can include bitcoin in that, perhaps, but a lot of companies survived much better than what would be expected).

Whereas a store of value must be able to maintain its purchasing power over time. Where is the purchasing power protection for people who invested all their savings when the price was 60k, 50k, 40k, 30k?
Inflation is the role of central banks to regulate/limit/brake it. How do you want it to be the same with Bitcoin?

There are times that are both happy and sad in this market as there are points where, if everyone bought a coin before then and held it, they'd be in profit now - it's sad personal circumstance and other things can force people to sell at a loss but you can't backup the price.

Most investments demand a few years in the market. European stocks used to face 3 years of bear times, 3 years of stagnation and 3 years of growth (on average) - you might've needed to be in the market for 7 years to have made a good profit on your investment. A lot of etfs for bitcoin normally suggest a minimum term of 4 years before their pessimistic estimates become positive (not sure if this is the one neurotic fish is quoting, I saw it on a factsheet from a Swedish bitcoin etf manager - it was an interesting read).

Edit: their recommended investment period was updated to 5 years.

[LeGaulois]

While I do agree that most see crypto as a speculative asset, I don't agree that the investors and speculators are the main reason for the volatility. Gold also attracts investors and speculators and the volatility is rather small.

Good point.
Perhaps because investors and speculators  spend money on the gold market to protect their portfolio and aren't really looking to make a high return on investment. For exemple I did but I will be happy even with 0%. Weird but true because even with 0% I win.
While with the crypto market, they're looking to make a 'big' R.O.I. I would say it's a different audience or a diversity (a golden rule while investing)

The thing is with the crypto market, we're including the capitalist system and all the problems that come with it. The same problems that the cypherpunks criticized decades ago. Hence the creation of various alternative currencies (as you know Bitcoin is not the first). So people blame capitalism but reproduce the same errors with the decentralized finance. People claim for a decentralized currency but use every thing centralized (exchange platforms, custodial wallets, BTC cards and everything else). I find it harder to find "true bitcoiners" compared to some years ago

With the gold market, it's rather difficult to jeopardize the market. I don't know.

Gold or art are investments seen as store of value, yet they cannot really be used to buy goods and services.

Fair enough, I can't argue...

I expect though that in the future it will be shifting though from a very volatile asset to a more traditional store of value, where people won't have to wait for 4 years to be pretty much certain they're not losing.

But it can't happen until Bitcoin is massively adopted. When I say massively I mean much more than a dozen of countries and institutions. And nowadays, people are rarely interested to use BTC for real use cases. All they want is to join Binance, to be KYC'ed as soon as possible, and to make the most as they can. Even if they need to buy an altcoin full of non sense

It's quite a weird market though because bonds (including just government bonds) didn't survive well either.

True.

Most investors now are looking to invest in global infrastructure that can drive their own increases market share/dominance (I don't know if we can include bitcoin in that, perhaps, but a lot of companies survived much better than what would be expected).

I do think they are looking for better returns and it seems that crypto is now being targeted.

Regarding companies surviving the crisis more efficiently. For those concerned, I have the feeling that it is because they are directly or partially associated with the crisis. Or maybe it's the GAFAMs. Let's not forget that many companies received hundreds of millions in state aid during the crisis. Without that, many would have closed.

[NeuroticFish]

Perhaps because investors and speculators  spend money on the gold market to protect their portfolio and aren't really looking to make a high return on investment. For exemple I did but I will be happy even with 0%. Weird but true because even with 0% I win.
While with the crypto market, they're looking to make a 'big' R.O.I. I would say it's a different audience or a diversity (a golden rule while investing)

The thing is with the crypto market, we're including the capitalist system and all the problems that come with it. The same problems that the cypherpunks criticized decades ago. Hence the creation of various alternative currencies (as you know Bitcoin is not the first). So people blame capitalism but reproduce the same errors with the decentralized finance. People claim for a decentralized currency but use every thing centralized (exchange platforms, custodial wallets, BTC cards and everything else). I find it harder to find "true bitcoiners" compared to some years ago

With the gold market, it's rather difficult to jeopardize the market. I don't know.

I don't think that the speculators' expectations (a ROI) matter that much. I mean that nobody (from those invested in) would mind if gold price skyrockets. But it doesn't.

I think that the fact the market is young and not properly regulated everywhere (allowing market manipulation) do create this volatility. I think that the even younger businesses (and scams too) relying on Bitcoin price - altcoins (yes, let's not fool ourselves), DeFi, whatever - do affect the volatility big time (just remember Luna buying, and also Luna crash). I think that this kind of things are related to the volatility, not speculators' wishes.

I expect though that in the future it will be shifting though from a very volatile asset to a more traditional store of value, where people won't have to wait for 4 years to be pretty much certain they're not losing.

But it can't happen until Bitcoin is massively adopted. When I say massively I mean much more than a dozen of countries and institutions. And nowadays, people are rarely interested to use BTC for real use cases. All they want is to join Binance, to be KYC'ed as soon as possible, and to make the most as they can. Even if they need to buy an altcoin full of non sense

Indeed, here we're on the same page: this can happen only when it's widely adopted, also meaning that big corporations and banks will all be heavily invested into bitcoin.
But I think you're overrating trader-gamblers who are risking their lunch money to get some more pennies.

[un_rank]

Bitcoin historically is great investment for long term - minimum 4 years period. I think that it's not a store of value yet though. I expect though that in the future it will be shifting though from a very volatile asset to a more traditional store of value, where people won't have to wait for 4 years to be pretty much certain they're not losing.

I am in accordance with this reply. Bitcoin is a very young asset [under 2 decades] compared with others like Gold, which was discovered thousands of years ago. The focus will shift slowly from a speculative asset to a store of value down the line.

But it can't happen until Bitcoin is massively adopted. When I say massively I mean much more than a dozen of countries and institutions. And nowadays, people are rarely interested to use BTC for real use cases. All they want is to join Binance, to be KYC'ed as soon as possible, and to make the most as they can. Even if they need to buy an altcoin full of non sense

Time is the greatest indicator here. Bitcoin went from nothing to excess of $60k. Certainly, people would be excited about it, and want to get rich as well, with time bitcoin should morph into a much more mature state with a bigger audience who understand how it can be used.
I think it is too early to try and define what it is or is not.

- Jay -

[The Sceptical Chymist]

Similarly, Bitcoin cannot be considered a store of value as we cannot (for the time being) use it to buy goods or services.

I'm sleepy, so I'll just pick this one to argue against--and I'm surprised you'd write such a thing!

I wrote in a post a week or so ago that I'd recently read an article called "Crypto's confusing consumer promises" written by Rebecca Ackermann in the MIT Technology Review.  In it, she's all over the place with utterly false statements mixed with truths and half-truths, and would lead the reader to believe that bitcoin can't be used to purchase things.  It boggled my mind that so little research into bitcoin's utility (admittedly limited but not trivial) as money.  If she had, she'd be aware that places like Newegg and a whole lot of retailers of all sorts of goods and services exist and wouldn't argue--as she did--that in 2022 bitcoin can basically only be bought with the intention of selling it for a higher price.

True, that's what most people do I'd imagine, but to suggest that bitcoin isn't money is ludicrous.  I even convinced my local computer repair shop to accept bitcoin when I needed my function junction box jiggered with.  My local pizza place accepts bitcoin, too!

Now the drowsiness is wearing me down and thus what started as a passionate defense of bitcoin as money has hit a concrete wall.  As the hit was head-first, I will now slide bleeding to my knees, then full prostration, then the dying of the light.  Adieu.

[NeuroticFish]

and would lead the reader to believe that bitcoin can't be used to purchase things

The problem is that the world is not America, the world is not western Europe, the world is not the bigger cities ... you got the idea.

In many countries there are so few places you can actually pay with bitcoin they almost don't deserve to be mentioned (they do, but they're, again, painfully few). Even more, they use payment processors getting pretty high fees over it (so high it's cheaper to use ATM and convert to fiat first).

I know, the things are moving in the direction of getting to pay directly with Bitcoin, but slowly and... not where I live / I need it.
And don't get me wrong, I did pay with bitcoin directly for goods and services. But the list is so awfully small...

[The Sceptical Chymist]

The problem is that the world is not America, the world is not western Europe, the world is not the bigger cities ... you got the idea.

**scrapes self up from aforementioned concrete wall**

That is true, and I get your point.  And I don't know where you live, but I'm assuming it's either in a rural or an undeveloped area.  My question is: Do you have access to online retailers, and in particular ones that accept bitcoin?  There aren't even many physical businesses in the US that accept it--that pizza shop and the computer place are kind of anomalies, but online is a different story.  Even if you couldn't spend your coins at a place like Amazon, you could do it indirectly via Gyft or some similar services.

And part of my point was that this author was writing from what seemed to be a US-oriented perspective (not surprising, since that's the magazine's main audience).  I wish I could post the whole thing here, because I'd love to hear people's opinions on it.

[NeuroticFish]

Do you have access to online retailers, and in particular ones that accept bitcoin?  There aren't even many physical businesses in the US that accept it--that pizza shop and the computer place are kind of anomalies, but online is a different story.

There are a few online stores, but they're only selling IT&C stuff. There was a car retailer, but I think they've given up (and buying a car with 7% premium is a bit much). I guess that could buy pizza if I'd live in the capital city - a couple of hundreds of km away
I would love to use a LN wallet instead of a crypto card, but we're not there yet.


I do expect, however, the things are somewhat different in US, still, US covers a huge lot of land and, again, you cannot compare a small town with a big city.

[davis196]

If a market attracts investors, it becomes volatile, while if the market attract people with a real need, it won't be the same. Yes, still volatile but a lot lot less.

Volatility is what attracts the investors, and the investors help a lot with increasing the market value/price. I don't think that replacing the investors with "people with a real need" would make the Bitcoin market less volatile. Having a limited supply and unstable demand is what makes the price so volatile, the type of buyers doesn't matter. This is basic supply and demand market law. There was a term in economics called "price elasticity", you should learn more about it.
Nobody is saying that Bitcoin is a safe heaven or inflation protection asset. Maybe it will become safe heaven in the long term, or maybe it won't.
Bitcoin is a store of value and you can use it to purchase goods and services(as long as there are sellers who accept BTC payments).
I don't know where did you come up with this "it's not a store of value if you can't purchase goods/services" theory.
You should read more about the definition of the term "store of value" in some books about economics.

[stompix]

Whereas a store of value must be able to maintain its purchasing power over time. Where is the purchasing power protection for people who invested all their savings when the price was 60k, 50k, 40k, 30k?

It's weird that I don't see anyone heckling you and stell how with 10k BTC you could buy a pizza and now with one BTC you can buy 10 000k pizzas. Of course not as good as fillippone's freshly baked home bade no GMO one, but still pizzas. 

I think this might be one of the moments when we have to draw the line and realize that past performance means nothing when you're looking for a store of value that's by definition designed for the future, too many make the mistake of grasping at specific periods ignoring the fact that when it's about losing and earning money, earning 10000% on 10$ won't make the loss of 50% on 100k.

Similarly, Bitcoin cannot be considered a store of value as we cannot (for the time being) use it to buy goods or services.

Here we disagree, gold can be a store of value and you can't really directly buy a car with it, neither can you with government bonds which at least in some countries have been considered the safest of the safe, but with most of them, it's even harder to convert them to fiat and exchange for merchandise that with bitcoin. You can't walk to an ATM and sell your bonds and neither can you do with gold.

I actually think here Bitcoin gets a plus for being easy to convert, far more than traditional things, but what it gets a minus is the lacking of actually storing that value at any given time.

The problem is that the world is not America, the world is not western Europe, the world is not the bigger cities ... you got the idea.
In many countries there are so few places you can actually pay with bitcoin they almost don't deserve to be mentioned (they do, but they're, again, painfully few). Even more, they use payment processors getting pretty high fees over it (so high it's cheaper to use ATM and convert to fiat first).

Since you mentioned ATM when was the first ATM installed in your country/city? I don't doubt that everything else from computers, mobile phones, the internet, and even chain stores had a long history before being available to all.
The thing is that just like you couldn't find a damn working ATM in all of Milos prior to the Greek crisis nor somebody to accept your card things change as demand arises and customers want to use it. And you won't have someone accepting Bitcoin in a town where there are only two bitcoin users, so this is why big cities win all the time.

And we're back to the electric car dilemma, there are no electric cars because there are no stations to charge them and there are no stations to charge electric cars because nobody is buying electric cars.

[NeuroticFish]

And you won't have someone accepting Bitcoin in a town where there are only two bitcoin users, so this is why big cities win all the time.

Yeah, this pretty much sums it up, however, as The Pharmacist mentioned, it's not normal that also the online services are extremely limited yet.

And we're back to the electric car dilemma, there are no electric cars because there are no stations to charge them and there are no stations to charge electric cars because nobody is buying electric cars.

You're correct, although the electric car dilemma is a bit more complicated (people may be willing to even charge it at home and would buy if the battery would be big enough for get them to wherever they go for holiday) and it's also somewhat handled by EU (by giving out shitloads of money to set up charging stations)

[LeGaulois]

Don't get me wrong, I'm not saying Bitcoin is useless or something around but let me think twice on buying goods and services with Bitcoin.

Yes a lot of e-commerces accept BTC and I don't deny it, but thinking about it, what is "a lot"? A dozen of shops like Neweeg?
What kind of shops it is? Online shops selling electronic stuff or buying vouchers. It's funny at the begining but it's not what I'm interested in because I don't eat laptops, I eat real food. What I want is to be able to go to the supermarket and I pay with my wallet. I want to pay my bills with my wallet. (I paid a whore in BTC last week by the way )

Yes you can say some can already do it but I want to do it without using a 3rd party, what the shop do in 99% of the time. Now yes, you can say it will come the time when I will be able to do that. But when? In twenty years when I will be dead in the coffin?
Sine I'm not 21 years old anymore (sadly) what I do? Either I convert to fiat or I wait the time I can pay with BTC everywhere but I can die before? Or I go to live in @The Pharmacist's house for a Airbnb to spend bitcoins in The USA? Because to be honest I plan to spend my money while I'm alive, no use once I'm in the graveyard.

How an ecosystem can be build when people are not interested to use it for real use cases? You forget all the shops that removed Bitcoin by the way. As well as the shop accepting crypto but nobody pay with it.

ok I'm wrong about buying goods with gold. But with the current situation, we're not to far to come back to the old time

[Frankolala]

   Bitcoin is a cryptocurrency which can be spent more online,anybody that accepts bitcoin payment,knows that the transaction must be done online.
  Gold is what you see and purchase,either by physical cash or transfer of cash from your bank account,this makes people see gold as a store of value. Bitcoin is used online for transaction of goods and services which is the main purpose of Bitcoin, people don't have much knowledge on cryptocurrency.
  In the aspect of gold,you can see it,admire it,hold it and even use it for jewelries e.t.c. Gold attracts more investors but without the internet we can not make use of our coins. As time goes in the long run Bitcoin will be a store of value when most people in the world has gotten the knowledge.
    In my locality,I know of a POS attendant who accepts bitcoin and he will convert it to cash if you want to withdraw from your wallet.

[avikz]

Store of value ≠ Save haven Bitcoin has no place in both

Absolutely correct! Bitcoin has become a speculative asset. It's neither used as a currency nor as a safe heaven asset. There are multiple issues for both.

Nowadays, making payment is free, so it makes no sense to make payment in bitcoin.

Also a safe heaven asset should retain its value for a longer period of time. Bitcoin is clearly more volatile than any other assets. So it's not a safe heaven asset either.

What realistically bitcoin has become is - speculative asset to make quick money from the ups and downs.

Sad but true!

[aylabadia05]

I have views on Bitcoin and Inflation. If it is wrong, it can be reprimanded and I accept.
Since we were little, we only heard that gold is the right solution to maintain an investment portfolio and avoid depreciating value so that any money earned from work is saved and when it is collected it will be bought gold and stored for a relatively long time.

This means that gold is part of a good history since the economic crisis and investors make Gold as a long-term store of value.
Over time, the presence of Bitcoin has also become a much better solution for storing value in my opinion, although until now I have never held it with my own hands like gold.

As we all know that inflation only occurs in fiat which is not based on the market value of a tangible asset. With fiat currency, the Government has the power in terms of printing money, but when confidence in the government falls, it can lead to inflation.

It is very different from Bitcoin, so it is appropriate for Jeff Dorman to say that Bitcoin is not a "store of value", but a "store of excess value".

[d5000]

I don't disagree completely, but I have two remarks:

When you observe the Bitcoin market, it is much more used as a financial asset than as an alternative currency. [...]
It is a fact that people perceive Bitcoin &co as an asset class in which they can invest and get a return on investment. [...] If a market attracts investors, it becomes volatile, while if the market attract people with a real need, it won't be the same.

I agree with others that only the fact that Bitcoin attracts "investors" doesn't make it necessarily volatile. But you have a point here: the style of investment that happens often in the Bitcoin space is the culprit. I have called it sometimes the "hoard and sell" style: hold it for an extended period (often for ~3 months - 2 years) and then sell it for fiat and forget it (it's not the same as what convinced Bitcoiners call "hodling" - very much the opposite). This behavior is what characterizes also other high-risk assets, like penny stocks.

You can be lucky with this strategy when you catch a bull market, and if not, then you're probably among these who increase the volatility panicking just in the biggest crashes (and sending the price further down with your market order panic sell ).

Now how could we stop or at least discourage this kind of behavior? Of course with technical means, we probably can't, due to the descentralized nature of Bitcoin. What could be done is using communication from user to user, promoting long term hodling, contrarian trading and so on. But communication only is probably not enough.

So in the end I agree with you, Bitcoin must be used more as a currency, as this would boost liquidity and lower volatility.

It is definitively possible (albeit still not everywhere and for every purpose). I think for now the best is to promote every little step made in that direction, like the electronics shops that already accept it or the still timid El Salvador adoption (which is, in my opinion, much less of a "failure" than it's often described, as it was completely clear from the beginning that not all Salvadorians would embrace it from the start, so the ~10-15% of companies already having conducted Bitcoin payments are a good start.)

The other part of the strategy to encourage "currency use" and discourage hoard-and-sell are instruments to protect the investment using Bitcoin means, as you write here:

The function of a safe-haven asset is to withstand a crisis without losing value. [...]
Whereas a store of value must be able to maintain its purchasing power over time. Where is the purchasing power protection for people who invested all their savings when the price was 60k, 50k, 40k, 30k?

Bitcoin alone can't currently fill this role taking into account the short- to mid term. In the long term it does (as many have already written) but what we would need are instruments for people to protect the purchasing power during weeks or months. For example, it would be much more attractive to get your salary in Bitcoin if you can be sure that it won't lose more than (let's say) 5% until the end of the month.

Perhaps one solution could be based on being to be more creative with financial products based on Bitcoin. For example, there are several platforms offering Bitcoin option contracts - in unsafe times put options could be promoted to the general public to protect you from crashes, using a "collar" (selling call options) to finance it.

Another idea could be to create financial products based on the long term price trend, e.g. using long moving averages like the MA 500 or even 1000 (see this thread). These have a low volatility and very seldom fall significantly. The exact organization of such a contract however isn't totally clear to me - to be really interesting it should be ideally a "perpetual" contract.

There are also Discreet Log Contracts which only depend on an oracle, not an exchange platform as an intermediary, which can be used for this purpose. Or this idea for decentralized options (which however would use a stablecoin to be able to protect from a purchasing power loss).

[Z-tight]

Over time, the presence of Bitcoin has also become a much better solution for storing value in my opinion, although until now I have never held it with my own hands like gold.

You'd never hold bitcoin in your hands, it is digital, it can only be used over the internet.

You are incorrect right there, bitcoin is not a better solution to gold when it comes to storing value, gold does it better than bitcoin, have you taken a look at bitcoin's history and how fast price can rise and fall, gold holds its value for very long, bitcoin does not. One area bitcoin is much better than gold is in long term profits, that is why it is called a speculative asset.

It is very different from Bitcoin, so it is appropriate for Jeff Dorman to say that Bitcoin is not a "store of value", but a "store of excess value".

That is an incorrect way to describe bitcoin in my opinion.

[hatshepsut93]

Whereas a store of value must be able to maintain its purchasing power over time. Where is the purchasing power protection for people who invested all their savings when the price was 60k, 50k, 40k, 30k?
Inflation is the role of central banks to regulate/limit/brake it. How do you want it to be the same with Bitcoin?

Gold is a store of value, but there is no mechanisms for stabilizing its price, no regulators who would prevent it from crashing to zero. And yet it demonstrates good performance, it retains and increases its value when stock markets are falling and inflation rises. The argument for Bitcoin that it would be just like gold, it would be viewed as a store of value because of its limited supply. That idea failed. It could still prove true in the long run, in a few decades at least. But there's no strong evidence that it will happen, it's just hope and speculation.