Gold collapsing. Bitcoin UP.

[3eme]

Perhaps but also in the larger trend collapsing faith in the paper markets. It is not the perceived value of the metal that is dropping but the perceived value of the paper contract. The fact that the backwardation exists is a sign that the holders of the metal don't trust the integrity of the futures.

this is what all the goldbugs want you to believe.

it was the paper market that allowed the elevation to today's values in the first place. 

it's over.

Could you please elaborate a bit on that?

Paper = more supply, how more supply can make prices higher?

leverage

History tells a different story, gold is still used as money by many of the worlds most powerful players.  In fact, gold is demanded in payment by key members of OPEC.  At one time, in the late 70's, oil bid directly for gold and ran the price to $850.  Now, they have the opportunity to get their gold much less expensively via paper contracts.  A default will mean non-payment to those who supply the life blood of the world economy, namely oil.  If there is a paper market failure we will see the advertised price of gold, which is really just a reflection of the value placed on the paper contract, go very low.  Meanwhile we will see a private market price on gold that goes to astronomical levels as the world economy grinds to a halt.  The value placed on gold (and probably bitcoin) may go to levels unfathomable to the mind.

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[NewLiberty]

http://wallstreetpit.com/106363-the-false-analogy-between-gold-and-bitcoin/

The fails just keep on coming. I love his note at the bottom.

How is this a fail?  David Andolfatto is pointing out that bitcoin miners serve a more socially-useful purpose than gold miners: bitcoin miners process transactions and secure the ledger (in addition to finding new bitcoins), while gold miners just find new gold.  In other words, the resources spent mining bitcoin are a necessary evil while the resources spent mining gold aren't (because we don't need gold miners to find new gold in order for the "gold ledger" to remain secure and for gold to be useful as a medium of exchange).  

Gold mining is necessary as well. Without an ongoing completive effort at mining, there is no way to know that gold is really as scarce as we think it is.

That's an interesting perspective, Smooth.  With commodity money like gold, resources are consumed mining for more of it; indeed, it is the production that results from these efforts that signals the scarcity of the commodity to the market.  Bitcoin is fundamentally different because its supply is defined a priori at the protocol level; no resources need to be consumed to verify scarcity.  

I think I twisted the argument Andolfatto was making, and sort of made it wrong in the process.  But it is still true, at least when viewed through a certain lens, that gold mining is more wasteful than bitcoin mining.  

Consider the discussion earlier in this thread about extracting gold from the oceans.  If a breakthrough were to occur that enabled low-cost recovery of a portion of the millions of tons of dissolved gold, it would significantly depress gold's market price and distort the memory function of the "gold ledger" (the % of the total gold supply held by each individual would be distorted by this event).  It would also result in a huge amount of resources being directed at extracting gold from the ocean.  From the perspective of the economy as a whole, these resources would be wasted (it would have been better for the economy in aggregate had the ocean contained no additional gold).  In fact, the waste would be amplified due to the economic distortions caused by the subsequent (and unexpected) inflation.  But from the perspective of the individual sea-gold miner, it is in his best interest to consume resources to extract the gold...and so resources will be consumed nonetheless.

Gold is a "barbarous relic" partly because of this misalignment of incentives regarding gold mining and the unpredictability of new supply. With a system like bitcoin, the incentives of the miners are more strongly aligned with the incentives of the economic majority.  If a miner tries to produce more bitcoins than permitted, his blocks are simply ignored by the network.  

TL/DR: A monetary system based on bitcoin would be more efficient than one based on gold.  

Though the result you predict seems likely...Not all would agree.

The presumption that ~21M will be reached always seems a bit odd.  This may not ever occur, 2140 is a long way off.  The notion that they already exist, is a false one.  They do not exist until they are awarded from the coinbase transaction in the block reward.  Until then they are at best theoretical.

So consider whether a monetary system based on gold could exist without more gold mining, and whether it could with bitcoin.

[NewLiberty]

Perhaps but also in the larger trend collapsing faith in the paper markets. It is not the perceived value of the metal that is dropping but the perceived value of the paper contract. The fact that the backwardation exists is a sign that the holders of the metal don't trust the integrity of the futures.

this is what all the goldbugs want you to believe.

it was the paper market that allowed the elevation to today's values in the first place. 

it's over.

Could you please elaborate a bit on that?

Paper = more supply, how more supply can make prices higher?

leverage

Makes sense.

It can also be leveraged down too though...

[smooth]

Bitcoin is fundamentally different because its supply is defined a priori at the protocol level; no resources need to be consumed to verify scarcity.  

I'd also add this. The resources are needed in part to maintain the integrity of the protocol. Without secure mining the protocol is useless.

[tabnloz]

Sunday is a big moment for gold.

It has been hovering lately and a no vote will probably see it tumble.

Bitcoin OTOH has been a little uppish.

If gold dumps on a 'no' vote and btc maintains or rises, this may finally signal the divergence that Cypher has been calling for.

[cypherdoc]

Very soon everyone here is gonna realize we don't need no stinkin SC's nor do we need no stinkin gold.

[ssmc2]

Cypherdoc I'm curious what your thoughts are on Counterparty, if you have any at all...

[Zarathustra]

Cypherdoc I'm curious what your thoughts are on Counterparty, if you have any at all...

+1!
Cypherdoc, Peter R. and the other cracks in this thread: what is your opinion?

[thezerg]

Perhaps but also in the larger trend collapsing faith in the paper markets. It is not the perceived value of the metal that is dropping but the perceived value of the paper contract. The fact that the backwardation exists is a sign that the holders of the metal don't trust the integrity of the futures.

this is what all the goldbugs want you to believe.

it was the paper market that allowed the elevation to today's values in the first place. 

it's over.

Could you please elaborate a bit on that?

Paper = more supply, how more supply can make prices higher?

leverage

Makes sense.

Also access to markets.  Paper gold made it possible to invest with a click of a button in your trading account, in IRAs, 401ks, and funds.  It opened a huge market.  If paper breaks away from physical, there will presumably be an underlying upwards pressure (why physical is breaking away) but this will be countered by a downward pressure as the closure of paper markets limit access to gold back to those willing to hold phys.  Hopefully, some of the 100% backed funds will actually turn out to be 100% backed, in which case the paper markets may not close -- at the end of the day, some of the paper will still be around, and others will have force-converted to USD "payable for all debts public and private".

But the act of forced-conversion (conversion without actually buying physical gold, thus driving the price up) might tarnish paper gold's shine as longs realize that they hold all the risk of a downside squeeze with none of the rewards of the same on the upside.

[STT]

Sunday is a big moment for gold.

It has been hovering lately and a no vote will probably see it tumble.

Bitcoin OTOH has been a little uppish.

If gold dumps on a 'no' vote and btc maintains or rises, this may finally signal the divergence that Cypher has been calling for.

I think surveys are already showing a 50% in favour of gold backing to the Swiss will not go ahead.    The market will have already kept track of the likelyhood of such things and I dont believe that much of the recent gold rise is really to do with this vote. 
When scotland was voting it had some surveys showing it was possibly viable to go ahead with its split.  It kicked up quite alot of dust before the vote.   Basically the surprise now would be if the swiss vote was yes and we have a big surprise move to the upside possibly.
I also dont think it will occur, the population are not especially frightened of their tracking Euro or general moves.  On general principle it would be best to go ahead but most people now see gold as archaic, any change to that attitude would be major news worth investing in

[STT]

I think physical mining is the largest determination.   Paper or futures contracts is more short term effect, certainly possible but not why gold has fallen for so long now.
The largest buyer of gold is China.  The largest producer of gold is China and also I think the largest importer and maybe largest store of gold would be China.   China has reported they have no increase in gold holdings, they dont export any gold and they operate the most mining but it amounts to nothing according to them.    That dynamic whatever is happening there, is far more significant then what Chicago or London is upto

https://www.bullionstar.com/blog/koos-jansen/total-chinese-gold-reserves-nearly-16000t/
http://www.businessinsider.com/gold-reserves-by-country-2012-8?op=1&IR=T

[cbeast]

If nobody is going to back their currency with gold, then there's no reason not to hyperinflate your currency. Let's see how much QE Switzerland will enjoy! Global hyperinflation here we come!

[BlindMayorBitcorn]

I think physical mining is the largest determination.   Paper or futures contracts is more short term effect, certainly possible but not why gold has fallen for so long now.
The largest buyer of gold is China.  The largest producer of gold is China and also I think the largest importer and maybe largest store of gold would be China.   China has reported they have no increase in gold holdings, they dont export any gold and they operate the most mining but it amounts to nothing according to them.    That dynamic whatever is happening there, is far more significant then what Chicago or London is upto

Hmm. Agreed.

Edit: Like the Hunt brothers and silver. You corner the market, you crash it. Is this the idea?

[Peter R]

Bitcoin is fundamentally different because its supply is defined a priori at the protocol level; no resources need to be consumed to verify scarcity.  

I'd also add this. The resources are needed in part to maintain the integrity of the protocol. Without secure mining the protocol is useless.

Right, bitcoin mining is needed to secure the ledger and create consensus on the ordering of transactions.  Thus the resources consumed in the process are not "wasted" in the same sense they are with gold mining. Smooth, you're one of the best here with semantics and logic, and I'm sure you'll find something wrong with my arguments, but I think David Andolfatto's (St. Louis Fed VP) has made some important insights into bitcoin and the nature of money (and that I'm not clearly explaining my point of view).  

My original post on this topic was in defence of his critique of Willem Buiter's (Citibank Chief Economist) analogy between gold and bitcoin.

The waste associated with mining gold is that in principle, gold money can be replaced by paper money (and please, do not give some weird “out of thin air” argument; see here.) Paper money, like Bitcoin, and unlike gold, is (near) costless to produce.

Readers here might be quick to correct David: "of course, bitcoins are costly to produce.  Satoshi said that the cost to produce them would tend to approach their market value…"  He half explains this later:

Let me be clear about this. Bitcoin costs zero to produce. If one had control over the protocol, one could instantly and costlessly create as many bitcoins as one wanted. No environmental waste, no effort needed. The same is not true of gold.

And he's right: if one had control over the protocol, one could instantly and costlessly create as many bitcoins as one wanted…and issue a favourable amount to one's friends and to one's self!!  Andolfatto argues that "evil is the root of all money," or more accurately, that money is necessary because trust and information is not perfect.  So what would happen "if a benevolent and omniscient God" had control of the protocol"? Well then this God could issue the bitcoins to the population of the world in a way the results in the optimal distribution to achieve some "best happiness" or some such notion as deemed appropriate by His Benevolence.  In such a case, the cost to produce each bitcoin would be identically zero (and the resulting distribution of wealth would be equal to or better than what will actually play out over the next decade).

When viewed through this lens, bitcoins are costless to produce.  The resources consumed by the miners are not spent on the bitcoins themselves, but rather on the fact-finding mission to determine how these entries in our global ledger should best be distributed across the world's population².  And, since we unfortunately don't have access to a benevolent and omniscient God to help us fill in the blanks¹, this fact-finding mission plays out as bitcoin's proof-of-work mining competition.  

So, the resources consumed during bitcoin mining solve an informational and trust problem only.  If "evilness"=0 and if information was perfect, then the cost to produce bitcoins would be zero.  On the other hand, the production of gold is a physical problem and its cost and environmental impact would always be significant and would not depend (to a great extent) on information or on trust.

TL/DR: bitcoin > gold.

¹I'd argue that the fiat experiment that began at Bretton Woods was a result of conviction that we could emulate the decisions my hypothetical "benevolent of omniscient God."  A conviction that I believe is fading away.  But the fiat experiment was at least half right: money doesn't have to be costly to produce (like gold is), provided information and trust is perfect (it's just that we aren't trustworthy and perfect information is not possible).  

²In the post-distribution stage of bitcoin, mining remains non-wasteful.  If "evilness"=0, then nobody attempts to double spend or attack the network.  In such a world, there's no need for mining, because everyone is honest and nodes can hold hands and take turns publishing blocks.  So in a utopian world, no resources are required to verify transactions.  In the real world, resources are consumed to the extent that "evilness" exists.  Once again, the resources are consumed to solve a problem of information and trust, not to perform some physical action.  We must waste a certain amount of resources simply to dis-incentivize economic agents from acting maliciously.

[smooth]

This gold mining argument still seems a bit silly and perhaps circular to me. We use gold (a rare and difficult-to-mine substance) for the same reason we need Bitcoin mining: to replace fragile trust. If everyone were trustworthy, we could use shiny pebbles instead of gold coins. No resources would be needed to "mine" pebbles, you just pick them up off the ground. Everyone would be trusted not to pick up pebbles he didn't deserve, and only obtain them through trade or in some other socially approved manner (perhaps as a form of "guaranteed minimum income", every person would be allowed to pick up one pebble per day.

[cbeast]

Let me be clear about this. Bitcoin costs zero to produce. If one had control over the protocol, one could instantly and costlessly create as many bitcoins as one wanted. No environmental waste, no effort needed. The same is not true of gold.

And he's right: if one had control over the protocol, one could instantly and costlessly create as many bitcoins as one wanted…

If is for children and shitcoins. A fallacious argument and failed attempt at philosophy. If I could find an asteroid made of gold and catch it with a very big net I could crash the gold market.

[Peter R]

Let me be clear about this. Bitcoin costs zero to produce. If one had control over the protocol, one could instantly and costlessly create as many bitcoins as one wanted. No environmental waste, no effort needed. The same is not true of gold.

And he's right: if one had control over the protocol, one could instantly and costlessly create as many bitcoins as one wanted…

If is for children and shitcoins. A fallacious argument and failed attempt at philosophy. If I could find an asteroid made of gold and catch it with a very big net I could crash the gold market.

I think you're looking at this the wrong way.  He's saying this is a positive for Bitcoin, as it reveals Bitcoin's efficiency over something physical like gold.  I don't think he's trying to imply that this is a threat to Bitcoin's scarcity. 

Bitcoin is a more pure form of money than gold. 

[Peter R]

Is there a cheaper way? The current protocol uses what is called "Proof of Work" and there is very much something like a common resource problem here, with "overinvestment" in computing power (relative to first-best). But the community is working on alternatives, like Proof-of-Stake. But at present, there appear to be trade-offs. Cheaper protocols are also less secure, at least for now. But I expect a big break through in the not to distant future.

From: http://andolfatto.blogspot.ca/2014/11/bitcoiners-surely-we-can-do-buiter-than.html?showComment=1417191644448

Ugh. No. David. Bad.

[Morbid]

i highly recommend this text containing best of geopolitical porn to make warm feelings in the tommies for all the gold bugs out there..

http://www.gold-eagle.com/article/grandmaster-putins-golden-trap

[Cortex7]

i highly recommend this text containing best of geopolitical porn to make warm feelings in the tommies for all the gold bugs out there..

http://www.gold-eagle.com/article/grandmaster-putins-golden-trap

Good read, lays it out plain and simple, it is indeed checkmate!

Sound money ( gold and bitcoin included ) WILL break up to it's real price in the future.