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Author Topic: Bitcoin is NOT a Currency - Etsy Labs, Brooklyn - May 14th  (Read 4799 times)
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May 13, 2012, 08:33:57 PM
 #1

Bitcoin is NOT a Currency

Etsy Labs Brooklyn, May 14th 7pm

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Nerds LOVE Bitcoin. It's technologically and cryptographically fascinating. http://en.wikipedia.org/wiki/Bitcoin

But is it actually a currency? Kenneth Bromberg, lead programmer of Bloomberg's foreign exchange platform, will explain what actually makes something a "currency", why Bitcoin doesn't fit that definition, and why it therefore doesn't trade on the global currency exchanges.

http://www.meetup.com/BK-Tech-Talks/events/55386052/

Would anyone in the area like to go to this and counter any FUD this guy comes out with?
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May 13, 2012, 08:35:52 PM
 #2

Bitcoin is NOT a Currency

Etsy Labs Brooklyn, May 14th 7pm

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Nerds LOVE Bitcoin. It's technologically and cryptographically fascinating. http://en.wikipedia.org/wiki/Bitcoin

But is it actually a currency? Kenneth Bromberg, lead programmer of Bloomberg's foreign exchange platform, will explain what actually makes something a "currency", why Bitcoin doesn't fit that definition, and why it therefore doesn't trade on the global currency exchanges.

http://www.meetup.com/BK-Tech-Talks/events/55386052/

Would anyone in the area like to go to this and counter any FUD this guy comes out with?

I'm supposed to be going, but have another Bitcoin event the same time!!!

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May 13, 2012, 08:59:05 PM
 #3

Bitcoin is NOT a Currency

Etsy Labs Brooklyn, May 14th 7pm

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Nerds LOVE Bitcoin. It's technologically and cryptographically fascinating. http://en.wikipedia.org/wiki/Bitcoin

But is it actually a currency? Kenneth Bromberg, lead programmer of Bloomberg's foreign exchange platform, will explain what actually makes something a "currency", why Bitcoin doesn't fit that definition, and why it therefore doesn't trade on the global currency exchanges.

http://www.meetup.com/BK-Tech-Talks/events/55386052/

Would anyone in the area like to go to this and counter any FUD this guy comes out with?

My shooting from the hip response is, first, that whether bitcoin is a currency is a matter of some controversy and is going to depend on exactly what conditions one counts as necessary for something to be a currency, but, of course, this will be addressed by Bromberg and he's going to give us some set of conditions the whole of which bitcoin will not satisfy.  

Second, whether bitcoin does or does not satisfy the conditions of what it is to be a currency it may or may not trade on global currency exchanges.  I'm no expert, but I'm guessing that there are instruments which trade on global currency exchanges which do not satisfy all of the conditions Bromberg will set forth.  Therefore, even if something does not fit the conditions, it doesn't follow that it won't trade on those exchanges.

Third, it isn't clear that bitcoin does not trade on global currency exchanges since it is a matter of controversy whether MtGox and other bitcoin exchanges are not global currency exchanges.

Fourth, let's just grant that bitcoin doesn't satisfy the conditions you set forth for something to be a currency and that, therefore, it doesn't trade on the global currency exchanges.  Therefore...?  While the bitcoin economy is still very, very small, nevertheless, yesterday Fred may have bought a Wii using bitcoin and in that case bitcoin may have performed a function no different than USD.  If that's the case, than for all practical purposes bitcoin was/is a currency.  

Finally, if, for all practical purposes, it performs like a currency, but it doesn't satisfy all the conditions you set forth, then would you be happier if we called it a schmurrency instead of a currency?  A schmurrency, you see, is an instrument which performs, for all practical purposes, just like a currency, but it doesn't satisfy the Brombergian demands of what it is to be a currency.  And, here's a fact:  Some people get along fine using currencies in certain contexts and some people get along fine using schmurrencies in some contexts.  The end.
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May 13, 2012, 09:13:03 PM
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Finally, if, for all practical purposes, it performs like a currency, but it doesn't satisfy all the conditions you set forth, then would you be happier if we called it a schmurrency instead of a currency?  A schmurrency, you see, is an instrument which performs, for all practical purposes, just like a currency, but it doesn't satisfy the Brombergian demands of what it is to be a currency.  And, here's a fact:  Some people get along fine using currencies in certain contexts and some people get along fine using schmurrencies in some contexts.  The end.
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May 13, 2012, 09:14:04 PM
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But is it actually a currency? Kenneth Bromberg, lead programmer of Bloomberg's foreign exchange platform, will explain what actually makes something a "currency", why Bitcoin doesn't fit that definition, and why it therefore doesn't trade on the global currency exchanges.

These so called experts really piss me off. With Bitcoin there are no theories or abstract definitions, only practice. In practice at the moment Bitcoin is being used as a currency. You can use it to buy all sorts of goods and services. Therefore to a certain group of people Bitcoin is a currency. End of story.

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May 13, 2012, 09:25:38 PM
 #6

Bitcoin is NOT a Currency

Etsy Labs Brooklyn, May 14th 7pm

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Nerds LOVE Bitcoin. It's technologically and cryptographically fascinating. http://en.wikipedia.org/wiki/Bitcoin

But is it actually a currency? Kenneth Bromberg, lead programmer of Bloomberg's foreign exchange platform, will explain what actually makes something a "currency", why Bitcoin doesn't fit that definition, and why it therefore doesn't trade on the global currency exchanges.

http://www.meetup.com/BK-Tech-Talks/events/55386052/

Would anyone in the area like to go to this and counter any FUD this guy comes out with?

I'd be happy if he succeeds.  Classifying Bitcoin as a 'currency' is a significant liability in my opinion.  I figure it's to late, and also that it's too obvious that Bitcoin is, for all intents and purposes, a 'currency', but hopefully Bromberg does his thing well and Bitcoin continues to remain uninteresting to legislation and the like for as long a period of time as possible.

I'm happy to have Bitcoin classified as a 'foodstuff' if it perpetuates the amount of time it and it's economy has to evolve and develop unmolested.


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May 13, 2012, 09:27:55 PM
 #7

Hi guys.

let's break this down, as I have had this discussion with many humans, from trained economists to the layman.

Is BTC a currency?

1)  let's define currency:  http://en.wikipedia.org/wiki/Currency  -->  "In economics, currency refers to a generally accepted medium of exchange."  

2) I think bitcoin fits this description.

3)  some economists I have talked to run down a list to see if BTC is or isn't a currency.  something like this:
3a)  Is it a store of value?
3b)  can it be easily transferred and traded?
3c) is it accepted by many merchants for goods and services?


I think BTC is a currency at this point.  It probably became something like a micro-currency when it was first traded for actual USD, even if only a few cents, so long as there would have been a handful of people or merchants would accept the BTC for some good or service.   My best guess is early 2011 BTC became a currency, somehow crawling out of the Satoshi-based primordial soup that it came from, up through the ranks of WoW and Second Life, into the flourishing drug trade and now extended to many, many widely varying businesses.




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May 13, 2012, 10:00:10 PM
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Most  people are brainwashed to think that "currency" is an equivalent of "fiat currency", while in reality "fiat currency" is a sub set of "currency". I.e. "Currency" includes "fiat currencies" and "non fiat currencies".

That Kenneth Bromberg, "lead programmer of Bloomberg's", is arguing that Bitcoin is not a "fiat currency" but uses term "currency" because he is as brainwashed as the rest of the population to think that "fiat currency" is the same  thing as "currency" (or just a shill).

Logically, if the above is true, then his argument (whatever it is) is utter nonsense.

This is a logical fallacy. Even if he has proven that Bitcoin is not a "fiat currency", it does not mean that Bitcoin is not a "currency".

Let me give you an example. There are two subjects a man and a woman. One could use word man when he refers to either "a man" or "a woman" (i.e. instead of "a person"), then prove that some "third person" is not "a man" and conclude that the "third person" is not "a person" (and not "a woman"). If true, this means that "a person" is not "a person" and not "a woman" and "not a man". This proves presence of  a logical fallacy.

If anyone will be there on May 14th, Ask him whether "currency" and "fiat currency" are exactly the same thing. If yes, then you will demonstrate that it is not true and crush his faulty logic. If not, then he has to prove that his definition of "currency" is correct and not actually a definition of "fiat currency".

According to wikipedia:
Quote
Fiat money is money that derives its value from government regulation or law.
Quote
currency refers to a generally accepted medium of exchange.

note that that "fiat currency" is a physical representation of "fiat money".


One valid argument in favour of Bitcoin not being a "currency" is that Bitcoin is not a "medium of exchange". This seems to be obviously false.

Another valid argument would be that Bitcoin is not "generally accepted". But what "generally accepted" means? I would say "generally accepted" means "generally accepted in Bitcoin community". If you want to argue otherwise please prepare to explain how Mongolian Tugriks are not a currency.



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May 13, 2012, 10:10:43 PM
 #9


Finally, if, for all practical purposes, it performs like a currency, but it doesn't satisfy all the conditions you set forth, then would you be happier if we called it a schmurrency instead of a currency?  A schmurrency, you see, is an instrument which performs, for all practical purposes, just like a currency, but it doesn't satisfy the Brombergian demands of what it is to be a currency.  And, here's a fact:  Some people get along fine using currencies in certain contexts and some people get along fine using schmurrencies in some contexts.  The end.

LOL +1

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May 13, 2012, 10:37:20 PM
 #10

Bitcoin is a currency, even though many people wish it were not.

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May 13, 2012, 10:56:34 PM
 #11

Freedom is slavery, war is peace, and bitcoin is not currency. Move along, citizen.

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May 13, 2012, 11:00:18 PM
 #12

Freedom is slavery, war is peace, and bitcoin is not currency. Move along, citizen.

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May 14, 2012, 12:24:22 AM
 #13

81 people attending.    

 - http://www.meetup.com/BK-Tech-Talks/events/55386052/

Quote
Kenneth Bromberg of Bloomberg will explain what actually makes something a "currency", why Bitcoin doesn't fit that definition, and why it therefore doesn't trade on the global currency exchanges.

Oh, but Ven does?
"Ven digital currency to be displayed on Thomson Reuters terminal network"
 - http://www.finextra.com/news/fullstory.aspx?newsitemid=22985

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May 14, 2012, 12:26:25 AM
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I don't think BTC are currency, I just think they are cool things that people want, and trade other cool things for. Oh wait...

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May 14, 2012, 01:05:20 AM
 #15

Bitcoin is NOT a Currency

Etsy Labs Brooklyn, May 14th 7pm

Quote
Nerds LOVE Bitcoin. It's technologically and cryptographically fascinating. http://en.wikipedia.org/wiki/Bitcoin

But is it actually a currency? Kenneth Bromberg, lead programmer of Bloomberg's foreign exchange platform, will explain what actually makes something a "currency", why Bitcoin doesn't fit that definition, and why it therefore doesn't trade on the global currency exchanges.

http://www.meetup.com/BK-Tech-Talks/events/55386052/

Would anyone in the area like to go to this and counter any FUD this guy comes out with?

I'd be happy if he succeeds.  Classifying Bitcoin as a 'currency' is a significant liability in my opinion.  I figure it's to late, and also that it's too obvious that Bitcoin is, for all intents and purposes, a 'currency', but hopefully Bromberg does his thing well and Bitcoin continues to remain uninteresting to legislation and the like for as long a period of time as possible.

I'm happy to have Bitcoin classified as a 'foodstuff' if it perpetuates the amount of time it and it's economy has to evolve and develop unmolested.



Be careful what you wish for. If the establishment, well, establishes that Bitcoin is not a currency, then it will likely be treated as a commodity, implying a sales tax or VAT whenever you "exchange" it for fiat or barter it for other commodities. This would totally impede the use of Bitcoin.

I tried arguing before that Bitcoin is neither a currency nor a commodity, but simply an accounting system, more precisely a distributed ledger. After some discussion here on the forum, I changed my mind. To me Bitcoin most closely resembles a currency. This is not wishful thinking on my side, but simply a conclusion I've come to.

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May 14, 2012, 01:08:34 AM
 #16

It truely doesn't matter what other people think - that's the best thing about Bitcoin.

Krugman can hate us for having a "deflationary" currency, people such as the speaker mentioned in the OP can claim it's not a currency despite it being used as such, and others may proclaim that exchange hacking makes them "have no faith in Bitcoin" ( I have heard that one a lot ).

Despite the logical fallacies in all of these objections to Bitcoin, they are pervasive, and they are very good for those of us who fully grok Bitcoin. The worthy will own Bitcoin and will profit mightily from its ascendance long before the unworthy are forced aboard the train.

So the more people hate on Bitcoin, the more I want to buy for myself while they're cheap Smiley
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May 14, 2012, 01:10:38 AM
 #17

Freedom is slavery, war is peace, and bitcoin is not currency. Move along, citizen.

+1
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May 14, 2012, 01:20:29 AM
 #18

The worthy will own Bitcoin and will profit mightily from its ascendance long before the unworthy are forced aboard the train.


+1

I actually like the train analogy beyond that - it is as if we're building the world's first train, and all around us people stare and say, "That's not a horse! It won't ever work!" Meanwhile the rails are being laid to their door.

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May 14, 2012, 01:23:23 AM
 #19

The worthy will own Bitcoin and will profit mightily from its ascendance long before the unworthy are forced aboard the train.


+1

I actually like the train analogy beyond that - it is as if we're building the world's first train, and all around us people stare and say, "That's not a horse! It won't ever work!" Meanwhile the rails are being laid to their door.
lol, reminds me of Noah building the ark. It took him 120 years to build, and during that time there was no rain at all, and he was building it on dry land, so it naturally had its detractors. Smiley He was 600+ years old before the actual flood came.

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May 14, 2012, 01:45:02 AM
 #20

The worthy will own Bitcoin and will profit mightily from its ascendance long before the unworthy are forced aboard the train.

+1

I actually like the train analogy beyond that - it is as if we're building the world's first train, and all around us people stare and say, "That's not a horse! It won't ever work!" Meanwhile the rails are being laid to their door.
lol, reminds me of Noah building the ark. It took him 120 years to build, and during that time there was no rain at all, and he was building it on dry land, so it naturally had its detractors. Smiley He was 600+ years old before the actual flood came.

And he was even older when he was fucking is daughters.  [review scriptures...]  Oops.  Wrong guy;  I guess that was Lot.   So Noah was even older than 600 years when he was caught 'exposing himself.'  Both were drunk.  Were these guys boozing creepers or what!?!


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May 14, 2012, 03:26:32 AM
 #21

The worthy will own Bitcoin and will profit mightily from its ascendance long before the unworthy are forced aboard the train.

+1

I actually like the train analogy beyond that - it is as if we're building the world's first train, and all around us people stare and say, "That's not a horse! It won't ever work!" Meanwhile the rails are being laid to their door.
lol, reminds me of Noah building the ark. It took him 120 years to build, and during that time there was no rain at all, and he was building it on dry land, so it naturally had its detractors. Smiley He was 600+ years old before the actual flood came.

And he was even older when he was fucking is daughters.  [review scriptures...]  Oops.  Wrong guy;  I guess that was Lot.   So Noah was even older than 600 years when he was caught 'exposing himself.'  Both were drunk.  Were these guys boozing creepers or what!?!
Thanks, now I gotta redo my next Buried Keys Biblical Dig. Looks like this train got derailed.

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May 14, 2012, 05:13:32 AM
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Yeah, this guy is probably going to argue that currency requires a counterparty (government).  That's wrong, but whatever.  It's a commodity.  It's a commodity-currency.  The counterparty is the market.  That's more reliable than a government anyways.  Fuck him.  We don't need Bloomberg or whatever this guy does.  He's just talking his book.

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May 14, 2012, 06:59:50 AM
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Why are you so angry at him? Without listening to his argument even? The law often defines currency as a medium of exchange with special legal status. Sure, this is a statist definition, but so what? It's illogical to be angry about a definition.
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May 14, 2012, 07:10:48 AM
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Here's my argument for Bitcoin's currency status.

I don't care much what economists decide the critera for a bona fide "currency" are, I care how something is used and to really grasp what the use of currency looks like we have to go back to a time before it existed. Once upon a time there was barter. If I were a shepherd and you were a chicken farmer I could trade you sheep for eggs, but there were some problems here: What if you don't want my sheep? What if I can't break down one of my sheep into a quantity that's worth the number of eggs I want? This scenario could easily turn into a long drawn-out series of trades across the marketplace for me to simply trade sheep for eggs in the desired quantities and I probably lose value with each successive trade - and I *definitely* lose value in the time I have to spend making the trades. What's more, I need to know the value of everything as expressed in everything else. I can't trade my sheep for berries then trade berries for eggs if I don't know the exchange rates for all those things. A barter-based market looks like this:



My fellow computer nerds will recognize this as a "mesh topology" - a type of network where everything is linked with everything else. It's very resilient but it's also very complex and doesn't scale well.

Now let's introduce a currency - let's say silver coins (though it could be anything so long as the whole market decides to use the same thing). I trade my sheep for silver and my silver for eggs - the most trades I have to make to get from anything to anything else is two and my mental load is lessened since I only have to know the value of everything in silver. The silver is more divisible than my sheep and in this silver-based marketplace it's almost guaranteed that you'll want my silver since you can exchange my silver for anything else that you want. This marketplace looks like this:



This should also be recognized by my fellow computer nerds as a star topology. The thing at the middle, in this case silver, is the currency. That's my criteria in a nutshell - is there a marketplace that has what looks like a star topology with Bitcoin being the thing in the center? As of today there is indeed a marketplace, albeit a fairly limited and young marketplace, that looks just like the above with Bitcoin in the center, so for all practical purposes, Bitcoin is a currency.

Do note, of course, that having only one bit in the center is an over-simplification. In an old marketplace you might use silver for small purchases and gold for large and in international marketplaces there might be multiple currencies all exchangeable for one another in a mini-mesh, but the point is that there's something small and comparatively simple in the middle surrounded by a great many things that are exchangeable for what's in the center. The fact that many businesses do business in Bitcoin then exchange it for local currency has no bearing (in this example anyway) on Bitcoin's use and therefore status as a functional currency.

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May 14, 2012, 07:33:24 AM
 #25

Today I will explain why an obviously superior technology will not take my job.  Lips sealed
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May 14, 2012, 09:12:31 AM
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Today I will explain why an obviously superior technology will not take my job.  Lips sealed
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May 15, 2012, 02:20:02 AM
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So, did anyone go?
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May 15, 2012, 02:38:02 AM
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The worthy will own Bitcoin and will profit mightily from its ascendance long before the unworthy are forced aboard the train.


+1

I actually like the train analogy beyond that - it is as if we're building the world's first train, and all around us people stare and say, "That's not a horse! It won't ever work!" Meanwhile the rails are being laid to their door.

+1000
What school did you attend?  Did you major in mind-blowing analogies?

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May 15, 2012, 02:43:34 AM
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I'm curious as to the reasons behind categorizing bitcoin one way or another.  I see earlier in this thread, according to at least one person, the ostensible reasons for establishing btc as a commodity would be in order to tax it.
What would be the reasoning for establishing it as a currency?  I think I remember reading somewhere that the reason for this would be to render it illegal:  It is treasonous (? maybe?  not sure what law or laws are violated here) to create a currency that is not whichever nation's established currency for payment of taxes in that nation.

So, I guess what I'm wondering is, whether BTC is established as currency or commodity, wouldn't either situation be detrimental to the BTC ecosystem and possibly its fundamental purpose?

I'm fine with it being a shmurrency...

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May 15, 2012, 02:45:34 AM
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So, did anyone go?

"Bitcoin works. That's the problem." - Ken Bromberg, Bloomberg LP #bitcoin
 - http://twitter.com/#!/dbkahn/status/202189415618056192

The only Tweets I saw were from:
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May 15, 2012, 03:20:15 AM
 #31

Why are you so angry at him? Without listening to his argument even? The law often defines currency as a medium of exchange with special legal status. Sure, this is a statist definition, but so what? It's illogical to be angry about a definition.

No that would be legal tender.

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May 15, 2012, 06:52:58 AM
 #32

Why are you so angry at him? Without listening to his argument even? The law often defines currency as a medium of exchange with special legal status. Sure, this is a statist definition, but so what? It's illogical to be angry about a definition.
No that would be legal tender.
Depends on the context, I think I wasn't explicit enough. USD is a legal tender in the USA, but euros or yen are still a currency (while Bitcoin or gold most likely are not). This has an effect on taxation, regulation and so on.
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May 15, 2012, 10:08:17 AM
 #33

Why are you so angry at him? Without listening to his argument even? The law often defines currency as a medium of exchange with special legal status. Sure, this is a statist definition, but so what? It's illogical to be angry about a definition.
No that would be legal tender.
Depends on the context, I think I wasn't explicit enough. USD is a legal tender in the USA, but euros or yen are still a currency (while Bitcoin or gold most likely are not). This has an effect on taxation, regulation and so on.
If special legal satus is a requirement for a currency, then currency is subject to the winds of political change and not something with long term storage of value.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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May 15, 2012, 11:42:40 AM
 #34

If special legal satus is a requirement for a currency, then currency is subject to the winds of political change and not something with long term storage of value.
If it merely has a special legal status, that does not necessarily mean that the politics can influence the production or distribution of it. But you're correct in that the definition is a statist one. Its purpose is to be usable for tax and accounting, not for economic or financial analysis.
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May 15, 2012, 02:51:42 PM
 #35

A currency is $DEFINITION_OF_CURRENCY_THAT_SUITS_MY_ARGUMENT.

Bitcoin, therefore, is/isn't a currency.


Bitcoin is what it is; let's leave semantics to the future historians.

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May 19, 2012, 06:29:43 AM
 #36

BK Tech Talks - Bitcoin is NOT a currency
http://www.youtube.com/watch?v=NULPfp0Zu5g


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May 19, 2012, 08:14:21 AM
 #37

nice vid, interesting to watch, too bad they disabled comments or at least it didn't work for some reason for me.

the guy is pretty objective and honest in his views. first half of video i had a feeling he was pretty much endorsing bitcoin, but his stance that it won't work long term only because that the powers that may be will never give up their powers.

another of his points was that we don't have any developed investment vehicles with which i pretty much disagreeing as seeing GLBSE picking up pace in real investments sector
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May 19, 2012, 08:48:54 AM
 #38

BK Tech Talks - Bitcoin is NOT a currency
http://www.youtube.com/watch?v=NULPfp0Zu5g


What a waste of time that was.

While reading what I wrote, use the most friendliest and relaxing voice in your head.
BTW, Things in BTC bubble universes are getting ugly....
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May 19, 2012, 10:06:11 AM
 #39

another of his points was that we don't have any developed investment vehicles with which i pretty much disagreeing as seeing GLBSE picking up pace in real investments sector

I think he was referring more to bonds. "Buy money; get more money guaranteed!"

The gist is no bonds, no taxes, not a currency as these are the two things that keep the fiat cycle running. And since governments are unlikely to ever accept bitcoin for taxes because it reduces their power, and bonds can't be hand, bitcoin will never be a true medium of exchange for the world. It's an opinion and he said as much.

One would hope that if enough of the people demanded bitcoin payment for taxes that governments would eventually acquiesce. But I think it would be pretty unlikely with what world governments have been doing lately.

"If you don't want to go to jail, bitcoin can't be your currency." It makes sense.

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May 19, 2012, 10:19:54 AM
 #40

BK Tech Talks - Bitcoin is NOT a currency
http://www.youtube.com/watch?v=NULPfp0Zu5g


What a waste of time that was.


Ty, I was 2min in and paused reading this thread. I closed the tab now.

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May 19, 2012, 11:48:50 AM
 #41

The central plank of his criticism was that there is no deposit market in Bitcoin, which means institutional investors cannot park money in it, sell futures, or hedge volatility.

This is false as demonstrated by BTC lending threads on this forum. The market for Bitcoin deposits is very new but it will only grow in time.
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May 19, 2012, 12:00:20 PM
 #42

BK Tech Talks - Bitcoin is NOT a currency
http://www.youtube.com/watch?v=NULPfp0Zu5g


What a waste of time that was.


Ty, I was 2min in and paused reading this thread. I closed the tab now.

Curiosity got the best of me and I'm actually glad. The video is quite decent and his points have a lot of merit and I suggest people to at least listen to this presentation. Of course he is completely oblivious to the invisible regulations by strictly market consumers (i.e. the free market) and wrongly thinks we must have governmental regulatory tools to avoid volatility which is a shame since I got the feeling he is pretty intelligent.

Wow 54:40 guy presents a beautiful counterargument to Kenneth Bromberg's argument that Bitcoin is not a currency because it doesn't have sufficient future value guarantees to which he doesn't have an answer for.

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May 19, 2012, 12:39:34 PM
 #43

It's actually an really interesting video and the critique at 54min is very concise and powerful and I have a lot of respect for Bromberg for conceding as much.
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May 19, 2012, 05:29:05 PM
 #44

The central plank of his criticism was that there is no deposit market in Bitcoin, which means institutional investors cannot park money in it, sell futures, or hedge volatility.

This is false as demonstrated by BTC lending threads on this forum. The market for Bitcoin deposits is very new but it will only grow in time.

Yes, and they're options too, in mpex. As you say, everything may be really brand new, and not yet completely established, but everyday new things are emerging.
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May 19, 2012, 05:39:06 PM
 #45

I have a new signature.

Do not waste your time debating whether Bitcoin can work. It does work.

"Early adopters will profit" is not a sufficient condition to classify something as a pyramid or Ponzi scheme. If it was, Apple and Microsoft stock are Ponzi schemes.

There is no such thing as "market manipulation." There is only buying and selling.
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May 19, 2012, 05:42:25 PM
 #46


Great presentation, and one of the most compelling pro-Bitcoin presentations I've seen.

I'm sure I feel this way in part because I and the presenter seem to share a lot of philosophies on certain things.  I found plenty to disagree with in the presentation but that is almost always the case in any presentation about almost anything.


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May 19, 2012, 09:02:56 PM
 #47

I found it troubling that his thesis rested on the assumption that deposit and interest bearing accounts can only come from government's ability to print cash and pay such interest in perpetuity. The man seemed smart, but that theory is so darn silly I'm not sure what he's thinking.

Any deposit markets that rely on government fiat interest are built on much poorer a foundation than deposit markets built in a profit-seeking marketplace which is unable to "print."

If his theory is that Bitcoin can't be a currency because accounts will never yield returns, then I think he just proved Bitcoin is a currency. 

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May 19, 2012, 09:32:36 PM
 #48

I found it troubling that his thesis rested on the assumption that deposit and interest bearing accounts can only come from government's ability to print cash and pay such interest in perpetuity. The man seemed smart, but that theory is so darn silly I'm not sure what he's thinking.

Any deposit markets that rely on government fiat interest are built on much poorer a foundation than deposit markets built in a profit-seeking marketplace which is unable to "print."

If his theory is that Bitcoin can't be a currency because accounts will never yield returns, then I think he just proved Bitcoin is a currency. 

I didn't get the sense that the presenter was a particular fan of our current fiat monetary solutions or unaware of the disadvantages and limitations of them.  If anything I got the opposite sense.  But this particular presentation did not seem to have at it's focus any special advocacy role one way or another.  Seemed to me to be mostly just an intellectual exploration.


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May 19, 2012, 09:36:42 PM
 #49

I found it troubling that his thesis rested on the assumption that deposit and interest bearing accounts can only come from government's ability to print cash and pay such interest in perpetuity.
I guess he's saying that the government bond yield defines the risk free rate of return, which all other interest rates are based off.

So because there is no risk free return for holding bitcoins, it is therefore an investment instrument rather than a currency.

His reasoning may be correct. But it is not useful. As far as Im concerned if Bitcoin can be used as money, then it is money.
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May 19, 2012, 10:18:30 PM
 #50

The worthy will own Bitcoin and will profit mightily from its ascendance long before the unworthy are forced aboard the train.


+1

I actually like the train analogy beyond that - it is as if we're building the world's first train, and all around us people stare and say, "That's not a horse! It won't ever work!" Meanwhile the rails are being laid to their door.

Well they certainly were laid right to the door of that lecture hall, thundering through every other minute, I really don't think that he gets it at all - he's trying to say like how the Internets etc may not catch on from the prior perspective of state regulated mail, telecoms & broadcasting & even if it did it would be such a threat to them that they would just have to try & destroy it rather than adapting, he seemed to me very smug & more interested in intellectual ego tripping than actually making a coherent open minded analysis of what Bitcoin is & could be

Just a few facts were of interest, like that the fx market is ginormous & bitcoins being just a small part of that would be huge, though that's already fully known so hardly news & he failed in any objective way to prove his assertion that Bitcoin is not a currency - imo

edit: currency, commodity, virtual trading units, whatever - I have done more international tx with bitcoins that any others over the last year, more purchases & sales (this has nearly all been bitcoins themselves rather than tangible goods - for those I still ex back to fiats), loans & receivables, investments & speculations, even charitable gifts than in any other currencies (fiat), commodities (PMs mostly), or even any other funds used for any purpose that I can think of


BTC = $c²     LTC = $c³     BTC = 1otohotohMoQoxHuxLBveQiZcV3Pji3Tc     LTC = LQMHQ6haTzVa2uKkxFAaujEqmzkbHBzt7i     NXT = 9862336831998627827     

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May 20, 2012, 10:03:36 AM
 #51

I found it troubling that his thesis rested on the assumption that deposit and interest bearing accounts can only come from government's ability to print cash and pay such interest in perpetuity. The man seemed smart, but that theory is so darn silly I'm not sure what he's thinking.

Any deposit markets that rely on government fiat interest are built on much poorer a foundation than deposit markets built in a profit-seeking marketplace which is unable to "print."

If his theory is that Bitcoin can't be a currency because accounts will never yield returns, then I think he just proved Bitcoin is a currency. 

Of the many insightful things that have been said in this thread, I think this takes the cake.
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May 20, 2012, 10:33:24 AM
 #52

I think one of the most interesting things the speaker said is the following:

Quote
Make no mistake, that if bitcoins were to catch on, it would be profoundly disruptive. If there were always a large liquidity source, so that corporations could in fact get involved in this, it would be enormously disruptive.

(This was in response to a question starting at 45m5s.)

I think he uses "corporations" here to mean the same thing as "large institutional investors".

Here's a strange idea: It seems that bitcoin can actually solve some of the problems that motivate the massive amount of international currency exchange and the need for these large institutions to hedge. I wonder if bitcoin could solve problems for currencies in a way that is analogous to the way that currencies solve problems for the barter system. In other words, "bitcoin is to currency as currency is to barter." Maybe we shouldn't be calling bitcoin a currency, but a "currency's currency" (or currency squared).

If that's true, bitcoin could be more than a potential "equal" among major currencies; it could be a serious threat to the fundamental viability of those currencies.
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May 20, 2012, 03:08:14 PM
 #53

I think one of the most interesting things the speaker said is the following:

Quote
Make no mistake, that if bitcoins were to catch on, it would be profoundly disruptive. If there were always a large liquidity source, so that corporations could in fact get involved in this, it would be enormously disruptive.

(This was in response to a question starting at 45m5s.)

I think he uses "corporations" here to mean the same thing as "large institutional investors".

Here's a strange idea: It seems that bitcoin can actually solve some of the problems that motivate the massive amount of international currency exchange and the need for these large institutions to hedge. I wonder if bitcoin could solve problems for currencies in a way that is analogous to the way that currencies solve problems for the barter system. In other words, "bitcoin is to currency as currency is to barter." Maybe we shouldn't be calling bitcoin a currency, but a "currency's currency" (or currency squared).

If that's true, bitcoin could be more than a potential "equal" among major currencies; it could be a serious threat to the fundamental viability of those currencies.

What you are trying to say is that bitcoin could be to currency what gold used to be? Not so new the idea.

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May 20, 2012, 05:12:41 PM
 #54

ok, i think i got this figured out.  watched it yesterday and have been thinking about it all day and night.

i'm very glad i watched this video b/c the presenter clearly is intelligent, geeky enough to understand Bitcoin, and works in forex coding software at Bloomberg a big financial organization unto itself.  it's also intellectually challenging to take apart his arguments.

he touched on so many interesting areas but i think everything can be traced back to Central Banks (esp the Fed) and moral hazard:

1.  to understand all of this you have to go back and understand how the gold standard actually worked.  everyone hear buys gold as a store of value for all the already discussed reasons but very few actually know how it practically functioned.  

ppl back then monitored a countries money supply, interest rates, and amount of gold reserves.  countries had fixed exchange rates.  such as USD/JPY=1.2 or AUD/JPY=2.0 (just making those numbers up).  it was a self regulating system in that gold would move away from overly profligate countries to more prudent countries.

so lets say a Japanese company came to the US, set up a local business, and earned USD's.  they then faced the question of should they exchange those USD's for yen or keep the USD's?  or perhaps exchange them for gold?  he could look at the US's above metrics and for instance see that its money supply had been growing continuously for the past 11 months, interest rates were falling, and gold reserves were leaving the US. in other words, the US was getting too aggressive about stimulating growth via the lending of too much money (or printing).  those excess USD's would increase the competition for lending by banks thus driving down interest rates.  the Japanese business holding these new fiat USD's would say "WTF about the low interest i'm getting here in my US bank acct?  it's b/c  these US bankers are printing/lending too much money.  they aren't treating me fairly and i'm going to go cash all these USD's and exchange them out for yen where i can get a higher interest rate in Japanese banks".  this dynamic was happening b/c the majority of USD holders were exchanging their USD's for gold and moving this gold to fiat in countries that offered higher interest rates or they just decided to hoard the gold.  this is how the exchange rates were maintained and this is how gold would flow from one country to another acting as a self regulator.  the US seeing its gold reserves diminish would then be forced to increase interest rates to reign in the excess lending and throttle back their economies and money supply and thus increase its gold reserves back to normal.  you can see that in this system there really was no incentive to buy or hoard gold b/c it didn't pay an interest rate whereas fiat did and there was no threat of debasement.   it worked beautifully as businesses could then rely on a stable exchange rate and didn't have to worry about currency risks on top of investment risk.  that is until bankers started to bend the rules.

1.  so today, why do institutions, like IB's, speculating abroad or corporations building factories abroad feel a need to hedge their foreign currency?  that's obvious b/c the fixed exchange rates have gone away and the exchange rates are too volatile and pose a secondary risk on top of the primary risk of the investment.  why are they so volatile?  b/c there is no gold standard.   b/c of CB printing whenever their respective economies weaken introduce an unpredictable risk factor.  you just never know when the printing presses are going to crank up to the benefit of some insider.

i watch currency crosses much of the day and night.  i can't tell you how many times in the middle of the night you'll see a huge Roman candle spike up in the USD/JPY cross.  invariably when i click the news tab i read a just released one liner about how the BOJ has just printed up another 200 billion Yen or so in a blatant attempt to shove down the value of the yen to try and stimulate their economies and make it more attractive for foreigners to come buy their goods.  i shouldn't just pick on the BOJ.  this happens all the time whenever any of the CB's release or announce more QE.  of course, the currency on the other end of the cross goes up in value only to have that CB print more money a month later to neutralize the original effect.  

so what the hell are currency forwards?  Bromberg makes them sound like they're some legitimate necessary feature of a currency.  IMO  they're just another derivative mechanism concocted by IB's supposedly to allow institutions/corporations/currency speculators to protect themselves against this volatility.  well how did Bruno Iskil's hedges work out?  NOT.  these derivative contracts only exist b/c of excess speculative money released by the CB's. they are just taking the place of a gold standard to attempt to reduce volatility.  they wouldn't be necessary if we had sound money with a stable value.

why do we accept the need to encase in a vacuum sealed vault somewhere in France a standard metric weighted gram of whatever material but not demand a similar constant for our unit of money?  businesses worldwide need to be able to deal in a sound money whose value isn't whipping all over the deck like a hooked fish.

2.  4-7 T currency market:  now you understand how this market has gotten so damn big.  the CB's have flooded the world with so much of this 0% yielding fiat as their CB's try to weaken their own currencies and stimulate borrowing.

speculators can take this cheap money and speculate on all forms of assets; stocks, bonds, commodities.

but you also have pure currency speculators continually crisscrossing the globe trying to find the next currency that will increase in value relative to what they currently hold.  it really is a teeppee and is insane.  they hedge with the currency forwards he's talking about.  what a casino!  the existence of these markets can be traced back to Central Banks (esp the Fed) and moral hazard.

you also understand just how close Bitcoin is to exploding in value.  it is a new fledgling currency that sits on the edge of this huge pot of money.  i guarantee you, every forex trader is eyeing Bitcoin and tiptoeing closer and closer.  no one here has pointed out that Bromberg himself admitted he owns Bitcoins.  he also recognizes how brilliant it is but only advances arguments that align with the current systems moral hazard and violence (taxes).  either you bet that the current system will continue to ramp higher and higher in exponential fashion or you bet that change is a comin'.

3.  there's another dynamic going on here that's even more interesting.  for this you have to understand the UST market.

prior to 1971, the US gov't found itself running up huge deficits, productivity was dropping, the economy was stagnating, and their gold reserves were dropping.  when the Fed depegged in 1971 it set off the last truly inflationary period here in the US.  interest rates soared as the bond vigilantes attacked by selling UST's, gold soared as everyone saw inflation exploding and the Fed thru Volcker was forced to raise interest rates into 1981 to squash inflation. the 10 yr UST yielded 15.32% at that time.   gold crashed and interest rates started falling.  thus began the longest period of moral hazard via debt buildup and CB printing the world has ever seen.

you see, their is a huge block of UST bond speculators that have repeatedly executed the bond vigilantes since 1981.  one of the most famous is Gary Shilling.  he will tell you flat out that he doesn't invest in UST's b/c of yield; he buys them for price appreciation.  this is an incredibly important point for all to understand here and is the answer as to the conundrum as to why the hell ppl keep buying UST's.  the bond price is the inverse of the bond yield, i.e., when a bond yield is cut in half, the price of the bond doubles.  since 1981, Shilling has made an absolute fortune just buying UST's.  as interest rates have fallen his portfolio has exploded.  UST's happen to be the best investment of all since that time which most ppl don't understand.  it sounds so counterintuitive b/c when the avg investor thinks of UST's, their eyes glaze over and they say "why give money to the most profligate nation on earth for such a puny interest rate for so long?".  well, i just explained it to you why the most hated investment in the world has turned out to be the very best for the last 3 decades.

but the key thing here is that it depends on the moral hazard of the Fed to step in to buy UST's whenever the US economy slows.  the bond speculators know that the Fed, Wall St, and gov't will scream for lower interest (aka money printing) rates to encourage speculation/investment to prop up their asset prices.  these bond speculators have learned to expect this intervention and front run the Fed every time they get a whiff of weakness in the real economy and as reflected in a downturn in the stock market.  they have killed the bond vigilantes time and time again playing this game.  they've done it in Japan as well.  so they step in and front run causing UST prices to rise and interest rates to fall; sure enough the Fed then announces a cut in interest rates and buys UST's at the elevated premium prices thru POMO to shove the short end of the yield curve down (yes i know they've even extended this to the mid and long end at times); the bond speculators then sell their UST's to the Fed for USD's and divert those winnings back into stocks for the next wave up. wash, rinse, repeat.

the problem is that now we are at the lower bound; 0% interest rates effectively.  the 10 yr UST is now only yielding 1.7% as of Friday and the 3 mo is around 0.8%.  there is precious little room to go lower' although the bond speculators will keep arguing that you can keep halving the interest downwards forever (sounds like the divisible Satoshi argument, eh?)  but i do see cracks forming in the UST bond market.  the Fed is said now to be the buyer of last resort reportedly having to take down 70% of auctions currently.  China has certainly backed away.  but i still wouldn't bet against UST's just yet b/c there is now significant evidence the worldwide economy will be heading into the tank as i have been predicting for a couple of months now.  foreign sovereign bonds are failing and provide a hint of what is to come.

i would argue that all this debt and money printing has elevated all assets to bubble levels. the reflation from 3/09 is failing.  investors don't care that they sit in cash now earning nothing.  they are more concerned about preserving their wealth.  what's happening is that all this liquidity is pushing on a string.  no one is willing to risk betting on bubble priced assets.  this is why you see corporations like Apple hoarding cash.  this is why bank deposits have soared.  this is why even the banks save most of their bailout money in the form of excess reserves and won't lend it out.  this is why i have money under my mattress and in Bitcoin.  this is why ppl continue to invest in gold.  liquidity pushing on a string.  unfortunately,  all assets are set to fall; the only question is will the UST bonds keep rising in price?  truly the greatest bubble of all time and the last one to pop.  it's just a matter of time.

4.  so with that background what is this that Bromberg is talking about with the deposit market, UST's, investment vehicles?  i think he's talking about money markets as deposit markets.  money markets invest in sovereign bonds typically esp. UST's.  you have to wonder if the institutions that plow their money into them are playing the same game as the bond speculators? or perhaps they are the bond speculators?  they know that the Fed will be there to guarantee the price of their bonds at all times and even pump them up.  this has indeed reduced volatility but at the same time creates bubbles.  even more, they have driven up the value of their bond portfolios to enormous heights.  what a deal if you understand what's going on!

however, there are cracks appearing in the money market space that have been well documented over the past several years as investors/institutions have actually pulled huge amounts of fiat out.  certain money markets have been caught investing in European PIG bonds and have sustained large losses.  thus, it appears that this game may be ending despite what Bromberg has said or wishes.

this gets to my argument against his argument that institutions/investors/speculators will never move into Bitcoin b/c it doesn't offer a yield.  i just explained to you that most UST bond investments are made for price appreciation, not yield.  thus, just b/c Bitcoin doesn't offer a yield doesn't mean that these entities will never invest in Bitcoin.  in fact, my bet is that one day they will conclude that Bitcoin is a currency and  b/c of its scarcity and properties, has the MOST potential for price appreciation.  and at that time, the price will explode.   no one gives a shit about yield.  i know i don't.

when asked about gold, he abruptly and casually flipped out a straw man argument that you can't earn more gold by depositing gold.  this is true but i just explained to you what matters most is price appreciation.  think about it. most of you are in gold b/c you hope it goes to $30,000 an ounce, not just b/c its a store of value.  you guys want to become Kings aka The Greatest Transfer of Wealth the World has Ever Known.  i won't get into that b/c you all know how i feel about gold at this point and i don't want to question anyones motivations.

anyhow, i'm tired.  i wasn't going to post this b/c its takes too much effort and i like to concentrate on my subscribers.  but that's how i put it all together and i hope it helps.

in conclusion:  Broberg's arguments are a straw man and can be viewed in the context of the known problem of Central Banks (esp the Fed) creating moral hazard.
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May 20, 2012, 07:42:49 PM
 #55

ok, i think i got this figured out.  watched it yesterday and have been thinking about it all day and night.
[snip]
this gets to my argument against his argument that institutions/investors/speculators will never move into Bitcoin b/c it doesn't offer a yield.  i just explained to you that most UST bond investments are made for price appreciation, not yield.  thus, just b/c Bitcoin doesn't offer a yield doesn't mean that these entities will never invest in Bitcoin.  in fact, my bet is that one day they will conclude that Bitcoin is a currency and  b/c of its scarcity and properties, has the MOST potential for price appreciation.  and at that time, the price will explode.   no one gives a shit about yield.  i know i don't.

when asked about gold, he abruptly and casually flipped out a straw man argument that you can't earn more gold by depositing gold.  this is true but i just explained to you what matters most is price appreciation.  think about it. most of you are in gold b/c you hope it goes to $30,000 an ounce, not just b/c its a store of value.  you guys want to become Kings aka The Greatest Transfer of Wealth the World has Ever Known.  i won't get into that b/c you all know how i feel about gold at this point and i don't want to question anyones motivations.

anyhow, i'm tired.  i wasn't going to post this b/c its takes too much effort and i like to concentrate on my subscribers.  but that's how i put it all together and i hope it helps.

in conclusion:  Broberg's arguments are a straw man and can be viewed in the context of the known problem of Central Banks (esp the Fed) creating moral hazard.
It's funny how the light of Bitcoin illuminates the fallacies of status quo economics.

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May 20, 2012, 08:32:16 PM
 #56

ok, i think i got this figured out.  watched it yesterday and have been thinking about it all day and night.

i'm very glad i watched this video b/c the presenter clearly is intelligent, geeky enough to understand Bitcoin, and works in forex coding software at Bloomberg a big financial organization unto itself.  it's also intellectually challenging to take apart his arguments.

he touched on so many interesting areas but i think everything can be traced back to Central Banks (esp the Fed) and moral hazard:

1.  to understand all of this you have to go back and understand how the gold standard actually worked.  everyone hear buys gold as a store of value for all the already discussed reasons but very few actually know how it practically functioned.  

ppl back then monitored a countries money supply, interest rates, and amount of gold reserves.  countries had fixed exchange rates.  such as USD/JPY=1.2 or AUD/JPY=2.0 (just making those numbers up).  it was a self regulating system in that gold would move away from overly profligate countries to more prudent countries.

so lets say a Japanese company came to the US, set up a local business, and earned USD's.  they then faced the question of should they exchange those USD's for yen or keep the USD's?  or perhaps exchange them for gold?  he could look at the US's above metrics and for instance see that its money supply had been growing continuously for the past 11 months, interest rates were falling, and gold reserves were leaving the US. in other words, the US was getting too aggressive about stimulating growth via the lending of too much money (or printing).  those excess USD's would increase the competition for lending by banks thus driving down interest rates.  the Japanese business holding these new fiat USD's would say "WTF about the low interest i'm getting here in my US bank acct?  it's b/c  these US bankers are printing/lending too much money.  they aren't treating me fairly and i'm going to go cash all these USD's and exchange them out for yen where i can get a higher interest rate in Japanese banks".  this dynamic was happening b/c the majority of USD holders were exchanging their USD's for gold and moving this gold to fiat in countries that offered higher interest rates or they just decided to hoard the gold.  this is how the exchange rates were maintained and this is how gold would flow from one country to another acting as a self regulator.  the US seeing its gold reserves diminish would then be forced to increase interest rates to reign in the excess lending and throttle back their economies and money supply and thus increase its gold reserves back to normal.  you can see that in this system there really was no incentive to buy or hoard gold b/c it didn't pay an interest rate whereas fiat did and there was no threat of debasement.   it worked beautifully as businesses could then rely on a stable exchange rate and didn't have to worry about currency risks on top of investment risk.  that is until bankers started to bend the rules.

1.  so today, why do institutions, like IB's, speculating abroad or corporations building factories abroad feel a need to hedge their foreign currency?  that's obvious b/c the fixed exchange rates have gone away and the exchange rates are too volatile and pose a secondary risk on top of the primary risk of the investment.  why are they so volatile?  b/c there is no peg.   b/c of CB printing whenever their respective economies weaken introduce an unpredictable risk factor.  you just never know when the printing presses are going to crank up to the benefit of some insider.

i watch currency crosses much of the day and night.  i can't tell you how many times in the middle of the night you'll see a huge Roman candle spike up in the USD/JPY cross.  invariably when i click the news tab i read a just released one liner about how the BOJ has just printed up another 200 billion Yen or so in a blatant attempt to shove down the value of the yen to try and stimulate their economies and make it more attractive for foreigners to come buy their goods.  i shouldn't just pick on the BOJ.  this happens all the time whenever any of the CB's release or announce more QE.  of course, the currency on the other end of the cross shoots up only to have that CB print more money a month later to neutralize the original effect.  

so what the hell are currency forwards?  Bromberg makes them sound like they're some legitimate necessary feature of a currency.  IMO  they're just another derivative mechanism concocted by IB's supposedly to allow institutions/corporations/currency speculators to protect themselves against this volatility.  well how did Bruno Iskil's hedges work out?  NOT.  these derivative contracts only exist b/c of excess speculative money released by the CB's. they are just taking the place of a gold standard to attempt to reduce volatility.  they wouldn't be necessary if we had sound money with a stable value.

why do we accept the need to encase in a vacuum sealed vault somewhere in France a standard metric weighted gram of whatever material but not demand a similar constant for our unit of money?  businesses worldwide need to be able to deal in a sound money whose value isn't whipping all over the deck like a hooked fish.

2.  4-7 T currency market:  now you understand how this market has gotten so damn big.  the CB's have flooded the world with so much of this 0% yielding fiat as their CB's try to weaken their own currencies and stimulate borrowing.

speculators can take this cheap money and speculate on all forms of assets; stocks, bonds, commodities.

but you also have pure currency speculators continually crisscrossing the globe trying to find the next currency that will increase in value relative to what they currently hold.  it really is a teeppee and is insane.  they hedge with the currency forwards he's talking about.  what a casino!  the existence of these markets can be traced back to Central Banks (esp the Fed) and moral hazard.

you also understand just how close Bitcoin is to exploding in value.  it is a new fledgling currency that sits on the edge of this huge pot of money.  i guarantee you, every forex trader is eyeing Bitcoin and tiptoeing closer and closer.  no one here has pointed out that Bromberg himself admitted he owns Bitcoins.  he also recognizes how brilliant it is but only advances arguments that align with the current systems moral hazard and violence (taxes).  either you bet that the current system will continue to ramp higher and higher in exponential fashion or you bet that change is a comin'.

3.  there's another dynamic going on here that's even more interesting.  for this you have to understand the UST market.

prior to 1971, the US gov't found itself running up huge deficits, productivity was dropping, the economy was stagnating, and their gold reserves were dropping.  when the Fed depegged in 1971 it set off the last truly inflationary period here in the US.  interest rates soared as the bond vigilantes attacked by selling UST's, gold soared as everyone saw inflation exploding and the Fed thru Volcker was forced to raise interest rates into 1981 to squash inflation. the 10 yr UST yielded 15.32% at that time.   gold crashed and interest rates started falling.  thus began the longest period of moral hazard via debt buildup and CB printing the world has ever seen.

you see, their is a huge block of UST bond speculators that have repeatedly executed the bond vigilantes since 1981.  one of the most famous is Gary Shilling.  he will tell you flat out that he doesn't invest in UST's b/c of yield; he buys them for price appreciation.  this is an incredibly important point for all to understand here and is the answer as to the conundrum as to why the hell ppl keep buying UST's.  the bond price is the inverse of the bond yield, i.e., when a bond yield is cut in half, the price of the bond doubles.  since 1981, Shilling has made an absolute fortune just buying UST's.  as interest rates have fallen his portfolio has exploded.  UST's happen to be the best investment of all since that time which most ppl don't understand.  it sounds so counterintuitive b/c when the avg investor thinks of UST's, their eyes glaze over and they say "why give money to the most profligate nation on earth for such a puny interest rate for so long?".  well, i just explained it to you why the most hated investment in the world has turned out to be the very best for the last 3 decades.

but the key thing here is that it depends on the moral hazard of the Fed to step in to buy UST's whenever the US economy slows.  the bond speculators know that the Fed, Wall St, and gov't will scream for lower interest (aka money printing) rates to encourage speculation/investment to prop up their asset prices.  these bond speculators have learned to expect this intervention and front run the Fed every time they get a whiff of weakness in the real economy and as reflected in a downturn in the stock market.  they have killed the bond vigilantes time and time again playing this game.  they've done it in Japan as well.  so they step in and front run causing UST prices to rise and interest rates to fall; sure enough the Fed then announces a cut in interest rates and buys UST's at the elevated premium prices thru POMO to shove the short end of the yield curve down (yes i know they've even extended this to the mid and long end at times); the bond speculators then sell their UST's to the Fed for USD's and divert those winnings back into stocks for the next wave up. wash, rinse, repeat.

the problem is that now we are at the lower bound; 0% interest rates effectively.  the 10 yr UST is now only yielding 1.7% as of Friday and the 3 mo is around 0.8%.  there is precious little room to go lower' although the bond speculators will keep arguing that you can keep halving the interest downwards forever (sounds like the divisible Satoshi argument, eh?)  but i do see cracks forming in the UST bond market.  the Fed is said now to be the buyer of last resort reportedly having to take down 70% of auctions currently.  China has certainly backed away.  but i still wouldn't bet against UST's just yet b/c there is now significant evidence the worldwide economy will be heading into the tank as i have been predicting for a couple of months now.  foreign sovereign bonds are failing and provide a hint of what is to come.

i would argue that all this debt and money printing has elevated all assets to bubble levels. the reflation from 3/09 is failing.  investors don't care that they sit in cash now earning nothing.  they are more concerned about preserving their wealth.  what's happening is that all this liquidity is pushing on a string.  no one is willing to risk betting on bubble priced assets.  this is why you see corporations like Apple hoarding cash.  this is why bank deposits have soared.  this is why even the banks save most of their bailout money in the form of excess reserves and won't lend it out.  this is why i have money under my mattress and in Bitcoin.  this is why ppl continue to invest in gold.  liquidity pushing on a string.  unfortunately,  all assets are set to fall; the only question is will the UST bonds keep rising in price?  truly the greatest bubble of all time and the last one to pop.  it's just a matter of time.

4.  so with that background what is this that Bromberg is talking about with the deposit market, UST's, investment vehicles?  i think he's talking about money markets as deposit markets.  money markets invest in sovereign bonds typically esp. UST's.  you have to wonder if the institutions that plow their money into them are playing the same game as the bond speculators? or perhaps they are the bond speculators?  they know that the Fed will be there to guarantee the price of their bonds at all times and even pump them up.  this has indeed reduced volatility but at the same time creates bubbles.  even more, they have driven up the value of their bond portfolios to enormous heights.  what a deal if you understand what's going on!

however, there are cracks appearing in the money market space that have been well documented over the past several years as investors/institutions have actually pulled huge amounts of fiat out.  certain money markets have been caught investing in European PIG bonds and have sustained large losses.  thus, it appears that this game may be ending despite what Bromberg has said or wishes.

this gets to my argument against his argument that institutions/investors/speculators will never move into Bitcoin b/c it doesn't offer a yield.  i just explained to you that most UST bond investments are made for price appreciation, not yield.  thus, just b/c Bitcoin doesn't offer a yield doesn't mean that these entities will never invest in Bitcoin.  in fact, my bet is that one day they will conclude that Bitcoin is a currency and  b/c of its scarcity and properties, has the MOST potential for price appreciation.  and at that time, the price will explode.   no one gives a shit about yield.  i know i don't.

when asked about gold, he abruptly and casually flipped out a straw man argument that you can't earn more gold by depositing gold.  this is true but i just explained to you what matters most is price appreciation.  think about it. most of you are in gold b/c you hope it goes to $30,000 an ounce, not just b/c its a store of value.  you guys want to become Kings aka The Greatest Transfer of Wealth the World has Ever Known.  i won't get into that b/c you all know how i feel about gold at this point and i don't want to question anyones motivations.

anyhow, i'm tired.  i wasn't going to post this b/c its takes too much effort and i like to concentrate on my subscribers.  but that's how i put it all together and i hope it helps.

in conclusion:  Broberg's arguments are a straw man and can be viewed in the context of the known problem of Central Banks (esp the Fed) creating moral hazard.

Very similar to what Antal Fekete says. Strangely, he predicts that gold will skyrocket.

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May 20, 2012, 08:35:08 PM
 #57


Very similar to what Antal Fekete says. Strangely, he predicts that gold will skyrocket.

yes, he was the one who alerted me to this dynamic.  i went to one of his conferences once in SF.

yes, he does think gold will skyrocket.  but does he know about Bitcoin?
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May 20, 2012, 09:24:26 PM
 #58


Very similar to what Antal Fekete says. Strangely, he predicts that gold will skyrocket.

yes, he was the one who alerted me to this dynamic.  i went to one of his conferences once in SF.

yes, he does think gold will skyrocket.  but does he know about Bitcoin?

Good point. I guess it remains to be seen if gold´s history will weigh more than its weaknesses relative to Bitcoin.

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May 20, 2012, 10:19:31 PM
 #59

.....
.....
.....
in conclusion:  Broberg's arguments are a straw man and can be viewed in the context of the known problem of Central Banks (esp the Fed) creating moral hazard.

 Shocked Wow excellent post, got to handed to you! And I see you have a crystal clear picture of what's going on which is the same picture I see.

One question though:
but i still wouldn't bet against UST's just yet b/c there is now significant evidence the worldwide economy will be heading into the tank as i have been predicting for a couple of months now.  foreign sovereign bonds are failing and provide a hint of what is to come.

Why not? What use will the nominal gains have once the bubble pops and the FED steps in to reinflate it destroying the purchasing power of the dollar in the process? Unless you believe they can reinflate and not destroy the dollar??

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May 20, 2012, 10:21:27 PM
 #60


Very similar to what Antal Fekete says. Strangely, he predicts that gold will skyrocket.

yes, he was the one who alerted me to this dynamic.  i went to one of his conferences once in SF.

yes, he does think gold will skyrocket.  but does he know about Bitcoin?

You favor Bitcoin over gold?!

My personality type: INTJ - please forgive my weaknesses (Not naturally in tune with others feelings; may be insensitive at times, tend to respond to conflict with logic and reason, tend to believe I'm always right)

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May 20, 2012, 10:48:06 PM
 #61

.....
.....
.....
in conclusion:  Broberg's arguments are a straw man and can be viewed in the context of the known problem of Central Banks (esp the Fed) creating moral hazard.

 Shocked Wow excellent post, got to handed to you! And I see you have a crystal clear picture of what's going on which is the same picture I see.

One question though:
but i still wouldn't bet against UST's just yet b/c there is now significant evidence the worldwide economy will be heading into the tank as i have been predicting for a couple of months now.  foreign sovereign bonds are failing and provide a hint of what is to come.

Why not? What use will the nominal gains have once the bubble pops and the FED steps in to reinflate it destroying the purchasing power of the dollar in the process? Unless you believe they can reinflate and not destroy the dollar??

well, first of all b/c of this:



the purple line is TLT, the 20 yr UST bond price.  it's hard to see but it's just broken over the top of the Dec 2011 high.  if you short here, you'd be betting against a breakout.  i wouldn't want to bet against that train esp. if we're going into a recession and the same dynamic plays out as in 2008 where UST's and the USD ramped up as a safe haven play.  OTOH, i've seen plenty of false breakouts as well so we'll just have to see.  i do know the Japanese bond floor is littered with the bodies of the bond vigilantes who've tried to take the JGB down unsuccessfully.

the other line is the $DXY which is the USD index.  it's been ramping too b/c of all the debt liquidation.  now with the recent downturn in the stock mkt we're going to see it go even higher over the long term as all the leverage in stocks gets liquidated as well.  which is why i question whether gold/silver can get off the mat and go higher after a 12 yr bull which i think is long in the tooth.  yeah, please spare me all the hate on that one; i get enough over in my gold thread in the Spec Forum.

and yeah, i am a Bitcoin bull vs. a gold/silver bull.  i defected last year. Grin


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May 20, 2012, 11:07:37 PM
 #62

So you don't think there's going to be QE3, QE4, ect?

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May 20, 2012, 11:09:29 PM
 #63

So you don't think there's going to be QE3, QE4, ect?

maybe, maybe not.  what i think is, it won't matter.  in fact, i think it will make things worse.  deep down market participants know this is a self defeating strategy in the end.
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May 20, 2012, 11:26:27 PM
 #64

So you don't think there's going to be QE3, QE4, ect?

maybe, maybe not.  what i think is, it won't matter.  in fact, i think it will make things worse.  deep down market participants know this is a self defeating strategy in the end.

And there you go, my bet isn't as much on PM's and Bitcoin as it is on politicians and central bankers doing what they do best and I guess you on the other hand are either undecided or leaning the other way.

Time will tell which of us made a better bet.

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May 23, 2012, 06:14:33 PM
 #65

hey cypher, awesome huge post of yours (https://bitcointalk.org/index.php?topic=81642.msg910908#msg910908)

one remark:

4.  so with that background what is this that Bromberg is talking about with the deposit market, UST's, investment vehicles?

I'm not sure, he says this (http://www.youtube.com/watch?feature=player_detailpage&v=NULPfp0Zu5g#t=1666s)
Quote from: bromberg
...very very useful for your fx risk. So it turns out that the cost for the currency forward is determined mathematically from the deposit rates. [...] there is a mathematical relationship between deposit rates and the cost of a forward like that. [...] so the deposit market is really really important for an international corporation, because that's really gonna speak to how much their future costs are gonna be and how easy it's gonna be for them to hedge. So there's this really tripartite relationship between those concepts: hedging, forwards, deposits.

this part hasn't left my mind since I watched the vid a while ago (last night? the night before), because I can't quite figure it out. First of all, I don't know what a deposit market is... (looks at TyGrrr-Bank, the pirate stuff,... where one can deposit bitcoins and receive interest payment (while accepting risk of loss)... is that a deposit market?).

Is he implying that bitcoin has no (sufficiently insured) deposit market and therefore big corps wont enter the bitcoin sphere because they just can't hedge (efficiently enough) the exchange risk?

EDIT: a bit later on he says:
Quote from: bromberg
so, in order to have a deposit market, you need investment vehicles; you need someplace you can put your money, that will make more of that money. Unless you have investment vehicles, you don't have a deposit market, which means you can't have forwards, which means you can't have hedging, which means you don't have institutional investors getting involved in that currency...

and directly after that:

Quote from: bromberg
which is not gonna happen, because there's no regulators on the thing.

now wtf. those are 2 different arguments. While the first one might be valid (I can neither judge the argument itself nor wether or not sufficient deposit markets exist for bitcoin), the second one doesn't seem to be well thought-out and he doesn't explain it further, only says "volatility is too high". It seems the possibility of hedging should be able to deal with that, using his own argument.

Quite frankly, I've come to think his argument that bitcoin is not a currency is crap.

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May 23, 2012, 06:31:19 PM
 #66

GLBSE is an investment vehicle and it's just beginning to grow
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May 23, 2012, 06:31:24 PM
 #67

The central plank of his criticism was that there is no deposit market in Bitcoin, which means institutional investors cannot park money in it, sell futures, or hedge volatility.

This is false as demonstrated by BTC lending threads on this forum. The market for Bitcoin deposits is very new but it will only grow in time.

omfg, why didn't I read to the end of the thread, I could've avoided writing that longish post I just wrote.

Thanks for that, BitcoinTtraderIE

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May 23, 2012, 06:32:08 PM
 #68

The central plank of his criticism was that there is no deposit market in Bitcoin, which means institutional investors cannot park money in it, sell futures, or hedge volatility.

This is false as demonstrated by BTC lending threads on this forum. The market for Bitcoin deposits is very new but it will only grow in time.

Yes, and they're options too, in mpex. As you say, everything may be really brand new, and not yet completely established, but everyday new things are emerging.

but, but "it's so volatile and there's no regulation on the thing" Wink

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May 23, 2012, 07:08:20 PM
 #69

hey cypher, awesome huge post of yours (https://bitcointalk.org/index.php?topic=81642.msg910908#msg910908)

one remark:

4.  so with that background what is this that Bromberg is talking about with the deposit market, UST's, investment vehicles?

I'm not sure, he says this (http://www.youtube.com/watch?feature=player_detailpage&v=NULPfp0Zu5g#t=1666s)
Quote from: bromberg
...very very useful for your fx risk. So it turns out that the cost for the currency forward is determined mathematically from the deposit rates. [...] there is a mathematical relationship between deposit rates and the cost of a forward like that. [...] so the deposit market is really really important for an international corporation, because that's really gonna speak to how much their future costs are gonna be and how easy it's gonna be for them to hedge. So there's this really tripartite relationship between those concepts: hedging, forwards, deposits.

as i said in my post, i think he's talking about money markets.  i remember when these vehicles came into vogue in the 1980's as a tool from Wall St to lure money away from commercial banks.  they offered higher yields for savers by investing in what used to be low risk securities, namely sovereign bonds.  well, those are no longer considered safe now are they?  esp. the ones in Europe.  and we've seen a ton of money taken out of them beg. back in 2008 when they first broke the buck and more recently when it was discovered many were taking excessive risk reaching for yield by buying PIGS sovereigns.

yes they pay interest but they have risk and the currency forwards IMO are just a derivative to try and offset this risk.  yes, of course the institutions like to play in this market but that's only b/c they believe the Fed and other CB's will be there to bail them out if their sovereign bond investments go sour.  well, the bond vigilantes have awakened and are reeking havoc in Europe.  the real question is does it come here and when?


Quote

this part hasn't left my mind since I watched the vid a while ago (last night? the night before), because I can't quite figure it out. First of all, I don't know what a deposit market is... (looks at TyGrrr-Bank, the pirate stuff,... where one can deposit bitcoins and receive interest payment (while accepting risk of loss)... is that a deposit market?).

Is he implying that bitcoin has no (sufficiently insured) deposit market and therefore big corps wont enter the bitcoin sphere because they just can't hedge (efficiently enough) the exchange risk?

while Bitcoin doesn't have a deposit market what it does have is the potential to have price appreciation.  a significant potential.  which is all it needs for them to eventually come to papa.  the reason big institutions haven't entered Bitcoin yet is they want to keep their bailout game going for as long as possible.  if and when they sense that game is finished then they will come storming into a currency which has a fixed supply like Bitcoin.  Bitcoin not only has the potential for some of that $4-7 T currency market to come storming in but also fiat from the gold/silver markets which i think have topped.

Quote

EDIT: a bit later on he says:
Quote from: bromberg
so, in order to have a deposit market, you need investment vehicles; you need someplace you can put your money, that will make more of that money. Unless you have investment vehicles, you don't have a deposit market, which means you can't have forwards, which means you can't have hedging, which means you don't have institutional investors getting involved in that currency...

again, i just view the currency markets along with their hedging vehicles and money markets as another gambling asset class along with stocks, commodities, junk bonds, gold, silver.

Quote

and directly after that:

Quote from: bromberg
which is not gonna happen, because there's no regulators on the thing.

now wtf. those are 2 different arguments. While the first one might be valid (I can neither judge the argument itself nor wether or not sufficient deposit markets exist for bitcoin), the second one doesn't seem to be well thought-out and he doesn't explain it further, only says "volatility is too high". It seems the possibility of hedging should be able to deal with that, using his own argument.

Quite frankly, I've come to think his argument that bitcoin is not a currency is crap.


no regulators?  isn't that a positive?
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May 23, 2012, 07:43:02 PM
 #70


while Bitcoin doesn't have a deposit market what it does have is the potential to have price appreciation.  a significant potential.  which is all it needs for them to eventually come to papa.  the reason big institutions haven't entered Bitcoin yet is they want to keep their bailout game going for as long as possible.  if and when they sense that game is finished then they will come storming into a currency which has a fixed supply like Bitcoin.  Bitcoin not only has the potential for some of that $4-7 T currency market to come storming in but also fiat from the gold/silver markets which i think have topped.


Bitcoin does not even qualify as a sideshow in the global economy show.  At best it is an informal crap game out in the parking lot.

I would say that Bitcoin has a 'potentially significant' upside (which differs notably from 'significant potential' for a meaningful upside) if it even manages to sneak a peek over the fence.  Were that to happen I don't have much doubt that the security personnel would show up quite quickly and beat the shit out of us transgressors.


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May 24, 2012, 12:40:30 PM
 #71


while Bitcoin doesn't have a deposit market what it does have is the potential to have price appreciation.  a significant potential.  which is all it needs for them to eventually come to papa.  the reason big institutions haven't entered Bitcoin yet is they want to keep their bailout game going for as long as possible.  if and when they sense that game is finished then they will come storming into a currency which has a fixed supply like Bitcoin.  Bitcoin not only has the potential for some of that $4-7 T currency market to come storming in but also fiat from the gold/silver markets which i think have topped.


Bitcoin does not even qualify as a sideshow in the global economy show.  At best it is an informal crap game out in the parking lot.

I would say that Bitcoin has a 'potentially significant' upside (which differs notably from 'significant potential' for a meaningful upside) if it even manages to sneak a peek over the fence.  Were that to happen I don't have much doubt that the security personnel would show up quite quickly and beat the shit out of us transgressors.



to be honest: I personally don't give a damn when/if institutional investors will "come to papa". I'm content when/if Bitcoin will be the "transgressive currency" for all kinds of black (and other free) markets.

I'll just do my business out in the parking lot where the sun is shining, security personell watching enviously while burning fiat currency to keep warm inside their rotten complex.


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May 24, 2012, 08:47:31 PM
 #72


Bitcoin does not even qualify as a sideshow in the global economy show.  At best it is an informal crap game out in the parking lot.

I would say that Bitcoin has a 'potentially significant' upside (which differs notably from 'significant potential' for a meaningful upside) if it even manages to sneak a peek over the fence.  Were that to happen I don't have much doubt that the security personnel would show up quite quickly and beat the shit out of us transgressors.


to be honest: I personally don't give a damn when/if institutional investors will "come to papa". I'm content when/if Bitcoin will be the "transgressive currency" for all kinds of black (and other free) markets.

I'll just do my business out in the parking lot where the sun is shining, security personell watching enviously while burning fiat currency to keep warm inside their rotten complex.



Agree and concur.

My main concern is that it is human nature to become particularly unpleasant when envy (and threat) enter the picture.


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