The Bitcoin threads could be interesting in the future

[Duke of Marmalade]

A feature of Blockchain is that there is the concept of gaining more confidence in the credibility of a transaction the deeper is gets in the Blockchain, at 100 blocks it is regarded totally credible.
The same technique should be brought to bear on supposedly new posters to AAM.

 

[Brendan Burgess]

I repeat, in case you missed it.

We are going around in circles

The fundamental question is how do you justify the value of Bitcoin?

None of you is able to do that. None of you is able to explain why it's worth $16,000 and not $5,000. None of you can explain why it was worth $20,000 three years ago. Why it dropped to $3,000 and why it's now back at $16,000

You can only trot out irrelevancies like

• "That is what the market says it's worth"
• "I'll answer when you tell me how you value gold"
• "It's a whole new world"
• "The fiat currencies are in trouble"
• "It's magic. The more that we produce, the scarcer it becomes."

 

[tecate]

I repeat, in case you missed it.

We are going around in circles

The fundamental question is how do you justify the value of Bitcoin?

None of you is able to do that. None of you is able to explain why it's worth $16,000 and not $5,000. None of you can explain why it was worth $20,000 three years ago. Why it dropped to $3,000 and why it's now back at $16,000

You can only trot out irrelevancies like

• "That is what the market says it's worth"
• "I'll answer when you tell me how you value gold"
• "It's a whole new world"
• "The fiat currencies are in trouble"

I responded to your post comprehensively - here. You have no problem in making comparisons between bitcoin and nonsensical things but when challenged to defend such comparisons against the characteristics of a good store of value, you won't engage. That doesn't do much for your claims.


Perhaps you could extend me the courtesy of responding to this question which I've put to you ->

Why do you apply one standard to bitcoin with regard to pricing and you don't hold the same level of contempt in that respect for gold (silver or any other commodity whilst we're at it)? You've said that you have encouraged people to buy gold in the past. How can you do that when the mechanism is precisely the same with regard to gold pricing. Please answer that question.

 

[WolfeTone]

You can only trot out irrelevancies like

• "That is what the market says it's worth"
• "I'll answer when you tell me how you value gold"
• "It's a whole new world"
• "The fiat currencies are in trouble"

Brendan, with respect, we are indeed going around in circles.

You appear insistent that some mathematical formula must be attributed to bitcoin in order to 'justify' its price, when no such mathematical forumla exists for any other commodity, good or service.
There are many indicators or usable tools such as P/E ratios, sales projections, interest rates, inflation rates, govt taxes, number of competitors, historic valuations, fees, climate, employment levels, etc, etc, that all serve to provide guidance in determining a market price of any good or service relative to the currency it is being traded in at any given time.
Yet not one of them is an actual fool-proof way of determining if the price reflects value. Only time, will tell if such a indicators or tools provided value in the price.

A not so crude mathematical formula for determining the value a house could be - available credit + ability to repay over 30yrs and interest rates + number of prospective buyers + sellers minimum acceptance price = the price.

Another formula for determining the house price could be - location! location! location!

Or a combination of all, or give or take any number of other variables.


Here is my formula for valuing bitcoin.

- Money stored on a secure network outside the conventional monetary system + reducing value of fiat currency + potential use as a generally accepted medium of exchange = value.

The price I place on that on that value is gauged from a number of variables such as,

-The risk of losing private keys. This limits the amount of my personal wealth that I can attribute to bitcoin I buy at any given time, instead I buy in tranches, over time, that I comfortable with.

- The decaying monetary system. This is historic, over and over the millenia, the value of fiat currencies do return to zero, or next to zero. This is evident today when the largest economies of the world can borrow infinite amounts and interest rates remain at zero. It is a bust system.
The economy of the human race owes itself more than it actually values itself! It makes no sense.

It is hard to gauge what price level is too high, but that is no different to any other asset class - what price is too high for houses is Dublin?

So in order to try put a price on a bitcoin, I use the following equation - Total global monetary supply of 36trn*modest storage of 2% on bitcoin network / 21million BTC = $34,285.71 per BTC

Now you may not agree with this calculation, I will take a wild guess that you wont? It may never reach that amount, and of course I could be totally way off the mark and my formula totally inaccurate.
No different to someone who ends up paying under or over the odds for a house, a Da Vinci painting, or my record collection based on their own formula for calculating the price of such goods.

But you cannot now say anymore that nobody has justified the price paid for bitcoin. I value it at $34,285.71 as of today. So I will be inclined to buy some more shortly at its current cheap price.

 

[RoseMc]

Personally, I don't how to value Bitcoin. I am aware, however, of the academic research into different valuation bases. What I do know for sure is that (a) Brendan clearly misrepresented what I said, (b) has neither acknowledged nor apologised for this misrepresentation and (c) has declined - as is his perogative - to answer my initial questions on the topic. Accordingly, I feel disinclined to participate further in this debate

Soft you, a word or two before you go.
I have done the thread some service, and they know ’t.
No more of that

 

[24601]

Soft you, a word or two before you go.
I have done the thread some service, and they know ’t.
No more of that

He lives! Arise and follow Charlie!

 

[RoseMc]

Ah well as Trump is on the way out, time to remember another politician who had a certain capacity to divide the jury - obviously, Charlie had far more bitcoin than Trump but still...........SOUND THE PIBROCH

And thank you 24601, you seem like a good egg!

 

[WolfeTone]

Personally, I don't how to value Bitcoin. I am aware, however, of the academic research into different valuation bases.

Of course, but none of them are fool-proof.
Nobody would actually pay €200 for a pair of shoes that they thought were worth far less, would they?
Surely a person only pays for what you believe represents best value from their own given resources (including available credit) ?
So a pair shoes retailing for €200 may represent value for some, others may deduce that they are overpriced, of no real value.

 

[RoseMc]

Hi WolfeTone,

Are we agreeing or disagreeing - it's (not its) been a long day!?

 

[WolfeTone]

Hi WolfeTone,

Are we agreeing or disagreeing - it's (not its) been a long day!?

I'm agreeing.
My point is that basically value, and the price attributable to that value, is basically in the eye of the beholder. There are many set ways to gauge the price of a product, but ultimately none are fool-proof. If there were, we would live in a world where everything is priced exactly right, providing 'just' value for all buyers and sellers.
But obviously that is not so. There are an innumerable amount of variables at any given time that persuade people what is, or is not a 'just' price. The combination of all these variables in a market of many participants resulting is the market price.
Bitcoin is $15,500 today because that is what the market (of innumerable variables) determines it to be.
For some, this represents further value (me) for others (Brendan, Duke) it is no value at all.
Overall the price associated to the market value today is $15,500. This is indisputable.

 

[Duke of Marmalade]

Then we arrive at Satoshi's proposal:

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: - boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose and one special, magical property: - can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I'm using the word scarce here to only mean limited potential supply)

This is an extract from an excellent OP in a Key Post "Why Bitcoin has Value". I have put a sentence in bold. We see in this how Satoshi craves for some intrinsic value to "bootstrap" bitcoin. He posits that his bitcoin with such intrinsic value would be such a wonderful thing that even if it doesn't exist people will take up something (that they convince themselves meets the test). This is rather like the argument that the idea of a paradise in our after life is so appealing that religions arise to assert that this is the case.

John Kelleher of Investopedia is their bitcoin expert and a real fan. I don't agree with much of his enthusiasm but I am wholly on board the following sentiment.

One of the biggest issues is Bitcoin's status as a store of value. Bitcoin's utility as a store of value is dependent on its utility as a medium of exchange. We base this in turn on the assumption that for something to be used as a store of value it needs to have some intrinsic value, and if Bitcoin does not achieve success as a medium of exchange, it will have no practical utility and thus no intrinsic value and won't be appealing as a store of value.

(Bold again supplied by me.) Of course this has to be true and is how Satoshi saw it as well. Fiat has no intrinsic value, but people accept it as a store of value (not an investment) because they have confidence in its role as a medium of exchange. Workers give their labour for a digital entry in their bank account knowing they can pay their mortgage with it etc. The commitment of central banks to stabilise the price level is a very important factor in this. Bitcoin enthusiasts boast proudly that there is no such institution for stabilising its price. A digital entry with no intrinsic value can only possibly have a store of value if it has made the grade as a medium of exchange. Bitcoin is a long long way off that and if it ever showed signs of making that grade it would be suppressed by regulators (in my interests)*.
My guess is that much of the bitcoin speculation does not think this deeply about what bitcoin essentially is. Many are having a punt. Some believe that the Fiat system is hopelessly corrupt and very vulnerable in the current crisis - it certainly is a bit disturbing. But how anyone sees an antidote to Fiat vulnerability in digital entries signifying nothing is completely beyond me.

Finally mainstream economic thought is dismissive of bitcoin. Maybe developments across The Pond will put a stop the dismissal of experts.

*We see from the EU report that it has made the grade to some extent with the criminal classes, not because they buy into the narrative, but to get round the regulations which make Fiat so hot for them.

 

[RoseMc]

Thanks WolfeTone,

Bitcoin is $15,500 today because that is what the market (of innumerable variables) determines it to be.

My late husband used to say that the market is like the client - neither market nor client is always right but they are always the market / client (as the case may be). I think that this is a pretty good concept. I'm not claiming it's an original one.

One final thought before I sign off for the weekend. Imagine if someone had 1,000 yoyos in 2015 and were presented with Duke of M's advice.

Following it, such a person would now have circa 1,000 x $200 or a not-so-bad $20,000

Eschewing his advice, imagine - and following some form of reckless self-sabotage, the same irresponsible reprobate would have now, in excess of,.................................wait for it......................................$1,500,000

That's a pretty significant difference no matter which way you look at it for being completely wrong!!

THE MARKET MAY NOT ALWAYS BE RIGHT BUT IT IS ALWAYS THE MARKET!

Have a nice weekend - it's definitely wine o'clock.

 

[tecate]

We see in this how Satoshi craves for some intrinsic value to "bootstrap" bitcoin. He posits that his bitcoin with such intrinsic value would be such a wonderful thing that even if it doesn't exist people will take up something (that they convince themselves meets the test).

So he(she/they) - alongside other cypherpunks - engaged in long ongoing discussions about how to build the most resilient decentralised cryptocurrency - and you home in on one single aspect of that to support your narrative? I see where you're going with that. At the end of the day, beyond all considerations, Satoshi released bitcoin. The digital currency has many qualities - that crypto-critics here won't acknowledge. In the consideration of intrinsic value, trustlessness and supreme scarcity are key. To consider the bitcoin proposition and the intrinsic value question without considering these characteristics is wayward.

Of course this has to be true and is how Satoshi saw it as well.

I've listened to / read plenty of discussions related to the originator of bitcoins thoughts and you're the first to assume you know precisely what his thinking was (on the back of cherrypicking a couple of sentences that meets your narrative...the same as you did with Keleher).

Fiat has no intrinsic value, but people accept it as a store of value (not an investment) because they have confidence in its role as a medium of exchange.

And that 'acceptance' as a store of value gets questioned continually and increasingly. Ask the people of Venezuela what their thoughts are on its properties as a store of value. Ask them what confidence they hold in it as a store of value today. Repeat the exercise with the Lebanese, the Iranians, the Argentines, the Turkish, .....how long have you got? There's a reason why the average lifespan of a fiat/sovereign currency is 27 years.
And we don't have to go so far from home. In developed countries, target inflation has been 2% - yet CBs use CPI which doesn't in any way account for inflation. Peoples hard earned savings are being taken by stealth every year. As Michael Saylor puts it, it's like a melting ice cube thats losing 6% pa in a normal year. Michael's thesis with regard to the next couple of years is that the buying power of sovereign currency is going to lose a shed load more than that.
He's backed his conviction in bitcoin on the back of that to the tune of $625 million ($200 million of that being his own personal wealth).

The commitment of central banks to stabilise the price level is a very important factor in this.

And people around the world are at the mercy of whether they will be competent in doing so. In cases where they do their best, they rely on past data to try and decide how to balance things. Whether they undercook or overcook those measures is fraught with difficulty.

Bitcoin enthusiasts boast proudly that there is no such institution for stabilising its price.

They do because the bitcoin network provides for a complete monetary policy within its own right. All stakeholders know from the outset how that works - it's predefined. It's in this way that stakeholders can have complete confidence in it. There's no second guessing interest rate changes or money printing, etc.

A digital entry with no intrinsic value can only possibly have a store of value if it has made the grade as a medium of exchange.

Gold is not a medium of exchange yet it's a store of value. Your theory has been debunked.

Bitcoin is a long long way off that and if it ever showed signs of making that grade it would be suppressed by regulators (in my interests).

Again, everything for you seems to be black and white. There's no reason why sovereign currency, decentralised digital currency and corporate digital currency can't co-exist. Competition is healthy - and its good for ordinary people.

My guess is that much of the bitcoin speculation does not think this deeply about what bitcoin essentially is.

Some of the brightest minds are working within the crypto space - having left other industries because they see what's coming down the tracks.
As regards speculators - they exist in every market with varying degrees of sophistication or the opposite. That's not exclusive to crypto although new technologies/sectors do come with a hype cycle.

Some believe that the Fiat system is hopelessly corrupt and very vulnerable in the current crisis - it certainly is a bit disturbing.

You once spoke of the evolution of monetary systems. The irony is that its staring you in the face. You'll be the very last to accept it.

Finally mainstream economic thought is dismissive of bitcoin.

We've been over this - but I guess we need to go over it once more. You mean fax machine guy? Turkeys dont vote for Christmas. Like you, they'll accept it when they have no alternative. In the same way the banking set is coming round. We had Jamie Dimon of JPMorgan saying bitcoin is a fraud in 2017 - now one of his analysts is saying that bitcoin could give gold a run for its money and could 10x. We had the CEO of S.E. Asia's largest bank saying that bitcoin is a ponzi scheme in 2017. Now they're going to offer it to all of their customers.

 

[WolfeTone]

Fiat has no intrinsic value, but people accept it as a store of value (not an investment) because they have confidence in it role as a medium of exchange. Workers give their labour for a digital entry in their bank account knowing they can pay their mortgage with it etc.

Of course, this is not in dispute. All that is occuring, from my perspective anyway, is hedging against the prospect of a loss of confidence in fiat. Not a total loss, but devaluations, confiscations, inflation etc are par the course of a fiat monetary system throughout history.

The commitment of central banks to stabilise the price level is a very important factor in this. Bitcoin enthusiasts boast proudly that there is no such institution for stabilising its price.

Again, my interpretation, the value of having no 'commitment of central banks' to stabilise the price level, is to do with the realisation that central banks are hopelessly incompetent of providing price stability for any prolonged period of time.

The euro is a wonderful example of this. For sure, we can all point to relative price stability and an abundance of goods and services in our supermarkets and elsewhere in the goods and services we buy and sell on a daily basis. And all of this provides for a stable and functioning society and economy, and that in itself is worth its weight in gold.

But the backdrop to all of this the clear and obvious price instability wreaking havoc in asset prices from, property, stocks, bonds, energy etc... with the underlying glue holding the whole house of cards together - debt, increasing all the time.

The current trajectory of the fiat monetary system is headed into decline. How it all pans out is anybodys guess but at some point there will be some form of correction. Who will benefit, who will lose?
So holding some personal wealth in decentralised network may not be the smartest move, alternatively it may be a very good move.

Some believe that the Fiat system is hopelessly corrupt and very vulnerable in the current crisis - it certainly is a bit disturbing. But how anyone sees an antidote to Fiat vulnerability in digital entries signifying nothing is completely beyond me.

It would be interesting, just for a change, to perhaps elaborate on what you find disturbing about the Fiat system in the current crisis.
I would have thought you would be of the opposite view, the monetary system showing a magnificent ability to keep society and the economy at large relatively stable and free of panic - notwithstanding the real struggles of many people and businesses, toilet rolls are still plentiful.

 

[Duke of Marmalade]

Of course, this is not in dispute. All that is occuring, from my perspective anyway, is hedging against the prospect of a loss of confidence in fiat. Not a total loss, but devaluations, confiscations, inflation etc are par the course of a fiat monetary system throughout history.

That's the bitcoin narrative, a hedge against collapse of fiat. The hedge is not based on a diversification of intrinsic value as neither have any intrinsic value. Probably as good a hedge as a bet on next year's derby winner.

Again, my interpretation, the value of having no 'commitment of central banks' to stabilise the price level, is to do with the realisation that central banks are hopelessly incompetent of providing price stability for any prolonged period of time.

The euro is a wonderful example of this. For sure, we can all point to relative price stability and an abundance of goods and services in our supermarkets and elsewhere in the goods and services we buy and sell on a daily basis. And all of this provides for a stable and functioning society and economy, and that in itself is worth its weight in gold.

Doesn't sound like a damnation of the fiat of major western economies.

But the backdrop to all of this the clear and obvious price instability wreaking havoc in asset prices from, property, stocks, bonds, energy etc... with the underlying glue holding the whole house of cards together - debt, increasing all the time.

Fair points but is only a hedge against that in that it is completely unpredictable. It is really a repeat of the hedge point, but doesn't convince me that bitcoin has a future as a major medium of exchange, which would underpin its price - the John Kelleher point; do you agree with John?. Its price is purely speculative and since that can go anywhere it does constitute a hedge.

The current trajectory of the fiat monetary system is headed into decline. How it all pans out is anybodys guess but at some point there will be some form of correction. Who will benefit, who will lose?
So holding some personal wealth in decentralised network may not be the smartest move, alternatively it may be a very good move.

Hedge point again, a bet on the 2021 derby winner is just as good.

It would be interesting, just for a change, to perhaps elaborate on what you find disturbing about the Fiat system in the current crisis.

You have done that adequately without me echoing it.

would have thought you would be of the opposite view, the monetary system showing a magnificent ability to keep society and the economy at large relatively stable and free of panic - notwithstanding the real struggles of many people and businesses, toilet rolls are still plentiful.

Yes that is my view but I am certainly uneasy by the unprecedented CB interventions but unlike you I will never see bitcoin as a hedge against that as its price is based purely on speculation with no underlying support as a valid medium of exchange.

 

[DazedInPontoon]

Brendan what is the value of a barrel of crude oil?

Why was the price of a barrel $68 in January, $21 in April and $40 this week. What is the relationship between price and value? What is the value on any given day if it is not the market price?

do you think you can justify a price of oil above $5, and if so how?

 

[WolfeTone]

The hedge is not based on a diversification of intrinsic value as neither have any intrinsic value.

A bit like buying $ with € or vice versa?

is only a hedge against that in that it is completely unpredictable.

Well I agree it's unpredictable, but not wholly so. There are indicators, depending on your perspective of how you measure or calculate value.
Bank deposit accounts, zero interest on savings, or next to. Credit cards that devalue purchasing power, corporate debt used to buyback and pump up share prices, sovereign debt at record highs, house price increases during a pandemic, wage stagnation, etc all amidst a prevailing economic policy that amounts to little more than more and more stimulus or "whatever it takes".

the John Kelleher point; do you agree with John?

Not particularly. It already exists as a medium of exchange albeit in fringe instances. Kellehers view is suppositional, very much referring to an undefined period of time in the future.
My own particular view is that bitcoin, rather than becoming the conventional digital currency that was maybe envisaged, instead has the potential to become the benchmark to value all other digital currencies. In particular, emerging digital currencies that are now routinely being mentioned by nation states and central banks.
This will never be official given bitcoin decentralised status but rather an unofficial benchmark, recognised internationally, affording sovereignty to individuals citizens to protect their own self-interest and acting as a bulwark against fraud and manipulation (human nature).

 

[tecate]

We had Jamie Dimon of JPMorgan saying bitcoin is a fraud in 2017 - now one of his analysts is saying that bitcoin could give gold a run for its money and could 10x.

JP Morgan are now confirming that there's currently more demand for Grayscale's Bitcoin Trust (GBTC) than all gold ETFs combined.

https://twitter.com/Sonnenshein/status/1325218504258281472?s=20

Meanwhile, the CEO of Paxos (who've partnered with Paypal recently in facilitating their crypto offering - and who offer a tokenised gold product themselves) stated that gold has to be digitised in order to compete with bitcoin ->
“Having a physical bearer asset only has so much utility in today’s world.”

 

[RoseMc]

“Having a physical bearer asset only has so much utility in today’s world.”

Well having only so much utility presumably trumps having no utility?!

 

[tecate]

Well having only so much utility presumably trumps having no utility?!

Indeed it does, Rose. I guess it comes down to an evaluation of what represents value and utility.