The Bitcoin threads could be interesting in the future

[Leo]

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

Speaking of utility, you must have missed this question earlier...

Then please clarify, I'm trying to understand why you provided that specific link preceded with the 'If Bitcoin has no utility...' What about that report or its publication confirms that bitcoin has utility?

You phraseology suggests you believe this report confounds Brendan's claims of no utility. How did you arrive at that conclusion?

 

[RoseMc]

Hi Leo,

I did not miss this question. I understand that it is an outstanding question which resides, somewhat uneasily, in my court.

However, I have chosen not to answer it until my two initial and prior questions to Brendan are answered. In addition, I would like that he apologises for misrepresenting me.

As a matter of curiosity, do you accept that he misrepresented me?

 

[Duke of Marmalade]

Everyone accepts that price is decided by supply and demand. So when someone asks why is such and such that price they are really asking two questions; why is the supply as it is and why is the demand as it is. With oil these are very clear to see and driven by geo-political and geo-economic factors. There is a mild derivative overlay to supply/demand in the futures market and a milder still demand for store of (strategic) value.
With bitcoin the supply question has no mysteries at all so the question "why that price?" simplifies to "why that demand?" and unlike oil that latter question is indeed very difficult to analyse and why it goes from 15,000 in 2018 to 3,000 in 2019 back to 15,000 today.
We need a more forensic look at demand.
Take copper. There is a clear industrial demand and also a minor demand for ornament and kitchen utensils especially through its offspring brass and bronze. Copper has grown in price 200% over the last 20 years. It is durable. So it is a candidate for store of value but because there are far better alternatives nobody keeps copper in vaults. Gold also has a demand for industrial and cosmetic use but because of its much limited supply the resultant price makes it a much handier store of value than copper. As a thought experiment imagine the supply of gold was as plentiful as copper what would be their respective prices? Gold would remain preferable to copper for its cosmetic value - that is an intrinsic advantage. As its price fell it would find more and more industrial uses. But my guess is that the superior industrial qualities of copper (lighter and better conductor) woud make it dearer than gold. It is copper that would be stored in vaults.
Now we get to the point. We see now a completely new source of demand piggybacking off the fundamental utility driven demand, the demand for its store of value per se. Clearly with gold this is genuinely extra demand. People keep gold in vaults having no intention to use it at some stage for its industrial use or its ornamental value.
Let's have another thought experiment. It is suddenly discovered that Gold radiates fatal marmalade rays, perhaps as a result of Climate Change (hey its a thought experiment). Its fundamental demand collapses. For those who have been keeping it in vaults they are not especially concerned by the new discovery, they might have to build lead vaults. But can anyone doubt that nonetheless its price would collapse.
The point I am making is that the demand for store of value has to be underpinned by fundamental demand.
And with bitcoin there is no fundamental demand.

 

[Leo]

However, I have chosen not to answer it until my two initial and prior questions to Brendan are answered. In addition, I would like that he apologises for misrepresenting me.

So it's only 'at the very low end of the credibility scale' when someone else engages in evasion?

As a matter of curiosity, do you accept that he misrepresented me?

I fail to see how that has any bearing on your ability to explain your thoughts on posting that link? But to humour you, it seems he asked you to justify your valuation of bitcoin. You haven't answered that in multiple posts since, so it has to be considered a reasonable assumption that you are unable to do so.

 

[tecate]

For those who have been keeping [gold]] in vaults they are not especially concerned by the new discovery, they might have to build lead vaults. But can anyone doubt that nonetheless its price would collapse.
The point I am making is that the demand for store of value has to be underpinned by fundamental demand.
And with bitcoin there is no fundamental demand.

Ok, so you now make a distinction between what you perceive has 'fundamental' demand - lets say this is Dukey-approved demand and non-Dukey approved demand when it comes to bitcoin. Same question to you as to Brendan. How do you price a barrel of oil? Should it be $100, $10, -$40 today?

Everyone accepts that price is decided by supply and demand.

Brendan doesn't. He expects a higher standard from bitcoin by comparison with gold, other monetary/precious metals and commodities which somehow get a free pass when it comes to pricing.

Meanwhile, gold had little to do with your 'fundamental demand' a century ago when there was no industrial use for it (that 7.49% industrial use). it had long since established itself as a store of value.

And with bitcoin there is no fundamental demand.

There's a 7.49% 'fundamental demand' for gold - which in NO WAY explains or accounts for its price today.

Finally mainstream economic thought is dismissive of bitcoin.

Here is the worlds foremost bitcoin-bashing 'economist' - Nouriel Roubini - doing a u-turn on bitcoin and for the first time, recognising its characteristics as a store of value in an interview last week. LINK

 

[WolfeTone]

And with bitcoin there is no fundamental demand.

Good post.

The exception being, there is a fundamental demand. Rather than get caught up in the mechanics of bitcoin, what does it offer to prospective buyers.

TheBigShort (me!) touched on this earlier in this thread - only to be somewhat dismissed as an apocalyptic doomsdayer.

So where should I hold my money or wealth?

I referenced gold, property, stocks, antiques, art etc.....

Most of these, if not all, are out of the reach of most people on the planet, and even closer to home, in this country, by way of long-term investment plan. I would hazard a guess that, despite the frenzy of the Celtic Tiger and outside of inheritance, the proportion of people with second properties or home is still relatively low compared to the rest of the population?

Bitcoin offers a fundamental demand to place money outside of a system that has, for a long time now, failed to return any significant amount to those who have no access to the markets of property, stocks, anitques in their own right, only savings (replaced by debt) and wages.
This market is huge.

In turn, for those who do have access to all those other markets, it has the potential to act as a prospective benchmark against which everything can be valued. This is a potentially massive market.

 

[Duke of Marmalade]

Good post.

The exception being, there is a fundamental demand. Rather than get caught up in the mechanics of bitcoin, what does it offer to prospective buyers.

TheBigShort (me!) touched on this earlier in this thread - only to be somewhat dismissed as an apocalyptic doomsdayer.



I referenced gold, property, stocks, antiques, art etc.....

Most of these, if not all, are out of the reach of most people on the planet, and even closer to home, in this country, by way of long-term investment plan. I would hazard a guess that, despite the frenzy of the Celtic Tiger and outside of inheritance, the proportion of people with second properties or home is still relatively low compared to the rest of the population?

Bitcoin offers a fundamental demand to place money outside of a system that has, for a long time now, failed to return any significant amount to those who have no access to the markets of property, stocks, anitques in their own right, only savings (replaced by debt) and wages.
This market is huge.

In turn, for those who do have access to all those other markets, it has the potential to act as a prospective benchmark against which everything can be valued. This is a potentially massive market.

That reads to me a bit circular. Shortie seems to be arguing a Store of Value demand for bitcoin. The Marmalade Principle states that "store of value demand depends on there being fundamental demand :- no fundamental demand->no store of value demand". If we are then to define some aspect of the store of value demand as fundamental demand, as Shortie appears to, then clearly the Marmalade Principle becomes ad absurdum.

 

[DazedInPontoon]

does 'fundamental' demand just mean non-monetary demand?

 

[tecate]

The Marmalade Principle states that "store of value demand depends on there being fundamental demand :- no fundamental demand->no store of value demand"

The Marmalade Principle doesn't pass peer review. Gold established itself as a store of value long before there was any 'fundamental demand' as you put it. All the while, that 'fundamental demand' is peripheral at 7.49%.
Meanwhile, we have the world's foremost bitcoin-bashing mainstream economist finally recognising bitcoin as a store of value.

 

[RoseMc]

It seems he asked you to justify your valuation of bitcoin.

Leo,

You seem like an intelligent person but your comments to me in this thread are disappointing.

I never, not once, put a value on Bitcoin. Nor did I ever claim to have a basis for its valuation.
Your latest post is a continued misrepresentation of my position. I am surprised at you and your apparent difficulty following this thread. I believe that you are better than this.

 

[Duke of Marmalade]

Here is the worlds foremost bitcoin-bashing 'economist' - Nouriel Roubini - doing a u-turn on bitcoin and for the first time, recognising its characteristics as a store of value in an interview last week. LINK

Anybody making that interpretation is delusional. This was a strong denunciation of cryptocurrencies. Yes he has a kinder word for bitcoin over the other sh1tcoins (his expression). He uses the words "part store of value". Obviously it has a part store of value. If someone offered me a bitcoin, I would accept it. Even I would have 100% certainty that I could exchange it over the next few months for a reasonable amount of fiat.
My post was arguing that the unique situation of something having a demand as a store of value not underpinned by some fundamental utility demand is unsustainable. I am sure Nouriel would agree with me.

Gold established itself as a store of value long before there was any 'fundamental demand' as you put it.

If gold was a poisonous putrid smelling substance it would never have achieved any value no matter how scarce it is. Gold is clearly attractive to the human senses; that underpins its fundamental demand and was there before its demand as a store of value.

 

[tecate]

Anybody making that interpretation is delusional. This was a strong denunciation of cryptocurrencies.

We're not talking about cryptocurrencies plural - we're talking about bitcoin. His comments were referenced in relation to bitcoin. If you want to discuss other crypto's, then by all means, open a new thread.
The strongest of denunciations of bitcoin has been Dr. Doom's default position on bitcoin for years. There is no economist on this planet who has been as poisonously opposed to bitcoin as he has. This was not a denunciation - you're the delusional one if you can't see that.

He uses the words "part store of value".

Precisely that - that's what I was referring to. And he'll crap all over btc still in other ways (for the moment) but he's never made this admission. It's a first - and it's a u-turn.

Obviously it has a part store of value.

This is priceless! Show us where any one of you and your fellow bitcoin critics have suggested anything like that in three years of discussion here. Provide a link to the post or posts!

My post was arguing that the unique situation of something having a demand as a store of value not underpinned by some fundamental utility demand is unsustainable. I am sure Nouriel would agree with me.

How can you be sure when he just came out and referred to it as a store of value (partial or otherwise). He's doing a u-turn - maybe you should pay attention as chances are you'll have to do one yourself soon enough.

Gold is clearly attractive to the human senses; that underpins its fundamental demand and was there before its demand as a store of value.

Beauty can be found in nature in all manner of things - they don't have to be putrid. They DO have to be scarce to be a store of value. Your fundamental demand argument doesn't stand - just like your claim that bitcoin can't establish itself as a store of value without first being pervasive as a means of exchange. Ask Nouriel - through gritted teeth (as he's politically and diametrically opposed to it), he understands that.

 

[WolfeTone]

The fundamental demand is for the ability to store money securely (trustless) outside of the prevailing banking system. This is its utility.

The store of value is the level of adoption. If I’m the only one with this fundamental demand, then store of value is negligible (to me it might be precious – e.g. my record collection, to everyone else it is an irrelevance.)
If many, many others have this fundamental demand a market price for this store of value will emerge.
The price applicable to that store of value (per btc) is determined by the level of that fundamental demand over the supply. No different to anything else.

The question is, for me, do many, many others have this fundamental demand?

I could buy property, art, stocks, gold, antiques etc – all of which are also stores of value. However, I may not have access to such markets, or access is cumbersome (gold), or access is constrained, complicated or a level of (perceived) expertise (property, art, stocks) is required/advisable for prospective investors.
This leaves a huge swathe of people reliant primarily on fruits of their labour, wages, and with interest on savings accounts. For a large swathe of people the purchasing power of their labour has diminished relative to property and rent, and interest on savings has been replaced by easy credit and long-term debt.

To me the answer to the question of fundamental demand to store money securely outside the prevailing banking system is a resounding, yes.

 

[Duke of Marmalade]

The fundamental demand is for the ability to store money securely (trustless) outside of the prevailing banking system. This is its utility.

Not sure we are mixing terminology a bit. Yes there is a demand to store money..., not sure that translates to a demand for money. But is bitcoin money? Is bitcoin a medium of exchange, ergo money? I agree with John Kelleher that it is necessary for bitcoin to make the grade as a medium of exchange to be considered money and therefore justify store of value status. Where I disagree with him is that I don't think it will (be allowed to) make that grade.

 

[tecate]

Not sure we are mixing terminology a bit. Yes there is a demand to store money..., not sure that translates to a demand for money. But is bitcoin money? Is bitcoin a medium of exchange, ergo money?

There's a need for people/entities to store value. That doesn't have to be money or a means of exchange - as you can see with gold.

I agree with John Kelleher that it is necessary for bitcoin to make the grade as a medium of exchange to be considered money and therefore justify store of value status.

Re. your post above, aren't you now saying that you believe it IS a (part) store of value....

 

[WolfeTone]

Not sure we are mixing terminology a bit.

Perhaps. But the driving force behind my interest in bitcoin is, aside from my initial speculative curiosity, the option to place money outside the banking system. My reasoning for that is no different to placing money outside the banking system in stocks, property or gold or whatever. I consider any number of factors and I believe that they provide an opportunity to protect the value of the money that I have placed in it long-term.

I could of course be wrong and lose my shirt, but ditto, property, stocks and gold.

As discussed elsewhere, bitcoin has been around for 12yrs. Along with smartphone technology and the internet, access to bitcoin is probably more readily available to the masses than the banking system is, which has been around for donkeys years, and is quite clearly shy of offering proper financial services and access to those with limited and restricted opportunity.

The digital currency age is upon us, the race is on for a internationally recognised standard. I like some of what the Libra White Paper says about its own project;

• We believe that many more people should have access to financial services.
• We believe that people have an inherent right to control the fruit of their legal labor.
• We believe that global, open, instant, and low-cost payment networks create immense economic opportunities and more commerce across the world.

Bitcoin may, or may not be, the standard bearer. I would be inclined, at this point, to think that it will be.

 

[Duke of Marmalade]

Perhaps. But the driving force behind my interest in bitcoin is, aside from my initial speculative curiosity, the option to place money outside the banking system. My reasoning for that is no different to placing money outside the banking system in stocks, property or gold or whatever. I consider any number of factors and I believe that they provide an opportunity to protect the value of the money that I have placed in it long-term.

I could of course be wrong and lose my shirt, but ditto, property, stocks and gold.

As discussed elsewhere, bitcoin has been around for 12yrs. Along with smartphone technology and the internet, access to bitcoin is probably more readily available to the masses than the banking system is, which has been around for donkeys years, and is quite clearly shy of offering proper financial services and access to those with limited and restricted opportunity.

The digital currency age is upon us, the race is on for a internationally recognised standard. I like some of what the Libra White Paper says about its own project;

• We believe that many more people should have access to financial services.
• We believe that people have an inherent right to control the fruit of their legal labor.
• We believe that global, open, instant, and low-cost payment networks create immense economic opportunities and more commerce across the world.

Bitcoin may, or may not be, the standard bearer. I would be inclined, at this point, to think that it will be.

Wolfie it has to establish a utility value to be a sustainable long term store of value. The only utility it can possibly supply is as a medium of exchange. The desire for bitcoin to achieve this utility value does not mean it will happen.

 

[Duke of Marmalade]

Re. your post above, aren't you now saying that you believe it IS a (part) store of value....

Like the tweeter you linked to you seem to believe you have a big gotcha on the Duke and on Roubini. I am not the sort to reject facts as they present themselves. Bitcoin has a price. Bitcoin will have a price in a week's time, a month's time and yes in a year's time, this despite the fact that I believe it is a BOHA. So of course it has a (part) store of value on those timescales. Where's the big gotcha here?
I do not think it is a good store of value over those timelines. not because of BOHA but because of the massive volatility.

 

[WolfeTone]

Wolfie it has to establish a utility value to be a sustainable long term store of value. The only utility it can possibly supply is as a medium of exchange. The desire for bitcoin to achieve this utility value does not mean it will happen.

Ok, I have no real desire to recycle the past three years, but bitcoin is already a medium of exchange. It may be a relatively scarce medium of exchange but so is gold. When is the last time you bought and sold anything in gold other than for decorative jewellery or for fiat currency?
I do not think bitcoin has the propensity to be traded abundantly in our daily lives for groceries and electricity bills any day soon.
Instead, I would consider bitcoin having the prospect of being a great equaliser. Acting as a bulwark against manipulation (human nature) and offering economic opportunity and autonomy to anyone with an internet connection.

 

[tecate]

Like the tweeter you linked to you seem to believe you have a big gotcha on the Duke and on Roubini.

I wasn't looking for one - but I do see a change when its set out before me. Ask anyone in crypto circles for who above anyone else epitomises bitcoin-hate and more often than not, the answer you will get is Nouriel Roubini. Of course, there are others - your friend fax machine guy took great joy in socking it to crypto folk during the 2018 bear market. But nobody has topped Nouriel.

I am not the sort to reject facts as they present themselves.

Well that is at least true in this instance Duke, where both you and Nouriel acknowledge for the first time that bitcoin is a store of value.

Bitcoin has a price. Bitcoin will have a price in a week's time, a month's time and yes in a year's time, this despite the fact that I believe it is a BOHA. So of course it has a (part) store of value on those timescales. Where's the big gotch here?

I wasn't chasing a 'big gotcha'. However, just like many in crypto see Nouriel's acknowledgement of bitcoin as a store of value as a complete change, I also take yours as significant in the development of this discussion - as you've never described it in those terms before.

I do not think it is a good store of value over those timelines. not because of BOHA but because of the massive volatility.

Thats fair enough although I don't agree that volatility has a lot to do with the characteristics of a good store of value. It does come into play with regard to a medium of exchange though.