The Market Ticker
Rss Icon RSS available
You are not signed on; if you are a visitor please register for a free account!
The Market Ticker Single Post Display (Show in context)
User: Not logged on
Top Login FAQ Register Clear Cookie
User Info Tickerguy on F.A.C.E.....; entered at 2017-12-06 09:40:08
Posts: 78
Registered: 2013-02-13
I am suspicious of Bitcoin myself, as anyone should be of anything that appreciates 900% in a year. But I have been thinking about it, and for many of the reasons you think it a Ponzi scheme, I think that there might be more to it.

I'm going to quote Greenspan, from an article he wrote in his gold bug days. I know you don't like the gold standard, but you must admit that the nonsense we have been dealing with over the past 30 years would have been much less under it.

The article is here:

"Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving."

* "the medium of exchange must be a durable commodity, usually a metal"
* " A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity."
* "Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron."

OK, so Bitcoin isn't physical, like we would think of a commodity. But most
commodities are earned in some way; gold and silver are mined, wheat and frozen concentrated orange juice are grown. Cigarettes are made. Bitcoin, while not a physical good in the traditional sense, they (a) require capital and (2) require energy. So in a way, Bitcoin is earned.

Regarding #2, bitcoin is divisible to the 8th decimal place.

Regarding #3, it doesn't weigh anything. It can also be exchanged at essentially zero cost; it knows no borders, so it is easy to transport; in fact, much more so than gold.

Let's think about gold. The supply of gold is finite. It grows more expensive to mine. Exponentially, like Bitcoin? I don't know. Bitcoin is finite. The miners of gold are the first to benefit; when gold is money, an addition to the gold stock is inflationary. The benefits accrue the same way as bitcoin. Where you see Ponzi, I see gold.

Right now, Bitcoin is essentially worthless. It is a tulip bulb in Holland during the 1600s. A tulip has a sort of intrinsic value. It looks nice in the garden; perhaps it give pleasure to gardener who cultivates it. The speculation renders the bulbs essentially worthless, because they are not planted, but hoarded because of the price increases.

Think of Bitcoin as a network. Metcalfe's law puts forth that the value of a network increases with the square of its nodes. The example I usually see is that of fax machines. One fax machine is useless, but as more and more are purchased and used, the more the utility and value of the network increases. Now, let us subject the fax machines to the sort of speculation we now see in Bitcoin. The owners of now send no faxes, for fear of damaging the fax machine! They might sell it later for 10x what they paid for it. So the speculation renders the fax machines and their network worthless. Fax machines sending no faxes are just as worthless as no fax machines at all! But when the price of fax machines stabilize, they will again be used, and the network becomes valuable again.

I think we can think of Bitcoin and the blockchain as a network. Because it is subject to this speculations, it is not used in transactions, and it is therefore worthless. The introduction of the futures market creates an interesting situation. We now have a convenient way to short Bitcoin. We now have speculators on the other side of the trade. This puts a lid on the price increases, if nothing else. Like our fax machines sending no faxes, and our tulip bulbs not being planted, Bitcoin becomes used. Because it is being used, it is now valuable. It becomes more valuable the more people use it, and the more people who accept it. It seems to be used in Venezuela and Zimbabwe. The value of the network increases exponentially, and it increases irrespective of its price.

Like all money and currency, these events depend on the perception of the marketplace. All of it depends on the perception of the market. People could decide that they no longer like shiny metals, and the price of gold would decline to whatever price its industrial use justifies. The same could happen with the US Dollar, the Euro, or the South African Rand. So there is no doubt that the value and price of Bitcoin could go to zero. It depends on the fiat of people, and because of that it is impossible to price; the price will be somewhere between zero and God-only-knows what.

I think there is value in cryptos and the blockchain. As there have been competing currencies in the past; something competed with gold in older times, currently we use the USD; right now we have competing cryptos. The public will have to decide; they may decide not to use any, which makes them all zeroes. But if one catches on, the upside is huge.

I think it has the properties of commodity money; I think it has the properties of gold. I'll close with a couple of quotes. One from a Fed official, and one from a Fed official and one from Alan Greenspan.

The Fed's vice-chairman of supervision says: "While these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage."

Note he that he concerned about USAGE; he is not concerned about the price.

Greenspan says this: "Human nature is such that if you get something such as Bitcoin, you think there is some value there whether there is or there isnt. But thats the same thing as a Continental, greenbacks in the Civil War, all of these currencies which didnt have any backing."

Greenspan is smart enough to know that the USD is basically a fiat currency, as well. Gold, in a way, is a fiat currency, but it was the fiat of the market, rather than the fiat of the market's betters in government.

It will be interesting to see how it plays out.

2017-12-06 09:40:08