Economy Inflation and Bitcoin.....another look

[Eric Silva 2.0]

To me, and I grant this is just my lay opinion, you're inviting disaster to put your money into something that is deliberately stripped of all the safeguards and other legal protections against bad actors, unlike the traditional monetary system, which has, at least attempted, to protect the consumer from fraudsters.

A very small number of people who are in on the scam will get wealthy while the rest are all victims of the likes of SBF.

I think that's really stupid.

"You're inving disaster"
I don't think so. Is there risk? Yes but this is a game for men and not boys. People can invest in Johnson and Johnson or Pfizer for stable dividends and small capital gains. Wait a second. Johnson and Johnson is involved in a huge lawsuit (baby powder) and Pfizer has been sued many times and paid huge amounts (billions) for killing people. I guess I can choose to invest in companies that are killing people or making garbage products like Tesla or invest in bitcoin which is currently helping feed people in countries with very high inflation.
https://angeloslaw.com/legal-blog/2...oSmithKline paid the,diabetes drug to the FDA.

"The traditional monetary system has at least attempted to protect the consumer from fraudster."
Credit cards invite fraud and make you give your personal information including the 3-digit number on the back. Bitcoin is superior in that you don't even have to share your name to transact and the transaction is recorded on the ledger.

 

[Jack V Savage]

I do. I'm using the dollar because it is perceived as stable and the best or close to it when it comes to these fiat currencies. If I used the Zimbabwe Dollar, Turkish Lira or the Argentine Peso I'm sure you'd agree with me that it would be worth it to store most or all of my money in bitcoin rather than local currency (let's leave out other options for the sake of precision).

What I'm saying is that "the dollar" depends on the year. Dollars printed last year are down 3% or so. "The dollar" printed in 1913, is worth almost nothing today (except as a collector's item, and it might actually be worth a lot--I have no idea). Inflation over an extremely long period has no relevance to anything. In the short-term, it matters because it affects behavior and thus impacts the real economy (goods and services provision). That's the reason we developed a system that has much less short-term volatility and more long-term change (because it moves slightly in the same direction rather than a lot in opposite directions).

I would agree with your general idea but there are weaknesses in this system. Over the short term those weaknesses don't matter but it's the accumulation and the long term where the problem is starting to show up. There isn't a solution in the present system. That's where we disagree and I disagree with most on this board.

Solution to what specific problem?

I guess it's why I invest in things like bitcoin (and others) and many on here say it's worth less than toilet paper, CT, right-winger etc..... It's also a big reason for the thread. Bitcoin is getting real attention from CEO's, money managers and many others. To pretend it's some fringe asset when it has a market cap higher than Tesla, Costco Toyota, Home Depot,Exxon Mobil and Walmart is disingenuous to say the least.

As an investment, Bitcoin is worth whatever people think it is. It has no intrinsic value, but people could bid it up, or not. My view on that is just that I have no good reason to think the market is getting it wrong but because there's nothing to base valuation on, it can swing wildly. It's silly to compare its "market cap" to businesses that produce stuff, though. Reflects a lack of understanding of what the concept even means (note that no one talks about the "market cap" of dollars).

 

[Rational Poster]

Bitcoin is just a vehicle for rich people and criminals to carry out illegal transactions and avoid taxes.

Everyone else who is not using bitcoin for this is just a mark for those people.

 

[MeatheadMike]

"Basically fiat currencies have no intrinsic value, but are backed by governments, making them stable and ideal to transact with on a day to day basis."

What does it matter what the intrinsic value is of currencies or anything else for that matter? I'm not sure why people are talking about this. They are backed by governments but are they really stable? I don't think so. The dollar has lost ~97% of it's value since 1913 (The Fed). If you are saying stable meaning they aren't volatile, I could agree with that. What's the use of owning something that is moving towards zero and is guaranteed to lose purchasing power? Are paper currencies great for day to day transactions? Of course they are. That's their biggest strength.

The dollar is stable because on any given day you can walk into a store in the US and be confident that you can exchange it for goods or services. You can also be confident that you will pay about the same price as what you paid for it the day before (aside from price fluctuations of the good itself). The ~97% inflation over the span of 100+ years doesn't diminish this fact.

What is the intrinsic value of oil and how did you come up with your answer?

This should be obvious... If nobody wanted to buy your oil anymore, it could still be used to run your car. Lumber can be used to build houses, wheat can be eaten, etc. This is intrinsic value.

"Then you have cryptocurrencies which are not backed by anything. Their perceived value........"
Does it matter that in Zimbabwe, Venezuela, Brazil, Turkey, Lebanon and many other countries the currency is backed by a government? Does it matter if I live in London and my paper currency is backed by the guy with the big ears (King Charles) or backed by Prince Harry or Meghan Markle? Who cares? I just think many people are missing it when it comes to bitcoin. Warren Buffett missed the whole tech boom of the 90's? Is he still the greatest investor who has ever lived? I think so but if he isn't he's right up there. I think the same thing is happening with bitcoin for similar reasons.

Obviously the type of government backing the currency matters. The more stable the government the more stable the currency. In your example the UK is a global power, run by a democratically elected parliament, unlikely to be overthrown or collapse in the near future etc... not really comparable to Zimbabwe, hence the difference in perceived value of their currencies.

 

[Eric Silva 2.0]

I've defined it twice as I see it, relative to bitcoin.

But if you want a generic definition: Intrinsic value is a measure of what an asset is worth.

Investors look for gaps between an asset's intrinsic value and it's market price. When the market price is lower than the intrinsic value, they invest and hope to sell for a profit when the market price rises to the intrinsic value. When the market price is higher than the intrinsic value, they don't invest because the asset is overpriced.

Bitcoin is not blockchain. Even 10 years ago, people understood that the highest value was primarily in the blockchain technology, not the bitcoin application. Bitcoin's potential applicability to global commerce was where it's value was. I think that time has degraded that value for bitcoin but not the value for the blockchain.

You're free to speculate that in 30+ years people will be using bitcoin, and not some other crypto currency, to manage a substantial part of their financial transactions. I don't think it will happen. It will be a minor player.

You've said bitcoin has intrinsic value like any other tradeable asset. Other people have said bitcoin doesn't have any intrinsic value. I guess my question to you is what is bitcoin's instrinsic value today and how did you come up with your answer? If I had to guess how bitcoin would be used in 30 years I would say that people would use it for big transactions like buying a car or house. I think over time the price will become less volatile but continue to rise to due to the decline in value of the dollar and other fiat currencies.

What I'm saying is that "the dollar" depends on the year. Dollars printed last year are down 3% or so. "The dollar" printed in 1913, is worth almost nothing today (except as a collector's item, and it might actually be worth a lot--I have no idea). Inflation over an extremely long period has no relevance to anything. In the short-term, it matters because it affects behavior and thus impacts the real economy (goods and services provision). That's the reason we developed a system that has much less short-term volatility and more long-term change (because it moves slightly in the same direction rather than a lot in opposite directions).



Solution to what specific problem?



As an investment, Bitcoin is worth whatever people think it is. It has no intrinsic value, but people could bid it up, or not. My view on that is just that I have no good reason to think the market is getting it wrong but because there's nothing to base valuation on, it can swing wildly. It's silly to compare its "market cap" to businesses that produce stuff, though. Reflects a lack of understanding of what the concept even means (note that no one talks about the "market cap" of dollars).

"Solution to what specific problem"
The currencies of the world buy very little at the moment and it's getting worse. As the debt and deficits continue to grow the interest expense is becoming a major problem in the United States (over a trillion dollars in 2024). As things deteriorate further due to poor economic policy and poor political leadership (both parties) it's only natural for people to look for better ideas. It's happening in many other countries right now (Venezueala, Argentina, El Salvador, Turkey, Zimbabwe and Lebanon to name a few). Bitcoin is deflationary/disinflationary money in that it has predictable inflation rate (currently 1.7% and in April it will drop to .84%), is a very good unit of account and it has potential as a medium of exchange (right now used mainly as a store of value).

"It's silly to compare it's 'market cap' to businesses that produce stuff.............no one talks about the market cap of dollars."
I don't think it's silly. If people on here are marginalizing it by saying people are CTers, right wingers, brainwashed etc...., it's interesting to understand the market cap of various assets. Leaving out paper money it's generally how many investments are compared. Interestingly enough, Ethereum is worth more than Bank of America. Why that type of stuff is signficant is that people who are saying this is some fringe idea just don't know what they are talking about. When you have over 700 billion dollars invested in bitcoin alone, that tells me there is some very strong interest from around the world contrary to what many people are saying and have said on this forum.
https://companiesmarketcap.com/assets-by-market-cap/

 

[Jack V Savage]

The currencies of the world buy very little at the moment and it's getting worse.

What does this mean? You think merchants don't accept dollars?

As the debt and deficits continue to grow the interest expense is becoming a major problem in the United States (over a trillion dollars in 2024).

It's a small problem, and I agree that we need some tax increases. But that's unrelated to Bitcoin or whatever. It's a matter of politicians not taxing enough to pay for spending.

As things deteriorate further due to poor economic policy and poor political leadership (both parties) it's only natural for people to look for better ideas.

Again, not sure what one has to do with the other, but note that American living standards have never been higher than they are now, and the economy is doing extraordinarily well.

I don't think it's silly.

It's apples to oranges.

If people on here are marginalizing it by saying people are CTers, right wingers, brainwashed etc...., it's interesting to understand the market cap of various assets. Leaving out paper money it's generally how many investments are compared.

Depends what you're trying to do. The combined value of all shares of a company tell you how the market values the company (minus debt). But the combined value of a currency don't tell you anything about a particular entity. It's just using similar terms to fool unsophisticated investors.

 

[panamaican]

You've said bitcoin has intrinsic value like any other tradeable asset. Other people have said bitcoin doesn't have any intrinsic value. I guess my question to you is what is bitcoin's instrinsic value today and how did you come up with your answer? If I had to guess how bitcoin would be used in 30 years I would say that people would use it for big transactions like buying a car or house. I think over time the price will become less volatile but continue to rise to due to the decline in value of the dollar and other fiat currencies.

I don't know bitcoin's exact intrinsic value and neither does anyone else. The speculated intrinsic value years ago was it's potential role in global trade outside of the control of governments and government banks. That has not come to pass and does not appear to be a realistic short term outcome.

But, given what we know, whatever it's intrinsic value could be is entirely speculative. Others have explained why. But, in short, there's nothing concrete upon which to base the speculation. It's not back by a government so you can't use a nation's GDP, resources, etc. to calculate value. It's not tied to a physical commodity, so you can't use the usefulness of the commodity to calculate its value. It's not tied to a company, so you can't look at the corporate revenue or assets held to calculate its value.

Its value is purely in the speculation of future use...while there's very little concrete data about the extent of present day use.

But I'll keep doing your homework: The value of global wealth is ~$450 trillion. Bitcoin is approximately .11% of global wealth. That would put the price of all bitcoin at $500 billion. But that's not the intrinsic value, that's the market price.

The problem is that it's pretty difficult to determine the economic value of the transactions that involve that crypto currency. I have no idea if the value of the transactions has increased or decreased. Are people buying buildings with bitcoin or furniture or chewing gum? No one really knows so no one can really value the economic impact. Thus no one knows what that $500 billion market price is actually worth in real goods.

My opinion is that the actual worth of the bitcoin economy is well below the $500 billion in capital tied up in bitcoin wallets because a lot of bitcoin owners are simply holding it waiting for the day to cash out, not actually using it for commerce.

Hope that helps since it includes actual numbers.

 

[Jack V Savage]

Another way to illustrate why comparing BTC's "market cap" with the market cap of a real company (or "intrinsic value") is silly is to imagine owning all shares of Visa vs. owning all Bitcoins. Owning all shares of Visa means you'd be the richest person in the world. Owning all Bitcoins would mean you have nothing of value.

 

[Siver!]

I find BitCoin pretty fascinating, to be honest.

I'm definitely not going to get involved, but can kind of see why people do (it's extremely volatile, it's a big gamble by stock standards, etc).

What's weird to me, though, is how people basically become Crypto guys and make it part of their online persona.

Never understand that bit. Is it just free advertising because "we, the people"?

 

[Eric Silva 2.0]

Another way to illustrate why comparing BTC's "market cap" with the market cap of a real company (or "intrinsic value") is imagine owning all shares of Visa vs. owning all Bitcoins. Owning all shares of Visa means you'd be the richest person in the world. Owning all Bitcoins would mean you have nothing of value.

Visa market cap is ~500 billion
Bitcoin market cap is over 700 billion.

It's better to own the bitcoins.

 

[LMP]

I find BitCoin pretty fascinating, to be honest.

I'm definitely not going to get involved, but can kind of see why people do (it's extremely volatile, it's a big gamble by stock standards, etc).

What's weird to me, though, is how people basically become Crypto guys and make it part of their online persona.

Never understand that bit. Is it just free advertising because "we, the people"?

They are like a soccer mom that invested all of the families savings into a MLM scheme. They must convert others or else they have to admit that they got fooled.

 

[KaNesDeath]

What's weird to me, though, is how people basically become Crypto guys and make it part of their online persona.

For its a pump and dump. Others must be enticed for them to earn money. The purists were pushed out years ago.

 

[HOLA]

For its a pump and dump. Others must be enticed for them to earn money. The purists were pushed out years ago.

It's always funny when they let the mask slip a bit:

 

[HOLA]

Another way to illustrate why comparing BTC's "market cap" with the market cap of a real company (or "intrinsic value") is imagine owning all shares of Visa vs. owning all Bitcoins. Owning all shares of Visa means you'd be the richest person in the world. Owning all Bitcoins would mean you have nothing of value.

Visa market cap is ~500 billion
Bitcoin market cap is over 700 billion.

It's better to own the bitcoins.

lol. No. Jack is right. Visa makes more than $20 billion in operating income every year. It has a wide moat, and it increases earnings in a pretty linear fashion. If you owned the entire company you'd be raking in billions every year; if you owned all the Bitcoin in the world you'd make $0 every year. It's not going to produce anything for you. You'd have to sell some of it to make any money, hoping whoever you sell it to pays more than you bought it for.

 

[Eric Silva 2.0]

I don't know bitcoin's exact intrinsic value and neither does anyone else. The speculated intrinsic value years ago was it's potential role in global trade outside of the control of governments and government banks. That has not come to pass and does not appear to be a realistic short term outcome.

But, given what we know, whatever it's intrinsic value could be is entirely speculative. Others have explained why. But, in short, there's nothing concrete upon which to base the speculation. It's not back by a government so you can't use a nation's GDP, resources, etc. to calculate value. It's not tied to a physical commodity, so you can't use the usefulness of the commodity to calculate its value. It's not tied to a company, so you can't look at the corporate revenue or assets held to calculate its value.

Its value is purely in the speculation of future use...while there's very little concrete data about the extent of present day use.

But I'll keep doing your homework: The value of global wealth is ~$450 trillion. Bitcoin is approximately .11% of global wealth. That would put the price of all bitcoin at $500 billion. But that's not the intrinsic value, that's the market price.

The problem is that it's pretty difficult to determine the economic value of the transactions that involve that crypto currency. I have no idea if the value of the transactions has increased or decreased. Are people buying buildings with bitcoin or furniture or chewing gum? No one really knows so no one can really value the economic impact. Thus no one knows what that $500 billion market price is actually worth in real goods.

My opinion is that the actual worth of the bitcoin economy is well below the $500 billion in capital tied up in bitcoin wallets because a lot of bitcoin owners are simply holding it waiting for the day to cash out, not actually using it for commerce.

Hope that helps since it includes actual numbers.

I appreciate your explanation. I wasn't asking you to do homework but I'm just trying to get clarification on a term that's used by many people on here but seems to mean different things to different people. It's hard to have a conversation with language that isn't clear. I've been investing and trading in bitcoin and other crypto for many years so I have my own way of valuing it. I just find it curious that some people have such strong opinions on something they don't seem to know that much about.

You might be right that many people are holding it to cash out at a higher price. Every four years the inflation rate of bitcoin gets cut in half. Next year the inflation rate will be under one percent. The dollar and other currencies will continue their path towards being worthless. All things being equal, the price of bitcoin is going up. It's pretty simple.

"speculated intrinsic value"
Never heard of this and not sure what it means

 

[Rob Battisti]

They are like a soccer mom that invested all of the families savings into a MLM scheme. They must convert others or else they have to admit that they got fooled.

I’m just in it to win WR bets

 

[LMP]

I’m just in it to win WR bets

 

[Rob Battisti]

Owning 500 billion dollars of an asset means you own nothing of value.

 

[Siver!]

Owning 500 billion dollars of an asset means you own nothing of value.

Yeah, I didn't follow that one.

You could still sell some of your BitCoin if you owned all of it.

 

[Jack V Savage]

Yeah, I didn't follow that one.

You could still sell some of your BitCoin if you owned all of it.

Think about it more. You have a "currency" that one person owns all of. Why would anyone pay for it? How would it even be valued?