Criticizing Bitcoin investment for speculation rings hollow when the majority of equity investment is speculation. Very few people invest with the intention of never selling. The news has a daily ritual of reporting the rising and falling of stock prices.
Well, when you buy shares, you buy a stake in the company, i.e. a share in the company's assets, which per se represent a value (and of course can be completely overvalued). When you buy precious metals, they also have an intrinsic value. What countervalue do you have when you buy Bitcoins?
> When you buy precious metals, they also have an intrinsic value.
There is over $7.5 Trillion in gold in reserves held by governments and institutions as a store of value. [1]
Only around $17B worth of gold is used for electronics annually (~320 tons) [2].
Thus annual electronics usage is around 0.22% of the world's gold reserves. Pretending like the "intrinsic value" of gold is from its use in industry is ridiculous and ignorant. The value of gold comes from the fact that the world uses gold as a store of value -- because it does not oxidize and is relatively rare.
The same attributes that make gold a good store of value make bitcoin an even better store of value -- one that isn't simply a protection against inflation but is naturally deflationary given the limited supply.
There are a lot of other precious metals than gold, some with heavy use by industry.
And even if industry doesn't use a lot of gold, it has its merits; you can store it, it's persistent, and you can use it as a means of payment.
Bitcoins are virtual, a promise with no government guarantee; you can't put your hands on them; they're too complicated for most people to handle, and if there's no electricity or computer networks available, there's little you can do with them.
Would you bet your fortune on an email or a video?
Already the monetary currency of most countries is built on sand and one is well advised not to hold all one's assets in cash. Until someone finds a formula to produce gold cheaply (like diamonds), it will continue to be a useful currency with good inflation protection; of course, you wouldn't invest your entire fortune in gold either. But with Bitcoins, we have more of a situation like we had with investment certificates; they may also protect against inflation if everything works as promised, but they can also vanish into thin air very quickly.
Whether an asset has cash flow is besides my point. If one buys an asset with the intention of selling later at a profit, they are speculating. It’s fine to criticize speculators, but my point is it is not exclusive to Bitcoin. The majority of all stock investing is speculation. Very few investors buy stock purely for dividends with no care for whether the price will rise or fall. If Bitcoin is a “ponzi” because buyers are hoping to profit from rising price, then the stock market is also a “ponzi.”
> Criticizing Bitcoin investment for speculation rings hollow when the majority of equity investment is speculation. Very few people invest with the intention of never selling.
That's true. But there are plenty of investors who are conscious about what the investments are used for AS WELL. I mainly buy stocks in renewables and technology. A big part of that is that I feel like I know enough there to make informed investments that'll generate some return. But it's also because I want companies making renewable energy solutions to have access to capital, because I believe that what they're doing is good for the world. As long as my returns are equal or better than interest in my savings account, I'm happy.
There's a lot of people only focusing on pure speculation too. They serve a purpose in making stocks more liquid. But that alone is not the point of the stock market. If it was it'd be banned by now.
This is the main reason why I'm not buying BitCoin. I don't see what good the money I'm putting in will do in the economy.
There is a passionate dislike of Peter Schiff within the BTC community. Grayscale, a BTC ETF launched a "drop gold" marketing campaign. Gold would be an example of exactly the kind of investment people buy and hold.
There are also dividend investors and critics of today's high valuations, buybacks, et cetera. Stocks are an interest in a company that in ideal terms should be creating value. Bitcoin is a medium of exchange at best. Even if you accept that it is a store of value, that is distinct from a company that turns profits.
I don't disagree that there are plenty of shenanigans going around, but nor do I accept that as excusing the problems with BTC.
You can eat neither Bitcoin nor equities, but equities at least make things you can sell for food, even if they are overvalued. Yes, trading equities or bitcoin can both be speculation, but at least equities have an intrinsic use, that exists even if no one wants to buy them. Bitcoin without buyers is just a waste of energy.
Whether Bitcoin as investment makes more sense than gold is unclear to me (though gold does have some real-world needs; probably not sufficient to justify its value), but comparing to productive assets makes no sense to me.
I'm curious why the revelations around Tether hasn't led to Bitcoin crashing yet. I would definitely have sold if I had any (well I did, I mined a bit in the very beginning, but that's lost). Is it that others haven't heard about it, or is it that they don't believe that Tether will take down Bitcoin with it?
It seems like it may have stalled the growth of BTC for now though.
Yesterday Tether's lawyers asked for 30 more days to send their documents to the NYAG. I'm really curious to see what will come from this in the next month or so.
There are fair criticisms of BTC here. However the author is confused if he assumes that Austrian economists are not critical of BTC. Allowing Krugman to define what libertarian views are is suspect to say the least.
As you surely know - the bitcoin fraudsters' use Austrian economics to make the bullshit to the max all sound like it is somehow backed by (economic) theory (and nobel laureates).
Mr Krugman is just one voice in the collected "Yes, Bitcoin is a Ponzi" articles. As you surely know - the most outspoken economist on the bitcoin investment fraud / bubble is Mr Rubini. See this US Sentate testimony, for example, https://bitsblocks.github.io/crypto-bubbles
Yet in the next breath, many will claim (Marxist labor theory of value) the energy used in mining determines the value.
There is value in a medium of exchange if users agree upon those terms. HODLing isn't that.
To the extent that the medium of exchange is valued, it is because it would be more convenient, less costly, less regulated or otherwise useful. BTC's mining, fees and slow transaction speeds subtract utility. Instead of moving onto better technologies, maximalists retreat to the illogical digital gold arguments. Ironically the inefficiencies are defended as creating value.
Aren't you just describing an input-based theory of value in your first statement (as opposed to a Riccardian theory of value where price is determined by demand relative to supply)? I was under the impression that a labour theory of value is a rather specific kind of input theory since it would not treat energy as a legitimate input but instead require the value of energy be determined by the human labor required to produce that energy--i.e. the value of bitcoin should be determined by considering the amount of labour required to produce the energy required for mining plus the labor directly involved in running and the Bitcoin network. Consider a contrasting input-based theory of value which instead of using labour uses some finite resource (or collection thereof) like barrels of oil as its unit of value: here the value of Bitcoin would be determined by the number of barrels of oil required to produce the energy required to mine bitcoin. Even though it uses energy as a means of determining the value of bitcoin, this second theory of value does not involve considerations of labour at any stage.
Also (as an aside irrelevant to my above question), I think you greatly overestimate the number of people who subscribe to a labour theory of value. Personally, I don't recall encountering people who subscribed to it other than far-left shitposters on twitter (who are definitely a minority, although a rather vocal one).
You make a fair distinction in regards to general input-based value and labor based value.
You don't need to look far to find posters using this argument to rationalize the value of BTC. Many contend that BTC's proof of work is the only possibility for a truely secure ledger, that the masses of computing power invested create the value of BTC.
The article does not contain many well founded arguments.
However, I'd like to ask this question: Is an asset price inflation a Ponzi scheme? In other words: Would Bitcoin critics describe a housing bubble in which many people suddenly start investing in real estate as a Ponzi scheme?
Ponzi Schemes can also be organized by the government and be mandatory...
Some pay-as-you-go (vs funded) pension systems are considered as Ponzi scheme by their characteristics. The population/age pyramid in western countries is an issue. Which is why the subject is hot.
Bitcoin is a cryptocurrency, while blockchain is a distributed database. Bitcoin is powered by blockchain technology, but blockchain has found many uses beyond Bitcoin.
