If the value of a single unit of a supposed currency varies between $9,000 and $11,000 in a day then it is not a currency because it lacks one of the essential characteristics: it is not a store of value.
Let's call it a con trick instead.
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Too early to say, Richard.
Sure it’s not yet a sound currency because nobody knows what it’ll be worth. You’re looking at a new asset class which is a disruptor.
It will correct. But it may go a lot higher before it corrects and I really don’t think it’s going to go away however much you dislike it.
When a University VC and a battered old painting (of doubtful provenance) are ‘worth’ £450,000 you have to seriously wonder about the value of the currency used to pay for them. I think you might agree that fluctuates wildly too.
(And if media reports are to be trusted that’s the going rate for University VC to not go to work !! )
“Lets call it a con trick”. Too true Richard. Another feeding frenzy. There will be tears before bedtime.
There’s every likelihood short-sighted people after a quick buck are leaping in, but that’s down to individual greed. It doesn’t make Bitcoin a con in itself. It’s probably wrong to try to define it in existing terms since they’ve been developed to apply to existing models and scenarios. Something different, without precedent, is happening here. We shouldn’t be too quick to categorise it.
I am at a complete loss as to why it is that normally quite sensible commenters such as yourself have any regard for this pointless, pretentious fad.
The Tulip Bubble was more rational than this (at least the tulips were tangible and pretty). Bitcoin’s only accomplishment is to be the ultimate example of wholly contrived and imaginary value. A pyramid scheme with delusions of grandeur.
I have a lot of friends who have invested (relatively) small amounts of wealth in this scheme. Personally I’m weary of it. There is a lot of room for fraud in this and you have to just hope what you have bought is legit (I went as far as registering with a website to scope it out a little), after all you are buying tiny amounts of a digitally created thing. Its bizarre at the best, however part of me doesn’t like to be unnecessarily hostile to new technologies and will always try to approach them with an unbiased opinion, no matter how insanely dodgy they look. I think the over riding problem I have with this is that, at this stage and the amount of coverage its has, is that the price is definitely just speculative. The market will be full of people looking to get a quick buck, and so as soon as there is any sign of the price falling these people will sell and just cause a crash of the market. In fact the price dropped from $11,000 to $9,000 in the space of a few hours, reports of a security breach, but more likely a load of people selling. From what I understand you can only sell peer to peer, so you would have to find someone willing to buy, which will be fine while prices stay high, but near impossible when they start to fall. I think some companies will buy them off you but they will inevitably run out of liquidity if everyone wants to sell them and so unless if you want to get rid of bitcoin fast. I think the technology has legs, I think it has a future, I just I think once this bubble bursts, there will be a normalising of the price. But I don’t know, this is based on an opinion from all of a weeks research into the topic. I would be interested in other peoples thoughts.
Interesting. Are you proposing that any major currency whose value has ever fluctuated by 20% in a single day should not be considered true store of value ?
No, because most are unlikely to repeat the trend
Bitcoin is very likely to
Robert ley,
That is not anything like the really good point that you think it is. Normal currency’s only fluctuate wildly in response to financial crises and the like. Big, historic, real world events like Brexit of the GFC.
This pseudo currency creates its own instability.
It might still work as a medium of exchange but what you say is correct, this isn’t a currency. Rather it’s a highly speculative asset that can be used for trade on the side but that isn’t a currency.
You say that like it’s a bad thing, but how many times on this blog have we reminded ourselves that fiat currency is essentially a con, no more than a belief system? The only difference, if we’re going to regard cryptocurrency as a con, is that the government isn’t (yet) in on this one, as they were with the Bank of England’s IOUs which is arguably why they caught on and other similar efforts didn’t. The original con was that BofE IOUs were backed with gold, a ruse which the bank and government were forced to abandon after rumours of war with France reached a frenzy after an alleged sighting of French Frigates off Beachy Head. This was at the weekend, and, anticipating an excess of IOU-bearing punters hammering at the door on Monday morning when the bank was due to open, all demanding their (by now) long-gone gold, government called an emergency session and declared the IOUs themselves to be legal tender. It occurs to me the bank itself may have been behind the rumour, with that outcome being their desired one.
I would have thought that it would not qualify as a means of exchange in the wider world.
There are obviously a small number of people who would look upon bitcoin as consideration but not a sufficient number to justify its classification as a world currency. The only way it could be used as consideration generally would be to peg it to another currency but such is it’s volatility that this would also be unlikely.
So what is the difference between a bitcoin and a tulip?
KeithP says:
November 30 2017 at 12:39 pm
“I would have thought that it would not qualify as a means of exchange in the wider world.”
I think you’ll find it already does insofar as it transfers across national boundaries. I think from Venezuela to China and many points between is actually fairly ‘wide’ in World terns.
“There are obviously a small number of people who would look upon bitcoin as consideration but not a sufficient number to justify its classification as a world currency.” It’s already quoted against Dollar, Sterling and Euro.
“The only way it could be used as consideration generally would be to peg it to another currency but such is it’s volatility that this would also be unlikely.”
Nobody else seems to feel the need to peg their currency. When Lamont and Major tried it we got minced. We live in a world of floating exchange rates and have since 1971.
“So what is the difference between a bitcoin and a tulip?”
We have agreed on the worth of tulips (they are one of the mainstays of the Dutch economy) and we have not yet determined the value of the Bitcoin.
Nor indeed the degree and extent of the utility of the underlying Blockchain.
Remember when they said the wheel was very clever, but it would never catch on?
“Remember when they said the wheel was very clever, but it would never catch on?”
No.
There has been much likening of Bitcoin mania to the Tulip mania. If you look around you in Spring you’ll notice quite a lot of tulips. 🙂 The mania was short lived and intense but the tulips are here to stay.
The Dotcom bubble similarly burst in spectacular fashion, but the survivors are now the biggest companies on the planet and have altered life for all of us in a very short time span. Life without , Google, Microsoft, Amazon, Apple, Facebook, Twitter… is almost incomprehensible to a whole generation of young people.
Yes, sure a lot of people will get stung. So it goes. People come a cropper every year, year in year out, speculating on conventional small business start-up ventures that don’t survive to their first anniversary.
People ‘invest’ in houses which would have tumbled in price after the 2008 crash without massive government intervention to shore up asset prices – an intervention which is alive and well today. Worth sixty billion Euros a month still according to the ECB. And real interest rates in negative territory for a decade.
And we think Bitcoin is a bit ….volatile?….fragile?…speculative?.
Frankly what isn’t, since we fell down the rabbit hole?
PS
If the institutional investors go into the crypto market (and they are having conniptions about it at present) then another X10 from where we are now is a given. And then it will be ‘too big to fail’.
Thus far the total bitcoin market is peanuts – a few hundred billion. The sort of money that changes hands hourly on the international FX markets.
10 out of 10 Richard.
Pass Go
Do not go to jail
Collect £200.
Maybe we should rename it ‘Shitcoin’? or ‘Shit-con’?
There are plenty of currencies out there whose value has fluctuated more than 10% in a day, and plenty of them which have done it fairly regularly. South African Rand comes to mind, but the Yen and Swiss Franc have also had wild fluctuations relatively recently.
That’s before you look at the smaller currencies which have had price moves massively greater than 10%.
Are you saying that we shouldn’t take these currencies seriously and they are not a store of value? By the same logic should anything where the price can quickly move by 10% not be considered as a store of value?
Oh come on; that’s just one of the issues and you know it
So what are the issues? As far as you are making it out the only issue seems to be the volatility of bitcoin. I am saying that other far more established currencies can be just as volatile.
There are also only a finite amount of bitcoins – which fiat currency can you say that about?
That, of course, is another reason why it is not a currency. It is not debt.
“That, of course, is another reason why it [Bitcoin] is not a currency. It is not debt.”
As with most people’s observations on Bitcoin, you forget to add ‘yet’.
There is enormous potential for debt if it goes pear-shaped. Much of the debt, of course will be in standard fiat form if people are spending what they think they have gained in their crypto speculations.
Rather than dismiss Cryptos I think perhaps you, Richard, might usefully consider how they can be brought within the Tax base. The problem, I think, is that Bitcoin currently represents an emerging virtual Tax Haven. Much of the attraction seems to be of an accounting system for transactions which is inherently shared, yet remains secret.
Not true
Unless you are fool enough to sell in credit payable in Bitcoin your claim is not true
Bitcoin are paid for in advance in other currencies
Those who create them can sees fools willing to be parted from their real money coming
“There are plenty of currencies out there whose value has fluctuated more than 10% in a day, and plenty of them which have done it fairly regularly.”
No, they don’t “do it fairly regularly”. That’s nonsense and you know it. Those fluctautions occur very occasionally in response to financial crises and historic events. Bitcoin generates its own instability.
Thank you
And entirely correct, of course
Bitcoin:
a) is a store of value (albeit a volatile one)
b) is also a means of exchange (albeit somewhat limited)
But is not yet:
c) a unit of account.
If a, b and c are joint necessary conditions for a currency, then Bitcoin isn’t one. Volatility is not the issue: c is.
But it’s also not debt
And all currency is
Bank issued currency, maybe, but this isn’t bank issued. Here we see the old paradigm butting up against the new one.
I don’t think so
Greenbacks? Bradburies? I don’t believe either were associated with debt… and what of the Rentenmark?
Yes they were
They were a fiat promise to pay
It is not a new paradigm Bill, Its a fad.
It’s designed to be a way of trading which doesn’t involve the banks. Given how openly corrupt the banks are, I imagine that’s a need which will stick around long after this current brouhaha has died down. The ECB are currently quietly suggesting deposit insurance be withdrawn and replaced with something far less adequate. This hardly encourages me to rush out, get some ‘money’, and deposit it in a ‘bank’ for safekeeping. No wonder people are looking for an alternative! Anyhoo, it’s a bit of a shame people are using it speculatively, but if it doesn’t get to work as an alternative to mainstream currency, something will eventually be along which will. The fuss shouldn’t be about Bitcoin at all, as really it’s just one example of blockchain technology. It will be good if it stabilises, but if it doesn’t, meh; something will.
Would you like to tell me where this open corruption is Bill?
I argue the banks are wrong to be in tax havens
I argue their trading is social useless
And RBS was clearly abusive in its small business recovery unit and HBOS was criminal in some activities. Now what else is corrupt? I cannot publish the comment without asking for justification
You may not like their business model, and nor do I, but that does not make it openly corrupt
You might call it wrong and abusive, I’d call it corrupt.
But that is very different
I’d say any difference is semantic.
Try that in a libel court
Well, if that’s your concern, perhaps I could suggest I was overstating the case and we could agree on ‘anti-social’ as more appropriate.
Thanks
Rigging LIBOR was a little bit corrupt surely? Just a teensy weensy bit corrupt?
Flogging useless PPI cover was OK was it? All part of the hurly burly of business? Nothing to see here. Move along.
I know the defence is that it was just the odd rogue trader, but doesn’t management have any responsibility for the behaviour of its staff?
Nick Leeson did time for something that was technically, I would have thought, the responsibility of his manager. ‘We’ accept payment of obscene levels of remuneration for ‘bearing responsibility’ to people who simply never carry the can when stuff goes wrong. Not their fault of course, they were on the golf course at the time.
Technically this may differ from corruption but corruption in the sense of decay as of a carcass stinks. And this sort of behaviour certainly ‘stinks’.
The fact that one is constrained by fear of prosecution for libel for stating the bleedin’ obvious says a lot for the state of the legal system we have come to accept and the extent to which it has strayed from being a system of justice.
The Russians would be pilloried in our media for this sort of abuse. And of course we expect nothing less of the Chinese (wily and inscrutable, you know?)
I wonder if it would be worth emigrating? Is it actually better ANY where?
LIBOR was corrupt, I agree
But it still did not justify Bill’s sweeping claim
“LIBOR was corrupt, I agree
But it still did not justify Bill’s sweeping claim”
Maybe not, but It doesn’t feel like much of an exaggeration.
In the aftermath of 2008 George Osborne saw (IMO) the problem as being a problem of the banking sector. So knowing bugger all about banking he went to the abnking sector and asked then what they recommended to fix the problem (which they had created). Guess what they said ? “Gis a load of money, Boss”. So directly and indirectly that is exactly what he did. And it certainly shored up the banking sector.
When one sector of society is screwing-over the rest of society with the blessing of government that looks like ‘corruption’ to me. The corruption charge might more accurately be laid at the door of government though – the banking and finance sector are just looking after their own interests. Government has wider responsibility to the whole of society and is failing to meet that.
That’s state capture isn’t it?
If you’re referring to a currency value compared with another currency you seem to have a poor understanding of how the value arises. It is a relative measure of the confidence that currency can be exchanged for something of value. Be it another currency, physical goods or services. As you’ve priced it in dollars US, it must therefore be exchangeable for dollars US as (ignoring the small amount still being “mined”) there must be someone selling it for someone else to be buying it. And as, in this sense, any currency’s value is its exchange value, Bitcoin is as much a currency as any other.
Picking on a tiny fragment if an issue and making it the criteria for sole assessment does not resolve the debate.
On your c4iteria anything that can be exchanged is a currency and that is not true
“On your criteria anything that can be exchanged is a currency and that is not true”
I don’t wish to be awkward, but I think within a closed community anything can be a currency. Cigarette cards and marbles were currency in primary schools once upon a time. Cigarettes were currency in POW camps and I believe still are in civilian prisons.
I think we may be thinking at cross purposes here because currency and money are not synonymous.
Money has functions and attributes other than its use as currency.
Aristotle ‘demanded’ of money that it have the qualities of:
Durability
Portability
Divisibility
Intrinsic value.
Intrinsic value is the interesting one because as with all money intrinsic value is the dubious factor. We regard Gold (which is principally what Aristotle was discussing I think) as having intrinsic value, but in reality it doesn’t, because when push comes to shove you can’t eat it. (In extremis you would exchange all your gold for a single turnip).
We accept generally that intrinsic value is determined by faith – as with fiat notes and coins. If it is exchangeable across time (like there is always a buyer when you wish to sell) you have something of worth and that makes it money or a money proxy.
Bitcoin may or may not prove to have the requisite characteristics to be money. Only time will tell.
Most objections to Bitcoin apply in spades to fiat currency. Including the difficulty of taxing it.
Do we live in closed communities?
The whole point of currencies is that they create open ones
“Do we live in closed communities?
Well yes, actually we do. At least up to a point. I don’t think it is any coincidence that Bitcoin has taken-off in a world where the top monied echelons of society are circulating money amongst themselves and preventing its circulation amongst the rest of us through the productive economy.
Arguably the productive (orthodox) economy is in greater danger of collapse currently than the crypto economy.
I’m not saying this is a good thing. I’m suggesting it is a response to governments totally mismanaging their obligation to make economies work properly. And as such a rational one with potential for long term disruption.
It feeds on the (entirely justifiable) sense that the orthodox economy favours a small minority and has lost, or is fast losing the trust and therefore support of the Demos.
We’re looking at something not dissimilar to a LETS scheme but without the usual geographic framework associated with such schemes – in fact it has global reach as might be predicted in a global economy. Perfectly capable of running indefinitely alongside a mainstream economy, but not entirely usurping its function. I suggest it is a closed community, but one which can be bought into; at present with fiat cash, but that won’t apply if the fiats collapse and confidence in them evaporates completely.
I suspect Bitcoin is not something that will be unwound easily. There are reputedly over a thousand discrete ‘coins’ now ‘circulating. They are valued relative to Ether and Bitcoin rather than directly to established currencies. Only some of which are entirely and deliberately fraudulent. Some are not even purporting to be ‘money’ as such they are blockchain structures which have the capacity to have real value , howsoever they are priced.
LETS has been of almost no economic significance
Without evidence otherwise Bitcoin still looks like organised crime to me – because I haven’t a clue who takes the vale for their supposed creation and nor has anyone else
And as a matter of fact we do not live in closed communities: let’s not be silly here
While we’re touching on the subject, there’s a list of crypto here
https://www.coingecko.com/en/widgets/ticker/monero/gbp
together with current values. It updates regularly. I’m using Monero as example.
We are a closed community, one our ancestors were forced into against their will from the fields, banks getting the greatest benefit as the act greatly increased demand for what was by then their product, money.
I very strongly suspect no Bank was involved at the time that happened
My apologies; I was referring not to the enclosures but the Industrial Revolution 🙂
Of course, its a con, we need to get back to a real economy like tulips !!!!!.
Tony says:
December 1 2017 at 3:37 am
“Of course, its a con, we need to get back to a real economy like tulips !!!!!.”
Close, Tony, but not quite right. Many a true word spoken in jest.
Not Tulips. Turnips.
If you can buy turnips with Bitcoin it has value. If/when you can’t it ain’t money.
But you can only buy turnips because someone is willing to give you sterling for Bitcoin
Fact
I’m thinking about that, Richard.
If I can buy turnips with my Bitcoin, why do I need to even consider Sterling? Providing my turnip dealer can obtain more seed for future crops from a supplier who also accepts Bitcoin.
Yes, I would need my sterling to settle my tax bill, but if the turnip bitcoin transaction is taking place outside the tax system that doesn’t apply.
This is why I think governments need to get in on the act and why once they do the whole thing has the potential to become an alternative but official currency. (Or they have to shut down the whole crypto market…if they can) At present it’s an entirely ‘black’ economy and not significantly different to any other black economy. Is it?
I accept that I’m struggling with the logic of some of this.
No one deals turnip seed in Bitcoin
That is your answer
So Bitcoin does not deliver through the supply chain
Your ability to barter with it at the final stag3 proves nothing
You could do the same with chickens
It would not make chickens currency
Andy –
“Yes, I would need my sterling to settle my tax bill, but if the turnip bitcoin transaction is taking place outside the tax system that doesn’t apply.”
This is, I think, the source of your confusion. By buying whatever you’re buying, you’re entering into a transaction. The supply requirements for VAT are met, so it’s a taxable transaction. Whoever the seller is must report the profit on the sale and pay tax on it.
The transaction doesn’t take place outside of the tax system, it takes place outside of Sterling. All that is required for income/corporation tax is that there be profits or gains arising from a trade. It’s silent as to the form of currency used. By using Bitcoins (or chickens, or whatever other token not sanctioned by the taxing authority), all you’re doing is creating a tax liability you can’t settle because you don’t have the Sterling to do it.
Neatly put
That last about transactions being outside of sterling but not taxation is a very interesting point. Of course, if it’s taken place using a cryptocurrency which facilitates genuine anonymity, like Monero, then a transaction might be difficult to establish, let alone tax. it’s expected that Monero will prove popular with the business community.
Precisely why blocking the use of such currencies for tax evasion is critical
If that’s what you’re condoning your days here will be over Bill
It’s difficult to see how it can be stopped. We may arguably be being precipitated into a strange new world which, frankly, I find difficult to imagine. I don’t know that stopping it is critical though, is it not just one more way for those businesses which want to avoid/evade/dodge taxation to do so?
Businesses always think they can find ways to do this
How are they going to find their customers?
I don’t know. I don’t know either how companies turning more and more to automation think their customers will be able to buy from them when they’re all bar a handful unemployed, yet it continues to happen. There’s a newness going on around us now, these are unprecedented days. I’m coming across wild and fantastical rumours like Bitcoin was invented by, variously, Blythe Masters and the CIA, an AI, aliens, and (of course) the Rothschilds. Fun times 🙂
As far as I am concerned money was created to enable trade and commerce – to add the flexibility needed to overcome problems with exchanging simple goods and commodities where supply and seasonal disparities could hinder exchange.
I’m not sure that money was created to have any other inherent value in my view other than its exchange function.
The problem with money – as illustrated to me by Bitcoin – is that we attach too much value to it in itself than what it can do for society – its social utility (that is being used to build things, making peoples’ lives better, helping the planet to be sustainable, advancing mankind).
I think we human beings have lost the plot with the concept of money. For a start we’ve allowed it to aggregate in huge amounts amongst fewer and fewer people who seem to just want to manipulate its value in order to boost their net worth and gain power.
“On your c4iteria (sic) anything that can be exchanged is a currency and that is not true ”
Entirely true. As long as there is a shared confidence that it can be freely exchanged for items of value it fulfils all the requirements of a currency. This is decided not by banks & not by governments but by the users. The single criteria is confidence.
And it is precisely because such confidence does not exist that only state backed currencies (secured by future taxation revenues) exist in the modern world
And gold is not a currency before you suggest it is
Are you saying here that users of state-created fiat can be confident in it by virtue of the fact that the state will use taxation (to destroy the currency as necessary) as a means of ensuring it doesn’t inflate in value? You talk in accountant-speak sometimes and it’s difficult following you.
Because you can guarantee the state will accept the currency for tax it de facto underpins its value
That is the basis for its real world value
That a significant number of people are willing to exchange $US for Bitcoin suggests that those people have greater confidence in the future of Bitcoin than they do in $US. That is unarguable since that is what they’ve done. Whether that confidence is misplaced. Whether the confidence is the confidence that they can perform transactions invisible to government tax authorities. It is still confidence. And that is all that a currency requires. Confidence.
“And it is precisely because such confidence does not exist that only state backed currencies (secured by future taxation revenues) exist in the modern world”
Some associates of mine are involved in grey & black market cross border commerce into what remains of the Venezuelan economy. No doubt the government in Caracas would like to pretend that the Venezuelan Bolivar (VEF) fulfils your criteria for a currency. However all transactions are being done in $US, $ co. & other currencies. No one wants to accept VEF. Even in Venezuela.
Or it means that they are irrationally conned
Why assume rational behaviour in a world is misinformation and asymmetric data?
“And gold is not a currency before you suggest it is”
I hate to argue with you, Richard, (because I expect to lose eventually when I’m outclassed and outgunned) but gold may very definitely be a currency. If China can buy oil with gold, then gold is currency. And that is exactly what I believe the Chinese are proposing to do in order to cut loose from the Dollar and break the US stranglehold on international trade. And not before time.
Gold has very definitely been currency in the past, and could very easily become so again. Given that there are people who will accept it as a medium of exchange it still is. It lacks a lot of the expected functionality in small transactions but I think you’ll find there are plenty of people ‘out there’ who will be happy to trade with you in gold.
Hey! they would probably even give you Bitcoin for it.
You can barter with gold
It’s not a currency
“You can barter with gold
It’s not a currency”
I knew you’d floor me eventually. But that’s a semantic distinction.
Gold isn’t (practically speaking) much of a commodity either. It has very limited utility.
I’m suspecting you of using a circular argument where you are defining currency in particular terms and then denying anything else that status because it doesn’t meet those terms. eg If you insist that it’s only currency if it is issued by government and recoverable through taxation then you have a watertight argument, but it doesn’t stop people trading in ….Bitcoin, or cigarettes or conch shells or gold or whatever. Chickens even. You may define that as barter and prove your point.
I’m not comfortable conceding it yet because I feel it’s not quite satisfactory.
I’m still pondering the significance of the distinction between ‘money’ and ‘currency’. Currency I think is only one of the functions of money.
To say we use this stuff all the time and have been doing for years it’s surprising how inadequately we (I) understand it.
Thank heavens I don’t have much of it to worry about.
I am not making the distinction between money and currency
I am simply saying barter is not the same thing
Money is l egalitarian tender for settlement and un8versally acceptable. Governments who grant the right to create tgat power away sign their own death warrants
Totally agree it has all the hallmarks of a bubble (South sea, Tulip, Tech take your pick).
Main Properties of Money
1. A numeraire
2. A means of exchange
3. A store of value
4. A source of liquidity
Among the lesser properties are:
1. Easy to transport and identify
2. It should be durable
3. Easily divisible
4. Hard to counterfeit
5. Easy to store
I think a store of value (or the lack of) could apply to all fiat currencies. And certainly in the long term fiat currencies are not a store of value. If this were true can you please purchase some petrol for 50p a litre for me and whilst your at it get me a Big Mac for 47p.
I’m not advocating for hard money ie backed by some asset but medium to long-term currencies are most definitely not a store of value.
All of these cryptocurrencies of which bitcoin represents about 50% their main appeal outside of this wild speculative bubble is the very thing this blog is against ie secrecy because cash is harder to move around.
Fiat currencies are backed by future taxation revenues
Bitcoin is the ultimate fiat currency – backed by nothing at all
“Fiat currencies are backed by future taxation revenues
Bitcoin is the ultimate fiat currency — backed by nothing at all”
And that sums up the problem, Richard. The taxation system is failing abjectly to back-up our currencies.
Bitcoin is backed only by confidence and (only) as long as the confidence survives it has value. The same does apply to fiats. Hyperinflation is not an occasional quirk, it’s a given when governments ‘get it wrong’.
Please detail this hyperinflatory tendency?
Are you spotting it in well regulated economies?
Yes agreed.
Is the tax gap eroding the value then?
Sorry – I’m struggling to answer that because when I moderate I cannot see the comment you are responding to
Please detail this hyperinflatory tendency?
Are you spotting it in well regulated economies?
Of course not. I did say when governments ‘get it wrong’.
There’s some serious inflation ( not exactly hyper-) currently in the top end of the asset market however. Something the Bof E seems not to have noticed or is choosing to ignore. It will take a lot of conventional inflation to rectify the discrepancy between asset prices and values we are currently seeing. If we don’t get that soon-ish the sort of crash Neil Woodford predicts is a more or less forgone conclusion isn’t it?
Something has to ‘correct’. Or it crashes. Again. The rational way to prevent a crash is to pump money into the productive economy. That will inevitably cause the kind of inflation that the BofE recognises. I think it doesn’t have to be as much as the QE total, because the ‘multiplier’ will do some of the work.
One way or another prices and values have to be brought back to something approaching parity.
So we need a wealth tax
But we haven’t got hyper inflation
I agree with Richard.
In my simple mind, I see assets as having intrinsic and/or speculative value.
For me, an asset only has intrinsic value if it provides an income stream or has some utility.
A basket of dividend-paying shares has intrinsic value because it provides an income stream. The shares may be over-priced and the size of the dividend stream uncertain, but there should be some intrinsic value.
A house, or a meal (or a tulip) will have utility even though they do not provide an income. Most assets will also have speculative value. e.g. houses.
Richard’s argument gives a national currency intrinsic value because it is needed to pay taxes.
A bitcoin has purely a speculative value because does not pay interest and is in itself of no utility. It is worth exactly what the next person will pay for it, which could be nothing.
I agree with Richard about a stock market crash, but I still hold dividend-paying shares. Even in the event of a crash, they will almost certainly still pay some dividends. Which is worth more today? An income of £4, which might well reduce to £2, or a savings account income of £1.50 which is certain to reduce to £1.45?
In my book, when politicians or banks or economists count the speculative value of assets as real money, they come up with silly answers.
http://www.wheretospendbitcoins.co.uk
That it needs to be said proves my point
I don’t understand some people’s determination to defend this contrived commodity.
I mean ultimately, what is the point and purpose of it? What does Bitcoin give us that we didn’t have before? And if it all goes to hell in a handbasket will anybody miss it or give a damn in 5 or 10 years time?
So its “new technology”. Yeah. So is the latest (and 20th) unwanted, superfluous “upgrade” on my mobile phone.
So its not created by a government – so what? There are lot of crap things that aren’t created by governments and some that are. So far that aspect of it has given rise to nothing more than a small boon for tosspot “libertarians”, organised crime and speculative gamblers that are hoping come out on the lucky side of this bubble market.
Well said
I’ve heard and read a lot of libertarians disparaging Bitcoin (Schiff, Rand et al). They are mostly hard money and small government people. Or are Libertarians and neo-Liberals the same?
No, not always
But often as far as I can see
I am a social libertarian but definitely not a neoliberal, for example
But social and economic libertarians are usually opposed on most issues, like abortion, gay rights, and much more
Agreed Marco.
All I see is the attraction to libertarians of the bitcoin currency/means of exchange is that will be prima facie free of Government influence. It breaks the tie with the central bank – a ‘currency’ controlled by the ‘dead hand of the market’.
Dead hands like the Koch and Barclay brothers perhaps and any other mega rich?
They must be wetting their knickers with excitement!!
Marco Fante says:
December 1 2017 at 2:58 pm
‘I don’t understand some people’s determination to defend this contrived commodity.’
I may be wrong about all this, Marco, but I think you raise an interesting point when you refer to Bitcoin as a commodity.
It isn’t like a fiat currency produced out of thin air. It takes considerable endeavour and resources to ‘mine’ it. This makes the not too fanciful comparison with gold which is also not a currency (except when from time to time it has been deemed suitable to be used as such).
It is the blockchain that gives cryptos their value. If Blockchain ‘accounting’ works as well as its proponents say it could it will have enormous future utility. It may well completely lose the association with ‘currency’, but that is undoubtedly in part what is firing speculative interest presently. It’s a virtual gold rush. Most people make nothing in a gold rush but the gold is still gold when all’s said and done. It doesn’t suddenly become worthless. (Don’t let’s bother to consider the actual utility value of gold here – just accept that it is almost universally accepted as being valuable)
Bitcoin speculation is speculative at present because there is a lot of uncertainty as to what that utility may be worth. And indeed whether the ‘currency’ function has legs.
Any new enterprise invites speculative investment. All useful investment is in fact speculative, the investor is putting money into an enterprise which may succeed or fail.
There’s enormous heaps of money invested in Amazon which generates no dividend, ditto Tesla. These are two of the most interesting speculative investment vehicles on the planet.
Bitcoin is in that class. An idea made flesh. If it is not derailed it will change the world we live in.
If it bombs, then yes, it will look like a fad. A fools-gold rush.
One of the biggest winners of the California gold rush was Levi Strauss.
The IBM head honcho who asked rhetorically ‘who would want a computer in their home ?’ was way off the mark.
What (bloody) use is Bitcoin? Wait and see.
There are two challenges for Bitcoin and digital.
1. The issuing authority has a limit so the only change is the price
2. Courts will not force a creditor to accept Bitcoin as payment for a debt.
Number 1 is a moot point as with the Gold Standard having a fixed more or less supply meant that prices were more stable over time. Fiat currency issuers have a tendancy to print more money until its value is devalued.
Number 2 maybe a matter of time and willingness. The challenge being Governments and the issuers of a reserve currency have a great advantage of issuing more when they want. The issuer also like the Comptroller of Currency who can approve trades of their currency denominated bonds.
Game theory expects a peak and then middling (anonymous traders have a demand to be met). The situation is not helped by the loss of peoples digital access codes and the founders chunk now worth billions that has not moved.