The Lemon Fool

Gilgongo wrote:Well yes, but if you wanted to sell your Apple shares tomorrow and the computer said you never had them in the first place, what recourse would you have? Are the value of stocks or other abstract investment vehicles like indexes or ETFs underpinned by contract law? What if the law changed? The value is surely not in anything "existing" in that case.

If I owned apple shares and 'computer said no', ie my broker, then I'd ultimately sue my broker, which itself is NASDAQ listed and has $10Bn of equity capital, is UK FCA and FSCS, US SEC and CFTC regulated and is a member of the SIPC compensation scheme. Who would you go to if your Fake-coins go phutt in the night?

ps. And you think the intrinsic value of shares is an 'abstract vehicle' versus e-coins? Hehehe.... good luck t'ya!

DiamondEcho wrote:I'd ultimately sue my broker, which itself is NASDAQ listed and has $10Bn of equity capital, is UK FCA and FSCS, US SEC and CFTC regulated and is a member of the SIPC compensation scheme. Who would you go to if your Fake-coins go phutt in the night?

Yes, this is my point. So the value of stocks and shares (for small investors such as ourselves at least), as compared to that of crypto, is down to contract law more than some "intrinsic" value. We can of course argue about whether an index or a synthetic ETF is abstract or not, but in practice they are the same. In fact they may be becoming more so as the price of crypto starts to become affected by the prices of traditional investments, as we've seen recently I think.

As to fake-coins going phutt in the night, that's not a problem exclusive to crypto. There are many cases of people having their bank accounts emptied and not being reimbursed (in fact ask Greeks about that - their own government did it), share certificates being lost or other bureaucratic issues ending in no recourse. But they are hugely rare. On the crypto side that happens too, the most famous being the collapse of the MtGox exchange in 2014. After subsequent investigations by the (in this case Japanese) authorities, it now looks like creditors will be compensated though. The situation is not as black and white as you make out.

Don't get me wrong - I'm not trying to defend crypto. There are many reasons why it could be a bad idea to buy it, just as there are good reasons not to buy shares, gold or wine as investments. My point is that problems with crypto aren't really about "infrastructural" problems leading to things like "going phutt" any more than holding things with conventional brokers or banks is. What matters is the market and how that works - and I think the problem there is that understanding that is currently extremely hard because it's not all about fungible currencies, as I mentioned before.

Well regardless of how we portion the concept of "value" to a thing tangible or otherwise, the price of BTC has almost doubled since early July, whereas Gold has hardly budged. I'm curious as to whether folk here will agree with my current view that BTC usurped yellow metal as the inflation hedge of choice.

Matt

TheMotorcycleBoy wrote:.. I'm curious as to whether folk here will agree with my current view that BTC usurped yellow metal as the inflation hedge of choice.

Agree 100%, that's exactly what's happened and is why gold has dropped and levelled off this year, despite inflation about to take off. Although volatile nature if crypto means can crash at any time whereas gold is more reliable.

TheMotorcycleBoy wrote: I'm curious as to whether folk here will agree with my current view that BTC usurped yellow metal as the inflation hedge of choice.

No. I don't see any connection whatsoever.

GS

Some interesting commentary on current inflation hedges:

The aim of a hedge asset is to protect your finances from risky situations. The higher the risk of loss, the greater the importance of protection against it. However, rarely does a hedge investment completely eliminate your potential loss.

Gold still holds the value of a hedging instrument simply because of the fact that it lacks credit or default risks. Gold prices go up when interest rate goes down; which is directly proportional to the strength of the economy. So, in a broad sense, gold is a hedge against a falling economy.

Gold is also extensively used as a hedge against inflation. Hard assets, such as natural resources including gold, silver and real estate hold intrinsic value because of their limited supply. It is interesting to note that when a crisis spooks financial markets, gold becomes a good asset for hedging to absorb the shocks in equity, bond and oil markets.

People see gold as a way to pass on and preserve their wealth from one generation to the next. When official currency loses its purchasing power to inflation, gold tends to be priced in the base currency (mostly US dollar) and, thus, has a tendency to rise in local currency terms. Moreover, gold is seen to store a good value than local currency.

Although the price of gold can be volatile in the short term, it has always maintained its value in the longer run.

However lately, critics are developing adverse feeling for bullion, and its capability to hedge against moves in other assets, such as stocks, as well as inflation. While it is a reasonable store of value over the long-term (decades) – it is less reliable across most smaller investment horizons. Bullion has lost ground in 2021 as the recovery from the pandemic gains more traction and Treasury yields surged. However, it was still demonstrating a strong inverse relationship with the US currency. In the current scenario, gold should be thought of as a dollar hedge.

Economists feel stocks or Bitcoin are now better positioned to hedge against long-term inflation for investors. Carefully selected stocks can definitely help protect you against long-term inflation. Stocks have produced the highest inflation-adjusted return of any major asset class over the long term.

However, Bitcoin’s history is short to make any robust conclusions about its inflation-hedging capabilities.

Bitcoin has risen as an alternative anti-fiat asset. It has been popular because of the libertarian anti-government ideas that have accompanied the digital currency since its inception. Bitcoin can facilitate instant cross-border payments and remittances without restriction from central authorities.

There is circumstantial evidence that some money has flowed directly from gold into Bitcoin. Institutions appear to be making a decision to allocate some money to Bitcoin as a hedge against a fiat collapse.

Bitcoin’s performance over the last year is directly aligned to the movement in bond yields. When yields rise, so does Bitcoin. This implies that the digital currency benefits directly from the ‘reflation trade’ — or the belief that inflation is coming.

Bitcoin and gold are both inflation-sensitive, but gold is happiest when the world faces a downward spiral. In contrast, Bitcoin prefers a stronger economy, when the yield is rising.

Gold is good for slightly higher inflation, but not necessarily much higher real interest rates. Gold, which is a hedge against uncertain economic conditions, is now less in favour owing to an increased risk appetite fuelled by fiscal stimulus programmes of central banks worldwide. Though the precious yellow metal can also have big drawdowns, but nothing like the epic losses that bitcoin periodically inflicts on its holders before rallying again.

As Bitcoin’s declines tend to be three-times bigger, risk can be equalised by holding three times as much gold as Bitcoin...

https://economictimes.indiatimes.com/ma ... s?from=mdr

TheMotorcycleBoy wrote:Well regardless of how we portion the concept of "value" to a thing tangible or otherwise, the price of BTC has almost doubled since early July, whereas Gold has hardly budged. I'm curious as to whether folk here will agree with my current view that BTC usurped yellow metal as the inflation hedge of choice.

Matt

It may have usurped gold in terms of capital appreciation, but I don't see that as happening as a result of being a more efficient inflation hedge. The general price level hasn't risen 100%, after all.

dealtn wrote:

TheMotorcycleBoy wrote:Well regardless of how we portion the concept of "value" to a thing tangible or otherwise, the price of BTC has almost doubled since early July, whereas Gold has hardly budged. I'm curious as to whether folk here will agree with my current view that BTC usurped yellow metal as the inflation hedge of choice.

Matt

It may have usurped gold in terms of capital appreciation, but I don't see that as happening as a result of being a more efficient inflation hedge. The general price level hasn't risen 100%, after all.

I'm not suggesting that BTC is more efficient as an inf hedge, and neither do I suggest that BTC's rise == the aggregate price rise.

I'm merely observing things, e.g. the prevalence of inflation fears, the recent flatline of one yield-less asset's price, and the positive gradient in anothers.

Uncanny.

TheMotorcycleBoy wrote:

dealtn wrote:

TheMotorcycleBoy wrote:Well regardless of how we portion the concept of "value" to a thing tangible or otherwise, the price of BTC has almost doubled since early July, whereas Gold has hardly budged. I'm curious as to whether folk here will agree with my current view that BTC usurped yellow metal as the inflation hedge of choice.

Matt

It may have usurped gold in terms of capital appreciation, but I don't see that as happening as a result of being a more efficient inflation hedge. The general price level hasn't risen 100%, after all.

I'm not suggesting that BTC is more efficient as an inf hedge, and neither do I suggest that BTC's rise == the aggregate price rise.

I'm merely observing things, e.g. the prevalence of inflation fears, the recent flatline of one yield-less asset's price, and the positive gradient in anothers.

Uncanny.

You referred to it as an inflation hedge, and my answer was with respect to that. Indeed Gold may well have been a better inflation hedge than bitcoin, its tracking error to inflation appears much more correlated, and less volatile.

You asked how others views aligned with yours. I didn't agree with that view.

If you are now making a different claim that bitcoin is likely to rise more, than other assets, specifically in periods where inflation fears have risen, you might be right.

I’m not sure what is meant by ‘intrinsic value’. The ‘value’ is simply what someone else is prepared to pay for it. It is curious the way massive ‘wealth’ is suddenly created simply because people suddenly think something has that value and that in future the value will be higher (the old ‘greater fool’ concept).

I see that Trump is now ‘worth’ several more billions because of a SPAC which is taking up a Trump internet media business (a Trump facebook, twitter etc etc). It often happens with companies that have virtually no sales and are loss making but are suddenly thought to have a fantastic future and magically ‘valued’ at 500 times forecast sales.

Personally I would not touch any of these things because I don’t understand or believe in the ‘value’. But good luck to those that do.

TheMotorcycleBoy wrote:I'm merely observing things, e.g. the prevalence of inflation fears, the recent flatline of one yield-less asset's price, and the positive gradient in anothers.

Uncanny.

Disagree with this too. "prevalence of inflation fears" is entirely subjective, for example my opinion is that inflation is actually rising but there is an almost complete absence of fear of inflation. Else why would real bond yields be negative?

Also there is nothing uncanny about someone subjectively feeling inflation is being feared and simultaneously noticing some arbitrary/random asset doubling in value in the middle of a bull market. Two simultaneously rising variables always have a high correlation, doesn't mean they are in any way related.

GS

scrumpyjack wrote:Personally I would not touch any of these things because I don’t understand or believe in the ‘value’. But good luck to those that do.

and of course the reverse sometimes happens. The market values a company at a very very small value (whether by careful analysis or due to hysteria) and the individual can take a different view and think that the 'value' will be massively higher in the future. This has happened to me, as probably to other fools, several times. eg buying Barratt at 46p and Persimmon at 330p.

I would like to see all governments ban crypto currencies before the bubble expands to consume the financial world.

What is stopping anyone from creating a thousand or more crypto currencies and marketing them through gaming/gambling platforms?

It is a recipe for fraud on a grand scale, where the gullible are seduced into thinking that they are on to a good thing.

LooseCannon101 wrote:I would like to see all governments ban crypto currencies before the bubble expands to consume the financial world.

What is stopping anyone from creating a thousand or more crypto currencies and marketing them through gaming/gambling platforms?

It is a recipe for fraud on a grand scale, where the gullible are seduced into thinking that they are on to a good thing.

What worries me more than the odd speculative bubble in crypto, is governments trying to take control of all anonymous and fungible sources of wealth. Should we also ban private ownership of cash, gold, diamonds and anything else that the government cannot control?

Lootman wrote:

LooseCannon101 wrote:I would like to see all governments ban crypto currencies before the bubble expands to consume the financial world.

What is stopping anyone from creating a thousand or more crypto currencies and marketing them through gaming/gambling platforms?

It is a recipe for fraud on a grand scale, where the gullible are seduced into thinking that they are on to a good thing.

What worries me more than the odd speculative bubble in crypto, is governments trying to take control of all anonymous and fungible sources of wealth. Should we also ban private ownership of cash, gold, diamonds and anything else that the government cannot control?

What I think a lot of folk seem to have not considered is that there are presumably many policy makers by now who already have some crypto interests/assets of their own, so the idea that governments staffed by such individuals, and representative of members of public, who hold crypto, are going to come along and ban it seems a tad fanciful.

Matt

I really haven't the slightest idea about Cryptocurrency!

But one thing (at least) that is puzzling me wrt Bitcoin: I understand (I think) that it is limited to 21 million coins. If so, what happens after the 21st million coin is mined? - assuming that is even possible in the foreseeable future. As there will be no prospect of anymore for anybody new, won't the demand then dry up? Could not the value then simply collapse?

XFool wrote:I really haven't the slightest idea about Cryptocurrency!

But one thing (at least) that is puzzling me wrt Bitcoin: I understand (I think) that it is limited to 21 million coins. If so, what happens after the 21st million coin is mined? - assuming that is even possible in the foreseeable future. As there will be no prospect of anymore for anybody new, won't the demand then dry up? Could not the value then simply collapse?

Don't see why that should follow, e.g. they are not making land anymore, though I accept as assets go, land and BTC could not be more dissimilar. Perhaps gold is a better example - it is still being mined, but if mining was halted, I would expect it to rise rather than fall in value.

XFool wrote:I really haven't the slightest idea about Cryptocurrency!

But one thing (at least) that is puzzling me wrt Bitcoin: I understand (I think) that it is limited to 21 million coins. If so, what happens after the 21st million coin is mined? - assuming that is even possible in the foreseeable future. As there will be no prospect of anymore for anybody new, won't the demand then dry up? Could not the value then simply collapse?

Notsure is basically correct, but there is another aspect to this, which is that miners receive the value of the bitcoins they mine as payment for processing the associated transactions. When there are no more bitcoins to mine I understand they will earn fees only; clearly these will be imposed on people making the transactions so it will be interesting to see what level of fees the market will bear.

It's always been my view that bitcoin will never be used as a currency because it is unsuited to day-to-day transactions. At best it will become a type of "base money" with people doing their shopping in derivatives of bitcoin without the claimed benefits of bitcoin (lack of centralised control, blockchain ledger, lack of middleman etc). i.e it will look pretty much like any other currency and banking system, which would make the bitcoin bros heads explode if they ever realised it but I'm guessing their heads are poked so far somewhere dark that denial will be second nature.

Curiously, the derivative version shows no sign of even niche (let alone widespread) use twelve years on. The bizarre experiment in El Salvador, for example, is likely to be a dismal failure.




GS

GoSeigen wrote:Curiously, the derivative version shows no sign of even niche (let alone widespread) use twelve years on. The bizarre experiment in El Salvador, for example, is likely to be a dismal failure.

GS

Time will tell. Since the Chinese experimented with paper money, through the days when John Law was a criminal in England, later a criminal in France to history in Zimbabwa and Venesuala, Fiat money has plenty of examples of dismal failure.

El Salvador has an odd economy. For quite some time they have been reliant on the strength of the US dollar, but their citizens don't get cheques from Uncle Sam during economic downturns. Nor can they do anything about the strength or weakness of the US dollar.

El Salvador has next to no exports currently and relies to a great extent on ex-pats sending money home to their families. However they have identified a possible export. They can use geothermal energy from the volcanos to run bitcoin mining rigs, selling the bitcoin. Both rigs and power plant can be built in areas that you wouldn't want to farm and data lines are far cheaper than high power electric lines.

https://abcnews.go.com/International/wi ... s-80611830

It IS an experiment. I wouldn't hazard a guess if it will succeed or fail.

As for a niche or widespread use of "cryptocurrency" rather than bitcoin, I suggest that you check the news or use google. China is not the only state talking about introducing a CBDC (central bank digital currency). Ripple is used by 250 financial institutions, 1/3 of the worlds largest banks.

Those things have a use case well understood by institutions and the state. The use case of private money exists

Bitcoin is contentious because it's not easy for the state to control. In the UK we use to have exchange controls and still have laws about moving gold in or out of the country. Those controls would be problematic to apply to bitcoin transactions.

Urbandreamer wrote:El Salvador has an odd economy. For quite some time they have been reliant on the strength of the US dollar, but their citizens don't get cheques from Uncle Sam during economic downturns. Nor can they do anything about the strength or weakness of the US dollar.
El Salvador has next to no exports currently and relies to a great extent on ex-pats sending money home to their families. However they have identified a possible export. They can use geothermal energy from the volcanos to run bitcoin mining rigs, selling the bitcoin. Both rigs and power plant can be built in areas that you wouldn't want to farm and data lines are far cheaper than high power electric lines.
It IS an experiment. I wouldn't hazard a guess if it will succeed or fail.

'An odd economy'; well yes it's a revolutionaly and failed narco-state right on the US's doorstep. Even Sleepy-Joe might wake up if he finds Bitcoin-central on his doorstep. More seriously, have you travelled though Central America? As you know the idea of them pioneering a pukka new global currency is frankly beyond ridiculous.

Many countries have currencies pegged to other major currencies, even the relatively mighty Singapore has for several decades; it's about export competitiveness.