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The fact that crypto is correlated with tech stock valuations should be raising eyebrows. Flash back a few years and the hypothesis that bitcoin would hedge inflation/fiat depreciation was standard. If BTC is correlated with equities, why not just hold productive equities?



I never understood the argument why crypto was a good store of value. Sure, it’s an ingenious new transactional system, making global payments mostly frictionless, etc, but that’s true whether the value of 1 Bitcoin is $1 or $50,000. If everyone’s just converting back to fiat anyway, only keeping enough BTC transiently to settle transactions, why hold it long term?


Well it's actually a pretty bad transactional currency because it costs so much to transfer btc. So it's kinda the opposite, where people mostly hold it instead of transacting. The argument for a store of value is that of gold but easier to store and transfer, better security etc.. Whether it's a good one is for you to judge.


"costs so much to transfer btc"

That's not true. The typical credit card processing fee ranges from about 1.3% to 3.5%. Average international remittance fees are about 7%. For comparison the average Bitcoin fee is about $1 right now, so 1% on a $100 transaction. So Bitcoin compares favorably to its competitors.


1) why are you comparing to credit cards? The average ACH transfer costs zero dollars.

2) why did you pick $100 as your basis? If I try to buy a $5 sandwich in Bitcoin and have to pay 20% transaction fee that is not a good platform for transactions.

I like some parts of crypto, but transaction fees on most coins right now are not one of those parts.


> 1) why are you comparing to credit cards? The average ACH transfer costs zero dollars.

As far as I understand ACH doesn't work globally

> 2) why did you pick $100 as your basis? If I try to buy a $5 sandwich in Bitcoin and have to pay 20% transaction fee that is not a good platform for transactions.

Or use lightning and pay a fraction of a cent transaction fee


Ahh, Lightning. The network that is simultaneously "here and available and usable, right now" when convenient, and "still a few years away", when that argument is convenient.


Maybe just try actually using it yourself so that you know what you're talking about, rather than being confused by random people on the internet.


So for that bitcoin fee, I get fraud protection too? So as a consumer I can challenge a fraudulent charge? And the money, it doesn’t leave my account until I say so? Oh wait no? I get none of those guarantees? Just a “good luck! Buyer beware!”

No thank you. I’ll stick with my credit card. If I want to pay for something semi anonymously I’ll use cash.


No and you know that. Bitcoin is semi-anonymous cash and it and it’s ilk are basically the only cash you can send digitally.

You should stick with your credit card, that was literally always allowed.


Right but the comment I responded to was comparing transaction fees. I pay zero transaction fees for using cash. I am willing to pay some small percentage to help protect me from fraud (and I have used that protection). Why would I pay a fee AND assume all the risk?


> If everyone’s just converting back to fiat anyway, only keeping enough BTC transiently to settle transactions, why hold it long term?

People aren't doing this now though.

They are buying bitcoin and holding (hodl) or they are trading that bitcoin for other crypto.

I think most people aren't using it as a currency, more so speculation


This is why IMO blockchains should be designed to be inflationary. On one hand it just makes sense that as more compute is added transactions should be able to process faster and tokens should be minted more rapidly, such that by "mining" you are producing real value (allowing the chain to process more transactions per second and more people to acquire tokens), on the other very few people use crypto for anything besides speculation so such a coin would never be widely adopted.


I think this is why the fiat system is inflationary (low level inflation is seen as healthy). Assuming that productive projects exist, you never want lack of capital to be the reason that they're not done. The free market is never going to perfectly allocate capital, therefore there should be some extra money in the system to allow for errors. The errors would cause inflation (money supply increased, but productive output did not), but this is better than being overly cautious.

Incidentally this is why austerity in debt-laden countries is kind of a terrible idea. You're taking a broken economy and removing what little slack remains in the system. And if the economy was broken due to corruption or incompetent government, you're kind of just betting on regime change at this point, which (apart from the human toll) won't be great economically either.


If the transient use of a cryptocurrency is increasing, the demand for it will be, and the price will follow. If the price is increasing fast enough, it could be worth holding. The same is true of any money or asset used for payments/settling debts (like gold or silver).


Only if people hold it for the transaction for a significant length of time. If people want to get out ASAP, then the faster that transactions happen, the less demand for bitcoin there will be.


this doesn't work super well because if a currency appreciates in value due to usage and you start to hold it, that means there's less of an incentive to spend it in the first place. That's one of the reasons why we're not trading in gold coins any more, it's almost exclusively turned into an appreciating store of value.

Deflationary currency is undesirable as a means of exchange because you don't want to use it, and that is also one of the reasons why central banks target low inflation rates.


> mostly frictionless

isn't the prohibitive electric bill to reconcile the distributed ledger the ultimate showstopping friction?


That’s not totally true. The value of a Bitcoin does relate to how much effort miners put in. So, $1 might be low enough to allow some sort of attack on the network.


> The value of a Bitcoin does relate to how much effort miners put in.

It looks like you have the causal relationship there backwards. A bitcoin currently has value, so there's a lot of effort miners put in to get the block rewards + fees. But the amount of effort a miner puts in doesn't make the price go up, the price can move independently to hashrate.


Greed.


> I never understood the argument why crypto was a good store of value.

Its digital gold thats it, its no more a store of value than antique's, rare cars, fine arts etc etc and unsurprisingly those markets can also see the bottom drop out of them for decades. Ultimately its people en masse who decide what something is worth, but big players can manipulate those markets with resources, laws, taxation, media sentiment and its easy to spook people when they value something, so dont get attached to anything if you dont want to be manipulated.

The other thing to note is, it only takes a few hundred million £ on the Asian market to get the GBP to drop against the USD in time for European markets. So there are very few entities who can cause the crypto market to fall like this. Think about that.


Gold can be used for corrosion-resistant electrical contacts, infrared reflectors for space telescopes, decoration in gaudy penthouses, and more even if everyone decided it was useless as a currency.

An antique desk that loses all value in the open market can still be used as a desk or at least firewood.

A rare car can still be used to transport yourself, as a prop in a movie, or scrap for other projects.

A "worthless" painting can still inspire, liven up a room, or gifted as a gag.

Crypto that loses its value has no other underlying utility over and above the output of /dev/random. That's a MASSIVE difference and more clearly demarcates BTC as a money laundering/Ponzi scheme rather than "digital gold" or a viable currency.


> Crypto that loses its value has no other underlying utility over and above the output of /dev/random. That's a MASSIVE difference and more clearly demarcates BTC as a money laundering/Ponzi scheme rather than "digital gold" or a viable currency.

Its a decentralised currency, its not backed up by a country and their nuclear arsenal rammed down people's throats as we will possibly be seeing with Ukraine.

Notes/currency only has value where the threat of violence extends to prevent any counterfeiting attempts, so just like you see matches or cigarettes used as currency in a prison, it still has value. Its value went up when the Greeks had their financial crisis because the Greek banks stopped money leaving the country and this is the important thing, crypto is the thing that helps people move money out of a country fast across borders in a crisis. If you tried to move gold in or out of Switzerland you'll get stopped at the border, they are hot on that sort of stuff but it also shows their level of intelligence in world affairs. Crypto if done properly has a level of privacy affordable to anyone, not just the super rich but also a level of transparency to maintain its integrity from counterfeiting by criminals or the central bank.


I think you've nailed it. It's not backed by a nation. It has no underlying asset like gold. Your assertions of privacy only hold if you never convert it to a traditional currency or asset, otherwise you're on the radar. While many folks in Ukraine have been able to use crypto to buy goods recently, so has Russia to sidestep sanctions. As a result, we're seeing more incentive for nations to put the breaks on BTC and other crypto (with threat from their nuclear arsenal). China already has put substantial obstacles to crypto ownership.

Then there's the lack of an FDIC equivalent for crypto, which is HUGE for the "not just the super rich" demographics. The 19th and 20th centuries had many examples of runs on the bank where life savings were wiped out. Crypto exchanges have already screwed thousands, and maintaining your own wallet and transfers is not ever going mainstream even if crypto had any intrinsic worth beyond speculation—which it doesn't.

If you have the assets to gamble, that's for you to decide. I myself would rather rely on assets with underlying value that extends beyond speculation.

My house is worth way more than I think it should be. Helps my credit score. But if it and all the homes in the area suddenly and magically dropped to $0, I'd still live there, because it's a home. The reason I purchased it wasn't for speculation or my credit score; it was to live in. You can't live or eat or build in BTC. When the bottom drops out, you will only get to keep the bits and the memories of a more naive era.


Eyebrows raised. What this is showing is that both tech stocks and crypto were being propped up by the same investors/behavior (speculation) and are highly correlated. I thought this was a good test regarding crypto being a “store or value” since inflation devalues fiat currency, one hypothesis was crypto would rise with market turmoil and high inflation as “digital gold”. I guess that hypothesis was incorrect.


IMO, this hypothesis hasn't been adequately tested. By all accounts inflation is bad, but not THAT bad. However, I'm sure Bitcoin and most Cryptocurrency is looking pretty stable with respect to Venezuela's 2,00,00% inflation. Bitcoin as a hedge against economic turmoil requires real economic turmoil.


A Venezuelan could also own dollar/euro denominated assets or commodities. BTC would need to be better and more stable than those for someone to view it as an effective hedge.

If US or EU inflation hit 2000% there would be global consequences. There is no reserve asset currently large enough to redenominate US denominated assets, aid payments would collapse, and currencies pegged to the dollar would collapse. Betting on BTC for such a world is reasonable, as there would be a reasonable chance your gold reserves would be become inaccessible, seized, or both. However ammunition might be a more effective financial hedge in this situation.


> A Venezuelan could also own dollar/euro denominated assets or commodities.

If they're allowed to. Which underscores that the true innovation of Bitcoin is to circumvent rules and regulations.


Why would they be allowed to own BTC but not USD?

How are they going to buy groceries with their BTC? Pay rent? Taxes?

Go to the local black market and exchange it for local currency? You can do that just fine with USD, too.

Does doing black-market deals in BTC somehow make you immune to arrest, prosecution, and execution?


With BTC they can get their money out of Venezuela by memorizing several words. With USD, they can't.


You mean flash back a few years to the pre-pandemic era? I think its safe to say the ripples of that particular boulder hitting global financial markets will be felt for decades to come.


Likely due in part to many people thinking crypto markets trade only between 9-4 on weekdays and crypto being tech related.


What else should it be correlated to? It’s not like there’s anything to support it’s underlying value


> The fact that crypto is correlated with tech stock valuations should be raising eyebrows

Because fiat volatility in inflation/rate hikes respectively (ie the NPV of a USD) completely dominates the other factors.

The volatile leg here is the fiat dollar, and everything denominated in it is whipsawing around as its value changes.


Unlike volatility in crypto markets?


Yes, unlike crypto markets which don't move anything else no matter how volatile they are, because they are economically irrelevant.


It's a shame, a couple years ago BTC was anticorrelated with markets. Then institutional investors started playing and since then crypto largely just tracks the markets. I wonder, where do these investors park their cash when they sell holdings during downturns?




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