Lyn Alden: 7 Misconceptions about Bitcoin
many here are familiar with lyn alden or should be. her economic analysis is among the best ( latest? uranium)
this piece is a well balanced exploration of some of the major misconceptions about bitcoin all of which have been voiced here numerous times.
Gary Gensler, President Joe Biden’s pick to head the Securities and Exchange Commission (SEC), told Congress Tuesday that the “greater challenge” in bitcoin and cryptocurrencies is protecting investors.
“Some markets have been really rife with fraud and scams,” Gensler told the Senate Banking Committee in his nomination hearing.
Gensler specifically pointed to some overseas markets, but did not elaborate on how exactly he would use SEC authority to create those protections. Gensler is currently a professor at the Massachusetts Institute of Technology, where he focuses on blockchain technology and digital currencies. He formerly headed the Commodity Futures Trading Commission in the Obama administration…..
Factually, this has been shown to be not true. The Citi Bank report estimates that 0.34% of all bitcoin transactions are scams. This is far less than the criminal activity associated with the dollar.
But when has being factually correct ever concerned the writers of our society shaping narratives?
Echoing the post by agitatingprop and several others, the oligarchy has considerable power to resist the adoption of a new technology that removes their own control over the money supply.
And as VTGothic has posted, parallel systems of finance are the anticipated result where local currency remains in use for local transactions, taxes, etc.
I am convinced that BTC will persist despite these efforts.
Not so good. Article is entitled “7 misconceptions about bitcoin”;
Misconception #1 Bitcoin is a bubble. Read on and author admits “maybe it is a bubble”. Hardly can qualify as a misconception if you say it might be true. More accurate to say ‘I dont know if its a bubble’.
Misconception#2 Bitcoin’s intrinsic value is zero. She then goes on to compare bitcoin to an item created in a video game which the gamers would be willing to pay real money to have. Somebody needs to look up the meaning of the phrase “intrinsic value”. What she described is the opposite of intrinsic value.
Misconception #3 and 4 are Bitcoin “isnt scalable” and that ;it wastes energy’, respectively. I have no comment on those statements.
Misconception #5 Bitcoin is too volatile. OK this is not a “misconception”. Author goes on to say “Bitcoin is promoted as a store of value and medium of exchange, but it has a very volatile price history.” And then “… they’re kind of right [ in calling bitcoin too volatile ]. Bitcoin isn’t the asset that you put money into for an emergency fund, or for a down payment on a house that you’re saving up for 6 months from now. When you definitely need a certain amount of currency in a near-term time horizon”…..uh, yeah, because it’s too volatile.
#6 The sixth misconception we have is that governments will ban bitcoin. This is a “misconception” which the author calls a “legitimate concern” [ huh?]. She admits later that other governments have already banned bitcoin so this isnt really a misconception. If you are confused, then you’ve been paying attention.
#7 The seventh “misconception” about bitcoin is an explanation of “where to buy bitcoin”.
So there you have it. Seven “misconceptions about bitcoin” that are actually, by the authors own admission, legitimate concerns. The only misconception here is that this is an article about misconceptions.
the thing i love about fudster trolls is their lack of intellectual honesty and their ability to cherry pick one or 2 statements from an entire article and take them out of context to feed their need to be “right” instead of look for the truth
Can someone explain why the price follows so well the stock:flow model?
In the same way that two intelligent people can look at a patch of stars in the northern night sky and one see a “bear” and the other a “dipper,” intelligent and conscientious people can look at Bitcoin and see different things.
They are different ways of organizing in our minds the details of a complex phenomenon.
The Vase or Faces Optical Illusion
And as always, each of us feels that their own viewpoint is “right,” because, that is how it is organized in our own minds!
The way to help another person see our viewpoint is to point out the details of how we see it just as Brushhog has done. “See, this is a nose, this is a chin, this is a forehead…..”
So taking that tack, I will point out a couple of the ways that I see bitcoin.
1. “Intrinsic value” of a bitcoin is zero. I agree. Bitcoin has no intrinsic value. In a very real sense Bitcoin is nothing more than a glass bead. Perhaps even less than a glass bead as it has no physical representation.
Just like a winning lottery ticket has no intrinsic value-it is just a piece of paper– (but can be redeemed for $2 million dollars) or a paper FRN with Ben Franklin’s face on it has no intrinsic value (but can be exchanged for a wheel barrow and a new shovel at Lowes). They are intrinsically nothing more than pieces of paper.
2. Bitcoin is (too) volatile. This is currently most certainly true from my perspective. However, in the longer term, as the number of owners of BTC grows and stabilizes at a very high level, it will become much less volatile. In the same way the US Dollar or the Euro are volatile, changing hourly in the global FX market, but not changing very much. But these markets are so big that they become stable due to their immense size. A child’s movement can rock a small sailboat, but cannot rock a massive tanker. Increasing market size offers increasing stability.
The volatility of the US dollar over 6 months. Moving constantly but only changing ~5% or so.
Money is volatile as people continuously shift funds into the best form of money available. And we continuously re-evaluate. When we catch on that a form of money is being debased, we are eager to move to a different form.
3. Bitcoin is in a bubble. The way that I see this is the mistake in viewing Bitcoin as something with intrinsic value. But Bitcoin is nothing more than a glass bead with no intrinsic value. Bitcoin is not a “thing” with intrinsic value.
However, this particular glass bead has the promise of being more valuable in the long run than other glass beads. For many reasons. (The main one being that Yellen and Gensler cannot make more of it, preferentially distribute it to their buddies of the oligarchy, which then buy up the nation’s farmland, silver, and the media, FDA and election oversight committees.)
And the price rise does seem to follow a kind of logic. See the stock-to-flow model Redneck Engineer posted above. I do not know why this stock-to-flow curve is followed and would love to hear explanations.
4. Governments will ban Bitcoin. This seems very likely to me also.
However, how hard will they crack down and how effective will it be? This is not at all clear. Recall prohibition and the effect of my church’s banning all sex in teenagers. They tried. Boy did they try.
Nations with Bitcoin bans still seem to have a black market bitcoin economy. Citizens find ways to work around the ban. Many details and links could be offered to support this.
How draconian will the efforts be? The influx of the prominent and wealthy into this space says to me that the horse is out of the barn, and the more draconian, like prison, won’t happen.
But, everyone makes up their own mind and honors their own thought process and values. We weigh the topic and its complexity in our own ways.
the stock to flow model is just one measure. it is not perfect and certainly has its critics but it has a remarkable track record with bitcoin.
plan b is an institutional investment analyst in the netherlands. he is a chartist and was looking for a way to track and predict price movement for btc.
he came across “the bitcoin standard” by safiedean ammous an austrian economist. btw the book is an excellent survey of money in general and i highly recommend it. ammous uses the stock to flow early in the book, app,lying it to gold and silver. silver will always come in second to gold because of stock to flow. the supply of gold rises on average 2% a year. with the price rise of gold the supply is not increased very much. thus with a pretty constant supply the level of scarcity remains relatively constant.
there are already thousands of years of gold stock so the stock to flow of gold remains little changed at around 57. no one really knows exactly how much gold actually exists in circulation or in the ground. gold derives most of its value from its scarcity.
with btc we know exactly to the minute how many btc there are and we know for certain how many there will ever be. the number of btc is capped at 21 million. the number of new btc “mined” is fixed at 6.25 every 10 minutes. every 4 years the rate of new btc mined is halved. thus it started out at 50. it then went to 25. and then 12.5 until last may when it halved to its current rate of creation. it’s stock to flow is now on a par with gold. every halving thus makes the ratio higher. till next century btc will reach absolute scarcity and a stock to flow value of 100.
the following is a great interview with plan b on real vision with raoul pal on the stock to flow concept.
i have posted links to real vision before and you may not be able to go there directly. the real vision crypto channel is a wealth of crypto info and is free. you simply have to join.
that said as scarcity increases so does price. gold would not be valuable if it was as prevalent as h2o. bitcoin is becoming more and more scarce. demand is rising. 2+2=4
bitcoin is the best store of value on the planet.
hope that helps
I think the biggest threat to bitcoin may be the Mike Green “empty chain 51% attack” Green in interviews (check out Grant Williams in Jan) seems to take a statist’s stance which is hard to stomach, but you combine that with Erik Townsend’s analysis that sovereigns will not allow bitcoin, and you have some weight on the side of catastrophic longer term pricing. (Townsend says it is probably too late to stop BTC now.) I am interested in Craig Wright’s BSV, which may not be so threatening to states? Not sure on that assumption though.
So I think there are two huge tectonic plates right now: extreme piling in, even by huge institutions, therefore price appreciation, pressing against the very real perceived threat to States’ currency.
first i would like to congratulate you on your intellectual honesty (something that used to be highly valued here) and your courage in taking a dive into the bitcoin rabbit hole.
i will take your post point by point.
yes we all use our subjective filters to organize our views on things. your illustration of the stars is very apt. one can organize objects to see any pattern they wish. and for them the pattern is “right” whether it serves them in any meaningful way is another issue “it’s my story and i am sticking to it” chris martenson is greatly admired here not only for his intelligence but also the ability to change his view as new information becomes available. unfortunately this is not a characteristic emulated by the fudsters who invariably show up on crypto threads. as a matter of fact the fudsters are almost totally ignorant of new facts but are only aware of the facts which support their bigoted views. thus yes one can see a dipper or a bear and argue of the rightness or the wrongness of that view but that does not change the truth that there are stars there.
personally i am more interested in the truth.
you do not have the depth of understanding of bitcoin necessary to find the deeper truth. you are still very near the surface of the rabbit hole. your point that you say you agree that bitcoin has no intrinsic value is acceptance of pure fud. i suggest you read the bitcoin whitepaper. and also this article “why does bitcoin have value”
you probably saw “what the bleep do we know”. there is a section where it says the natives could not see columbus’s ships because it was too far out of their ability to process. some people cannot see the intrinsic value of btc because they have spent a lifetime being programmed not to. certainly this site is programmed for that bias. it gets funnier when people criticize btc for not being “real” yet hold “cash” 98% of which is pixels on a computer and has lost 98% of its “intrinsic value” in 100 years. even funnier still something comes along which actually gains value but eliminates the middlemen who steal from them but by god “that’s my story and i am sticking to it”
your next point is “btc is too volatile” too volatile for what? and what is the problem if that is being determined by a free market? i would think a money whose value that is determined by the participants in a free market is far preferable to a currency whose value is determined by a central authority to the detriment of the vast majority. but that is just me. as conceived btc was meant to be a payment network alone. market forces have decided that its best use at the present is as a store of value.. that said it is accepted by many people and companies around the world as a form of payment. ex if you had say a vehicle valued today in usd $50k would you accept 1 btc for it? the following is a list of companies who accept btc for payment. https://99bitcoins.com/bitcoin/who-accepts/
the volatility always cracks me up when gold bugs use it. $35 in 71 $800 in 79. crashed to what $200 went to over $1900 then crashed to $1050 Then, then then, and hell it is not even a unit of exchange. and obviously a terrible store of value. if i bought gold when it went over $1900 it would be worth less today, what 8 years later. yes btc is volatile but one has to examine ones time preference. i explained this to you before. in any given 4 year period btc has appreciated. so if your time preference is buy btc now sell and buy sheep in 6 months you may be disappointed. however if you have a low time preference you will be able to buy several more flocks of sheep with some leftover. a chart is a snapshot in time. a chart can be linear or logarithmic. if one looks at a logarithmic chart btc looks vastly different than a linear chart. if one looks at the 12 year chart it is vastly different still.
in a free market where the participants make the rules many things are possible. the person buying a tesla with btc will get an electric vehicle worth $50k usd . he/she may have only paid $700 usd for that btc or did a days worth of programming and got paid in btc. the buyer and seller would both be happy with the transaction done with a money that is “too volatile” it’s called a free market. i pay my plumber with eth. we are both very happy. i got a couple of thousands usd worth of work for eth i got for 1 usd. those are stars in the sky and ships on the sea.
then we get to my favorite which you wrapped up in the intrinsic value trope already addressed. the horrible bubble that will pop and life as we know it will end. part of my response is in the volatility paragraphs. if one looks at the 12 year btc chart one will see a steady rise. (stock to flow) the first purchase with btc was 2 papa johns pizzas for 10,000 btc. here is a scenario: someone by 2013 has taken all his disposable income and acquired 100 btc do the math but it’s worth over 5 million usd now. gold in 2013 was let’s say $1500 give or take. let’s use the same parameters. $100 of gold 1/15 oz. now that 1 oz. is worth around $120. i am not even going to go into inflation. all i can say is thank god for an 8 year bubble. and thank you god for telling me to sell my gold.
okay then we get to the big bad ban which i started a thread on. where i come from the saying is”pass a law create a business” throughout history governments have oppressed their people this is nothing new. governments have passed laws “banning” btc. has it stopped people from using it? no in pakistan it fueled more adoption and mining. there are people using phone cards as currency. there are over 2 billion people unbanked and doomed to poverty thus. btc is not a us phenomenon. it is global. it cannot and will not be stopped. that is an assertion based on the simple facts that wherever one has a cell phone a data service one can transact in btc. governments will be playing whack a mole. the cost will be enormous. elon musk is covering the globe with starlink. every sq cm will have access. there are camel jockeys in rajasthan with smart phones. to stop btc will require shutting down the internet. will there be a drop in exchange from btc to fiat? likely. also likely it will become a separate economic system with no exchanges needed. just so, a new financial sysytem is being birthed to provide financial services totally in crypto. there are stable coins not backed by fiat but by crypto. so my question about bans is what is a ban?
so sp i have spent the better part of an afternoon responding to your post. i did that because i have the utmost respect for you and you are one of the few old school cm’ers who understand the site. btw i have an injured wrist and typed this with one finger.
I actually agree with your conclusions and most of the way that you look at this.
1. Bitcoin has no intrinsic value in the same sense that a $100 bill has no intrinsic value (just a piece of paper with green ink). However, since both can be used as money, they both become valuable.
2. Bitcoin is (too) volatile. I was responding to a point by Lyn Alden and brushhog with this label, arguing that the volatility will smooth out as adoption makes the market cap greater. Volatile now, but will be less so in the future. I don’t see the future BTC as too volatile to be used as money.
3. The government will ban it, but, I suspect that the ban will not squash BTC as “the horse is already out of the barn” and underground BTC economies pop up in nations where BTC is banned.
Good luck with your broken wrist.