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 LordofHats wrote:
Cryptocurrency only has value because people are willing to use it. It isn't backed by anyone, hence the inevitable pop of the cryptocurrency bubble that will happen at some point in the future, assuming that stuff ever makes it out of being used by any business that don't have credit ratings and legal credibility so low banks will never do any business with them, which is where most of the value in Bitcoins is right now.

I think the question is, why are people willing to use Bitcoin? The answer is twofold based on my observations: 1. because you want to access 'grey channel' or 'black market' goods and services where the anonymity of existing largely outside of the established financial sector is attractive; or 2. as an opt-out of what people perceive as central bank manipulation that distorts, for good or ill, the value of conventional currency.

I don't think that Bitcoin is ever more than a novelty, but some novelties (like Twitter) become pretty significant. You can argue, based on my observations, that Bitcoin can never become mainstream because black market uses eventually get cracked down upon and currency that requires computers and electricity to 'work' will not function in the Doomdsay End of World scenario.

But remember the idea of a virtual currency isn't crazy on its face.

Look at paypal. It might as well be its own monetary system, albeit one that you can exchange for $s at a 1:1 ratio. But it does exist and self-sustain completely electronically. Its just one step away from a totally different monetary system.

So assuming we don't lose the internet to an EMP attack it is a viable medium of exchange.

 sourclams wrote:

I think the question is, why are people willing to use Bitcoin? The answer is twofold based on my observations:

The answer is thtat no one wants to use Bitcoin. The business' using it couldn't operate otherwise because Banks won't deal with them. The amount of business actually done in Bitcoins is in the millions, but the amount actually invested in Bitcoins is over $10 billion. Eventually, bitcoin needs to deliver on the investment, but I think pretty much everyone knows it won't because it physically can't. No businesses that have other options want to deal with them.

Right now the cryptocurrency bubble is running on people buying up coins and reselling them for a higher price (get rich quick which works until you're the guy with 10,000 tulip buds no one wants to buy anymore). Once that bubble crashes, the fad will likely disappear forever.


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 Grey Templar wrote:
But remember the idea of a virtual currency isn't crazy on its face.

Paypal and Bitcoin are completely different. Paypal deals in legal tenders. Bitcoin is more like spending money on a miscillanious item that can be used for bartering but which in itself carries no value and no guarantee of value worth anything, and worse off no one actually wants to barter in bitcoins save a small number of enthusiats who are going to get bitten in the butt hard some day.

Doing business over the internet with digital $ work because a digital $ is the same as a paper $. It's still a $ backed by the US government as having value.

 LordofHats wrote:

Paypal and Bitcoin are completely different. Paypal deals in legal tenders. Bitcoin is more like spending money on a miscillanious item that can be used for bartering but which in itself carries no value and no guarantee of value worth anything, and worse off no one actually wants to barter in bitcoins save a small number of enthusiats who are going to get bitten in the butt hard some day.

I want to try something...

Paypal and Gift Certificates are completely different. Paypal deals in legal tenders. gift certificates is more like spending money on a miscillanious item that can be used for bartering but which in itself carries no value and no guarantee of value worth anything, and worse off no one actually wants to barter in gift certificates save a small number of enthusiats who are going to get bitten in the butt hard some day.

Again, gift certificates have a real $ behind them. Bitcoins have one right now, but that value is completely based in the assumption that they will at some point be used in trade that doesn't look like it's going to happen.

A better analogy is if I started selling Hatcoin for $20, that you then sell to someone else for $25, that they sell to someone else for $30 so on and so forth. Unfortunately, no one is actually doing any business in Hatcoins, which means someone has ended up with a $500 hatcoin that can't be used for anything. They're only recourse is to sell it for $505 to someone else. That keeps happening and eventually the bubble pops and people end up with nothing at all because Hatcoins aren't actually worth $500 and by the time the bubble pops they probably wouldn't even be worth $20.

A $50 Target gift card is actually worth $50 in items from target. A $50 bitcoin is precarilously perched on the assumption someone with give you $50 in something (money or goods) for that coin. People then realize that's false and just sell the coin to someone else on the assumption that in the future it'll be worth $55. SO on and so forth until you end up with billions being invested in bitcoins but only millions in tradeable goods actually using them.

 LordofHats wrote:
The answer is thtat no one wants to use Bitcoin.

C'mon now, there are people wanting to use bitcoin, and bitcoin utilization has expanded. The usage may be low, as it is likely to always be, but just like beanie babies and Croc sandals, there's demand for this good. Once the economy takes off and unemployment falls off, there'll probably be less demand for hipster currency, but that's not likely for years.

Gift cards are actually proof that you purchased a set worth of an as yet undefined product from whatever business the gift card is for. They are not a true exchange medium.

The people buying and selling bitcoins are exactly like the people who bought and sold Tulips in the mid 17th century. They doing it because they can get rich off it, not because they think bitcoins are ever going to actually be worth something. The fascination with bitcoins is centered in a small group of enthusiasts who are eventually going to get saddled with huge loses in real $ over some binary code that never had any real value, only speculative value that never comes to furition.


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 Grey Templar wrote:
Gift cards are actually proof that you purchased a set worth of an as yet undefined product from whatever business the gift card is for. They are not a true exchange medium.

A $50 gift card is actually worth $50 because someone will accept it as tender. Few people accept cryptocurrency as tender, but more and more money gets shovled into it. Would you pay someone $55 for a $50 gift card that can't actually be used for anything because no one accepts that brand of gift card? Of course you wouldn't. That's called a scam. The only reason to do it is to sell it to someone else for $60. So on and so forth until someone has a $500 gift card that wasn't even worth $50 to begin with because $450 dollars later there's still almost no one willing to deal in that gift card but it's accumulated %900 speculative value and it's unlike to ever be able to return on that investment.

 ironicsilence wrote:
well if he would have transfered his money from the BOA checking account, to a BOA savings account he would have earned some interest on the cash

Is it really so hard of a concept for you to grasp that you cannot fathom the thought that BANKS ARE NOT SAFE DEPOSITORIES OF MONEY, and that 'GAINING INTEREST' means that you're allowing the bank to make investments with the money you give it, and that those investments, like ALL investments, have a certain amount of risk, and in the event that those investments fail (like they did just a few years ago) and the government does NOT bail the banks out (which it probably can no longer afford to do), he will have lost 750,000 dollars minimum, and likely the FULL 1 MILLION DOLLARS, as the FDIC does not have enough cash on hand to guarantee all insured deposits?

Granted, thats his reasoning, its not altogether unsound reasoning, doesn't mean you should listen to it though. Also, I cant speak for BoA, but my checking account gives a higher interest rate than my savings account (Chase).

It absolutely blows my mind that people think bitcoin is a response to fiat currency.

What in the hell do people think bitcoin is?

Some sort of magically valuable digital commodity clearly. I mean, its not like its virtual value isn't entirely predicated upon real world market value or anything, right? (Hint: It is. In the event that the real world market collapses, bitcoin will likely become as valueless as the dollar.)

Also If the economy really does collapse the last thing that will save you will be a crapzillion buttcoins or a couple bars of gold.

You cannot eat buttcoins or barter with them and you cannot eat bars of gold or barter with them.

Agreed. Bitcoins have as little real value as the dollar does (as someone else pointed out, the dollars value is basically imaginary and based upon a more or less mutual agreement to ascribe value to it), and golds value is (was) based entirely on how worthless it was for anything other than jewelery (nowadays we can use gold for other purposes, so it actually has some legitimate value now, but that wont save you in a market collapse type situation). Want to know what does have real value? Brass. May I suggest denominations of 5.56x45 and 7.62 for common currency, and keeping your savings invested in .50?

Actually, you can barter with bars of gold. Gold was the standard of exchange for thousands of years, empires rose and fell with precious metal currency. If fiat currency collapses we'll go right back to gold, or silver, or copper, etc...

Gold is just like a dollar or a bitcoin. It has little real value, only the value ascribed to it by people that like it for its shininess or people that want to use it for making conductors. In a situation where currency collapses, the people that would use it for its conductive properties aren't likely going to be able to afford it, and these days most gold is in the hands of the people who would use it for its shininess anyway, meaning that gold isn't going to be a very good fallback currency, and the vast majority of people are going to need another form of currency/bartering tool... like bullets.

1) You can use gold to buy stuff you need if the existing economy tanks.

Only if people ascribe it value. Lots of people won't in a situation where the focus is on survival in what would pretty much be an end-of-world scenario.

Gold is the original currency.

Actually, that would be food and women, but more seriously, no, gold wasn't. Lots of early coins were made from other metals (predominantly copper), but also things like seashells (see also: wampum), ivory, etc. Pretty much anything that people ascribed value to. The rise of gold is relatively more recent than gold... and guess what, the value of those early currencies weren't based on the value of the metal itself, rather those pieces of metal, shell, ivory, etc. were valued based on how much grain/meat they could be exchanged for at centralized stores (frequently run by temples in early Mesopotamian cultures), the coinage/ingots were given as a receipt of how much was deposited by a farmer at the end of the harvest season, and thats where their original value came from.... it seems early peoples didn't necessarily have a full understanding of how the system worked and ran with the idea that pieces of metal must have their own intrinsic value, thus resulting in the modern day assumption that precious metals and gemstones have any value at all as a form of currency.

I think the question is, why are people willing to use Bitcoin? The answer is twofold based on my observations: 1. because you want to access 'grey channel' or 'black market' goods and services where the anonymity of existing largely outside of the established financial sector is attractive; or 2. as an opt-out of what people perceive as central bank manipulation that distorts, for good or ill, the value of conventional currency.

I don't think that Bitcoin is ever more than a novelty, but some novelties (like Twitter) become pretty significant. You can argue, based on my observations, that Bitcoin can never become mainstream because black market uses eventually get cracked down upon and currency that requires computers and electricity to 'work' will not function in the Doomdsay End of World scenario.

Theres a 3rd and 4th category: 3. People who have no understanding of how economics work and think that bitcoins are a safe alternative currency for a total market collapse. 4. Tin-foil hat types that think that bitcoins will liberate them from government servitude.

 LordofHats wrote:
The people buying and selling bitcoins are exactly like the people who bought and sold Tulips in the mid 17th century. They doing it because they can get rich off it, not because they think bitcoins are ever going to actually be worth something. The fascination with bitcoins is centered in a small group of enthusiasts who are eventually going to get saddled with huge loses in real $ over some binary code that never had any real value, only speculative value that never comes to furition.

And I think it's really not. No doubt there's some degree of that, but a the only intrinsic value for a tulip bulb is what value on this perishable item can be derived by the flower before it rots. The value of bitcoin is in 'exempting' yourself from the entire financial sector without the requirement of expensive storage and management of bullion or commodity exposure. The intrinsic value is an under-exposure to central banks, "arbitrary" currency swaps. Bitcoin values could be ramping up because it's a bubble, or it could be ramping up because it is more akin to a hard commodity where demand outstrips limited supply. The test of it will be when the global economy recovers, what sort of demand for an opt-out exists when things are actually kinda good and normal.


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chaos0xomega wrote:
Theres a 3rd and 4th category: 3. People who have no understanding of how economics work and think that bitcoins are a safe alternative currency for a total market collapse. 4. Tin-foil hat types that think that bitcoins will liberate them from government servitude.

I don't think the people buying it are looking for total collapse. The limitation is less economic understanding than the existence of electricity in the Doomsday scenario. It's an incremental adjustment, like purchasing life insurance. You don't buy life insurance because you live a high-risk lifestyle and expect to be dead within the week.

Its value is going up because people keep reselling them for more than they bought them. Eventually that's going to stop happening and the value will then plumpt because there's no other use for bitcoins but to sell them to someone else for more than you purchased them for. They're worth nothing if no one is willing to buy it from you or accept it as tender for goods (the former will eventually stop happening and the later after years and billions in investment still hasn't materialized). Since they can't actually be used for anything other than reselling its a horrible place to put money for any extended period of time.

A partial economic collapse would still make gold worthless because people want stuff they can use later or sell later.

What is a struggling department store going to do with a coin of pure gold?

Legal currency backed by a government will still be king in a partial collapse.

See, a total collapse, and its anything goes pretty much. Money won't be worth anything, and anything not related to immediate survival or building of environments for survival might as well be dogcrap

 sebster wrote:

Oh, and please no-one read the website the OP's article is from, Zero Hedge. It is perhaps the single worst place for investment advice on the net right now. The people there are crazy, but more than that they are foolish, there is simply no recognition of basic trading fundamentals in the stuff put up on their site. If you follow the things posted there you will lose money.

It makes sense that what appears to be a largely lampooned economist finds and audience on what may be considered a discredited financial website.

That assumes you are right in that you claim to know more than they do. I would be very interested in knowing what in particular is wrong with the site, or more to the point what you think correct investment advice should focus on.

 sebster wrote:

Sure, there's a lot of subjective elements and grey areas in economics, the field lacks the ability to conduct controlled experiments in the way that hard sciences like physics and chemistry can and so it is very hard to properly test a lot of arguments.

But the bigger problem is that when things are well established by evidence, plenty of economists will still claim the opposite is true simply because there are a lot of fools and liars working in economics. Take this fellow Burnham in the OP's article, who was a fool for having no idea how inflation operated in an economy with low aggregate demand, and a liar for continuing to pretend he knows what he's talking about after his claims had been wrong for five years.

But whatever, this guy has books to sell and a place on the pundit tour to claim, and so making claims that goldbugs and moneyed interest want to hear will only help him, even if those claims are stupid and factually wrong. Keep on lying for money, Mr Burnham, it will help you get another million in the bank.

When looking for right and wrong in investment advise I don't look to sniff out fools, I look to sniff out motive. The intended fool is more often the listener, and not all advice is there for your own good.
Does this Mr Burnham believe his own spiel, or does he believe that if enough people follow it he will get rich by doing something else.

 sebster wrote:

 Orlanth wrote:
The first lesson to learn if you are to hope to understand the economic system is that it is built on lies and bs.

That is not a radical comment, or socialism or any other label, just an understanding that more money exists than actual value can be attributed to it, people are rich or poor largely on fiat and the entire system only exists because enough people say it does and the rest go along with it.

Well, to the extent that an economy is a social construct, and therefore is built around individuals personally buying in to some part of the system for personal benefit, then you're right. But note that that system isn't designed, but is emergent as a result of the way in which each individual chooses to interact with that system, and then realise how you're wrong.

Sorry I have to disagree. The system is technically emergent, one could best say evolving, and its most definitely changing by design. It appears more chaotic than it is because there are too many different minds that the overall effect is like an elemental force, however some have more influence than others and some may pool their influences.
As for the choices of how to interact with the system, the vast majority have very little choice indeed. They have the choice a slave has, to obey or be punished, but unlike a slave there is little sympathy for emancipation and the punishment is endemic to the system and requires no active hand drawing the whip.
The only people with sufficient influence to effect the economic system largely have a vested interest in not doing so, the odd few that do tend to have red stars on their hats and are by and large a bigger problem than leaving the system the hell alone.

So Sebster the economic system is designed and perpetuated by a few, a design is not its technical origin, but is the remodelled foundation and guiding will of the process.

 sebster wrote:

 whitedragon wrote:
https://bitcoin.org/en/

It absolutely blows my mind that people think bitcoin is a response to fiat currency.
What in the hell do people think bitcoin is?

Interesting question, and I would welcome to find out your personal answer Sebster.. All currency is a form of token setting, back to the currency before the invention of coinage. Coins from Lydia, bank notes from the Fuggers, iron bars from Sparta, monopoly money, Ak-47s are currency in Soweto. The bitcoin is no more or less outlandish than those.

However I am even more concerned with a purely virtual currency than one endorced by a national government. The latter has some form of backing, the former is just vapour. It doesn't help that the biggest player in the global economy China has already invalidated them in connection to its own banking and exchange system.
I wonder if China actually means, we don't want bitcoin because we cant ever control it. They think long term and truth be told the economic standard has always been an agreed standard between those with authority to do so, for the empowerment of themselves and the governance of everyone else.

 LordofHats wrote:

The answer is thtat no one wants to use Bitcoin. The business' using it couldn't operate otherwise because Banks won't deal with them. The amount of business actually done in Bitcoins is in the millions, but the amount actually invested in Bitcoins is over $10 billion. Eventually, bitcoin needs to deliver on the investment, but I think pretty much everyone knows it won't because it physically can't. No businesses that have other options want to deal with them.

 LordofHats wrote:
Since they can't actually be used for anything other than reselling its a horrible place to put money for any extended period of time.

Saying this over and over again doesn't make it true.
In 1st day Overstock does $126,000 in bitcoin sales
Couple travels around world for 101 days on Bitcoin
Major retailers getting ready to accept bitcoin

I never really understood what the big deal was behind bitcoins or even what exactly they were. Thanks for letting me know I wasn't really missing anything.

Druggies really like it too.
That will be its kill factor. Governments going after drug money laundering.

Dont forget that bitcoin is being diluted by things like dogecoin, etc. which will also likely kill any chance of its success.

 Noble713 wrote:

In 1st day Overstock does $126,000 in bitcoin sales
Couple travels around world for 101 days on Bitcoin
Major retailers getting ready to accept bitcoin

Let me know when you can go to a major retail chain like Walmart and buy something on Bitcoin. You can cherry pick individual cases and businesses all you want, but in the end Bitcoins still aren't being used for much (Tiger Direct and Overstock cater to a lot of tech geeks, the same people who are die hard believers in cryptocurrency. So, congrats. The people who made Bitcoins believe in Bitcoins, shocker. It doesn't change the fact that hardly anyone actual uses them as tender;

only about 3% of all Bitcoins are in circulation at the moment, and less than 1% of all Bitcoins currently in existence are sold on the exchanges. With less than 10% of wallet users actually engaged in transacting their Bitcoins

People aren't using bitcoins because there's nothing to use them for, yet their value keeps going up. There's really only one explaination for that, and the only conclusion is that eventually its going to collapse.

Source

If Bitcoin were to be accepted by Banks (making them trade able there) it might stand a chance, but as it stands crytocurrencies develop into their own tiny little markets controlled by a few people who mostly just sit on them waiting to resale because there isn't much other use for them. Several millionaires have already been made on the cryptocurrency market just by reselling coins.

And I haven't even bothered to touch the money laundering that makes up a huge portion of bitcoin use (which is only 3% I remind you)

I read an article not to long ago about a brick and mortar cafe in Brooklyn that started accepting bitcoin, they ended the practice not long afterwards because there were too many issues getting it to work as a transaction method in the 'real world'.

 Noble713 wrote:
The government has been "moving the goal posts" by massaging the inflation calculations in ways that are not in line with actual American spending habits, for one thing.

Yeah, that's been one of the defences from the people who predicted inflation and got it completely wrong. There are actually non-government measures of inflation, such as the billion price index. But the thing is, when you compare that measure to the official index you get this;



Seriously, the idea that CPI figures are cooked is a convenient fiction cooked up by people who don't like the numbers because they prove they were completely wrong.

Much like the unemployment rate the bobbleheads on TV keep pushing doesn't include "discouraged workers".

Well, yeah, and if you do any decent reading about this you'll find countless experts discussing which measures of inflation are useful for different things.

As for asset price bubbles, how about:
Fed's Lacker Admits "Asset Bubble", Reluctant to pop it

Oh Christ, you're still reading zero hedge. Please don't do that. You will end up confused, poorly informed and almost certainly a lot poorer than you'd be if you read sensible sites.

Anyhow, the article is total nonsense. A committee discussing the possibility that some small cap stocks may by showing signs of overvaluation and that as recovery advances the possibility that it would form a bubble is not actually a bubble.

Student loan bubble starting to burst
http://www.forbes.com/sites/steveodland/2012/03/24/college-costs-are-soaring/

The existance of debt is not a bubble, especially not when those funds are invested in future income earning, and not just on speculative assets hoping for resale. There is a problem with student debt, but any sensible discussion of that subject will talk about default rates on people who don't complete their degrees, and acknowledge the very high rate of repayment of graduates.

You could also look at classic collector car prices (a Ferrari 250 goes for ~$40 mil these days) or real estate near Central Park ($10mil condos are a great way for Russian billionaires to launder their money) or Miami (Porsche Design Tower).

If you wanted to go about picking obscure anecdotes and calling the evidence, then I guess you could. It would probably get you a writing gig for Zero Hedge.

Still, if you read the *comments* at ZeroHedge and filter out the whackos (yes, they are numerous) you find a common trend of good advice:
1. Buy firearms.
2. Invest in yourself, particularly productive technical skills like robotics.
3. Own land, preferably outside the United States or arable land in a remote US area.

If the objective is long-term self-sufficiency of your family it's hard to argue with those things.

Hahaha Oh dear. You're actually trying to say that 'if you want to be self-sufficient, then purchase the things that ensure self-sufficiency. That's umm, not investment advice.

Every minute of every day you are losing money anyway....through theft aka inflation.

Yeah, that's crazy nonsense. The only money you have that loses on inflation is your transaction account. Every other account will earn interest, and your real assets... well guess what's inflating?

Much like how Keynesians ignore the failure of every fiat currency debasement.....ever.

Actually, currency debasement is heavily studied. And what has been found time and again is the narrative of 'currency debased then economic and social collapse' is completely wrong. Economic and social collapse precedes the currency debasement.

It's for that reason that the whackjobs fringe nutters either talk about debasement in very vague terms, with no analysis of the actual sequence of events, or more often talk of very distant instances of debasement, such as the Roman Empire, where very little is known of the sequence of events.

To me it's an incredibly flexible, real-time, near-zero-cost payment medium. Do central banks need to worry? Maybe. But VISA should be terrified. If a business can sell me a product on the other side of the planet without having to pay 10% or whatever in some credit card company's "processing fees", that should be a big deal.

You need a better credit card if you're wearing 10% in processing fees.

And it's even weirder that you freak out about movements in the price of the dollar, and are entirely indifferent to the wild swings in the value of bitcoins.


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 sourclams wrote:
Well I'd say that's because they have a free market, meaning bearish, lean in this Central Banker "managed" economy. They, much like Drudge Report, serve as a useful aggregator. Unless you're independently duplicating all of the research that appears on their website, simply ignoring them or dubbing ZH 'useless' is rather self-limiting.

No, they're not useless, they're actively harmful to one's chance of making money.

If one was to read zerohedge in 2009 they would have taken up strong positions banking on a sudden burst of hyper-inflation. And all the people who were told gold was a great buy, not just in a sensible 'there is a reasonable expectation of a medium term run on gold making it a good 1 to 3 year investment' but the claim that gold was just a straight up good buy, price and timeline not considered. That's the kind of stupid that should get an undergraduate a failing grade, the idea that it was investment advice sold to the public is incredible.

But all of that isn't really why the site sucks. Look around on any site and you'll find examples of investment advice that turned out to be wrong. The real problem with zero hedge that makes it so uniquely awful is that it doesn't sell advice based on considered, moderated advice, but sells first and foremost a worldview, and dresses that up in testosterone filled machismo. And there is no bigger sucker in the market than the over-confident true believer.


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 Grey Templar wrote:
Actually, you can barter with bars of gold. Gold was the standard of exchange for thousands of years, empires rose and fell with precious metal currency. If fiat currency collapses we'll go right back to gold, or silver, or copper, etc...

Not really. If we're talking proper economic collapse, then people simply have greater priorities than a metal that looks nice and is handy in high end electronics.

Let me put it this way - right now a bar of gold can be sold for, give or take, about 12,000 gallons of petrol. But now consider complete economic collapse - money is worth nothing so all the trades that go on underwritten by our fiat current have basically collapsed. People are resorting to barter, and you're alright because you've got a bar of gold. Think about how many gallons of petrol the station is going to offer you for that bar of gold?


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 Grey Templar wrote:
But remember the idea of a virtual currency isn't crazy on its face.

Look at paypal. It might as well be its own monetary system, albeit one that you can exchange for $s at a 1:1 ratio. But it does exist and self-sustain completely electronically. Its just one step away from a totally different monetary system.

Paypal is essentially just a third party overseeing a trade. It's essentially no different to putting money in to a bank and then transferring that money to the seller. Western Union is another good comparison.

Bitcoin is difference because you can hold bitcoins outside of the trade, they can be a store of value, and their value can fluctuate against other currencies. Making it it's own currency. Which leads us to ask if bitcoin actually has a place as a purely electronic currency in a world where, despite the fringe nonsense claimed by some, fiat currencies administered by central banks work very well.

As others have pointed out, bitcoins have found a useful function in the economy, giving people an anonymous means of transferring money. This has driven a reasonable number of transactions, but there's plenty of reason to think bitcoin might not be the answer the grey market was looking for - as government bodies are cracking down on it and its becoming apparent bitcoins are a lot less anonymous than hoped for.


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 LordofHats wrote:
The people buying and selling bitcoins are exactly like the people who bought and sold Tulips in the mid 17th century. They doing it because they can get rich off it, not because they think bitcoins are ever going to actually be worth something. The fascination with bitcoins is centered in a small group of enthusiasts who are eventually going to get saddled with huge loses in real $ over some binary code that never had any real value, only speculative value that never comes to furition.

Yep, and that is the classic bubble, where people are holding an asset for no reason but the expectation that one day they'll be able to sell it for more than they paid for it. When that assumption is undercut, and the market starts to realise that it can't just sit on the asset and watch the price go up and up, then they have no reason to be in the market, panic selling kicks in and you get a crash.

End of the day, the only way to make money in such a market is to back yourself to buy in at a smart time and get out at a smart time. To do that, you have to be able to say with confidence that you're smarter than the other people buying bitcoins. If you're going in thinking you're one with the other bitcoin buyers, well then odds are you're the sucker.

 Orlanth wrote:
It makes sense that what appears to be a largely lampooned economist finds and audience on what may be considered a discredited financial website.

That assumes you are right in that you claim to know more than they do. I would be very interested in knowing what in particular is wrong with the site, or more to the point what you think correct investment advice should focus on.

Oh I'm not claiming I personally know more, not by a long shot. I've done alright with my money, but it isn't because I've been smarter than the market, but because I've done well because I've been moderate, and diverse, and looked to the long term. Where I've done quite with a couple of buys it has been because I was lucky, not because I had some uniquely powerful insight.

Now, there are people out there who can help people do that - build properly diversified portfolios, and help people keep their eye on long term reward, and not get caught up in noise and suckered in to over-trading. But kind of advice doesn't attract the big fees, and so...

When looking for right and wrong in investment advise I don't look to sniff out fools, I look to sniff out motive. The intended fool is more often the listener, and not all advice is there for your own good.
Does this Mr Burnham believe his own spiel, or does he believe that if enough people follow it he will get rich by doing something else.

That's the key question, and if it's a scam, what kind of a scam is it? Is he just looking to sell books, or have you buy in to his hedge fund, or is he looking to pump and dump on some asset?

Honestly, the biggest guide I have for gauging honest investment is the willingness of the speaker to give the limitations of his advice, and admit in the past where he got lucky. It's why I'm finding myself going back to Barry Ritholtz's site, because when he picked the absolute bottom of the market he straight up said he just got lucky, and he will say over and over again on his site that the information he's relying on is public and his analysis once published on-line is public, and therefore worthless for any specific trade.

Sorry I have to disagree. The system is technically emergent, one could best say evolving, and its most definitely changing by design. It appears more chaotic than it is because there are too many different minds that the overall effect is like an elemental force, however some have more influence than others and some may pool their influences.

I think your disagreement there is reasonable, and expands on my brief point quite well. You're right that it does get changed by design, but that design is generally a response to emergent factors, and does not always end result where people had intended.

Take for instance the rise of derivative trading. It was obeserved that a large number of products had increasingly volatile prices, particularly commodities. So practices emerged in which people would ensure future prices of their products by entering in to agreements today - a pig farm might write a contract with meat distributor that guaranteed a future sale price for pork bellies- maybe the price when the pigs were ready for slaughter would be higher or lower, but both parties were able to go about their business knowing the price and therefore removing possible risk.

But these agreements were costly, needing experts to give good estimates of the expected future price of the good, and requiring contracts to be drawn up with lawyers and so . So in Chicago they established a futures market where any parties could commit to future prices with any other party. The pig farmer would just go on the market and buy futures on pork belly prices, and the meat distributor would go an sell pork belly prices, and hey presto same deal at a fraction of the transaction costs.

But then you get the emergence of a whole new form of business. Long story short you get three decades of very clever people thinking up all kinds of insane new kinds of derivatives, and repeated failed policy attempts to curb this, ending up with the vast shadow banking system that fell over in 2008, largely because the derivatives and how they related to each other were so complex that companies didn't actually understand their own market exposures, and how over-leveraged they were.

The economy as it stands it much like a herd of cats. You can scare the cats away from the dinner table but not all the time, and maybe get them to more or less head in one direction rather than another, but really it's mostly chaotic self-interest.

They have the choice a slave has, to obey or be punished, but unlike a slave there is little sympathy for emancipation and the punishment is endemic to the system and requires no active hand drawing the whip.

They have a choice to be part of the system or not. One might quite rightly point out that life outside the system, scavenging or trying to grow a self-sustaining crop by one's self is a pretty bleak existance... but that's says a lot about what life is like without the system we've built, and not much about the system itself.

Note that doesn't mean we should just be happy with the system as it stands, but we do need to understand it's place as a great creator of wealth.

Interesting question, and I would welcome to find out your personal answer Sebster.. All currency is a form of token setting, back to the currency before the invention of coinage. Coins from Lydia, bank notes from the Fuggers, iron bars from Sparta, monopoly money, Ak-47s are currency in Soweto. The bitcoin is no more or less outlandish than those.

However I am even more concerned with a purely virtual currency than one endorced by a national government. The latter has some form of backing, the former is just vapour. It doesn't help that the biggest player in the global economy China has already invalidated them in connection to its own banking and exchange system.
I wonder if China actually means, we don't want bitcoin because we cant ever control it. They think long term and truth be told the economic standard has always been an agreed standard between those with authority to do so, for the empowerment of themselves and the governance of everyone else.

I think bitcoin is very much like gold. Useful for certain kinds of financial transactions, over which sits a vast speculative industry holding gold more for ideological reasons than sensible investment.


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 Noble713 wrote:
Saying this over and over again doesn't make it true.

One of the primary values in a medium of exchange is a steady currency. People like to think that if they sell a car on Tuesday for $5,000 then when they go to buy a new car on Friday that $5,000 will still be worth more or less $5,000.

It's why, or at least it should be why, you go on about inflation so much, because if the dollar was wildly changing in value that would be bad for economic transactions, and therefore harmful to the economy as a whole. That no such inflation is happening is another argument, but we should both be in agreement that if it were, it would be bad.

And yet with bitcoin the price moves all over the place, and it somehow doesn't register with you that that is a problem.

Hoping for a major retailer like Walmart to start taking bitcoins is like hoping for them to start taking Australian dollars. Why would they? The price of the AUD fluctuates to the USD every second, and in a week it can move 5%. Walmart doesn't need that hassle, doesn't need the issue of updating prices in real time, and doesn't need the cost of transferring money from bitcoin to USD. What you are hoping for here is simply not going to happen, and money you stake in it is a terrible investment.

 LordofHats wrote:

Let me know when you can go to a major retail chain like Walmart and buy something on Bitcoin. You can cherry pick individual cases and businesses all you want, but in the end Bitcoins still aren't being used for much (Tiger Direct and Overstock cater to a lot of tech geeks, the same people who are die hard believers in cryptocurrency. So, congrats. The people who made Bitcoins believe in Bitcoins, shocker. It doesn't change the fact that hardly anyone actual uses them as tender;

I'll accept your backpedaling from "No one wants them" to "No one who meets my revised business criteria wants them" for the concession that it is.

If Bitcoin were to be accepted by Banks (making them trade able there) it might stand a chance

My preferred scenario is the proliferation of local bitcoin exchanges. Bitcoin ATMs are a step in the right direction if they can handle both deposits and withdrawals.

And I haven't even bothered to touch the money laundering that makes up a huge portion of bitcoin use (which is only 3% I remind you)

You're worried about Dread Pirate Roberts making millions while HSBC got away with a slap on the wrist for laundering BILLIONS in drug money and helping Iran avoid sanctions. Seriously?

 sebster wrote:


Yeah, that's been one of the defences from the people who predicted inflation and got it completely wrong.

I've got assignments due tomorrow so time is a bit short, but I *will* address inflation over the weekend.

Oh Christ, you're still reading zero hedge. Please don't do that. You will end up confused, poorly informed and almost certainly a lot poorer than you'd be if you read sensible sites.

Oh, articles on a news site largely written for laymen will leave me confused, will they? That's an interesting perspective, and I'm glad you are concerned for my welfare. I think I'll be alright though; I never found myself confused while earning my Bachelor's degree in Economics.

The existance of debt is not a bubble, especially not when those funds are invested in future income earning

That would be true if college educations were yielding returns on the investment.
Forbes: 30% growth in student loans 2007-2012, avg debt load now ~$24k
US News: 70% increase in college grads with minimum wage jobs, including 30,000 with Master's degrees (3x higher than 2006)

If you wanted to go about picking obscure anecdotes and calling the evidence, then I guess you could.

The 1% uses artwork/collectibles (such as cars) and luxury real estate as a store of value. Assuming their spending habits are relatively static, the price increases in the assets have to come from somewhere. So either there's massive inflation, or a massive transfer of wealth to the 1%, or both. If Ferrari 250's are too small of data sample for you, you could also take Ferrari + Porsche + Bentley as an indicator of the wealth transfer to top earners:
Ferrari sales and profits surge to record highs <--2012
For Bentley, 2013 Was a Very Good Year
Porsche breaks car sales record in 2012

Oh dear. You're actually trying to say that 'if you want to be self-sufficient, then purchase the things that ensure self-sufficiency. That's umm, not investment advice.

I suppose you were expecting something like "give your money to 'professionals' so they can shuffle it from the right hand to the left and turn your 1's and 0's into more 1's and 0's"? The best investments you can make are in your personal skillset and in the accumulation of productive capital. Arable land is productive capital, and it's a reliable expectation that it always will be. Or own some other factors of production.

Yeah, that's crazy nonsense. The only money you have that loses on inflation is your transaction account. Every other account will earn interest,

A Roth IRA (with USAA) isn't a transactional account (according to wiki at least). In 2010 it paid 0.2%-0.3% interest (even lower now). If inflation is a conservative 1.5%, in real terms every year my account would shrink by at least 1.47%.

You need a better credit card if you're wearing 10% in processing fees.

I don't have a credit card — period. Impulsive buyers fueling consumption with high-interest debt are exactly the problem. But it's not unusual to encounter retailers (both online and brick &mortar) that charge 5 or 10% extra when you try to pay with a VISA card, even if it's debit.

 Noble713 wrote:


I'll accept your backpedaling from "No one wants them" to "No one who meets my revised business criteria wants them" for the concession that it is.

If thats how you want to look at it. A few select retailers accept bitcoins. Point? Well there isn't one. EDIT: I use hyperbole, so sue me.

My preferred scenario is the proliferation of local bitcoin exchanges. Bitcoin ATMs are a step in the right direction if they can handle both deposits and withdrawals.

The biggest problem facing bitcoins is that there's nothing backing them but speculation and an assumption that they will become widely accepted as tender. If Banks were to accept trading in Bitcoin, then their value could be tired to the US dollar and they'd stabilize and be more useful to retailers. They need to get away from the speculative market, but of course at that point a Bitcoin really isn't a cryptocurrency anymore.

You're worried about Dread Pirate Roberts making millions while HSBC got away with a slap on the wrist for laundering BILLIONS in drug money and helping Iran avoid sanctions. Seriously?

You're the one bragging about how bitcoins are being used in business, while completely ignoring that a lot of that business is dirty. Tiger Direct and Overstock are just two sites, that don't address the problems with the exchanges or many of the smaller businesses that are using cryptocurrencies.

 Noble713 wrote:
I've got assignments due tomorrow so time is a bit short, but I *will* address inflation over the weekend.

There's nothing to address. The people claiming vast inflation got it all 100% completely wrong. Both government and independant price measures state quite clearly that inflation was low, below desired target rates even.

The fight is over. The winners have got on with trying to make sense of all the other messes we've got, most of the losers have just quietly shut up for the time being, while a few others are still up there, claiming inflation is coming any second now, like the Black Knight in Monty Python just refusing to quit.

Oh, articles on a news site largely written for laymen will leave me confused, will they? That's an interesting perspective, and I'm glad you are concerned for my welfare. I think I'll be alright though; I never found myself confused while earning my Bachelor's degree in Economics.

Not confused because you can't follow, but confused because they've sold you on ideas that are bunk. And if you've gotten a Bachelor's in Economics and can't see the problems in their claims... well I'd be interested in knowing where your Bachelor's came from.

That would be true if college educations were yielding returns on the investment.
Forbes: 30% growth in student loans 2007-2012, avg debt load now ~$24k
US News: 70% increase in college grads with minimum wage jobs, including 30,000 with Master's degrees (3x higher than 2006)

Both those articles fall for the same fallacy, that poor economic conditions now are destined to last forever. Same reason people thought gold was a permanent investment. It's the kind of mistake you would pick up if you read better sites than zerohedge.

The 1% uses artwork/collectibles (such as cars) and luxury real estate as a store of value.

Yeah, but that doesn't make it a bubble. During the height of the mining boom here there was a stupid increase in the price on vintage Holdens and Fords, that of course came crashing down when the mining companies released a lot of their contractors. But it wasn't a bubble because it needs to be something with a real, substantial impact on the economy.

I suppose you were expecting something like "give your money to 'professionals' so they can shuffle it from the right hand to the left and turn your 1's and 0's into more 1's and 0's"?

What? No. The best managed fund is one in which an informed, astute owner directly makes his own investments. But you see how I'm talking about investments there, as in assets that will deliver a future cashflow in some form or another. That's investment, and advice about the best kind of such investment is investment advice. What you were talking about, buying arable land and guns and enhancing skills in stuff like robotics... that's not investment advice.

The best investments you can make are in your personal skillset and in the accumulation of productive capital.

Sure, but here you are talking about how college is a bubble and how bitcoins are a good idea... and then elsewhere talking about investing in your own skillset and investing in productive capital.

A Roth IRA (with USAA) isn't a transactional account (according to wiki at least). In 2010 it paid 0.2%-0.3% interest (even lower now). If inflation is a conservative 1.5%, in real terms every year my account would shrink by at least 1.47%.

Who cares what wiki says? If someone is using an account with a negative real rate of return for anything other than transactions, they're an idiot. The fact that idiots will see their money diminish over time isn't a nice thing, but it's a reality that no system will ever change.

I don't have a credit card — period. Impulsive buyers fueling consumption with high-interest debt are exactly the problem. But it's not unusual to encounter retailers (both online and brick &mortar) that charge 5 or 10% extra when you try to pay with a VISA card, even if it's debit.

If that's true that's incredible... but then again see my point above about idiots and their money.

Meanwhile it remains very straightforward to keep transaction costs to about 2%. And when you consider that purchasing bitcoins has to be done with some form of fiat currency in the first place...

 Noble713 wrote:

I don't have a credit card — period. Impulsive buyers fueling consumption with high-interest debt are exactly the problem.

You can have, and use, a credit card without actually engaging in impulse purchasing or incurring high-interest debt.

 Noble713 wrote:

But it's not unusual to encounter retailers (both online and brick &mortar) that charge 5 or 10% extra when you try to pay with a VISA card, even if it's debit.

It is unusual. Within the US I haven't encountered a service charge on anything other than an ATM transaction in the last 9 years. These have been largely replaced by minimum purchase requirements, at least in places that actually accept anything other than cash.

The issue that arises in dealing with Bitcoins is that currency's are only good if give some form of legitimacy. And currently everyone in the world that has a hand in serious economics doesn't want to cause issues by switching to virtual currency.

I also like how people actually think the gold standard is a good idea, are people just this unversed in modern economics? Jesus backing out currency with silver or some other rare metal would be better than gold....

 Alexzandvar wrote:
unversed

I'm smashing a clock, it's the first time this word has been used correctly on Dakka.

 sebster wrote:
. well I'd be interested in knowing where your Bachelor's came from.

FIU

That would be true if college educations were yielding returns on the investment.
Forbes: 30% growth in student loans 2007-2012, avg debt load now ~$24k
US News: 70% increase in college grads with minimum wage jobs, including 30,000 with Master's degrees (3x higher than 2006)

Both those articles fall for the same fallacy, that poor economic conditions now are destined to last forever.

 Noble713 wrote:

Arable land generates foodstuffs that can be sold = generates cashflow (in addition to guaranteeing your survival in the absence of money)

Since when did the ownership of arable land guarantee the ability to produce a surplus, let alone survive on what was produced?

The bitcoin network has value as a near-free method of payment processing, outside of centralized government control.

That's basically saying "Bitcoin is good because there's no government" which has 0 to do with whether there's a bubble or not. It might appeal to you but it has no bearing on the reality that bitcoin is an massively overinflated market that will never return its investment.If anything the lack of control is its downfall.

<B.S.> </B.S.>

Usually anything I have in quote brackets