The Bitcoin Standard

[dragulagu]

But I am young and irresponsibly long on Bitcoin (I didn't take any debt though)

It feels good to truly believe in something.

Nothing wrong with a bit of (financial) idealism. Just be sure to also invest in other options than crypto.

I wouldn't advise someone putting all their pension money into any single investment as they get older though, or all their savings if they have family commitments. Never invest what you aren't prepared to possibly lose is a good maxim.

Indeed, diversify and always only use financial assets you can afford to lose. Financial security is most important.

I think the second of these is more likely. I think we'll see wages starting to rise to the same degree as inflation and it'll spiral for a few years until the commodity price / demand equation stabilises and the central banks take coordinated action to raise interest rates and choke it off. The folks who'll be hit hardest are those on fixed incomes - pensioners and annuity holders. We'll see a lot more older folks on poverty level incomes, but living in increasingly valuable properties that they can no longer afford to run.

That's one of the negative outcomes that is currently trending. There are already situations going on now with pensioners having financial issues with maintaining their cost of living with their monthly financial income, with fast rise of cost of living. Or families not being able to afford the financial costs of maintaining their elders in home along with their own families.

The fly in the ointment is what's happening in Russia and Ukraine. These countries have considerable control of key commodities that we need, and the Russians could weaponize these with unpredictable consequences.

I do not completely follow the reasoning here. You mean in the sense of the and gas and grain resources?

Crypto people are hilarious.
Not a flavor of kool-aid I'll be drinking any time soon though.

There are a lot of alt coins that are either a scam or a waste of resources (like the safemoon coin in that example), and a lot of those also drive on the hope of people to get rich in some (in)sensible way.
However, there are also enough crypto coin projects that do have their usefulness written in their specific use cases. Those are mostly the coins that are on the top 50 or so in the global ranking of crypto: https://coinmarketcap.com. Solid cases of investing. Even NFT's (which I absolutely detest) that are hyped up these days have use cases. In any case, crypto will always be a high risk/reward case and it's a financial Wild West situation even with the major exceptions of Bitcoin and Ethereum, the main trendlines of crypto.

Bitcoin's innovation is real. Those are the words of Gary Gensler, current chair of SEC. He lectured on blockchain technology at MIT before that.

Bitcoin's time, technologically speaking, is long past though. I'd put my eggs in the Ethereum basket.

The weirdo's are into crypto now

I see so many WEF and Schwab mentions online, I really wonder if this is actual like it is as it is portrayed or if its now used as a the boogeyman of the current world (the global elite organising everything behind scenes etc.). From that video, I understand that they want to create digital currency using blockchain, their own way of digital regulated currencies. That's not crypto. That's just using the technology behind crypto without the incentive of crypto. Controlled digital currency.

The predecessor (?) of the WEF is/was the Bilderberg meetings, where they discussed the same kind of power moves for the world between the wealthy and powerful, so it's nothing new https://bilderbergmeetings.org/index.html. But these were always behind closed doors. It's just strange to me that they are so open about it, through their forum and presentations.
https://bilderbergmeetings.org/index.html

 

[Wyote]

You don't get attached to Apple stock

Debatable lol

 

[philostam]

Yeah I was thinking of correcting that.

 

[philostam]

Looks like the great country of Japan will be the first G7 country to hyper inflate it's currency. Yen lost 13% of it's value vs USD in last 2 months. Ouch. That means all US exports to Japan got 13% more expensive for local people, and that's before taking actual US inflation into account.

While US is letting it's treasury yields rise (for now), Japan is engaging in yield curve control to keep the treasury yields low. They chose to save the bond market at the cost of their currency.

Hyperbitcoinization playing out in real time before our eyes.

PS: I do suspect US will have to engage in yield curve control too sooner or later (1-2 years), so then Yen might gain against the USD. But this will be just a relative gain; measured in Bitcoin terms, all currencies are gonna drop.

 

[philostam]

Meanwhile we have head of IMF saying that "we didn't take into account the negative consequences of printing so much money and that we were like 8 year old chasing the ball on a football pitch".

Clown world.

 

[dragulagu]

Looks like the great country of Japan will be the first G7 country to hyper inflate it's currency. Yen lost 13% of it's value vs USD in last 2 months. Ouch. That means all US exports to Japan got 13% more expensive for local people, and that's before taking actual US inflation into account.

I don't think we are that far apart in age difference, but I'm interested in your perspective (and conclusion) on what is happening with Japan as of this moment.
Japan has had quite some radical alterations in its cultural approach in the past 20 years. With certain impact to how their current economy is ongoing.

While US is letting it's treasury yields rise (for now), Japan is engaging in yield curve control to keep the treasury yields low. They chose to save the bond market at the cost of their currency.

Interesting take, do you have a source on this?

Hyperbitcoinization playing out in real time before our eyes.

No, there isn't such a thing as Hyperbitcoinization

PS: I do suspect US will have to engage in yield curve control too sooner or later (1-2 years), so then Yen might gain against the USD. But this will be just a relative gain; measured in Bitcoin terms, all currencies are gonna drop.

again, interesting take

Meanwhile we have head of IMF saying that "we didn't take into account the negative consequences of printing so much money and that we were like 8 year old chasing the ball on a football pitch".

Can you give the source on this one as well?

 

[philostam]

@dragulagu

Japan doing yield curve control is not a secret: https://www.cnbc.com/2022/04/20/ban...t-offers-to-buy-unlimited-10-year-bonds-.html

Here is the head of IMF speaking about money printing: https://www.realclearpolitics.com/v..._thinking_of_the_unintended_consequences.html


What is happening in Japan? I see it like this: They have the highest debt/GDP ratio of any country in the world. So every day a new government bond matures and they have to pay the principle value back. But because they have no revenue to pay it back, they issue a new 10/30 year bond at low interest rates. So the treasuries never mature, they just roll over. So it's important to keep the borrowing costs low.

It's like a person with monthly income of 2000 euro and monthly interest on their debt of 3000 euro. They have to borrow to pay the interest on their existing debt. There's a word for this: debt spiral.

The only difference is that Japan as a country can destroy the currency and alleviate their debt burden that way. This is essentially what they're doing. And people of Japan are paying the price. Japan is essentially a zombie economy that just runs on debt. That's why no one is having babies there anymore. And China is going down a similar path, by the way.

US is not there yet, but it's my opinion that bond market will break soon. The yield on 10 year treasury went from 1.2% to almost 3% in less than a year. I think this is already pushing it too high, there is no way US government can survive on 4% yield. Experts I listen are saying that 3.3% is the breaking point.

Their hope is to get inflation under control ASAP and that government yields drop naturally, without them needing to manipulate them via yield curve control.

Correction: US government could survive with 4% yield when inflation is 8%. This is essentially -4% borrowing costs. The problem is also that existing bond holders are getting rekt. Whoever bought a 10 year treasury one year ago, now lost 10-15% of their investment in one year. So if there is no more demand for government bonds by the private sector, the FED will have to step in and be essentially the only buyer at any price. This is just another version of yield curve control. And guess what, when FED is buying treasuries, it's injecting new money into the economy.

Buying bonds now is like picking up nickles in front of the steamroller.

 

[philostam]

Bitcoin's time, technologically speaking, is long past though. I'd put my eggs in the Ethereum basket.

I have some Ethereum, but I own way more Bitcoin. Why I like Bitcoin more:

1. Bitcoin had an "immaculate conception". Everyone with a PC could mine Bitcoins back in the day. Even the founder, Satoshi Nakamoto, had to mine his own Bitcoins. Ethereum, on the other hand, had a pre-mine. Cca 50% of supply was pre-mined and distributed to founders and early investors.

2. Bitcoin is completely decentralized and has no person or persons running it. Ethereum is more like a security because its success depends on a few individuals. It's like a company.

3. Bitcoin is stable, predictable and has a market fit. Ethereum didn't yet find out what it wants to be and is changing it's strategy every few months. It also has a lot of competitors, while Bitcoin has none.

You want your base money to be decentralized, stable and predictable. Bitcoin is just doing it's job, block by block, for 13 years, with no changes. It's amazing actually. The code and design was set in advance, and the execution has been perfect.

Bitcoin was established in 2009 after the financial crisis and all the money printing that followed. It was established by true cyberpunks that wanted to change the world. The proof is that Satoshi Nakamoto still didn't touch his Bitcoins, 13 year on. His motive obviously wasn't to enrich himself.

While with all the others cryptos I cannot help but think that at least partially the motive was to enrich the founders and early investors.

 

[philostam]

Time for a new profile picture.

The statue dedicated to Satoshi Nakamoto in Budapest.

 

[philostam]

TLDR version of my Macro thesis based on what I learned, read and mulled over in last 2 years:

1st scenario: The inflation pressures resolve, war in Ukraine is over, we go back to "normal", i.e back to 2010-2020 era. Low CPI but high asset price inflation. Easy monetary conditions, the rich (asset owners) get richer, the poor get poorer. Bond yields drop, stocks go up, housing goes up, Crypto goes to the moon (shitcoins more than Bitcoin).

2nd scenario: The inflation pressure's don't resolve, investors demand higher and higher interest to match higher inflation. At first this leads to drop in all assets. Stocks, bonds, housing, crypto all crash. The 60 stocks/40 bonds portfolio allocation is broken. The rich get poorer, but the poor also get poorer. Just that rich will lose more in relative terms, so wealth gap will close a bit.

Eventually governments/central banks have to step in and intervene with the only trick they have, or else the 1929 depression will look smooth sailing: money printing and yield curve control. No one wants to hold bonds anymore, so central banks are the only buyers left on the market. There is big capital flight to "outside money", i.e Bitcoin and Gold. Real assets and outside money soars to the moon, we have high double digits inflation.

Governments then have to choice to either stop this capital flight by banning holding gold/Bitcoin and causing great social unrest, or they join the party and start hoarding outside money themselves, and we go back to gold/Bitcoin standard.

If they decide to stop the capital flight, we get great social unrest. People are forced to hold assets that are losing money in real terms. We might even get a civil war between "sovereign individuals" and those that still trust in governments.

If we transit back to hard money standard, Bitcoin will go to 1 million per coin at least, and gold to...I don't know. I believe Bitcoin is a superior version of gold in every way, especially for normal people. Governments are still hoard gold but it's very unpractical for people to hold it/store it.

USD loses it's currency reserves status, and oil is priced in gold/Bitcoin.

PS: I think 1st scenario is way less likely because we cannot go back to pre-covid debt levels. That ship has sailed in my opinion. What happened with Russia and Ukraine is also a big deal. Throwing Russia out of the SWIFT system and seizing their Forex reserves just proved to the whole world that inside money (currencies and government bonds) are worthless and can be seized.

 

[dragulagu]

The only difference is that Japan as a country can destroy the currency and alleviate their debt burden that way. This is essentially what they're doing. And people of Japan are paying the price. Japan is essentially a zombie economy that just runs on debt. That's why no one is having babies there anymore. And China is going down a similar path, by the way.

This is so incredibly surreal though, as Japan's production standards are, and correct me if I'm wrong, always on an extremely high level. So how come the demand is not there? The essence of a debt-base economy is that you borrow from the future. Providing the expectation that your future will be able to pay off the current debt, with a sense of irony. I would have expected Japan to be exemplary in providing that future to the new-coming generations. Yet, here we see a direct re-direction. No one's having babies anymore.

There is a broader nuance as to why Japan has a reduction, being social and cultural. The extreme pressure put to the working force, on their social lives. Yet, in theory, it should have been the opposite direction. Quality of living provides a quality of sustainability. A book I have read on Japan (I recommend it still for everyone interested in understanding asian cultures): https://www.amazon.com/dp/074255404X/?tag=infjs-20 explains the societal structure and way of thinking of Japan. A Neo-traditional take on the "ancient" Chinese way of thinking. It's that what withheld Japan to provide for their future generations, yet it surprises me it still is an issue, with how liberal Japan is. Maybe I am wrong here.

As for the US situation, when or where do you see the breaking point for the economy, given the described situation? It is a different economical situation. But the US is bursting as well. But I lack the understanding to it. I have no idea what the current exit is for the US economy. Absolutely no idea..

 

[dragulagu]

I have some Ethereum, but I own way more Bitcoin. Why I like Bitcoin more:

1. Bitcoin had an "immaculate conception". Everyone with a PC could mine Bitcoins back in the day. Even the founder, Satoshi Nakamoto, had to mine his own Bitcoins. Ethereum, on the other hand, had a pre-mine. Cca 50% of supply was pre-mined and distributed to founders and early investors.

2. Bitcoin is completely decentralized and has no person or persons running it. Ethereum is more like a security because its success depends on a few individuals. It's like a company.

3. Bitcoin is stable, predictable and has a market fit. Ethereum didn't yet find out what it wants to be and is changing it's strategy every few months. It also has a lot of competitors, while Bitcoin has none.

You want your base money to be decentralized, stable and predictable. Bitcoin is just doing it's job, block by block, for 13 years, with no changes. It's amazing actually. The code and design was set in advance, and the execution has been perfect.

Bitcoin was established in 2009 after the financial crisis and all the money printing that followed. It was established by true cyberpunks that wanted to change the world. The proof is that Satoshi Nakamoto still didn't touch his Bitcoins, 13 year on. His motive obviously wasn't to enrich himself.

While with all the others cryptos I cannot help but think that at least partially the motive was to enrich the founders and early investors.

1. You have multiple Bitcoin? Why not exchange part of it already into different investments, it's still relatively high? I missed my boat, purely based on personal ignorance. While understanding the concept.
Not that it matters.
2. It is not completely decentralised, there's still upper movement in regards to those who own the plurality of the bitcoins. While it's distributed enough, moving a minor percentage of that capita is still enough to move a massive amount of value (in BTC). https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html. That will always impact the decentralisation of bitcoin. Let alone the influence of the general stock market curve.
3. Yes, so is Ethereum, stable. It has no competitors. It will shift in a higher positive rate than bitcoin.

Bitcoin is stable by design. That doesn't make it useful by design.

 

[philostam]

Haha no, I wish I had multiple whole Bitcoins. I am happy with my stack, but I started only in 2020...

The advantage of Ethereum is that it offers a yield. Once they move to proof of stake, you will be able to get 8-12% yield a year, which is insane. All the traditional finance guys are gonna eat this shit up. 8-12% yield on the asset that is increasing in value even faster than Bitcoin...

The ETH/BTC chart also looks very bullish. I have been actually buying more ETH this last couple of weeks. My second largest holding is actually Terra Luna, not ETH.

But philosophically I am much closer to Bitcoin. Also ETH is less secure, more centralized and has higher regulatory risk.

 

[philostam]

The case I could make for altcoins is all the coding/software/finance talent that is moving to the crypto space.

They are not going to work on Bitcoin, because there's not much to build there anymore. It's a fully functioning system that cannot be improved. You can just add different layers to it, like for example lightning network developed by Jack Mallers. Jack Dorsey, the founder of Twitter, is also developing his own Bitcoin payment network/app.

 

[philostam]

This is so incredibly surreal though, as Japan's production standards are, and correct me if I'm wrong, always on an extremely high level. So how come the demand is not there? The essence of a debt-base economy is that you borrow from the future. Providing the expectation that your future will be able to pay off the current debt, with a sense of irony. I would have expected Japan to be exemplary in providing that future to the new-coming generations. Yet, here we see a direct re-direction. No one's having babies anymore.

There is a broader nuance as to why Japan has a reduction, being social and cultural. The extreme pressure put to the working force, on their social lives. Yet, in theory, it should have been the opposite direction. Quality of living provides a quality of sustainability. A book I have read on Japan (I recommend it still for everyone interested in understanding asian cultures): https://www.amazon.com/dp/074255404X/?tag=infjs-20 explains the societal structure and way of thinking of Japan. A Neo-traditional take on the "ancient" Chinese way of thinking. It's that what withheld Japan to provide for their future generations, yet it surprises me it still is an issue, with how liberal Japan is. Maybe I am wrong here.

As for the US situation, when or where do you see the breaking point for the economy, given the described situation? It is a different economical situation. But the US is bursting as well. But I lack the understanding to it. I have no idea what the current exit is for the US economy. Absolutely no idea..

Thanks for the comment, I do suspect there is more cultural/social nuance to the problem. I am not an expert on this topics, by no means, but will check out the book. I do have a fascination with East Asia. I've actually visited both China and Japan.

I don't think the breaking point will necessarily come in the US. Now we see big divergences in monetary policy, where US is tightening and rising interest rates, while China and Japan is easing. Thus, dollar is strengthening which is bad for the world. Remember that most commodities are priced in dollars and also a lot of countries have their debt denominated in dollars. So when the dollar rises in value, commodities and debt become more expensive for the rest of the world.

US also has much better demographics than China and Japan. First, housing is still relatively cheap in the US (compared to their salaries), the country is vast and also there is a lot of immigration into the states. China and Japan are much more closed.

 

[philostam]

Fidelity’s New 401(k) Offering Will Invest in Bitcoin

Probably nothing.

Fidelity, the nation’s largest provider of 401(k) plans, said on Tuesday that it would enable its participants to put a slice of their retirement money into Bitcoin — if their employers are willing to allow it.

The announcement could put millions of people closer to direct investment in Bitcoin this summer without having to set up an account on a cryptocurrency exchange. But regulators have already said they’re skeptical of the idea: Last month, the Department of Labor, which oversees workplace retirement plans, said it would cast a critical eye on plans that added digital assets to their investment menus.

Fidelity — which held $2.4 trillion in 401(k) assets in 2020, or more than a third of the market, according to the research firm Cerulli Associates — said it was introducing a digital assets account to hold Bitcoin.

 

[philostam]

New retail participants often think they missed the boat with Bitcoin. I think whether you buy at 10, 20, or 40k (now) will look like a rounding error in a few years.

The global wealth is $900 trillion, Bitcoin is now not even 0.1% of that. Just for Bitcoin to capture 1% of global wealth, the price of one Bitcoin would be over $500k in today's dollars.

The issues with other stores of value:

- Cash: inflation and currency destruction
- Stocks: cash derivatives, rely on cash flows, counter-party risk, management risk, difficulty to buy foreign stocks etc.
- Real estate: prices at all time highs, too prohibitive for common people, takes ages to sell/buy
- Gold: old school technology, difficult to move around and store, easy to steal and seize
- Bonds: LOL. We've seen how well that went for Russia.

I think Bitcoin capturing only 1% of global wealth is completely in the realm of possibilities in the 2020s. Probably way more (after that).

We are early. Bitcoin price is just a function of time, education, networking effects, interface, ease of use etc.

 

[dragulagu]

I don't think the breaking point will necessarily come in the US. Now we see big divergences in monetary policy, where US is tightening and rising interest rates, while China and Japan is easing. Thus, dollar is strengthening which is bad for the world. Remember that most commodities are priced in dollars and also a lot of countries have their debt denominated in dollars. So when the dollar rises in value, commodities and debt become more expensive for the rest of the world.

The Dollar is strengthening?

 

[dragulagu]

https://www.aljazeera.com/news/2022/4/25/military-spending-reaches-record-levels-report

 

[philostam]

The Dollar is strengthening?

Yep. It's testing highest levels in the last 15 years, the 103 levels. What's also interesting that EUR is losing a lot vs USD. It's possible that within couple of weeks, Euro will be worth less than USD.