[Mattasher]

I agree with your last statement, but I think you are mixing cause and effect. Crypto is exploding because our system is already corroded. Starting with the creation of the Fed, and tracing through endless money printing and complex financial instruments which let well-connected companies and politicians create paper wealth out of nothing, we've decoupled money from value.

Savings pay no interest, manual labor doesn't scale, but rent seeking and financial games get many people riches in no time.

What are the incentives in this kind of a system, and where are the safe harbors for storing value? And if you can't in value creation, your safest bet may be to gamble.

[XorNot]

Crypto is exploding because people are looking to get rich via speculation, that's it.

There's a wealth of uninformed investors and they're all hearing stories about crypto millionaires and how much it went up and FOMO narratives about it.

People haven't been transacting in crypto basically at all - it's not even a blip in the popular discussion about it, except as a flimsy justification for why its value is not tulip-mania.

The only thing in effect is the ultimate truth of investing: the market can stay irrational a lot longer then you can stay solvent. No one was "surprised" when the housing bubble collapsed in 2008, and no one will be "surprised" when crypto collapses, but as we saw in 2008 when the returns get high enough even the "sensible" investors can't justify to their stockholders/board why they're not jumping in on the apparent "easy" money.

[jasode]

>Crypto is exploding because people are looking to get rich via speculation, that's it.

No, that isn't just it. Like other assets, there can be multiple narratives that explain cryptocurrencies rising prices.

Yes, pure speculation is one of them. But another reason for some is deliberately shifting wealth from an asset ($USD, euro, bolivar, etc) they believe is deteriorating.

E.g. a multi-billionaire like Ray Dalio is already rich. He's the one saying "cash is trash" because he like many others see the M2 money supply growing very rapidly which erodes future purchasing power. (The "cash is trash" also means not holding US Treasury government bonds because of inflation.)

Yes, the Fed + US Govt can have all sorts of rationale to justify $2 trillion stimulus checks and printing billions to buy corporate bonds (Home Depot bonds), bail out banks, etc ... but economic actors can also counteract the money supply expansion by taking steps to retain future purchasing power. E.g. Shift wealth into real estate, tech stocks, gold, bitcoin, etc.

That fact that nobody uses bitcoin to pay for Starbucks coffee is irrelevant to the wealth holders looking for alternatives away from $USD liquid assets as long term holdings.

[XorNot]

Ray Dalio at no point in his life ever believed he should be keeping his wealth in "cash". It has been basic economic knowledge that cash is a terrible place to keep large idle piles of wealth, and that it has to be invested to not depreciate.

This is not new information, this is literally by design as a product of the Fed's 2% inflation target.

US treasuries have always been a last resort investment, because the return sucks but they're as close to risk free as anything ever gets - what's happened recently is demand for them has been so incredibly high (because better investments are so rare) that the US has at various points been able to issue them with negative interest rates - taking a loss has been less of a loss then just holding currency and no better options existed.

Crypto has a narrative being pushed to increase the value of crypto, but "the end if nigh" doomsayers definitely don't act like they think it's actually coming - otherwise they'd be diversified into Swedish gold depositories and basically planning to move country. Because come whatever "collapse" they think is going to happen...the power company is still going to want to be paid in USD.

[jasode]

>Ray Dalio at no point in his life ever believed he should be keeping his wealth in "cash".

I'm not saying that. His recent "cash is trash" was talking about staying away from investments like US government bonds because of negative yields and money printing: https://www.youtube.com/watch?v=tZyWVxGXPHo&t=24s

(Because in the past, reasonable people did believe that buying and holding US Treasuries was a semi-decent way of investing. To be clear, we're not talking about just leaving pure cash in a $250k FDIC-insure bank savings account.)

>the US has at various points been able to issue them with negative interest rates - taking a loss has been less of a loss then just holding currency and no better options existed.

And this is the part I was responding to in your first comment. It's not just speculators. Another narrative for crypto's rising price is that some investors believe a better option now exists for preserving purchasing power. This is the defensive financial perspective that can simultaneously exist with other market participants who are only in bitcoin for the casino gambling speculation.

Yes, some people buy real estate and just leave the houses empty for "speculation". But some others also buy houses to live in them and many buyers bid up prices with competing offers because of desirable location closer to the office. If there can be 2 or more different narratives for rising real estate prices, why can't there be multiple narratives to explain crypto?

[XorNot]

I'm not dismissing the idea that "some" investors believe that, I'm dismissing the idea that they're a big enough group to matter in anyway. Or that they're likely to believe it for very long over looking at how much USD they think they'll cash out for. And if they were looking for a stable store of value, an asset under enormous speculation is a terrible choice.

The real estate comparison is also irrelevant: unlike any other asset, cryptocurrency doesn't do anything useful.

[lottin]

> is literally by design as a product of the Fed's 2% inflation target

Holding more cash than you need for transaction purposes is inefficient, regardless of the inflation rate. This is because what makes holding cash a bad idea is not the fact that it depreciates over time (in inflationary circumstances), but the fact that holding cash has an opportunity cost, and that opportunity cost is unaffected by inflation.

[imtringued]

>E.g. a multi-billionaire like Ray Dalio is already rich. He's the one saying "cash is trash" because he like many others see the M2 money supply growing very rapidly which erodes future purchasing power.

As I have said in previous comments, the Fed has been unable to erode future purchasing power, because the excess savings rate increases to compensate for the increase in the money supply.

> (The "cash is trash" also means not holding US Treasury government bonds because of inflation.)

But the entire problem is that the newly printed money ends up in exactly those places. Negative interest rates are impossible, because people can just get cash or rather, they get cash equivalents, namely treasury bonds. The Chinese government is using excess dollars from its trade surplus to purchase treasury bonds. The money put into treasury bonds can only be tapped into by issuing new debt, thus excess savings (uninvested savings) are being created. The government has to employ people on behalf of the Chinese investors otherwise the end result is unemployment because the household savings rate has to go down which means spending more than you earn.

>Yes, the Fed + US Govt can have all sorts of rationale to justify $2 trillion stimulus checks and printing billions to buy corporate bonds (Home Depot bonds), bail out banks, etc ... but economic actors can also counteract the money supply expansion by taking steps to retain future purchasing power. E.g. Shift wealth into real estate, tech stocks, gold, bitcoin, etc.

The problem with this strategy is that it is built on the existence of excess savings. If the inflation rate were to go up, which eats away at corporate savings, companies would be forced to find viable investments and thus generate jobs. The existence of these investments would allow the Fed to raise the interest rates again and excess savings would flood out of treasury bonds and other cash equivalents into regular bank accounts and corporate bonds again. That means stocks, real estate and cryptocurrencies would go down, precisely because inflation is going up i.e. because your future purchasing power is eroding.

[jariel]

XorNot is essentically correct.

Crypto is a 'get rich quick' speculative behaviour, driven by multiple narratives as you say, but those are effectively just narratives used to validate the participation.

Amway's 'narrative' was that you could 'help' your neighbours by selling them cleaning products.

But really it was a pyramid scheme.

There are some questions around the Fed and monetary dilution etc, but BTC is not the answer.

And of course currency was never meant to be a 'long term holding'.

Literally by design, we build at minimum a tiny bit of dilution into our currency, that's 'part of the plan' so don't hold it, hold something else.

[avidphantasm]

“People haven’t been transacting in crypto basically at all”

Exactly. When I did a deep dive on crypto currency a few years ago I wondered, what can the transaction rate be for proof of work schemes. Turned out it was less than a dozen per second across an entire network. I don’t think this has changed (https://bitcoinvisuals.com/chain-tx-day). How many transactions does Visa alone do?

[mariojv]

I'm not deep into the cryptocurrency world at all, but a good friend of mine is really into it and has given me a bit of Nano. Transactions are settled nearly instantly on a mobile device, and it relies more on a "proof of stake" than proof of work style system: https://docs.nano.org/whitepaper/english/

I really don't understand how it can be secure and haven't tried to read more into it due to skepticism about cryptocurrency generally, but are non proof of work schemes more viable?

[Ekaros]

I have for years heard about pressuring merchants to accept bitcoin or what ever currency and in the end the number of daily or even monthly users was most often laughably low. Not that there isn't some that move stuff, but that isn't really too many...

[dale_glass]

Crypto basically changed tracks in the last few years.

Initially it was supposed to be money, and so there was a lot of effort to drive adoption. You could buy games on Steam for BTC.

But then a thing happened: the value exploded, and new people started hearing about this amazing new asset growing in value. Crypto became not a coin, but a thing to hoard and sit on, waiting for the price to get higher still.

In this situation, using it as a money is stupid. That pizza somebody bought for 10000 BTC was a terrible loss to the buyer -- they could sell the 100BTC for $634 million today. They shouldn't have bought a pizza, they should have just kept their money in a wallet and done nothing at all with it for a decade.

Given that usage pattern, ability to process transactions doesn't matter. The ideal is one buy at the bottom, and one sell at the peak, possibly years apart. Fees don't really matter, because the transaction is enormous. Paying $5 to move $10 is ridiculous. Paying $5 to move $634 million is a rounding error.

And since Bitcoin was made to be deflationary this pattern of usage is more or less guaranteed. Using it as money is always silly because any newcomers to BTC increase demand and therefore the competition for the supply. And over time, some BTC gets lost, which adds to that as well.

[geitir]

And then 100 years from now it will be worth $5 because no one will care

[imtringued]

The real problem the US, Japan and EU are facing is that the system is way too stable and resilient, the COVID stimulus should have created enough inflation to bring the economy back to a normal state yet it completely failed to do so.

The last 20 years were marked by the corporate savings rate increasing, meaning companies are not investing. This could be related to China and various other factors but it is clear that the Fed and the government has done enough to help corporations, they are doing so extremely well that they don't need any more help. The mistake from the start was that the government didn't help citizens enough. It didn't create enough jobs or it didn't return those excess corporate savings to the population forcibly. The reason why wealth redistribution is popular is that excess savings are zero sum, for the corporate savings rate to go up, either total investment has to go up (it hasn't) or the household savings rate has to go down. There is a similar dynamic with rich vs poor.

The corrosion you speak of doesn't exist. The system is way too stable, far more stable than should be possible, that's the real problem. Your dollars, by that I mean the dollars corporations and therefore the wealthy own, aren't losing value fast enough.

[cmrdporcupine]

> we've decoupled money from value.

Since when was it ever coupled?