Eurozone shenanigans and Bitcoin

[snarescience]

I've become pretty interested in macroeconomics over the last few years, and pretty big *beep* is going down in the Eurozone right now.

Basically, as I understand it, the IMF / Germany (the biggest / strongest economy in the Eurozone) said to the country of Cyprus, "We are going to bail out your banks, but in return we are going to take 7-15% of your private citizens' bank deposit accounts to cover the bill. They did not offer any backup plan if the country and it's banks refused to comply. The Cyprus gov't had a vote and no one voted to go along with the plan. So basically, no one knows what exactly is going to happen next.

Meanwhile, people in other weak economies in the Eurozone like Spain and Italy are starting to fear for the safety of their savings, and rightfully so.

It appears many people in those countries are fleeing the Euro for Bitcoin, a decentralized peer-to-peer cryptocurrency. The Bitcoin price has soared ~30% over the last few days.

Discuss.

[hotbeats645]

this is also causing a run on the banks in Cyprus and Italy. Banks don't keep everybody's money there, that's not how banks work, so people are already being told that they can't access their life savings, etc.

[snarescience]

Cyprus is having a "bank holiday" until Monday, at least is the last I heard. But yea... why would anybody continue to leave their life savings in an account that can be taken away from them at any point in time?

[ottomagne]

Maybe nows not such a bad time to exchange out that investment in Bitcoins I made a few years back...

[snarescience]

Maybe nows not such a bad time to exchange out that investment in Bitcoins I made a few years back...

Seems like a good profit taking opportunity to me.

I was going to get some... actually just started setting up my e-wallet and exchange accounts a few days ago but the price has skyrocketed since.

I might wait to see what happens.

[Kaitou]

I wish I would have gotten into Bitcoin more heavily a few years ago

[sxetnrdrmr]

hmm...the Germans sneaking into a country and then trying to take it over...

didn't they learn their lesson 50+ years ago?

this sets a pretty scary precedent though...economic warfare. Not that all wars aren't completely economic based, but this is almost as scary and crippling on a large-scale level as biological warfare...a vastly malevolent action guised in a benevolent action...

pure evil

[hotbeats645]

hmm...the Germans sneaking into a country and then trying to take it over...

didn't they learn their lesson 50+ years ago?

this sets a pretty scary precedent though...economic warfare. Not that all wars aren't completely economic based, but this is almost as scary and crippling on a large-scale level as biological warfare...a vastly malevolent action guised in a benevolent action...

pure evil

The German are the only people with any semblance of fiscal responsibility in this situation.

[sxetnrdrmr]

hmm...the Germans sneaking into a country and then trying to take it over...

didn't they learn their lesson 50+ years ago?

this sets a pretty scary precedent though...economic warfare. Not that all wars aren't completely economic based, but this is almost as scary and crippling on a large-scale level as biological warfare...a vastly malevolent action guised in a benevolent action...

pure evil

The German are the only people with any semblance of fiscal responsibility in this situation.

yeah, but the implications of this are still scary...

[hotbeats645]

hmm...the Germans sneaking into a country and then trying to take it over...

didn't they learn their lesson 50+ years ago?

this sets a pretty scary precedent though...economic warfare. Not that all wars aren't completely economic based, but this is almost as scary and crippling on a large-scale level as biological warfare...a vastly malevolent action guised in a benevolent action...

pure evil

The German are the only people with any semblance of fiscal responsibility in this situation.

yeah, but the implications of this are still scary...

the implications if countries keep on spending is even scarier, imo

[sxetnrdrmr]

The German are the only people with any semblance of fiscal responsibility in this situation.

yeah, but the implications of this are still scary...

the implications if countries keep on spending is even scarier, imo

yeah, and that is a world problem...

[hotbeats645]

I was doing some reading on Bitcoins today too, but unrelated to this-related to the drug website The Silk Road.

[snarescience]

Maybe nows not such a bad time to exchange out that investment in Bitcoins I made a few years back...

I hope you held on to those bitcoins! They have gone up in value over 1,000% since that post.

I am now accepting Bitcoin as payment for snarescience merchandise! There is even going to be a "Black Friday" sale on November 29th, 50% off for purchases via bitcoin. There will also be a drawing for free stuff - just like this post on facebook to enter:

https://www.facebook.com/snarescience/p ... 3996297356

[SnareFnatic]

I think an even larger picture to think about is the fact that money has no true value. Good currencies are backed on gold and bad currencies are backed on, well, other currencies! The problem is that even the currencies we believe to be good are bad! They don't even have true value. Here's a story to explain the theory:

Quite a while back money was just a very easy way of carrying around gold. The government would fill a whole in the ground with gold and then give you a printed note saying that "This note is worth so many grams or pounds of gold". So instead of carrying around heavy gold people carried around paper money. Here's the interesting part. Say I own a vault of gold, let's call it 1,000 bars. I get a note saying that I have 1,000 bars right? Then one day, an executive at the bank or a security guard walks into the vault and comes back out with 10 bricks from the stack. These 10 bricks are sold at a market and then end up in another bank somewhere else. This bank also prints certificates for its own gold. Then one day the manager at this new bank decides to help himself to 10 bricks. Before you know it, your 10 bricks of gold are in Africa in some random bank and have been sold to 100 different markets and banks along the way. Certificates also being made every time they enter a banks vault. AND while all of this is happening I've sold what I believe to be 1,000 gold bricks to some other guy. BUT I only have 990 gold bricks! This man has another ten stolen from him too and then he sells his 1,000 brick note to somebody! Pretty soon there are 10,000 bricks worth of money going around with only 1,000 bricks of gold actually in the banks. Hence the notion that money has no value.

Site: I referenced the book FOR THE WIN .

[Cubee]

I think an even larger picture to think about is the fact that money has no true value. Good currencies are backed on gold and bad currencies are backed on, well, other currencies! The problem is that even the currencies we believe to be good are bad! They don't even have true value. Here's a story to explain the theory:

Quite a while back money was just a very easy way of carrying around gold. The government would fill a whole in the ground with gold and then give you a printed note saying that "This note is worth so many grams or pounds of gold". So instead of carrying around heavy gold people carried around paper money. Here's the interesting part. Say I own a vault of gold, let's call it 1,000 bars. I get a note saying that I have 1,000 bars right? Then one day, an executive at the bank or a security guard walks into the vault and comes back out with 10 bricks from the stack. These 10 bricks are sold at a market and then end up in another bank somewhere else. This bank also prints certificates for its own gold. Then one day the manager at this new bank decides to help himself to 10 bricks. Before you know it, your 10 bricks of gold are in Africa in some random bank and have been sold to 100 different markets and banks along the way. Certificates also being made every time they enter a banks vault. AND while all of this is happening I've sold what I believe to be 1,000 gold bricks to some other guy. BUT I only have 990 gold bricks! This man has another ten stolen from him too and then he sells his 1,000 brick note to somebody! Pretty soon there are 10,000 bricks worth of money going around with only 1,000 bricks of gold actually in the banks. Hence the notion that money has no value.

Site: I referenced the book FOR THE WIN .

I constantly see the claim that fiat (non-commodity backed) currencies are valueless, and that the gold standard is better because it gives money 'real' value. When you look at the economics though, gold is nearly as 'valueless' as the pieces of paper in your wallet.

Ask yourself, why is gold valuable? Is it because it's a useful metal? Gold is great for jewelry and has tons of applications in electronics, but that's not unique. Platinum, silver, etc have similar properties and arguably more industrial applications, so, all else being equal, we should expect to see them being priced about the same as gold (if not higher).

Yet that's not the case, because people speculate gold. They buy because they think it has value that will grow. They sell when they think they can make a profit from someone else who expects the value to grow. Or, they sit it in a portfolio and hold on to it for the long term. Very few people (relative to global volume) are buying gold to make jewelry or to put it to use in industry. The vast majority of trade is being fueled by speculation and the social construct of value.

Sounds familiar? Gold is functionally almost the same as a fiat currency. The big difference is that with fiat currencies it's much easier to control the supply. Using monetary policy, central banks can target interest rates much more readily than they could with a commodity-backed currency. In exchange for individuals losing the ability to exchange bills for gold, our central banks now have the tools to stop recessions like 2008 from turning into another Great Depression. I'd say that's a pretty damn good trade off.

I'd also dispute the statement that fiat currencies are bad because they're backed by other currencies. Fiat currencies are backed by production and trade, which are a hell of a lot more "real" than speculative commodities. What good does a gold bullion do for the world, besides sitting a vault and giving someone the notion of value? Production and trade actually make our lives better.

[tommyservo7]

I think an even larger picture to think about is the fact that money has no true value. Good currencies are backed on gold and bad currencies are backed on, well, other currencies! The problem is that even the currencies we believe to be good are bad! They don't even have true value. Here's a story to explain the theory:

Quite a while back money was just a very easy way of carrying around gold. The government would fill a whole in the ground with gold and then give you a printed note saying that "This note is worth so many grams or pounds of gold". So instead of carrying around heavy gold people carried around paper money. Here's the interesting part. Say I own a vault of gold, let's call it 1,000 bars. I get a note saying that I have 1,000 bars right? Then one day, an executive at the bank or a security guard walks into the vault and comes back out with 10 bricks from the stack. These 10 bricks are sold at a market and then end up in another bank somewhere else. This bank also prints certificates for its own gold. Then one day the manager at this new bank decides to help himself to 10 bricks. Before you know it, your 10 bricks of gold are in Africa in some random bank and have been sold to 100 different markets and banks along the way. Certificates also being made every time they enter a banks vault. AND while all of this is happening I've sold what I believe to be 1,000 gold bricks to some other guy. BUT I only have 990 gold bricks! This man has another ten stolen from him too and then he sells his 1,000 brick note to somebody! Pretty soon there are 10,000 bricks worth of money going around with only 1,000 bricks of gold actually in the banks. Hence the notion that money has no value.

Site: I referenced the book FOR THE WIN .

I constantly see the claim that fiat (non-commodity backed) currencies are valueless, and that the gold standard is better because it gives money 'real' value. When you look at the economics though, gold is nearly as 'valueless' as the pieces of paper in your wallet.

Ask yourself, why is gold valuable? Is it because it's a useful metal? Gold is great for jewelry and has tons of applications in electronics, but that's not unique. Platinum, silver, etc have similar properties and arguably more industrial applications, so, all else being equal, we should expect to see them being priced about the same as gold (if not higher).

Yet that's not the case, because people speculate gold. They buy because they think it has value that will grow. They sell when they think they can make a profit from someone else who expects the value to grow. Or, they sit it in a portfolio and hold on to it for the long term. Very few people (relative to global volume) are buying gold to make jewelry or to put it to use in industry. The vast majority of trade is being fueled by speculation and the social construct of value.

Sounds familiar? Gold is functionally almost the same as a fiat currency. The big difference is that with fiat currencies it's much easier to control the supply. Using monetary policy, central banks can target interest rates much more readily than they could with a commodity-backed currency. In exchange for individuals losing the ability to exchange bills for gold, our central banks now have the tools to stop recessions like 2008 from turning into another Great Depression. I'd say that's a pretty damn good trade off.

I'd also contend the statement that fiat currencies are bad because they're backed by other currencies. Fiat currencies are backed by production and trade, which are a hell of a lot more "real" than speculative commodities. What good does a gold bullion do for the world, besides sitting a vault and giving someone the notion of value? Production and trade actually make our lives better.

The closest thing to the truth is that there are tradeoffs between fiat currency and gold-backed currency. Fiat currency is better for monetary policy, but over-printing can cause inflation and more generally in times of extreme financial strife fiat currency can flat-out fail. Gold-backed currency has some intrinsic value, but the value is determined by the market, which is not desirable. Imagine if large gold deposits were found somewhere in the world, the price would plummet. Alternatively, if gold was needed to be used in large quantities in a new technology, the price would skyrocket.

I like the observation that gold is mostly used as a store of value just like dollars is. I think you might be right that gold is nearly or just as precarious as the US dollar.

For the record, gold is down by about 25% this year. That would be 25% inflation on the year!

[SnareFnatic]

Just to kind of clear things up, I was referencing an interesting book I read. I called the gold currencies good and the fiat currencies bad simply to differentiate between the two so my paragraph would be more easily understood. Also, I completely agree when it comes to gold being next to worthless. Its only value comes from envy.

I don't go and buy some high end brand new snare drum simply because I'm greedy. I go and buy it because the guy next to me has one and it sounds insanely good compared to my 12 year old junker. (just an example) It's the same thing with gold. It doesn't have much structural value, it's too soft. Yes, it can be used in electronics, my keyboard in fact has a gold plated contracts on its switches. It's only other truly important use is jewelry which comes back to envy.

[tommyservo7]

I'll first recommend that if you want to sound unbiased you shouldn't label the two options you're discussing as "good" and "bad." I think the reasoning should speak for itself.

"Envy" is an unconventional way of explaining value. We usually discuss the value of something in terms of the utility it brings to the customer.

For jewelry, some people derive utility from wearing earrings and necklaces and rings. They get some pleasure or usage from it. For a drum, you evaluate the potential utility you would receive from the new drum, put a price on that utility, and if the price is equal to the market value, you buy it.

When it comes to Bitcoins, I'm not sure if anyone knows with certainty what the future utility of Bitcoins will be. A government report on Bitcoins and what regulations are needed should be headed our way. Bitcoin reps have done very well in hearings this year and appear ready to cooperate and possibly even support the government in regulating the currency.

See: http://www.washingtonpost.com/blogs/the ... ashington/

[tommyservo7]

Bitcoin update: Over the last few days, Bitcoins have lost ~33% of their market value after China laid down some very strict regulations. I'm assuming this will lower their value in the long run. Anyone disagree?

[snarescience]

Bitcoin update: Over the last few days, Bitcoins have lost ~33% of their market value after China laid down some very strict regulations. I'm assuming this will lower their value in the long run. Anyone disagree?

I disagree. China basically stated that Bitcoin is to be treated as a commodity (like gold), and shouldn't and can't be used as a currency by Chinese banks. The market for Bitcoin was definitely overheated by greed over the last few weeks, and then plummeted on China's announcement (fear). These type of % drops have occurred 5 or 6 times in Bitcoin's brief history, and it has always managed to come back stronger. I am obviously not saying there is any guarantee it will come back stronger, but the process of becoming more of a mainstream payment system is growing every day.

There is a tremendous network effect going on.. check out this video; Why Bitcoin's growth is normal:



Buying Bitcoin has been a complicated process, but it is getting easier. ZipZap is a company that is about to offer cash-for-bitcoin exchange in 28,000 shops throughout the UK. The company aims to expand to the rest of the EU, Africa, Asia and the Middle East, eventually growing to offer its services at over two million locations across the world.

O_o

[snarescience]

Snoop is onboard.

[tommyservo7]

Bitcoin update: Over the last few days, Bitcoins have lost ~33% of their market value after China laid down some very strict regulations. I'm assuming this will lower their value in the long run. Anyone disagree?

I disagree. China basically stated that Bitcoin is to be treated as a commodity (like gold), and shouldn't and can't be used as a currency by Chinese banks. The market for Bitcoin was definitely overheated by greed over the last few weeks, and then plummeted on China's announcement (fear). These type of % drops have occurred 5 or 6 times in Bitcoin's brief history, and it has always managed to come back stronger. I am obviously not saying there is any guarantee it will come back stronger, but the process of becoming more of a mainstream payment system is growing every day.

I'm not necessarily insisting that the price won't rebound/grow even more, but I think now that China has eliminated Bitcoin's potential as a currency, the price will continue to be lower than if China had abstained. China sort of made the first move by a federal government that I know of, so I wouldn't be surprised to see some other countries in the region follow suit in restricting it to commodity status.

To your credit, Bitcoin has had its downs and ups, but one sticks out a little more than the others (see attachment).

[snarescience]

To your credit, Bitcoin has had its downs and ups, but one sticks out a little more than the others (see attachment).

It is more helpful to look at it's history in relative %'s, rather than absolute dollar values. Plotting in linear scale hides many of the earlier crashes which were just as big or bigger, percentage-wise.

[Cubee]

There is a tremendous network effect going on.. check out this video; Why Bitcoin's growth is normal:

If feel like that guy just made an excellent argument against bitcoin. Even if you follow the assumption that an individual company's growth slows down after a certain period of exponential growth (which is bogus, but that's an entirely different discussion), that doesn't change the fact that the economy, on aggregate, is expanding. When the economy produces more, people have more to spend their money on, and demand for real money goes up. There's my biggest problem with bitcoin: the supply is fixed, so a rise in demand can only serve to inflate the value. If bitcoin becomes widely accepted, there is no way it could follow the graphs he is presenting. The value will keep climbing, and people will want to hold bitcoins as assets rather than spend them like a currency. After all, why would I spend a dollar if I know it's going to be worth double tomorrow? What happens next is anyone's guess, but I imagine that at some point people will realize that the growth is being driven entirely by speculation, and the whole thing will come crashing down.

I think bitcoin is an awesome concept and I'd really like to see it succeed, but I've yet to see someone adequately address the problem of fixed supply.

[tommyservo7]

To your credit, Bitcoin has had its downs and ups, but one sticks out a little more than the others (see attachment).

It is more helpful to look at it's history in relative %'s, rather than absolute dollar values. Plotting in linear scale hides many of the earlier crashes which were just as big or bigger, percentage-wise.

You are correct, and based on the way prices are moving since I made that post it looks like bitcoins could possibly be back to their pre-dip price as early as tomorrow (don't take that as investing advice, as prices can be completely random).

If feel like that guy just made an excellent argument against bitcoin. Even if you follow the assumption that an individual company's growth slows down after a certain period of exponential growth (which is bogus, but that's an entirely different discussion), that doesn't change the fact that the economy, on aggregate, is expanding. When the economy produces more, people have more to spend their money on, and demand for real money goes up. There's my biggest problem with bitcoin: the supply is fixed, so a rise in demand can only serve to inflate the value. If bitcoin becomes widely accepted, there is no way it could follow the graphs he is presenting. The value will keep climbing, and people will want to hold bitcoins as assets rather than spend them like a currency. After all, why would I spend a dollar if I know it's going to be worth double tomorrow? What happens next is anyone's guess, but I imagine that at some point people will realize that the growth is being driven entirely by speculation, and the whole thing will come crashing down.

I think bitcoin is an awesome concept and I'd really like to see it succeed, but I've yet to see someone adequately address the problem of fixed supply.

I have not watched the video, but why do you refute that the growth of a company slows down over time? After they are accepted by the market, a company's sales growth usually declines fairly quickly.

I agree though, that no one knows what is going to happen. Its pretty neat experiment, I think, and should provide some interesting data for investors and economists.