He had a theory that in a period of debt deflation, capital would flow from the riskiest of asset classes down to that which, by its very nature, is sound money. Take a look at Exter's Pyramid, below. As the global debt crisis continues to spiral out of control, the credit instruments at the top of the pyramid will begin to collapse until the bottom of the pyramid is reached. Where do you think Bitcoin would fit into this pyramid?
At the tip of the gold :)
ReplyDeleteBut seriously, bitcoin is much usable and it will be more rare than gold soon or later.
I agree. At some point, perhaps after gold is at $5000/oz, when everyone owns physical gold and silver, people will want to spend their precious metals in the ways they've grown accustomed to spending dollars - on the internet, and over the phone. They'll find it somewhere else - in bitcoin.
ReplyDeleteThey'll have gone through a period of rapid change - relearning everything they thought they knew about money and value. They'll have been burned bad in so many classes of investents: real estate, stocks, bonds, and finally dollars. They'll rediscover bitcoin and realize that contrary to all of those other assets (save PMs), there's no counter-party, no promise to be broken. Bitcoin will have a track record.
When that track record will be compared to the words of countless politicians, realtors, stock brokers, financial bloggers and pundits - it'll finally click in the minds of the average Joe. Bitcoin isn't going anywhere. It's hear to stay. It keeps humming along greasing the skids of the free market - beholden to no one.
Right on the edge between gold and paper money.
ReplyDeleteIt has a fixed, immutable rate of inflation (which approaches zero), making it "more sound" than paper money. On the other hand you just can't compete with a 5,000+ year history of being considered money. That's okay; money has three roles: unit of account, store of value, and mechanism for transaction. Bitcoin beats the crap out of gold (and many other things too) on the last one.
It's between paper money and gold right now based on it's fundamentals alone. It will move down towards the tip of the upside down pyramid as bitcoin proves to be trustworthy and "sound" money as time passes. Just like PM took time to build it's history as being used as sound money, bitcoin will grow into being more sound in peoples minds as people accept it as a medium of exchange more commonly.
ReplyDeleteIn Europe, the blue section is tanking and the green section is already at risk.
ReplyDeleteTip of gold. Reason: it's more rare than gold, truly deflationary and much more convenient.
ReplyDeleteRight now Bitcoin is way off the top of the chart. Currently it would take only a couple of millions of dollars in investment to take over the Bitcoin network with computing power. Thus deciding which transactions get confirmed and which are left out. Something that can be brought to a halt with only a few million dollars invested is incredibly risky.
ReplyDeleteBut in the future who knows? I can't tell. But I hope somewhere near the bottom.