Cryptocurrency isn’t the only way to escape USD inflation. Investors have been investing to avoid inflation long before Bitcoin was invented.
Investing in virtually any asset other than cash will, almost by definition, shield you from inflation. Inflation is an increase in asset prices, resulted in reduced buying power. You only need to invest in assets (stocks for example) and minimize holdings in cash if your goal is simply to avoid losing buying power of your cash. Cryptocurrency currently functions as a speculative instrument, not a stable store of value.
Cryptocurrency in general is only deflationary if we pretend only a single cryptocurrency exists and ignore all of the increasingly brazen financial instruments offered by exchanges. As it stands, the ever expanding list of crypto currencies, NFTs, crypto lending products, and new crypto currencies represents a general inflation in the cryptocurrency space.
On top of that, any asset for which demand comes mostly from being an "inflation hedge" is a bad inflation hedge since prices will rise when people want more inflation hedging and drop when they want less hedging, meaning the majority of people inflation hedging will buy high and sell low.
Gold has had that dynamic for a long time, which is one reason it is not considered a good investment most of the time. Buy assets that are productive and you will be much less subject to that. Real inflation hedges look like stockpiles of goods, inventory or production capacity thereof.
Could that make such inflation hedges a good pre-inflation hedge? For example buying gold with the expectation that people will soon want more hedging than they do now, though this relies on getting in earlier than others.
Yes, but at that point, you should just borrow money, and do something useful with it, because being in debt is a simple, straightforward inflation hedge.
Stocks prices get negatively impacted by rising interest rates. With interest rates at ~0%, there's little money to be made in bonds, savings accounts, or anything that pays interest income, so people put money into stocks w/ the hope the stocks will go up. When interest rates go up to fight inflation, there's more incentive to put money into bond markets, which means there's not as much money going into stocks, which means stock prices don't go up as much. Housing prices also tend to go down as interests go up, as rising borrowing costs mean fewer funds are available for buying a home.
Paper towels never lose value and pretty pegged to inflation.
But seriously, look at the past 20 years and your takeaway should be that USD is indestructible and that the Fed can do no wrong. They ran the printing press day and night for years and struggled to hit 2% inflation. "Full Faith and Credit of the US Government" is evidently the best inflation hedge in the world.
I'd love to see someone try to sell yellowed 20-year old paper towels (with branding from 3 generations ago) after thinking they were hedging inflation.
If you want to know where to stash your money in 2021, you look at history for lessons. USD will be completely worthless one day just like the sun will eventually burn off the surface of the Earth. I'm thinking back to financial crisis days when there were endless cries of runaway inflation being around the corner and that the Fed couldn't handle a crisis of this magnitude. And I think that looking back they handled it extremely well. They took a nuclear bomb to the chin and stayed standing.
I'm mostly kidding... Buy forever stamps from USPS. As they raise the price of postage, your stamps will go up in value, and then you can sell them for a profit! This is probably a terrible idea, but it makes me giggle.
Now I'm imaging some sort of push on r/wallstreetbets to YOLO on stamps, posting insane strategies on how to predict when the price of postage will go up, by how much, and how liquid the market is for millions of stamps.
Back in the roaring '20s Charles Ponzi came up with a way to theoretically make a profit trading postage stamps, and raised a lot of money from investors, although in fact he never actually bought the stamps, and instead invented the Ponzi scheme.
My wife is a lawyer and she buys a lot of stamps. Recently she stumbled onto some strange stamp firesale on Ebay and bought forever stamps at below face value. I could only guess that this was an unwinding of the trade you propose.
Stamps (forever or not) are often used for Ebay manufactured spend because they're easy to sell (clear value, lightweight and easy to ship).
It goes like Ebay says spend $X or sell $X on ebay and they'll give you a rebate. (Or sometimes the rebate comes from a credit card or Bing). If the $X covers ebay fees and shipping, then buy stamps to reach the $X and then sell them when you get them. If the rebate it sufficient, you can sell the stamps for less than cost, because you're already ahead.
There's a quaint and quirky thing in the UK called a premium bond, which you can buy and which the government guarantees to buy back from you at its initial fixed value (1 bond costs 1 British pound). Every month, a lottery system pays out prizes to holders of bond numbers, as chosen by "ERNIE" - "Electronic Random Number Indicator Equipment".
From elsewhere: “With low interest rates continuing to reduce the Bonus Bonds prize pool, the Bonus Bonds scheme was closed to new investment on 25 August 2020 and an announcement was made that ANZIS intended to begin winding up the scheme no later than the end of October 2020.”
Would be interesting to see something like that in place of state lotteries her in the US. Neither is a good investment, but the longer term nature of the prize-bond system makes it less likely to attract desperate short term gamblers.
This is not financial advice. This is just a reflection of knowledge that has kept all my long term investments stable or growing through every dip and shift in the last 25 years.
- Stable index funds are the best long term hedge. (Date targeted mutual funds have largely been doing very well in the last 15+ years too.)
- Then consider LONG TERM materials investments.
- Then consider Treasury Inflation Protected Securities.
- Then consider property, as in real estate.
Actually personally I'd drop the materials at this point. It's easier to screw up materials investments and they're often in stable funds anyway.
This is all long term, you'll note. I would argue there are no true short term hedges. There are bets against the market and that's often what you see in "hedge funds" that go relatively short term. But if you're in that space, well, you probably shouldn't even be having this discussion on Hacker News. I'm sure I'll take flack for that reinterpretation but it's important to be honest about these things, and many make money in this space by eschewing that honesty.
But, your basic goal of keeping your money valuable long term is not a hard problem, it's literally a solved problem and it's what the S&P 500 & similar indexes and/or TIPS exist for. If you think you need to hedge against the fall of the US or at least the USD? I think you should be hedging outside the financial system entirely, go full prepper, because, that's where that fatalistic logic will take you ultimately anyway.
Actually, with less snark, it is always reasonable to keep moderate term survival in mind. An actual major financial meltdown would likely be survivable with minor prepper-like approach to long term food and water stores, especially if you own property. So maybe move property up on your list if you are in a position to own it outright, and bury some water and long term preserves there as a bonus?
Buy all the non perishables, non obsoletables you're going to need for the next decade. Buy them in discounted bulk for and extra return. Bonus: capital gains tax free!
US$5M is a bit under 100 kg of gold or 6 tonnes of silver. Might not be a bad idea to spend a few percent of that on hiring security guards and stocking up on perishables to feed them an their families.
Probably a good idea to maintain a more diverse asset balance than 100% in stocks, in the interest of hedging wealth preservation against both likely and unlikely shocks. The base rate of state collapse, for example, is about 1% per year, and examination of past episodes shows that it's often pretty unexpected. See notes/pandemic-collapse.html in Derctuo for some of the reasoning here. Moreover it's hardly unusual for share markets to dip 10% or 20% and take several years or a decade to recover.
That is probably your best bet for large amounts. You can also diversify into TIPS (note the negative nominal returns though) and improve your housing situation with renos, upgrades etc.
Yup materialize your savings for a 2% a year compounding tax free return.
Urban dwellers might be more limited but for people who have unused or underused space, this is a way to get a return on that space.
Salt,
granulated sugar,
powdered sugar,
brown sugar,
socks,
underwear,
under-shirts,
vinegar,
soap bars,
toothbrushes,
razor blades,
feminine products,
toilet paper,
paper towels,
napkins,
trash bags,
freezer bags,
sandwich bags,
foil paper,
parchment paper,
plastic wrap,
wax paper,
candles,
matches,
diapers,
pet supplies (litter, etc.),
gardening supplies,
building supplies,
repair supplies,
medical supplies,
fire wood,
wood pellets,
long lasting appliances and furniture,
kitchenware,
dinnerware,
sheets and pillowcases,
blankets,comforter,bedspreads,
Maintenance,
renovations,
Efficiency upgrades.
Some liquid soaps and chemicals have a limited shelf life of just a couple of years so it might be better to avoid unless you know the shelf life. Also be careful buying more than you need which can lead to waste. Be careful being wasteful just because you have lots of stuff at home. Buying alcohol ahead of time in bulk works if you have the discipline not to drink more. Also to get a good return you need to use the full life of your stuff before replacing from your stash, not replace early because it's right there.
There is also a macroeconomic benefit to this approach. It can get the economy out of keynesian recessions when people save by buying.
Spam has more calories and lasts just as long. If you want carbs as well, add canned fruits and vegetables.
Any kind of dry bulk food will also work as long as you take proper measures to keep mold and insects out. Bonus points if you can also keep oxygen out. (Grains often contain a surprisingly large amount of lipids that can go rancid.) In the kind of emergency where you'd be seriously worried about the "other end", you could very well exchange a bag of rice or sugar for a handgun or a bottle of motor oil.
Land is the typical recommendation. A noisy crowd thinks gold is a good hedge. Personally, I think that high quality companies with pricing power should retain their value; Coca-Cola and Apple can probably increase their prices to compensate for inflation, leading to increased earnings, leading to increased stock price (the increase compensating for inflation).
It depends on how much downside risk you are okay with taking. If you want something relatively cash like, ibonds are an interesting option - their rate of return is updated to the latest inflation measurement every 6 months.
If you are okay taking on some risk, a mix of stocks and bonds seems sensible to me.
It's only unusually pricey if you expect to always live in a world of 3-4% interest rates. We're no longer living in that world, though.
The thing is, you could say the same thing at nearly any point between 1999 and 2021, and be right, and it would still have been a good idea to invest into the S&P.
As a long term investor though thinking 'this too shall pass' is quite a good strategy which means at some point the high prices will fade and you will be left with your dividends and earnings which at current prices are not giving you much of a yield.
Also I've been following Jeremy Grantham who is now preaching that the end is nigh. He has a good track record https://youtu.be/RYfmRTyl56w
He recommends emerging markets and value stocks by the way where valuations are more reasonable.
Even if we assume only Bitcoin, it's not currently expected to stop printing money until (assuming Ray Kurzweil wasn't right all along) long after we're all dead.
The Bitcoin inflation story is more political than simply economic. Right now, it's not really possible for it to be narrowly about whether printing money is OK. But one could easily mount an argument about whether humans should be able to twiddle with the money printing policy.
It is supremely ironic that we’re supposed to believe that the best way to escape money printing is to buy a cryptocurrency that was invented out of thin air, which is continuously mined (during most of our lifetimes) out of thin air by doing useless calculations.
Or even worse, a basket of multiple crypto currencies, where the number of available crypto currencies and crypto assets grows larger every day.
It’s not really surprising when anyone pushing crypto to you also happen to hold a lot of crypto. It’s self-serving advice 100% of the time. It’s pretty much a staple also to call every other crypto you don’t hold a fraud trying to steal the spotlight.
While it may well be self-serving, this is also a near tautological statement, as you'd expect someone who pushes crypto to also hold a lot of crypto if they genuinely believe in it - whether for sound reasons or not. As such the fact they're holding crypto tells us nothing about whether they're pushing it because they're holding it or pushing it because they believe in it.
BTC has been the #1 asset over the last 10 years. In many individual years it has out performed every other asset. It has this year by a large amount.
At some point the dissenters will have to admit they were wrong. The reality is, BTC is here to stay and is a valuable hedge that is independent of any corporation, government, or central bank.
This statement, minus the political content, sounds very, very, very similar to what I was hearing about tech stocks a bit over 20 years ago, and houses about 15 years ago.
Maybe that means something, maybe it doesn't. If I had some way of knowing, I'd have a lot more money than I am now. It's worth remembering, though, that prices are just that: prices. Nothing more, nothing less.
Yeah me too - I remember when AMZN was $2. I remember when AAPL was 28 cents (before splits, etc). I remember when the Internet had a host of pundits proclaiming it was a dying fad in 2001.
And most anyone who bought a house at the peak of the bubble is doing quite well if they still have it today.
Are you familiar with the concept of survivorship bias?
It's an important concept to remember when talking about the long term outcomes from adverse market events. "If they still have it today," for example, is a useful qualifier, because it subtly renders the statement almost tautological. "Sure, it was a bloodbath, but all the people who survived seem to be doing OK."
Yeah, don't go on margin is the lesson there. People that lost their hat on the housing crises borrowed too much (went too far on margin, which is what a home loan is). Anyone who just kept investing during any market crash in history is sitting well.
> This statement, minus the political content, sounds very, very, very similar to what I was hearing about tech stocks a bit over 20 years ago, and houses about 15 years ago.
Well those two performed pretty damn spectacularly in the past 20 years.
What does it mean to be wrong? Should I have mined 1000 coins in my CPU a decade ago? Duh. Does that mean that BTC is a useful financial hedge against inflation? Why would it? BTC went up by a factor of a gazillion during a decade when USD inflation was not out of the ordinary. Clearly something other than "inflation hedge" is driving the price.
What it means is pundits have spared no opportunity to ridicule anyone who has invested their money in BTC, pontificated that BTC has no value, that it is a fad, that it is a bubble, etc. For 10 years. At some point don't they have to capitulate from that provenly wrong position and at least admit there's something there?
What is driving the price is price discovery. More people are becoming comfortable with it as an asset as the FUD described above has continued to be debunked. As more people become comfortable that drives demand which increases the value.
As a hedge against inflation it works for a number of reasons. People generally price it in dollars, like stocks or real estate. As the dollar inflates one would assume the value of BTC would increase as investors have more dollars to invest into it, driving demand.
But the "something other" is more and more people agreeing it has value and therefore creating more demand for it and therefore creating higher prices. This is how any asset works.
I think people don't really agree it has that much value. People want to get rich quickly. They always have done that and continue to do so. Casinos and lotteries are older than bitcoin.
The idea that BTC goes above 50k USD because millions of people believe its intrinsic value is worth that much is a story that BTC investors tell themselves before going to sleep. Reality is much greedier than that, and they know it, but the narrative won't change while the fairy tale continues to be profitable.
You're maybe stretching the analogy way beyond what was intended.
The intended analogy, I'm guessing, is that both lottery tickets and BTC seem to be uncorrelated with USD. A good hedge is something that is inversely correlated with the thing you're trying to hedge against.
You can inflate the money supply and still be "deflationary" if the convenience yield of holding the money (tokens, UTXOs, or whatnot) exceeds or neutralize that inflation rate. You make an excellent point, Bitcoin doesn't have to overtake gold or become a global-reserve to change the world. It just has to be a plausible alternative that enables people to opt-in or out of the system. It has largely already achieved that and I'm hopeful for a future of monetary pluralism.
It has? Bitcoin isn’t an alternative to the existing system for people. It might be a digital alternative to gold for people hedging inflation or in failed states, but its transaction fee is just way too high to be a practical alternative to anything but, like, wire transfers (Visa and ACH are WAY cheaper except for huge transfers... and Bitcoin isn’t particularly fast, either). And this high cost is driven by the fundamental non-scalability of the blockchain which requires other layers for the little people (and this is partly why you have people doing business through large companies like coinbase or whatever instead of the vision of decentralized cyberpunk utopia where everyone is at the same level and can directly make transactions using just math... which is the part of the original Bitcoin white paper that was fascinating to me). It’s primarily NOT an alternative to the existing system except that, as a speculative investment, it’s crowding out other more productive physical investments.
I suppose it is helping people think outside the box, but I fear that Bitcoin is sucking a lot of air out of the room. We should be pushing for instant and extremely low-fee ACHs, alternatives to banks like credit unions where customers—as owners—hold more power, etc. Hopefully things move in that direction.
That startup people see cryptocurrency as a way to lock up rents by becoming new gatekeepers for the blockchain (like banks are for the traditional system) or whatever is really a betrayal of the hacker ethos IMHO.
If you live in a country with a highly functional banking system and no kleptocracy, Bitcoin is probably a bit puzzling unless you have family in Cuba. But it's not puzzling at all for those of us who live somewhere in the middle of the broad spectrum between Switzerland and Somalia, because most places have a little kleptocracy. Argentina is far from being "a failed state," but if you want to send US$500 abroad via non-Bitcoin means it's basically impossible, and the only broadly available savings vehicle is real estate ("ahorrar en ladrillos"), which of course grossly inflates real-estate prices, with a substantial part of the capital city occupied by empty apartments someone bought "as an investment". Historically Argentines have saved by buying dollars but that's limited to US$200 a month now, and then only if you have a non-under-the-table job (about a third of total employment is under the table):
You can see that in September 02019 when this measure was imposed the price of a dollar was AR$63.50; now it's AR$147. So whatever savings you had in pesos in 02019 have lost 57% of their value to peso devaluation.
In 02001 a lot of Argentines had saved dollars in their dollar-denominated bank accounts. This did not preserve their savings through the financial crisis that year; the cash-strapped government limited withdrawals to a trickle, then converted dollar deposits to pesos at a one-to-one rate, then released the exchange-rate peg, at which point peso went overnight from being worth US$1 to being worth US$0.25 before settling at about US$0.31 for the next few years.
You suggest, "alternatives to banks like credit unions where customers—as owners—hold more power," but Credicoop depositors suffered the same two-thirds confiscation of savings as depositors in for-profit banks. And they pay the same 3% tax on bank transactions including checks. That's more than a fast Bitcoin transaction fee of US$15 for transactions over US$500.
But we're not a failed state. There are no gangs of bandits roving the streets in Argentine cities (though there are some pretty bad slums where you'll get robbed if you wander in without knowing anybody). Courts, free public hospitals, and roads continue to function, though there are more potholes than a year ago. Argentine infant mortality is 10 per 1000 live births, down from almost 20 in the late 01990s and the same as the late 01980s in the US; life expectancy at birth is 77 years, worse than Switzerland's 84, but the same as China and Hungary, and better than Saudi or Mexico. (Somalia is 54.)
Most of the world is worse off than Argentina, although not necessarily in such a statistically transparent fashion. About one fourth of the people in the world are unbanked, 51% here in Argentina; even advanced countries like Russia, Hungary, and Uruguay have roughly a quarter of the population unbanked:
And if your family lives in a country like Iran or Venezuela subject to US sanctions, and you live in the US? Good luck sending them an ACH, instant or otherwise! It's well known that Bitcoin is very popular in Venezuela, which kind of is a failed state, so one of the Venezuelan governments is trying to tax Bitcoin remittances at 15%.
Bitcoin handles a few billion dollars per year in such remittances. This might seem like a trivial amount of money to someone in a rich country, but in poor countries, it's enough to keep several million people alive.
Even in the US, it's common for the police to confiscate large amounts of paper currency just because they can ("civil forfeiture"); US bank accounts are probably fine for US$100K but probably somewhat risky for US$10M if the bank thinks you don't seem like the kind of person who ought to have it. US$10M in US$100 bills fits in a box you can wheel around on a dolly, but Bitcoin is a lot more practical. (And of course US$10M in dollar bills loses about US$200k per year to inflation.)
So, Bitcoin doesn't have to be a cypherpunk utopia to be a big improvement on the status quo ante. For those of you living in stable countries where your worries are things like "instant and extremely low-fee ACHs" and "decentralized utopia", this may be very confusing, but try to remember that most of the world lives in places with much more pressing concerns, concerns that Bitcoin helps a lot with. And you may live there too, soon — the loyal subjects of Kaiser Wilhelm in 01913 certainly didn't expect that in 15 years they'd be in the middle of a hyperinflation episode that remains legendary a century later.
This is the most cogent answer I've seen regarding BTC utility for those living under less stable regimes. Usually it's a hand-wavy "something something Venezuela something," which, as bad as Venezuela is, makes it seem like crypto is only really relevant in exceptional cases of instability.
So please, the fact that some venezuelan hners say they use bitcoin doesn't make bitcoin a real valid alternative and widely used
Venezuelans right now only care to protect against the 5000% yearly inflation and they do it with the dollar, they don't care _for now_ about dollar losing value when Bolivar loses 5000%
I'm not Venezuelan or in Venezuela, but I definitely know Venezuelans here in Argentina who send Bitcoin back to Venezuela. But it's clearly not widely used—the best estimates are that there are only a few billion dollars per year in total Bitcoin remittances, of which under US$400 million (per year) are to Venezuela, and there are 5 million Venezuelan expats. And Venezuela has almost 30 million people. So clearly only about 2%–10% of Venezuela's population uses Bitcoin at most, and many of them only use it to provide "send money to your family" services to and from other Venezuelan expats—who may not know or care that Bitcoin is involved.
That certainly doesn't add up to "widely used" but it's not "absolutely 0" as you said in your other comment either.
When I said, "Bitcoin is very popular in Venezuela" I meant relative to its popularity in other countries, not relative to the Venezuelan population as a whole. I mean, if I said Emacs was very popular in Venezuela, that wouldn't mean that every other moto-taxi driver could give you Elisp tips. It would just mean that more people used Emacs than VS Code.
Where does this hypothetical 2% of Bitcoin adopters live? Maybe not in Caracas where it's easy to find someone to exchange dollars with. Maybe they live close to the Colombian border, where they trade with drug traffickers? (Though why would Colombian drug traffickers be Bitcoin buyers rather than sellers? Maybe I need to think this through better.) Maybe they live in rural areas? Probably one of the P2P market sites has a map.
If you had to flee Venezuela, maybe through unsafe areas where bandits were operating, would you rather be carrying your savings in Bitcoin or in dollars?
Hey firekvz, very interesting to hear a take on crypto from someone who actually knows what's happening on the ground. I was wondering if you'd be interested in having a chat for a policy paper I am working on. It would be beyond helpful because as you said the media and a lot of major research paints a very different picture.
If we're talking about political regimes, though, I don't think we're even talking about "less stable" regimes—whatever you might think about Cuba ethically, old Raúl and his brother have been in power there for over 60 years and show no signs of losing control, and I don't see any signs of incipient revolution in Indonesia, PRC, Mexico, or Vietnam either. Here in Argentina we've remained democratic since 01983, electing presidents from three different political parties (UCR, PJ, and PRO), and there's no serious insurgency. It's the economy and government policy that are ruinously unstable, to a point that seems satirical to anyone accustomed to the US, but is lamentably common worldwide.
Yeah I grant Bitcoin has value as a hedge against system failure. And maybe you’re right about the corner case it addresses being larger than I think. But so much of the hype of Bitcoin is in developed countries with very low inflation. And this should be tempered.
But I'm not talking about system failure, primarily; I'm talking about day-to-day life for somewhere between one third and two thirds of people, most of whom aren't using Bitcoin yet.
Is it practical to use Bitcoin for day to day life for one to two thirds of people if the transaction fee is now $24?
The Bitcoin blockchain itself is limited to 7 transactions per second. With 7 billion people using it, that mean each person doesn’t get one transaction per day, they get one transaction per billion seconds (over 31 years).
It’s useful for rare cross-border transactions for a small portion of the world’s population, I agree. But it cannot, in its current form, be used by one-third to two-thirds of people day to day. Even if you increased the block size 1000 fold (which is not necessarily very practical), you’re still only talking about one transaction a week.
So first layer blockchain Bitcoin simply isn’t going to be useful to most people for day to day operations. They’ll have to go through intermediaries or use higher layers (perhaps with more localized trust, etc). Which may be fine, but we should temper our expectations here of first layer Bitcoin.
Not that many years ago, we used to pay for things with physical cash (gasp!). Once ever week or two, I would go to an ATM, withdraw $N00 in USD, and put it in my wallet. Sometimes I'd have to spend $2 in fees for this service.
There's no reason BTC can't work the same way. With high transaction fees, maybe you'd withdraw once a month? The cost is annoying but it's still safer than having your savings in a shady banking system.
> Is it practical to use Bitcoin for day to day life for one to two thirds of people if the transaction fee is now $24?
Yes, but the transaction fee is typically about US$15 these days, down to US$5 or so if it's the kind of thing you can wait 24 hours for. This is about the same cost as Western Union. Today there's a lot of trade volume as people panic, but the latest block https://blockchain.coinmarketcap.com/block/bitcoin/671850 contains fees ranging from .023 mBTC, with a bunch of transactions paying .042 mBTC up to 58.7 mBTC. The block reward including fees was 7763 mBTC, of which 6250 mBTC is the mining bounty and the other 1513 mBTC is transaction fees for the 2900 transactions in that block, a mean of 0.52 mBTC. The median transaction in that block paid .341 mBTC:
The recommended fees from earn.com (previously blockchain.info) are currently 102 satoshis per byte for immediate inclusion and 88 satoshis per byte for inclusion within the hour, but this .341 mBTC median from the last block is generally 140 satoshis per byte.
In dollars at US$50/mBTC, this means that the latest block included transactions that paid as little as US$1.15 and as much as US$2935 (!!!), and a whole bunch of transactions that paid US$2.10, but the mean is US$26 and the median is US$17. That means about 1400 of those 2900 transactions paid less than US$17.
But yeah, this is not what you want to use to pay for a can of Red Bull or even a restaurant dinner. It's more like Western Union or US$100 bills or gold. For example the current underground market spread for dollars is AR$142 buy, AR$147 sell, which is a price you will not get for small bills like US$20:
In effect every time you buy US$100 for savings from one of the "blue market" currency dealers (travel agencies and the like) you are paying half that spread, AR$250 or US$1.70, to the money changer. 1.7%. The break-even point where this is more expensive than the Bitcoin transaction fee is US$16000 for a US$26 fee, US$10000 for a US$17 fee, US$1200 for a US$2.10 fee, or US$700 for a US$1.70 fee. And, as you point out, lots of Bitcoin transactions happen inside of a single vendor platform like Coinbase and so don't pay the fee at all.
Usually cashing out your savings so you can buy a car or pay the rent or buy food or whatever is an every-month or every-few-months kind of thing. But you're still buying food on a day-to-day basis.
Even if you're using Bitcoin in an ATM-like fashion, paying a fee of US$15 or so every time you withdraw US$200, it's in the "everyday financial bad decisions" category, not the "totally impractical" category. (I hear ATM fees are a lot lower than that in the US now. Sadly, not in Argentina.)
Early on I avoided Bitcoin because I worried it might destroy civilization—after all, I rely on public streets, the public education of the people around me, and the public hospitals, not to mention the police, all funded by tax dollars. And there's been a cogent argument since Tim May presented his manifesto at Hackers (01991? Certainly before early 01993, when I read it) that cryptocurrencies would inevitably kneecap taxation and thus cause the collapse of governments.
But the US election in 02016 made it clear that civilization is doing a perfectly fine job of destroying itself before losing any significant taxability to Bitcoin or other cryptocurrencies, and the best we can hope for is to salvage its crown jewels from the rubble.
The same four countries get brought up by BTC proponents all the time. Yes, evading authoritarian regimes can be useful. But like 1/3 of the planet lives in just India/China. Going from "a use case is sending cash from the US to your family in Iran" to "2/3 of the world population wants this" is a big leap.
Which ones—Cuba, Venezuela, Iran, and Argentina? I don't think Bitcoin adoption is terribly high here in Argentina, but hopefully you can forgive me bringing it up—I live here, so it's the place I know best, and the uses of Bitcoin are pretty easy to understand here even if most people aren't using it yet. And even those four countries are hardly inconsequential in terms of the global commonweal: 170 million people live in them, one in every 46 people alive. That's, like, more people than play Fortnite or Minecraft. More people than have bought a Justin Bieber album. Almost as many people as follow Ariana Grande on Instagram. Four times as many people as live in California. We're not talking about some tiny Elbonia here. Anything that affects 170 million people is a big deal for human welfare.
But the utility, or potential utility, of Bitcoin is a lot broader than that.
Argentina is not terribly high on the scale of "people being unbanked" or "kleptocracy". If we take infant mortality as a rough measure of kleptocracy, we're #84 out of 201 countries and territories in https://en.wikipedia.org/wiki/List_of_countries_by_infant_an..., so we're actually better than average. We're neck and neck with PRC and way ahead of India. If we trust the table in the GFMag link I posted, which they attribute to "a just-released study by the British research platform Merchant Machine", whoever that is, there are nine countries with an even larger percentage of unbanked than Argentina, namely, Morocco, Vietnam, Egypt, the Philippines, Mexico, Nigeria, Perú, Colombia, and Indonesia. Each of Nigeria and Indonesia are individually nearly the size of the US; Indonesia is the fourth biggest country in the world. As for India and China, they claim that 20% of PRC's population is unbanked (another unbanked population nearly as large as the US) as well as 20% of India's (yet another).
And Bitcoin doesn't become useless just because you have a bank account. If you're paying a 3% tax on every bank transaction (as we do here), experiencing substantial inflation rates, working under the table, or facing the prospect of an Argentina-style bank confiscation, you have a use case for Bitcoin. Don't tell me it can't happen in the US; it did happen in the US in 01933 with Executive Order 6102, with gold playing the role of Argentine dollars.
To expand on the inflation question, on https://en.wikipedia.org/wiki/List_of_countries_by_inflation... there are 24 countries with a consumer price inflation index over 10% per year, of course including Venezuela, Argentina, and Iran (but not Cuba), but also including Sudan (regular and South), Zimbabwe, Congo, Angola, Libya, Syria, Suriname, Haiti, Sierra Leone, Burundi, Nigeria, Mozambique, Turkey, Pakistan, Zambia, Azerbaijan, Uzbekistan, Ghana, Liberia, and Malawi. You may not care about Burundi but this list also includes the 7th-biggest country in the world by population and the NATO member with the largest military. These countries don't necessarily have "authoritarian regimes" but it's still useless to try to save up money in the local currency for anything more than the very short term; after 5 years you've donated 40% of it to your central bank by way of inflation. Or maybe 85% if you're in Angola.
India doesn't have a high inflation rate by the numbers but it did "demonetize" the savings of the poor in 2016—those piles of rupee bills under your mattress didn't lose just 10% or 20% of their value but 100% of it—and this in a country where hundreds of millions of people have no bank accounts! Most of them have cellphones, though.
Both India and China also have a tendency to limit their subjects' access to foreign exchange in general, and cut it off entirely at precisely the moments when their subjects most need to emigrate to seek work. This is not at all unusual among poor countries; a Bloomberg overview of some of the measures current in 02019 is at https://economictimes.indiatimes.com/markets/stocks/news/fro... though mostly from the perspective of foreign investors.
Now, even if the 84 million Turks (one third without bank accounts) aren't currently using Bitcoin to escape the ruinous inflation rate (15% per year)—the way they used to use dollars before the government cracked down on it—it's clearly a problem many of them need to solve, whether or not their nominally democratic government is an "authoritarian regime". But diffusion of innovations doesn't happen in a vacuum, and it may take a while for Bitcoin or something similar to get widely adopted in Turkey.
So that's the kind of thing that makes me think my Argentine experience generalizes to about ⅔ of the world population, and my US experience doesn't.
Isn't there really any service that lets you buy and use USD, EUR, GBP... online? And if not, would you still continue to buy crypto if one of these currencies was available?
Of course there is! The banks provide this service. It's called "Home Banking" (yes, in English). As I said above, and as in most countries, it's heavily regulated by the government as described above—prohibited to the part of the population whose need for a form of savings is most desperate, and limited to US$200 a month—and everyone over 20 remembers when the government confiscated ⅔ of everybody's Argentine-bank USD savings. Something like half of Argentines have a bank account and about half of those (about a quarter of the total) are eligible to purchase dollars with it.
Bitcoin is so far not heavily regulated, but presumably will be. But it doesn't provide the scrumptious, juicy central point of control that the Banco Central de la República Argentina does; regardless of what the law says, there's no practical way to confiscate every Argentine's Bitcoin savings between sunset and sunrise.
Not to mention that the reason you can't send money to Iran is not because of any problem in Iran - it's because the United States doesn't want you to do it.
If you live in the US, and you are using bitcoin to circumvent the embargo, you're just adding to the list of crimes you're committing.
Everyone is free to redistribute my comments in this thread, in
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the public domain. I wrote and published these comments in Argentina in 2021.
This a very good use case for a cryptocurrency, but in the long run a crypto like NANO might be a better solution with due to quicker transaction times, lack of fees, and much lower environmental impact.
My big concern about monetary pluralism is what happens to US citizens, when their day-to-day currency stops being used as the reserve currency for the world? I have trouble imagining any way in which that turns out good for me, as someone living and working in the US. Anything you can do to assuage my fears, since you seem to be educated on the matter?
As much as we hear about things like M1 money supply, the vast majority of wealth doesn’t exist in the form of cash. Investors hold companies, stocks, real estate, and so on. Fluctuations in money supply (or demand for currency) have exaggerated significance in online crypto discussions because crypto proponents find that angle more favorable to their “buy crypto” argument, not because it’s the full picture.
The global reserve currency issue is worth watching, but remember that it isn’t a binary on/off switch where everyone changes overnight. Likewise, it’s not really true that USD is the global reserve currency so much as one of the most trusted. Again, crypto proponents like to suggest the collapse of the US currency is imminent, but the global market believes otherwise. Likewise, crypto proponents want you to believe that Bitcoin is the logical alternative, but again that’s missing the point that part of the reserve currency math depends on things like stability, resistance to manipulation, and backing of a powerful government.
For one the USD is only the largest reserve currency used internationally: GBP, EUR and JPY are also used as reserve currencies. For another the US has been trying to reduce the role of the dollar as a reserve currency because it actually has significant downsides and fewer benefits than is popularly portrayed - this even has it's own term, "exorbitant privilege". Here's Ben Bernanke talking about it:
>18.5M of bitcoin has already been mined of the maximum 21M. So the amount of remaining future inflation from increased supply negligible. That the remaining 2M will be mined asymptotically over many years is not important except for purposes of incentivizing miners to run transactions.
It's not that negligible. At current reward of 6.25BTC, that means that the rate at which new BTC are being minted, as a percentage of total BTC supply, is about 3 times the (admittedly unusually low) current US inflation rate.
You're right, though, it will become negligible at some point in the not-too-distant future. I think, though, that that may not be all that relevant. The arguments about BTC and money printing seem to be more moral than pragmatic, so I'm not sure you can really draw a line and say, "Below this mark, printing money is A-OK. Above this mark, printing money is the end of the world," because trying to move to that style of argument would be moving the goalpost right out of the stadium. It was never about the actual pragmatics of inflationary currency policy.
By analogy, I'm not sure a lot of dyed-in-the-wool gold bugs would respond to the hypothetical opening of a massive new gold mine by saying, "An increase in the production rate? That, I just cannot do," and walking away from gold. If, on the other hand, the mine were opening in their own country, and being operated by the government, which planned to carefully release gold onto the market at a slow rate, then you might see a lot of protesting. That would actually be better for price stability, but price stability was never actually the point.
That's mostly fair, but worth noting that insofar as Bitcoin is mined on a schedule the inflation can be priced into the current price, so it's less deceptive than when the government suddenly prints a ton of bills and whoever was unlucky enough to be cash flush at the time takes a big haircut in purchasing power.
While your point is correct, I live in NY and true, it's heartening to see that someone is looking out for obvs fraud. But it's really annoying that I can't (straightforwardly) open an account at most crypto exchanges, and I'm banned from investing according to my choosing and to my knowledge.
If I decide to hedge inflation with some obscure or even mainstream "coin" that should be my choice why should gov be able to deny that right?
This is why I think the proper crypto currencies are backed by another functional use instead of "just coins." (e.g. Ethereum vs. Bitcoin)—one is a useful Turing-complete machine; the other only exists to send coins.
Bitcoin will probably always outshine the other "just coins" because it was the first. Why get another coin if this one works fine for monetary transactions?
Similarly with the functional ones: Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed.
The rest of them really ought to provide another service underneath to become valuable.
> Ethereum will probably always outshine the other "Global Turing Machines" because it was the first. We don't really need another one—assuming it can adapt to changes in efficiency with hard-forks as needed.
Inflation is an an interaction between the supply of any non-dollar "thing" and dollars. Sometimes that means certain assets like equities become more expensive in $, sometimes that means commodities like oil, sometimes it means labor.
But to be clear, rising Consumer Goods Inflation (what people most commonly talk about when they mean inflation) can lead to significantly lower asset prices, depending on valuation methodologies.
It’s absolutely not true that investing in any assets besides cash will shield you from inflation. Inflation impacts companies very differently, and you want a preservation of real earnings power taking into account the need to replace plant and equipment over time. The best inflation protection would come from a company with a pure revenue royalty with fixed expenses. The worst would be a company with bad pricing power and lots of commodity inputs.
Is there an easy way to determine which companies are which? Do I need to be well-studied in business, or is there a chart or key statistic I can look at to tell one from the other?
I used to say "a house will always have the price of a house" (it has issues of course cough 2008 cough) to illustrate what you're saying here as I never managed to explain it properly like you did.
But it also has property taxes and maintenance costs, which will likely be higher than inflation. So it's not a great passive investment unless you expect the value minus costs to gain faster than inflation. Otherwise you gotta live in it or rent it to make back your money, and that's no longer passive.
As commenters hinted at in a previous thread, the price is a measure of the combination of demand and supply. The mechanics of Bitcoin only address the supply side. OP hinted at the demand side: if a new cryptocurrency were to become more popular, then Bitcoin could lose value.
> Investing in virtually any asset other than cash will, almost by definition, shield you from inflation.
... which is why virtually every nation on Earth adopted some kind of inflationary fiat currency. It pushes money to be invested, not held. Wealth is a verb, not a noun.
The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency.
Not holding wealth in cash has been investing 101 material long before cryptocurrency. It is fascinating how crypto proponents took over that narrative to imply that crypto was the only investment that could escape inflation.
They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand. It hasn’t spiked upward 100% of the time because USD became 50% less valuable overnight
> They’ve also spread an idea that money printing is the singular source of inflation, which isn’t true at all. Bitcoin, for example, is an inflating asset due to hype-driven demand.
Uh, I'm very much of the opinion that your average BTC fan isn't exactly educated about macroeconomics, but this sentence makes absolutely no sense.
Inflation isn't a thing that happens to a currency, it's a thing that happens to an economy. It's a systemic increase in prices across a basket of assets that demonstrates the devaluation of a currency, as a single unit of that currency effectively buys less.
Bitcoin, if it had been a usable currency over the last decade, is very clearly deflationary, as its rise in value as a currency relative to USD has dramatically outpaced the rise in the price of goods and services as denominated in USD, meaning that had prices been denominated in BTC, they would have dropped.
Inflation can happen to assets, and PragmaticPulp is analyzing Bitcoin as an asset, not a currency. Given that even when you buy stuff with BTC, you're buying a product or service denominated in USD, their analysis is generally more correct than arguing that Bitcoin should be analyzed as a currency.
> The world would certainly be a strange and sad place if the best thing for everyone to do with their wealth was hoard it in currency.
Wealth is never held in currency, ever. It's a physically impossible thing.
When a person holds savings, it doesn't prevent humans from working, or raw resources from being used, or land from being purchased -- it just means that person is not redeeming a claim on those resources at the time. Their failure to redeem at a point in time does not preclude others from doing so: otherwise said, for every debit there's a credit.
But historically, you don't have to take my word for it. The United States had deflation and 0% interest rates on government bonds for 100+ years during the period between the National Banks and the Fed. You held money in cash at 0%, because when you purchased goods later, your dollars were worth more.
Not only that, but inflation is a feature not a bug. Maybe a bug turned into a feature, but still a feature. Something governments and national banks use to stimulate investment and thus economic growth. Because, as you say, hoarding and holding cash (or cash equivalent) does no good for the world. Even though our instinct is to do just that: secure what we have, secure our future and avoid risks.
The strange thing about this is that it's not some secret knowledge, but something that is being discussed in (front of) e.g. the media constantly.
Stocks might fall in inflationary circumstances, depending on many things such as how much of the companies revenue can inflate - and most times, the answer is worse than inflation.
Bonds might not give you a yield exceeding the inflation, especially in inflation created for the sole purpose of buoying bonds.
Speculative inflation hedges might also act erratically, like bitcoin and gold, getting ahead of themselves and the inflation sometimes.
Investing in virtually any asset other than cash will, almost by definition, shield you from inflation. Inflation is an increase in asset prices, resulted in reduced buying power. You only need to invest in assets (stocks for example) and minimize holdings in cash if your goal is simply to avoid losing buying power of your cash. Cryptocurrency currently functions as a speculative instrument, not a stable store of value.
Cryptocurrency in general is only deflationary if we pretend only a single cryptocurrency exists and ignore all of the increasingly brazen financial instruments offered by exchanges. As it stands, the ever expanding list of crypto currencies, NFTs, crypto lending products, and new crypto currencies represents a general inflation in the cryptocurrency space.