Author Topic: What do you think of adding a low% of crypto allocation  (Read 80503 times)

StashingAway

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Re: What do you think of adding a low% of crypto allocation
« Reply #950 on: February 05, 2022, 09:19:01 AM »
Just because someone else has become more wealthy in such an event doesn't mean someone else is getting poorer. Assuming the school your cousin works for continues to pay him the same wages when he transitions to a bitcoin wage, then how has he become poorer?

Does it not do this with a finite supply of coins? The more someone has, the less someone else can have

StashingAway

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Re: What do you think of adding a low% of crypto allocation
« Reply #951 on: February 05, 2022, 09:25:02 AM »
If anything, I would argue that inflation under fiat currency has done way more damage to your cousins' and many others' wealth and wages than any transition away from fiat ever would.


Some would argue that inflation is what keeps the economy rolling. If we were to have stagnant or deflating currency, the wealthy would hoard money. But because of inflation, they are better off investing it in the economy to outpace inflation. Folks like Elon and Bezos are rich because they have created products and services that are deemed valuable. They may be too wealthy, but nonetheless they have created massive companies.

I would agree that stagnant wages and the like are issues, but I don't see them as issues with inflation, and I don't see how crypto solves them. They are policy issues, such as taxes and unions, not currency ones

StashingAway

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Re: What do you think of adding a low% of crypto allocation
« Reply #952 on: February 05, 2022, 09:28:15 AM »
@lifeanon269
I don’t get why you are wasting your time on convincing MMM forum users that crypto is good. You know what owner of this site thinks about it. Why don't find a better forum that is big on crypto instead? Bro to Bro talk, could be actually nice.


I am actually getting a lot out of this discussion and have learned a bit. I applaud lifeanon for sticking with it because he is countering the echo chamber effect. That's not to say I agree with him/her. It might be a little bit of a circular discussion, reverting back to the same old points and there might be fundamental disagreements on priorities, but at least we can be aware of how everyone is approaching crypto. Should crypto be a flop or flourish we can say that at least we were thinking about it.

StashingAway

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Re: What do you think of adding a low% of crypto allocation
« Reply #953 on: February 05, 2022, 09:30:39 AM »
Stable coins (because they don't appreciate) seem like they would answer this critique.

Don't these require a stable Fiat or resource to function? In other words, there wouldn't be a reason for most people to use the stablecoin when they could just own the resource/fiat directly?

The reason that stablecoins exist is that they're a bandaid for the problem that crypto is unusuable as a currency.  Assuming that crypto of some form ever ends up used as a legitimate currency, I'd expect that the demand for stablecoins would drop off quite a bit.

That was my reading of them as well, no one is going to make a stableBitcoin should it be a widely functional currency.

StashingAway

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Re: What do you think of adding a low% of crypto allocation
« Reply #954 on: February 05, 2022, 09:32:34 AM »
I'm assuming in this scenario that your cousin doesn't just have a huge stash of cash hidden in his mattress. Most people's future retirement savings is in some kind of equity or real estate and those things will still be productive and valuable in a bitcoin world all the same. The Amazons, Microsofts, Teslas, and Googles in the corporate world will all still be around. Stock investing would suddenly vanish. The idea that these things would suddenly cease production and thus everyone's wealth would vanish is ridiculous.


It's not the using of bitcoin that's the issue. It's the conversion of fiat to bitcoin as a late adopter. The transfer of wealth happens during that conversion, not after it.

Gatzbie

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Re: What do you think of adding a low% of crypto allocation
« Reply #955 on: February 05, 2022, 10:09:46 AM »
ArnoldK is right, it is absolutely pointless to try and discuss crypto as a topic on this forum.  I completely agree with him.

Actually it isn't. But crypto has a culture where any fair criticism's of it or questioning it is considered "FUD" & is dismissed. This forum is a rare platform where free educated discussions can be had unlike a typical social media platform (Reddit, Twitter, etc.)

If you are not allowed to ask questions/freely discuss - something is not right. Look at the Wonderland Token incident in Defi recently. Many were scammed. Those questioning its legitimacy were all censored & labeled as "FUD" but were actually right (One of the founders is a serial scammer)

The early adopters who watched it go from 0-$9.5k each "knew something no one else did for the future" & the others who didn't participate "just didn't understand" Wonderland. 
« Last Edit: February 05, 2022, 10:28:35 AM by Gatzbie »

lifeanon269

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Re: What do you think of adding a low% of crypto allocation
« Reply #956 on: February 05, 2022, 10:28:35 AM »
Just because someone else has become more wealthy in such an event doesn't mean someone else is getting poorer. Assuming the school your cousin works for continues to pay him the same wages when he transitions to a bitcoin wage, then how has he become poorer?

Does it not do this with a finite supply of coins? The more someone has, the less someone else can have

In a relative sense there will always be rich and poor. Bitcoin doesn't change that and I don't necessarily think that's a problem. Rich get richer today and that doesn't mean that because of that I get poorer. People all over the world have been lifted out of poverty and the human population is in much better shape today from a wealth perspective than ever before even though the rich continue to get richer. That's the point I am making. The claim is being made that because someone else got rich, I then got poorer and that is the part I have contention with. There will always be people with bigger portions of the pie. What is important is that there is equity in the system and that just because someone has more than me that doesn't mean they have an advantage over me from a monetary perspective. Unfortunately under our current system, that just isn't true (see cantillon effect, something that doesn't apply to bitcoin).

If anything, I would argue that inflation under fiat currency has done way more damage to your cousins' and many others' wealth and wages than any transition away from fiat ever would.


Some would argue that inflation is what keeps the economy rolling. If we were to have stagnant or deflating currency, the wealthy would hoard money. But because of inflation, they are better off investing it in the economy to outpace inflation. Folks like Elon and Bezos are rich because they have created products and services that are deemed valuable. They may be too wealthy, but nonetheless they have created massive companies.

I would agree that stagnant wages and the like are issues, but I don't see them as issues with inflation, and I don't see how crypto solves them. They are policy issues, such as taxes and unions, not currency ones

People were investing in businesses and the economy was functioning without hording long before the dollar was depegged from gold. There is certainly debate to be had as to how much monetary deflation/inflation is good and bad. As with anything too much or too little of something is generally bad. But I don't think a deflationary spiral would be resultant from bitcoin and there is some history to suggest that. Most of the boom/bust recession cycles are due to malinvestment which comes from inflationary monetary policies. Just look at the markets today. All measures of proper valuation are completely lost in the market today. This results in wide spread malinvestment. When proper value companies are no longer strong investments in relation to others and there is so much money floating around, people seek riskier and riskier investments. That's obviously not sustainable and so the markets correct time and time again. These crashes hurt the poor more than they do the rich since the poor have a much smaller portion of their wealth in investments. They're the ones that continue to pay the biggest price whenever these crashes happen and these crashes are largely due to malinvestment in one way or another.


It's not the using of bitcoin that's the issue. It's the conversion of fiat to bitcoin as a late adopter. The transfer of wealth happens during that conversion, not after it.

That is sort of my point. There really won't be a "conversion" of fiat to bitcoin if bitcoin became widely used. You'd simply earn bitcoin as wages. The idea of exchanges would become less and less of a thing. Your $25k salary would just switch from being paid in bitcoin rather than USD. The value of your wages would still be the same, so you're not ending up "poorer". If you had some USD in your mattress, maybe you'd exchange that, but that's the thing with an exchange. You're getting an equal market value in that exchange. So you're not "losing" any value in that exchange. So the idea that you got "poorer" because of the transition is again the point that I have contention with. Again, minus any hyper-inflation, there isn't any loss of value that you experienced and even if there was hyper-inflation, bitcoin could hardly be blamed for that and should even be seen as a refuge in such a case.

I am actually getting a lot out of this discussion and have learned a bit. I applaud lifeanon for sticking with it because he is countering the echo chamber effect. That's not to say I agree with him/her. It might be a little bit of a circular discussion, reverting back to the same old points and there might be fundamental disagreements on priorities, but at least we can be aware of how everyone is approaching crypto. Should crypto be a flop or flourish we can say that at least we were thinking about it.

Agreed. Cheers mate! I always enjoy a cordial debate so long as things are civil and everyone for the most part is being very civil. Both sides benefit from a civil discussion.

The reason that stablecoins exist is that they're a bandaid for the problem that crypto is unusuable as a currency.  Assuming that crypto of some form ever ends up used as a legitimate currency, I'd expect that the demand for stablecoins would drop off quite a bit.

I would say that stable coins exist as a band-aid to the current traditional financial system. No one is buying stable coins as a means to escape the volatility of cryptocurrencies or using stable coins for making purchases, etc. People are using them as a means of sending fiat USD from one exchange to another. This is where the legacy systems have completely failed. It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another. I would also say that it is a way for traders send USD to off shore exchanges where legacy systems just don't serve. I've never used a stable coin before as I've never had a need for one because I don't trade at all. But that was always how I've seen them being used.
« Last Edit: February 05, 2022, 10:31:44 AM by lifeanon269 »

GuitarStv

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Re: What do you think of adding a low% of crypto allocation
« Reply #957 on: February 05, 2022, 10:42:07 AM »
It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another.

That's not a real problem.  I've been able to instantly send money to other people in other countries since the early 2000s with Paypal.

LateStarter

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Re: What do you think of adding a low% of crypto allocation
« Reply #958 on: February 05, 2022, 10:50:14 AM »
Not sure I understand the StashingAway / ChpBstrd argument.

In very simple terms:

Even if you were ultimately forced to convert your unspendable USD to BTC, at whatever exchange rate, the market would be setting the prices in BTC just as it now sets them in USD.
It's not like the price of a loaf of bread would suddenly go from I USD to 1 BTC. In all likelihood it would cost the same in real terms.

The argument that late-adopters lose money in this scenario makes no sense. They merely missed the opportunity to make money.
Early-adopters would make money but, as has been pointed out, that risk/opportunity bet is open to everyone. Early-adopters took a risk, staked some money on an uncertain outcome, and won. What's wrong with that ?

Most people don't know a damned thing about Bitcoin. They've not even considered buying any in the near term. They have, by default, opted out from being an early-adopter.
Most people also don't know a damned thing about stock markets or forex or futures or options or bonds or commodities or . . or . . or . . or . . and don't actively participate in any of those things either. I fail to see the difference.


Young people of today (the late-adopters) are forced to buy into a highly-inflated property market and, if they have any money left over, have little choice but to buy into a highly-inflated stock market.
Most of us here (the earlier-adopters) have benefited greatly from those highly-inflated property and stock prices. Are we early-adopters stealing from the young late-adopters ? How is this not exactly the same ? I think it's probably worse.

lifeanon269

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Re: What do you think of adding a low% of crypto allocation
« Reply #959 on: February 05, 2022, 11:13:05 AM »
It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another.

That's not a real problem.  I've been able to instantly send money to other people in other countries since the early 2000s with Paypal.

It absolutely is a real problem. I've been working for a financial institution for 18+ years. It is a huge problem and institutions have actively been trying to come up with solutions for it over the last few years. Paypal?!?! That is not a solution here. Try sending tens of thousands of dollars with PayPal. Also, we're not talking about peer-to-peer transactions here. Stablecoins aren't being used for peer-2-peer payments. We're talking about sending large funds from one institution to another, often times in another country. I can unequivocally say that stable coins came about to solve this problem and it was a legacy financial institution problem.

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #960 on: February 05, 2022, 12:23:48 PM »
It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another.

That's not a real problem.  I've been able to instantly send money to other people in other countries since the early 2000s with Paypal.

It absolutely is a real problem. I've been working for a financial institution for 18+ years. It is a huge problem and institutions have actively been trying to come up with solutions for it over the last few years. Paypal?!?! That is not a solution here. Try sending tens of thousands of dollars with PayPal. Also, we're not talking about peer-to-peer transactions here. Stablecoins aren't being used for peer-2-peer payments. We're talking about sending large funds from one institution to another, often times in another country. I can unequivocally say that stable coins came about to solve this problem and it was a legacy financial institution problem.

Just transferred over 300k from principal to my chosen financial institution and it was done in less than 24 hours and reinvested at a cost of 70 dollars.

How much would that same transaction have cost me using Bitcoin. And how much would that time have really been worth happening faster?  Oh and my chosen institution gave me 1500 for the transfer and reimbursed the 70 dollars in fees.

There are extremely rare legal circumstances where hundreds of thousands of dollars need to change hands instantly.

Niceday

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Re: What do you think of adding a low% of crypto allocation
« Reply #961 on: February 05, 2022, 12:31:54 PM »

It absolutely is a real problem. I've been working for a financial institution for 18+ years. It is a huge problem and institutions have actively been trying to come up with solutions for it over the last few years. Paypal?!?! That is not a solution here. Try sending tens of thousands of dollars with PayPal. Also, we're not talking about peer-to-peer transactions here. Stablecoins aren't being used for peer-2-peer payments. We're talking about sending large funds from one institution to another, often times in another country. I can unequivocally say that stable coins came about to solve this problem and it was a legacy financial institution problem.

Just transferred over 300k from principal to my chosen financial institution and it was done in less than 24 hours and reinvested at a cost of 70 dollars.

How much would that same transaction have cost me using Bitcoin. And how much would that time have really been worth happening faster?  Oh and my chosen institution gave me 1500 for the transfer and reimbursed the 70 dollars in fees.

There are extremely rare legal circumstances where hundreds of thousands of dollars need to change hands instantly.

Was this $300k sent to you by you within the same country?

beee

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Re: What do you think of adding a low% of crypto allocation
« Reply #962 on: February 05, 2022, 12:37:40 PM »
sending money from Russia to Canada via wire transfer was not a problem several years ago
it cost like $20 or $30 for "tens of thousands", took a couple of business days, if I remember correctly

what problem are stablecoins solving then?

lifeanon269

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Re: What do you think of adding a low% of crypto allocation
« Reply #963 on: February 05, 2022, 02:22:44 PM »
sending money from Russia to Canada via wire transfer was not a problem several years ago
it cost like $20 or $30 for "tens of thousands", took a couple of business days, if I remember correctly

what problem are stablecoins solving then?

Just transferred over 300k from principal to my chosen financial institution and it was done in less than 24 hours and reinvested at a cost of 70 dollars.

How much would that same transaction have cost me using Bitcoin. And how much would that time have really been worth happening faster?  Oh and my chosen institution gave me 1500 for the transfer and reimbursed the 70 dollars in fees.

There are extremely rare legal circumstances where hundreds of thousands of dollars need to change hands instantly.

It would have cost you about 20 cents and settled in about 10 minutes currently with bitcoin, but that's beside the point.

What I am not sure some of you are understanding is that most of these cryptocurrency exchanges are not involved with most of the clearing houses that traditional financial institutions settle with. So a lot of those rails are not an option. Furthermore, when making a cryptocurrency exchange, because cryptocurrency transactions are non-reversible, they must ensure that deposits are settled immediately to their system. They can't afford to have someone deposit cash to their system and have them exchange it for cryptocurrency and have it withdrawn only to have the deposit not fully clear. So most deposits done with ACH or wire transfers are fronted by the exchange, but there is a delay for any withdraws until the deposit is actually cleared with the traditional financial institution. Stable coins were created as basically a way for these exchanges to have a means of settling between each other without that delay. You can send tens of thousands of dollars with a stablecoin from one exchange to another anywhere in the world and have it instantly settled with complete finality. Stablecoins will settle immediately which means traders can complete and withdraw their trades immediately as well. Waiting a couple days for a fiat transaction to settle in the traditional financial system is overly cumbersome for most traders.

Like I said, I'm not a trader and I don't speculatively day trade, but I am well aware of the need that caused these stablecoins to come about and it absolutely is because of some of the limitations of the traditional finance systems and the lack of access to the traditional system many of these exchange have.

Transactions in the traditional finance world takes quite some time to settle with finality. Usually when you make a payment or deposit money, that money is shown as being deposited immediately but it isn't fully settled with the clearing house for days. The institution is just fronting you the money because you have a relationship with them and they want to make the appearances that everything was deposited successfully. In a world where cryptocurrency can be withdrawn irreversibly, customers can't be allowed that privilege.

StashingAway

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Re: What do you think of adding a low% of crypto allocation
« Reply #964 on: February 05, 2022, 02:45:05 PM »
Even if you were ultimately forced to convert your unspendable USD to BTC, at whatever exchange rate, the market would be setting the prices in BTC just as it now sets them in USD.
It's not like the price of a loaf of bread would suddenly go from I USD to 1 BTC. In all likelihood it would cost the same in real terms.

Ok, let me try to clarify it a bit because I thin you're missing the devaluation of wealth part that I'm talking about.

I see a new kind of purple seashell on the coast of California. I say, "huh, that looks pretty cool. And it's unique and limited, but they're all over the shore here. I'm going to start collecting them and tell my friends to collect them because I think they'll be useful some day". I then do the same, and word gets out that folks are collecting seashells in Cali. Many in the know gather a bunch of bucketfuls that can be found at their feet, and realizing that they are running out of easy to access ones they start creating machines that can gather them in the shallows. Others come out of the woodworks to do the same. Some because they're bored and have time, others because the happen to live on that beach. Some folks think the blue or green seashells will be worth more (after all, the green ones are still being grown, ableit slowly, by crabs so they aren't unlimited).

We start trading the seashells for various things. Turns out foragers in Oregon happily send some mushrooms my way for the purple seashells because they can then trade the seashells to their buddies in Portland, say, 10,000 purple seashells for a pizza.

Corporations and foreign entities start hearing about it and send their workers to the coast to start gathering as well. Naturally, the seashells are harder to gather, but they have the resources to make large gathering rigs that can go deeper and get the harder to find seashells.

This mediphor is pretty obvious at this point, but let's keep going.

Eventually whole swaths of the world are trading in seashells. Those original gatherers of course don't have the lion's share, but they do have a disproportionate amount relative to their effort because they got the easy shoreside shells in buckets.

Eventually, my teacher cousin goes to the the grocery store with his USD and they say, "hey, we only accept purple seashells now. that loaf of bread is worth 1 seashell". He says, "fine, I'll go transfer my shells", but by the time he transfers, he can convert 100USD to one seashell. Last week the grocery store bought a bunch of seashells at 2USD per seashell as did most of the other corporations (how do you think the price got to 100USD per?). While no $ was actually lost here, his net valuation has dropped to 1/50 of what it would have been under USD.

This is particularly cruel because the original seashells were sold as alternatives to money that weren't subject to the whims of governmet, therefore would help the less fortunate navigate this world run by evil corps.

The way most of the crypto schemes play out is more similar to the above IMO. The general population won't be able to get in on the mad rush once it becomes apparent that USD is on it's way out. It will favor the already wealthy and connected (or, technologically ept). There doesn't seem to be a mechanism in which the poor (poor in education, wealth, experience or luck) make out better with crypto than with USD. It's bad for all of them.

You can say it won't happen that way but that's only as good as me saying that it will so where does that put us? I'm open to the idea of other currencies- Earth credits or whatever- but I don't think it can be a buy-in scheme.

Young people of today (the late-adopters) are forced to buy into a highly-inflated property market and, if they have any money left over, have little choice but to buy into a highly-inflated stock market.
Most of us here (the earlier-adopters) have benefited greatly from those highly-inflated property and stock prices. Are we early-adopters stealing from the young late-adopters ? How is this not exactly the same ? I think it's probably worse.

There are some differences, and I would think they're critical. Young people today are not forced to buy real estate. You don't have to own a house to transact or work or eat. It is indeed harder to participate in buying a house in the last few years, but again this isn't a currency issue. This is an issue with things like housing zoning and foreign purchase regulation. Switching currency does nothing to solve these issues whatsoever, it just creates another layer of them. If crypto were adopted, young late adopters are screwed not only by wage stagnation, high property value, high healthcare costs, but also missing out on the currency conversion? Many unlucky folks, mainly the poor, would probably be hit even harder by this. We're talking about all of the folks who are line workers in Oaklahoma or 40 year old cement workers in Washington or whatnot.

The second critical difference is that young people and early adopters are not analogous. Young people have always stepped into life with less resources than the old as a general rule. I graduated during the great recession. I was too poor to take advantage of the housing crash and it set my career back by years because of the lack of jobs. You know what? I'm doing fine right now. Just plugged away and index invested and while I wasn't able to time the market in any way, I also was able to keep a shirt on my back. This happened in the early 2000's and early 90's and early 80's... it's cyclic and it's the entire premise behind index investing. Every time it happens people hit it at bad times, but it's not a signifier that something is wrong, it's the nature of market pendulum swings. By the time I'm old I will have enough wealth to weather another downturn which is good as I won't have 40 years of workforce opportunity in front of me. If bitcoin becomes the main currency when I'm old and my live savings goes to 1/10 of it's equivalent USD value, then I'm screwed through no fault of my own and with no recourse. My other option to avoid this is to try to guess which coin will come out on top and invest enough of my savings in it to cover me. If I don't do it quick enough, I loose advantage of fair conversion, but if I do it too soon, I've sunk my life's savings into a failing coin.
« Last Edit: February 05, 2022, 02:55:35 PM by StashingAway »

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #965 on: February 05, 2022, 03:10:11 PM »
Y'all are missing the point. This is the future of the internet and currency.  And it solves 90% of the problems we have in this world. If we implement this on all systems from health care to taxes not only do we solve every issue we've been fighting politically it also solves global warming. Ah shit that is a political issue.

You just wait y'all are mad you didn buy in 4 months ago at 65k like I did.  Suck it bitches! 

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #966 on: February 05, 2022, 03:25:15 PM »
Currently it's only utility is a trading card game and y'all know what Pokemon 1st editions are selling for now. Get yourself on the ground floor of MTG and you can be a billionaire tomorrow. I mean technically we're at the top of trump tower (if you ask trump bc there is only one floor the TOP!). But we know it's going higher. Pretty soon youll see eve more utility. We'll be the new ticketmaster you know how much that shit is worth. Direct to artists from the consumers. You know just paying us a bit to process.  We're way better than ticketmaster though bc you know no evil corporation just a bunch of computers inefficiently solving the same equation til one gets it right and gets SOME OF YO MONEY! 

BUT SOMEONE WILL PAY You MORE FOR THIS. YOU KNOW IT I ONOW IT WE ALL KNOW IT.

FUTURES BITCHES!

lifeanon269

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Re: What do you think of adding a low% of crypto allocation
« Reply #967 on: February 05, 2022, 03:36:34 PM »
Eventually, my teacher cousin goes to the the grocery store with his USD and they say, "hey, we only accept purple seashells now. that loaf of bread is worth 1 seashell". He says, "fine, I'll go transfer my shells", but by the time he transfers, he can convert 100USD to one seashell. Last week the grocery store bought a bunch of seashells at 2USD per seashell as did most of the other corporations (how do you think the price got to 100USD per?). While no $ was actually lost here, his net valuation has dropped to 1/50 of what it would have been under USD.

This is the part that doesn't make sense and I feel you just skipped right to it without explanation just to fulfill your point. Why did the price of a loaf of bread just from its typical price to now over 100USD worth of seashells?

Let's say the price of 1 bitcoin is 1 dollar, for the sake of making the numbers easier. There are a bunch of people that got rich on bitcoin because they bought in when it was only worth ten thousandths of a penny. The price of bread is still $1 and the transition to a bitcoin economy is well underway. You're late to the game, but you're still earning what you've always earned, you just missed the boat with bitcoin. So now you need to transfer your wealth to bitcoin at an exchange of 1BTC for $1. You didn't lose any wealth at all because you're just exchanging at the fair market rate. What you're not explaining here is why suddenly there was massively hyper-inflation (I already mentioned earlier that this scenario excludes hyper-inflation scenarios).

Again, minus any hyper-inflation, there isn't any loss of value that you experienced and even if there was hyper-inflation, bitcoin could hardly be blamed for that and should even be seen as a refuge in such a case.

In a hyper-inflation scenario I would say you're right. Those that fail to abandon ship would certainly miss out and you're absolutely going to want to flee to something like bitcoin for refuge. But that wouldn't be bitcoin's fault and bitcoin would in fact be a safety net in those situations (see Venezuela, Turkey, Zimbabwe, Lebanon, etc). But what we're talking about is a world where there isn't any hyper-inflation but just that bitcoin is seeing more adoption and is now simply becoming widely used with its own circular economy and with more options to take earnings in bitcoin. There wouldn't be price inflation (ie, CPI) and so you're not losing anything by missing out on bitcoin's massive appreciation. You just simply exchange your current wealth and wages at the current fair market price.

If bitcoin becomes the main currency when I'm old and my live savings goes to 1/10 of it's equivalent USD value, then I'm screwed through no fault of my own and with no recourse. My other option to avoid this is to try to guess which coin will come out on top and invest enough of my savings in it to cover me. If I don't do it quick enough, I loose advantage of fair conversion, but if I do it too soon, I've sunk my life's savings into a failing coin.

What do you mean a "fair conversion"? The exchange rate at any given time for BTC\USD will always be the fair market price. Again, you just kind of skip to that claim without much economic theory as to why you think your wealth would suddenly go to 1/10 of its value. Do you think that Amazon and Microsoft would suddenly just stop being Amazon and Microsoft in a world where bitcoin is adopted as currency? Economic production in our world is still the same and that doesn't change. Farmers still grow food, chip makers still make computer chips, loggers still log trees for wood, etc. Bitcoin doesn't change any of that. Our economy keeps rolling as it always has and the work and production you do today would still have the same value relative to the cost of goods (minus any other variables like automation, demand, etc). I don't understand why you claim that all wealth outside of bitcoin would come crashing down and each time you skip right to that part in your examples you fail to explain why you think that.

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Re: What do you think of adding a low% of crypto allocation
« Reply #968 on: February 05, 2022, 03:43:24 PM »
I'm out.

Sorry I'll bookmark this thread to return in 10 years to say told ya so and dance on the tears of the followers. Maybe sooner.
Apparently not?  If you're going to return less than a week later, maybe don't post "I'm out... to return in 10 years"?


It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another.

That's not a real problem.  I've been able to instantly send money to other people in other countries since the early 2000s with Paypal.
It absolutely is a real problem. I've been working for a financial institution for 18+ years. It is a huge problem and institutions have actively been trying to come up with solutions for it over the last few years. Paypal?!?! That is not a solution here. Try sending tens of thousands of dollars with PayPal. Also, we're not talking about peer-to-peer transactions here. Stablecoins aren't being used for peer-2-peer payments. We're talking about sending large funds from one institution to another, often times in another country. I can unequivocally say that stable coins came about to solve this problem and it was a legacy financial institution problem.

Just transferred over 300k from principal to my chosen financial institution and it was done in less than 24 hours and reinvested at a cost of 70 dollars.

How much would that same transaction have cost me using Bitcoin. And how much would that time have really been worth happening faster?  Oh and my chosen institution gave me 1500 for the transfer and reimbursed the 70 dollars in fees.
Clearly a sign up bonus for a new account.  That doesn't represent the normal situation for international wire transfers.

Someone transferring $300k using PayPal would get charged 3%, or about $9,000 for the transaction.

Right now it looks like someone would pay $2 to transfer $300k on Bitcoin's network.
https://bitinfocharts.com/comparison/bitcoin-transactionfees.html#3y

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #969 on: February 05, 2022, 03:47:42 PM »
Wait wait guys let's say for the sake of argument this currency that's not a currency bc it's gold. Ahh shit I mean let's just say today they're equal. One has a finite supply and cannot be used as currency.

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #970 on: February 05, 2022, 03:49:28 PM »
I'm out.

Sorry I'll bookmark this thread to return in 10 years to say told ya so and dance on the tears of the followers. Maybe sooner.
Apparently not?  If you're going to return less than a week later, maybe don't post "I'm out... to return in 10 years"?


It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another.

That's not a real problem.  I've been able to instantly send money to other people in other countries since the early 2000s with Paypal.
It absolutely is a real problem. I've been working for a financial institution for 18+ years. It is a huge problem and institutions have actively been trying to come up with solutions for it over the last few years. Paypal?!?! That is not a solution here. Try sending tens of thousands of dollars with PayPal. Also, we're not talking about peer-to-peer transactions here. Stablecoins aren't being used for peer-2-peer payments. We're talking about sending large funds from one institution to another, often times in another country. I can unequivocally say that stable coins came about to solve this problem and it was a legacy financial institution problem.

Just transferred over 300k from principal to my chosen financial institution and it was done in less than 24 hours and reinvested at a cost of 70 dollars.

How much would that same transaction have cost me using Bitcoin. And how much would that time have really been worth happening faster?  Oh and my chosen institution gave me 1500 for the transfer and reimbursed the 70 dollars in fees.
Clearly a sign up bonus for a new account.  That doesn't represent the normal situation for international wire transfers.

Someone transferring $300k using PayPal would get charged 3%, or about $9,000 for the transaction.

Right now it looks like someone would pay $2 to transfer $300k on Bitcoin's network.
https://bitinfocharts.com/comparison/bitcoin-transactionfees.html#3y

Just putting this out there one time so you stop responding. You're on my ignore list.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #971 on: February 05, 2022, 03:53:50 PM »
@lifeanon269
It must be something strange happening to crypto holders. Once they get crypto they become strange. Like a cult members.  Jehovah witness like. I sense some deep insecurity.
...
Why we have to agree with your crypto investments? The answer seems simple. Bros have to pump because this makes more chances on their gamble. Deep inside they have insecurities about crypto. If you really believe in crypto, why do that? I happened to e.g. think that SOXX has good long term outlook, but i don't force everyone around me to get it. It is all so weird.
You do not have to agree - nor even visit the only crypto thread on the forum.

Why the need for personal attacks about "deep insecurities"?  Does it bother you other people could make money without passively investing?

Which is my point - this forum has people who "really believe" in passive investing which many forum members "have to pump".  If they "really believe in" passive investing, "why do that"?  Yes, the "cult" of passive investing "is all so weird".

Or, passive investing could be appropriate for many people... crypto could be appropriate for many people... and there could even be overlap.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #972 on: February 05, 2022, 03:54:48 PM »
I'm out.

Sorry I'll bookmark this thread to return in 10 years to say told ya so and dance on the tears of the followers. Maybe sooner.
Apparently not?  If you're going to return less than a week later, maybe don't post "I'm out... to return in 10 years"?


It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another.

That's not a real problem.  I've been able to instantly send money to other people in other countries since the early 2000s with Paypal.
It absolutely is a real problem. I've been working for a financial institution for 18+ years. It is a huge problem and institutions have actively been trying to come up with solutions for it over the last few years. Paypal?!?! That is not a solution here. Try sending tens of thousands of dollars with PayPal. Also, we're not talking about peer-to-peer transactions here. Stablecoins aren't being used for peer-2-peer payments. We're talking about sending large funds from one institution to another, often times in another country. I can unequivocally say that stable coins came about to solve this problem and it was a legacy financial institution problem.

Just transferred over 300k from principal to my chosen financial institution and it was done in less than 24 hours and reinvested at a cost of 70 dollars.

How much would that same transaction have cost me using Bitcoin. And how much would that time have really been worth happening faster?  Oh and my chosen institution gave me 1500 for the transfer and reimbursed the 70 dollars in fees.
Clearly a sign up bonus for a new account.  That doesn't represent the normal situation for international wire transfers.

Someone transferring $300k using PayPal would get charged 3%, or about $9,000 for the transaction.

Right now it looks like someone would pay $2 to transfer $300k on Bitcoin's network.
https://bitinfocharts.com/comparison/bitcoin-transactionfees.html#3y

Just putting this out there one time so you stop responding. You're on my ignore list.
You replied to state you are ignoring me.  Which is it?  You reply, or ignore me?
And don't say you're ignoring me for 10 years - you've already tried that trick.

My point was that your free international wire transfer is a bogus comparison - you opened an account, and were given it free as a benefit.  You can't compare that to normal money transfers and pretend they're all free.

The scenario that was being discussed was PayPal, charging 3% or $9,000 of a $300k transfer... versus Bitcoin charging about $2 for a transfer of that amount.
« Last Edit: February 05, 2022, 03:57:16 PM by MustacheAndaHalf »

GuitarStv

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Re: What do you think of adding a low% of crypto allocation
« Reply #973 on: February 05, 2022, 04:11:30 PM »
I'm out.

Sorry I'll bookmark this thread to return in 10 years to say told ya so and dance on the tears of the followers. Maybe sooner.
Apparently not?  If you're going to return less than a week later, maybe don't post "I'm out... to return in 10 years"?


It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another.

That's not a real problem.  I've been able to instantly send money to other people in other countries since the early 2000s with Paypal.
It absolutely is a real problem. I've been working for a financial institution for 18+ years. It is a huge problem and institutions have actively been trying to come up with solutions for it over the last few years. Paypal?!?! That is not a solution here. Try sending tens of thousands of dollars with PayPal. Also, we're not talking about peer-to-peer transactions here. Stablecoins aren't being used for peer-2-peer payments. We're talking about sending large funds from one institution to another, often times in another country. I can unequivocally say that stable coins came about to solve this problem and it was a legacy financial institution problem.

Just transferred over 300k from principal to my chosen financial institution and it was done in less than 24 hours and reinvested at a cost of 70 dollars.

How much would that same transaction have cost me using Bitcoin. And how much would that time have really been worth happening faster?  Oh and my chosen institution gave me 1500 for the transfer and reimbursed the 70 dollars in fees.
Clearly a sign up bonus for a new account.  That doesn't represent the normal situation for international wire transfers.

Someone transferring $300k using PayPal would get charged 3%, or about $9,000 for the transaction.

Right now it looks like someone would pay $2 to transfer $300k on Bitcoin's network.
https://bitinfocharts.com/comparison/bitcoin-transactionfees.html#3y

Just putting this out there one time so you stop responding. You're on my ignore list.
You replied to state you are ignoring me.  Which is it?  You reply, or ignore me?
And don't say you're ignoring me for 10 years - you've already tried that trick.

My point was that your free international wire transfer is a bogus comparison - you opened an account, and were given it free as a benefit.  You can't compare that to normal money transfers and pretend they're all free.

The scenario that was being discussed was PayPal, charging 3% or $9,000 of a $300k transfer... versus Bitcoin charging about $2 for a transfer of that amount.

Where are you getting your numbers from?

paypal.com/ca/webapps/mpp/paypal-fees

Quote
Sending and receiving money

When you send money (initiated from the “Friends and Family” tab of the “Send Money” flow) to, or receive money into your PayPal account from, friends and family without making an underlying commercial transaction (that is, the payment is not for the purchase of goods or services or for making any other commercial transaction), we call that a “personal transaction”.

The rates relating to personal transactions are set out below.

Sending domestic personal transactions
PayPal balance or a bank account - No Fee

Sending international personal transactions
Europe I, Europe II, Northern Europe, and United States - PayPal balance or a bank account   2.99 CAD
Any other market/region - PayPal balance or a bank account   4.99 CAD

So we're talking about (worst possible case) 4.99 vs 2$ . . . of course this comes with the caveat that by the time you buy bitcoin and send it, the person you're sending to receives it, and then they turn it into real money to spend it it 's a lottery if the receiver actually get the value that you wanted to send.  It could very well be worth a higher or a lower amount.

Not really seeing any amazing crypto utility here.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #974 on: February 05, 2022, 04:37:42 PM »
I'm out.

Sorry I'll bookmark this thread to return in 10 years to say told ya so and dance on the tears of the followers. Maybe sooner.
Apparently not?  If you're going to return less than a week later, maybe don't post "I'm out... to return in 10 years"?


It takes days to perform an ACH or wire transfer and when you want to send USD instantly from one exchange to another, that just doesn't cut it. They're essentially just using them as a transaction rail from one institution to another.

That's not a real problem.  I've been able to instantly send money to other people in other countries since the early 2000s with Paypal.
It absolutely is a real problem. I've been working for a financial institution for 18+ years. It is a huge problem and institutions have actively been trying to come up with solutions for it over the last few years. Paypal?!?! That is not a solution here. Try sending tens of thousands of dollars with PayPal. Also, we're not talking about peer-to-peer transactions here. Stablecoins aren't being used for peer-2-peer payments. We're talking about sending large funds from one institution to another, often times in another country. I can unequivocally say that stable coins came about to solve this problem and it was a legacy financial institution problem.

Just transferred over 300k from principal to my chosen financial institution and it was done in less than 24 hours and reinvested at a cost of 70 dollars.

How much would that same transaction have cost me using Bitcoin. And how much would that time have really been worth happening faster?  Oh and my chosen institution gave me 1500 for the transfer and reimbursed the 70 dollars in fees.
Clearly a sign up bonus for a new account.  That doesn't represent the normal situation for international wire transfers.

Someone transferring $300k using PayPal would get charged 3%, or about $9,000 for the transaction.

Right now it looks like someone would pay $2 to transfer $300k on Bitcoin's network.
https://bitinfocharts.com/comparison/bitcoin-transactionfees.html#3y

Just putting this out there one time so you stop responding. You're on my ignore list.
You replied to state you are ignoring me.  Which is it?  You reply, or ignore me?
And don't say you're ignoring me for 10 years - you've already tried that trick.

My point was that your free international wire transfer is a bogus comparison - you opened an account, and were given it free as a benefit.  You can't compare that to normal money transfers and pretend they're all free.

The scenario that was being discussed was PayPal, charging 3% or $9,000 of a $300k transfer... versus Bitcoin charging about $2 for a transfer of that amount.

Where are you getting your numbers from?

paypal.com/ca/webapps/mpp/paypal-fees

Quote
Sending and receiving money

When you send money (initiated from the “Friends and Family” tab of the “Send Money” flow) to, or receive money into your PayPal account from, friends and family without making an underlying commercial transaction (that is, the payment is not for the purchase of goods or services or for making any other commercial transaction), we call that a “personal transaction”.

The rates relating to personal transactions are set out below.

Sending domestic personal transactions
PayPal balance or a bank account - No Fee

Sending international personal transactions
Europe I, Europe II, Northern Europe, and United States - PayPal balance or a bank account   2.99 CAD
Any other market/region - PayPal balance or a bank account   4.99 CAD

So we're talking about (worst possible case) 4.99 vs 2$ . . . of course this comes with the caveat that by the time you buy bitcoin and send it, the person you're sending to receives it, and then they turn it into real money to spend it it 's a lottery if the receiver actually get the value that you wanted to send.  It could very well be worth a higher or a lower amount.

Not really seeing any amazing crypto utility here.
I guess the $300k USD transaction wouldn't work with PayPal anyways - you would have to wait about 2 months to withdraw it, according to the "Withdrawal Limits" section.

Looks like PayPal puts most of the burden on commercial transactions, where they charge 3.5% domestic, and another 1.5% for international.  So maybe 5% of $300k?

"PayPal Checkout   3.49% + fixed fee"

"Additional percentage-based fee for international commercial transactions
All Commercial Transactions - (excluding American Express Payments)   1.50%"

https://www.paypal.com/us/webapps/mpp/merchant-fees#statement-2


Juan Ponce de León

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Re: What do you think of adding a low% of crypto allocation
« Reply #975 on: February 05, 2022, 04:45:41 PM »
I can't imagine anyone risking sending a large amount with paypal, not only due to the fees but locking accounts for months to 'investigate' the funds etc.  You couldn't pay me to use paypal, their share price has tanked too, they deserve it.

lifeanon269

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Re: What do you think of adding a low% of crypto allocation
« Reply #976 on: February 05, 2022, 05:07:42 PM »
Not to mention that PayPal transactions and just transactions between funds held within the same institution. It is just PayPal changing the balance from one of their users to another. It isn't sending it from one institution to another which is what the topic of stablecoins was in regards to. It technically isn't a transfer of funds, it is just an accounting change at PayPal where both of the users have accounts with PayPal and both reside on countries where PayPal does business. Stablecoins are allowing individuals transfer funds immediately between completely separate institutions globally. In otherwords, it is an apples to oranges comparison.

PayPal is for peer to peer transactions similar to Venmo, CashApp, Zelle and others like it. But they're all closed systems. Stablecoins are for transferring funds quickly between completely different institutions globally that support those stablecoins.

LateStarter

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Re: What do you think of adding a low% of crypto allocation
« Reply #977 on: February 05, 2022, 05:18:27 PM »
Even if you were ultimately forced to convert your unspendable USD to BTC, at whatever exchange rate, the market would be setting the prices in BTC just as it now sets them in USD.
It's not like the price of a loaf of bread would suddenly go from I USD to 1 BTC. In all likelihood it would cost the same in real terms.
. . . .

Eventually, my teacher cousin goes to the the grocery store with his USD and they say, "hey, we only accept purple seashells now. that loaf of bread is worth 1 seashell". He says, "fine, I'll go transfer my shells", but by the time he transfers, he can convert 100USD to one seashell. Last week the grocery store bought a bunch of seashells at 2USD per seashell as did most of the other corporations (how do you think the price got to 100USD per?). While no $ was actually lost here, his net valuation has dropped to 1/50 of what it would have been under USD. [/b][/i]

. . . .

The scenario being discussed here is that of universal adoption of Bitcoin as the currency. Under those circumstances, where does the volatility come from ? Especially 50x / week volatility ! That's a pretty rough week even by today's standards !
Bitcoin's volatility would surely settle in proportion to it's wider adoption. If we approach universality, volatility should approach zero.

Young people of today (the late-adopters) are forced to buy into a highly-inflated property market and, if they have any money left over, have little choice but to buy into a highly-inflated stock market.
Most of us here (the earlier-adopters) have benefited greatly from those highly-inflated property and stock prices. Are we early-adopters stealing from the young late-adopters ? How is this not exactly the same ? I think it's probably worse.

There are some differences, and I would think they're critical. Young people today are not forced to buy real estate. You don't have to own a house to transact or work or eat. It is indeed harder to participate in buying a house in the last few years, but again this isn't a currency issue.
. . . .

I think you misunderstood my point here. I'm not offering Bitcoin as a solution to this problem. I'm simply pointing out that these everyday conventional scenarios have the same early vs late adopter problems that seem to concern you.

And young people are forced to participate in the housing market one way or another, unless they are to live on the street / eternally with parents, etc.

. . . .
If bitcoin becomes the main currency when I'm old and my live savings goes to 1/10 of it's equivalent USD value, then I'm screwed through no fault of my own and with no recourse. My other option to avoid this is to try to guess which coin will come out on top and invest enough of my savings in it to cover me. If I don't do it quick enough, I loose advantage of fair conversion, but if I do it too soon, I've sunk my life's savings into a failing coin.

Assuming a USD-to-Bitcoin transition wouldn't happen in an instant (which seems highly unlikely by any measure) there would be plenty of time for everyone to start making decisions about gradually or completely transferring their wealth.
Some have already started; they might do well but they risk losing everything if the project fails and Bitcoin goes to zero. Some would leave it until the last minute and they would get the safest transfer but probably at the least favourable conversion rate. This is standard risk/reward stuff.

Where does your imagined 90% loss come from ?

If you're the last person on earth to transfer the last USD into Bitcoin you will probably buy it at it's peak price vs USD, let's say 1 USD = n BTC. I'm struggling to imagine why, on that day, that 1 USD loaf of bread would cost anything other than n BTC.
In any case, if a significant price difference did exist, there's a clear arbitrage opportunity for you there !

Niceday

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Re: What do you think of adding a low% of crypto allocation
« Reply #978 on: February 05, 2022, 05:58:12 PM »

Where are you getting your numbers from?

paypal.com/ca/webapps/mpp/paypal-fees

Quote
Sending and receiving money

When you send money (initiated from the “Friends and Family” tab of the “Send Money” flow) to, or receive money into your PayPal account from, friends and family without making an underlying commercial transaction (that is, the payment is not for the purchase of goods or services or for making any other commercial transaction), we call that a “personal transaction”.

The rates relating to personal transactions are set out below.

Sending domestic personal transactions
PayPal balance or a bank account - No Fee

Sending international personal transactions
Europe I, Europe II, Northern Europe, and United States - PayPal balance or a bank account   2.99 CAD
Any other market/region - PayPal balance or a bank account   4.99 CAD

So we're talking about (worst possible case) 4.99 vs 2$ . . . of course this comes with the caveat that by the time you buy bitcoin and send it, the person you're sending to receives it, and then they turn it into real money to spend it it 's a lottery if the receiver actually get the value that you wanted to send.  It could very well be worth a higher or a lower amount.

Not really seeing any amazing crypto utility here.

The same paypal link shows that there is a minimum of 4% fee for currency conversion. When you send USD $300k internationally, they'll make a lot of money on the money exchange which in this case is $12,000 + $4.99.

GuitarStv

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Re: What do you think of adding a low% of crypto allocation
« Reply #979 on: February 05, 2022, 06:46:37 PM »

Where are you getting your numbers from?

paypal.com/ca/webapps/mpp/paypal-fees

Quote
Sending and receiving money

When you send money (initiated from the “Friends and Family” tab of the “Send Money” flow) to, or receive money into your PayPal account from, friends and family without making an underlying commercial transaction (that is, the payment is not for the purchase of goods or services or for making any other commercial transaction), we call that a “personal transaction”.

The rates relating to personal transactions are set out below.

Sending domestic personal transactions
PayPal balance or a bank account - No Fee

Sending international personal transactions
Europe I, Europe II, Northern Europe, and United States - PayPal balance or a bank account   2.99 CAD
Any other market/region - PayPal balance or a bank account   4.99 CAD

So we're talking about (worst possible case) 4.99 vs 2$ . . . of course this comes with the caveat that by the time you buy bitcoin and send it, the person you're sending to receives it, and then they turn it into real money to spend it it 's a lottery if the receiver actually get the value that you wanted to send.  It could very well be worth a higher or a lower amount.

Not really seeing any amazing crypto utility here.

The same paypal link shows that there is a minimum of 4% fee for currency conversion. When you send USD $300k internationally, they'll make a lot of money on the money exchange which in this case is $12,000 + $4.99.

What's the conversion fee going from real currency to crypto and then back to a real currency?

lifeanon269

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Re: What do you think of adding a low% of crypto allocation
« Reply #980 on: February 05, 2022, 07:32:45 PM »
What's the conversion fee going from real currency to crypto and then back to a real currency?

Depends on the exchange, but most rates are pretty competitive between exchanges. Gemini's are anywhere from 0.1-0.35%. The more volume you're doing the lower your fee (sometimes even reaching 0%).

https://www.gemini.com/fees/activetrader-fee-schedule#section-active-trader-fee-schedule

ChpBstrd

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Re: What do you think of adding a low% of crypto allocation
« Reply #981 on: February 05, 2022, 11:37:18 PM »
@ChpBstrd there are a few flaws I think in your analysis.

1) Any transition to a bitcoin circular economy (if we are to assume it occurs) would not happen cold turkey nor over night. FWIW I don't feel we'll ever be in a solely bitcoin circular economy and FIAT is here to stay. But for the sake of the scenario, if it were to happen, it would be a transitional event. Merchants that choose to accept bitcoin would accept bitcoin along side fiat currencies much like some are doing today.

2) The other flaw in your analysis is that if merchants were to move to only accepting bitcoin as a form of payment, they would only be doing so under the premise that sales in fiat currency have been completely abandoned. If sales in fiat payments are still being made in any meaningful volume, then I don't see them just abandoning it (barring any hyper-inflationary collapse).

3) This means that if fiat sales have been completely abandoned, it is mostly like because people are being paid in bitcoin. So the idea you're making that you'd need to "will be forced to purchase that currency from people who currently own it" is a false premise. We have exchanges today because we're in a fiat world and we're all paid in fiat currency and so that is how you acquire it today. If we were instead in a bitcoin world, that would not be the case. There would be no need for exchanges because bitcoin is what we earn and bitcoin is what we spend. There is a transitory period for sure, but it is not cold turkey and therefore the scenario you present just simply would not exist.

OK, let's take a look at the halfway point in a hypothetical process that takes decades, a point where half of the transactions that used to be done in USD are now done in a particular cryptocurrency, and the other half still occur in USD. The percentage of transactions in cryptocurrency is growing and the percentage in USD is shrinking, and that's how we've arrived at this 50/50 midpoint.

Let's say the particular cryptocurrency that achieves this widespread adoption has a finite number of coins that can possibly be created. We'll pick 21 million as our number.  Meanwhile new USD continue to be minted, and the net effect between bouts of QE and QT is a steady growth of USD money supply, roughly approximating the growth in demand for dollars in the world economy plus a small amount of inflation.

Because USD are growing in supply and the particular cryptocurrency gets more and more rare as more and more people attempt to transact or HODL the currency, the coins per dollar exchange rate is constantly decreasing. The USD slowly loses value to inflation at maybe 3%/year, while the cryptocurrency becomes more and more scarce as more and more people try to transact a finite supply and experiences 10%/year deflation. A loaf of bread that costs either $5 USD or 1/100,000th of a crypto coin on the day when the 50/50 mark occurs would be expected cost $5.15 USD or 1/110,000th of the crypto coin by the end of the year.

On that day, your new employer offers you a choice. You can either be paid your salary as $100k USD per year, or you can be paid your salary as 1/50th of a crypto coin per year. You must decide today. Which do you choose?

Well that's easy. You want your paycheck a year from now to have 10% more purchasing power, not 3% less! Plus, you're locking in 10%/year raises without even asking. You decide to be paid in crypto coin. On your company's books, your salary comes out of the cost of sales made in crypto.

Then a strange thing happens. You are about to take a date out to a restaurant to celebrate your new job, but you realize that by spending part of your new paycheck today, you are giving up 110% of that purchasing power a year from now. In 20 years, today's decision to buy a restaurant meal will have cost you 278% of the purchasing power you spent today. All you have to do to lock in 10% returns forever is cancel your date and stuff the crypto coin into an online wallet.

You realize now that almost no purchase makes financial sense. Additionally, you realize that if you are going to experience 10% gains on anything you save from now on, it makes sense to cut expenses to the bone and save the maximum amount possible. Plus, because the particular crypto coin is going to increase in value at a minimum of 10% forever, you could retire with a safe withdraw rate of 10%, or have a stache 10X your desired level of spending, and never run out of money in perpetuity. You'll go from broke to independently wealthy in about 4-5 years.

You dump your date, sell most of your possessions, and move out of your apartment, renting a bunk bed during night time hours in a slum house bedroom with 10 coworkers who are doing the same thing. You live on the crypto coin equivalent of $300/month, hand washing clothes, eating rice and beans, not having a phone, etc.

The following month, just as swapping an old mattress with your night shift coworker starts to get really old, your company makes an announcement: Sales in crypto coin have plummeted. Apparently, consumers all over the world have made the same choice you made and started to hoard their crypto coins as a surefire investment rather than spend them, and so the company has insufficient revenue in crypto coins that it can use for payroll purposes. They are still profitable in terms of dollar sales, but the forex markets have insufficient supplies of crypto coin (only a couple million total coins still in circulation, and all the rest stored in vaults) so that trading their earnings in USD for crypto coin is prohibitively expensive. The bid/ask spreads are nuts, and for a moment you try to understand the reasoning of any investor trading away a currency that gains 10% a year in exchange for one that loses 3% a year. How much would you ask?

Your employer is offering you a stark choice: Be paid in USD or be laid off. Your company says this is a lot nicer than what other companies are doing - laying off their entire crypto-salaried workforces without notice. They describe a "depression" in the crypto side of their business, but as far as you can tell your crypto investments are doing great!

You fume with anger. A deal was a deal! You almost rage-quit but decide to do some online skimming first. A quick glance on job websites reveals that there are a lot fewer jobs offering compensation in crypto than there were last month. Some have introduced a clause about payment in crypto being tied to the available exchange rate with USD, which would defeat the whole purpose.

As you research further, the news articles are describing a liquidity crisis in the half of the economy that consists of crypto coin exchanges. Everybody is hoarding and nobody is spending. Banks are defaulting on their crypto coin accounts because they can't find counterparties willing to lend to them at reasonable rates (i.e. rates less than the 10% rate of deflation). The unemployment rate among crypto-compensated workers is approaching 45%, and many are being forced to accept jobs paying USD because that's all anyone is willing to spend.

On the bright side, the purchasing power of the coins you saved in the past month has skyrocketed. Your boss puts a sign on his car that says "0.0001 crypto coin buys this car". However, you wonder if this party can continue. Demand for crypto is high now, but the future looks increasingly like one where employees have to accept payment in USD, crypto banking services and loans are not available, and the 50% of the economy conducted in crypto coin permanently shrinks. You ponder something crazy. Maybe you should trade your crypto coins for USD, stocks, or real property now while their value is peaking, because their future doesn't look like 10% appreciation forever any more. You were one of the first people to think of saving 90% of their crypto coin income, so what if everyone else is worrying about the future utility of crypto coin too?
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4) The other flaw in your analysis is that the fiat rich today would suddenly not exist and that simply isn't true. So the idea that we'd all be working for the bitcoin rich suddenly doesn't make sense either. The number of early adopter bitcoiners that will become rich from bitcoin becoming mainstream pales in comparison to the number of fiat rich in the world today. Those who hold the capital resources today will still hold it under a new bitcoin economy. The executives of all the top companies will still be there under a bitcoin economy. A transition of the money being used wouldn't change that. Certainly there will be a few new rich people in the world, but there are new rich people all the time in the world. I've mentioned some of the good that could come from bitcoin being used around the world and I personally believe that good would outweigh a small percentage of new rich people coming about (as if that's a bad thing anyway).

I don't see a problem in terms of staking a claim that appreciates, wealth inequality, loss of value for people holding mattresses full of government fiat currency, or there being enough wealth in the world to buy every circa-2018 cryptocurrency HODLer a lambo. The problem is that the interests of people who are rich in terms of USD do not align with the interests of people who hold some cryptocurrency and want those USD-rich people to give them their USD.

Any scenario where there are enough cryptocurrency units in circulation that they are available for daily transactions necessarily involves the rest of us trading something of value (labor, USD, property?) for cryptocurrency units we do not currently own so that we can have spending money or business working capital.

You might say that such a transfer is zero-net because I'm just converting value between formats, not creating or destroying it. No forex trader would accept this argument. If I trade USD for British Pound, and the USD appreciates against the Pound, the loss for me is very real, and the enrichment of my counterparty is as well.

If a cryptocurrency took off, and business owners were required to pay the price of accepting it or lose business (as happened with credit cards), and consumers were incentivized to use is (as also happened with credit cards), then there would need to be some value-added factor making the cost of change worth it. In the case of credit cards, convenience, safety, and airline miles incentivized customers to use them, and the tendency of credit card users to spend more money than cash users incentivized businesses to use them. The credit card companies were enriched at the expense of businesses who paid higher costs and consumers who paid higher prices.

Compare credit cards to cryptocurrency, and note the incentives are reversed. They're less convenient to transact in, less safe to hold in online wallets, and discourage people from spending.
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5) You also talked about how bitcoin could just be copied, but that simply isn't true. How about I run a fiber cable to your house and connect it to a computer I have running that has a website running on it and charge you $70 a month for it and call it the internet. No? Why? Because the internet can't be copied. It is a network effect where people are using the open internet because of everything that has been built up on it (services, websites, economy, etc). The same would be true for bitcoin. There are services, economic activity, software, and the security of the network that simply can't be duplicated. If bitcoin is accepted "everywhere you want to be" and all the trials and tribulations of bitcoin coming into existence and getting to where it is now widely accepted and being earned by workers, those trials and tribulations would be even more cumbersome for any other decentralized digital currency trying to overcome the incumbent. Any reason someone might have for wanting to use another currency could be built onto bitcoin as a secondary layer. It would be extremely difficult to overcome that network effect and duplicate much like it would be difficult (and pointless) to build a new internet when instead you can just build upon the one we have.

Network effects and first-mover advantages are real, but there are also numerous examples of users migrating to a particular format because it was cheaper or better than the incumbent. Microsoft Windows got big because it shipped pre-installed for free on PCs, beating ala carte operating system competitors from IBM, Tandy, etc. Yahoo was the name in search engines until Google came along offering more relevant results. MySpace... Facebook... TikTok. American cars in the 1970s-80s... Asian cars in the 1970s-80s. Large steel mills... mini mills. Encyclopedia Britannica... Wikipedia. The bottom line is that advantages from originality don't last more than a few years in the markets. Inferior products eventually disappear regardless of their brand recognition. The fact that I still can't buy gasoline or hamburgers with Bitcoin over a decade after inception is ominous. That is to say, the "lead" of a currency that is not regularly transacted is nothing.

With that in mind, consider this:
https://www.marketwatch.com/story/move-toward-digital-dollar-gains-steam-as-boston-fed-says-its-prototype-can-handle-1-7-million-transactions-per-second-11643916607

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The results are promising for the viability of a digital dollar, as the research produced two separate architectures for a potential U.S. CBDC, with one code base capable of handling 1.7 million transactions per second, according to a white paper released Thursday. That’s more than 2.5 times the number of transactions Visa can handle on its network, according statistics cited by Visa CFO Vasant Prabhu in a recent Barron’s interview.

Furthermore, the vast majority of these transactions were settled in less than two seconds, a tantalizing result for users of the U.S. banking system, which can force customers to wait days before a fund transfers are settled.

That performance is also far superior to popular cryptocurrencies, with the bitcoin network capable of handling just 7 transactions per second and ether just 25,

And consider that the government could just suddenly impose this change upon the economy, vs. the narrative of a cryptocurrency slowly gaining acceptance over the course of decades.

LateStarter

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Re: What do you think of adding a low% of crypto allocation
« Reply #982 on: February 06, 2022, 01:55:43 AM »
. . . .
Then a strange thing happens. You are about to take a date out to a restaurant to celebrate your new job, but you realize that by spending part of your new paycheck today, you are giving up 110% of that purchasing power a year from now. In 20 years, today's decision to buy a restaurant meal will have cost you 278% of the purchasing power you spent today. All you have to do to lock in 10% returns forever is cancel your date and stuff the crypto coin into an online wallet.

You realize now that almost no purchase makes financial sense.  Additionally, you realize that if you are going to experience 10% gains on anything you save from now on, it makes sense to cut expenses to the bone and save the maximum amount possible. . . . .
. . . .

Never mind crypto, right now it would make financial sense to postpone spending and:
  • get next year's even better (deflationary) mobile phone for the same price or less. But people buy phones - a lot of them.
  • get next year's even better (deflationary) laptop (or virtually any tech product) for the same price or less. But people buy laptops and other tech products - a lot of them.
  • save up for that (pseudo-deflationary) fancy car. But people don't - they want it now - screw the 25% APR, the monthly payment is affordable, etc.
The idea that everyone, or a significant majority, would cut spending to the bone as described in your fevered tale is ludicrous. It's far more likely that spending would reduce by a moderate amount, ie. the world would become moderately more Mustachian. I'm struggling to see the problem here.

https://www.mrmoneymustache.com/2012/04/09/what-if-everyone-became-frugal/

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #983 on: February 06, 2022, 03:57:11 AM »

Never mind crypto, right now it would make financial sense to postpone spending and:
  • get next year's even better (deflationary) mobile phone for the same price or less. But people buy phones - a lot of them.
  • get next year's even better (deflationary) laptop (or virtually any tech product) for the same price or less. But people buy laptops and other tech products - a lot of them.
  • save up for that (pseudo-deflationary) fancy car. But people don't - they want it now - screw the 25% APR, the monthly payment is affordable, etc.
The idea that everyone, or a significant majority, would cut spending to the bone as described in your fevered tale is ludicrous. It's far more likely that spending would reduce by a moderate amount, ie. the world would become moderately more Mustachian. I'm struggling to see the problem here.

https://www.mrmoneymustache.com/2012/04/09/what-if-everyone-became-frugal/

What would you expect a deflationary currency to do to debt? Increase the debt burden, yes?

What kinds of entities frequently take on debt? New businesses? Farmers? Do you think fewer new businesses might get started in a deflationary environment? More farmers might declare bankruptcy? Do you think these things might have external impacts on the broader economy? See any room for positive feedback loops, to spiral this system into quite a pickle?

StashingAway

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Re: What do you think of adding a low% of crypto allocation
« Reply #984 on: February 06, 2022, 04:02:56 AM »
The idea that everyone, or a significant majority, would cut spending to the bone as described in your fevered tale is ludicrous. It's far more likely that spending would reduce by a moderate amount, ie. the world would become moderately more Mustachian. I'm struggling to see the problem here.

I believe he was being hyperbolic because this conversation is already having issues with understanding each other's points.

The bolded part is laughable in it's absurdity. It's about as silliy as saying that crypto is helping transition to renewables because it uses so much energy.

The problem with the "world becoming more mustachian" in this scenario is that this benefits middle, upper and rich classes far disproportionately than the poor. The poor folks won't have a choice but to spend all of their money, while those with more will have enough disposable income to hoard it. On the face of it, this can be just the cost of doing business, but it flies in the face of all that is proportedly good about crypto (you know, enfranchising the disenfranchised). It just would help the rich become richer.

blue_green_sparks

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Re: What do you think of adding a low% of crypto allocation
« Reply #985 on: February 06, 2022, 10:44:52 AM »
Dogecoin operates more like the dollar. 10,000 coins are mined every minute and there is no maximum supply, LOL. I guess if you skillfully work the pump and dump on these "alt coins" like a day trader, you could net a bunch of cash. There has to be a ton of sorry bag holders.

Telecaster

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Re: What do you think of adding a low% of crypto allocation
« Reply #986 on: February 06, 2022, 11:23:38 AM »
Never mind crypto, right now it would make financial sense to postpone spending and:
  • get next year's even better (deflationary) mobile phone for the same price or less. But people buy phones - a lot of them.
  • get next year's even better (deflationary) laptop (or virtually any tech product) for the same price or less. But people buy laptops and other tech products - a lot of them.
  • save up for that (pseudo-deflationary) fancy car. But people don't - they want it now - screw the 25% APR, the monthly payment is affordable, etc.
The idea that everyone, or a significant majority, would cut spending to the bone as described in your fevered tale is ludicrous. It's far more likely that spending would reduce by a moderate amount, ie. the world would become moderately more Mustachian. I'm struggling to see the problem here.

https://www.mrmoneymustache.com/2012/04/09/what-if-everyone-became-frugal/

@ChpBstrd was being hyperbolic and perhaps a bit wordy.  I'd summarize it like this:

Bitcoin is deflationary by design, with a maximum number of possible coins.   There are several well  known and well understood economic effects of deflation.   One is that people tend to delay purchases--because things are perceived to be cheaper in the future--which slows down economic activity.   But employers have a different problem.  Deflation means real wages are going up, even as their incomes are going down.  The solution for that is to cut jobs.  Not good.

On the consumer side, the real cost of things like mortgages and car loans are going up, thereby consuming a bigger and bigger share of the household budget.  That leaves less money to spend on consumer goods.  Which means less demand, and the need for fewer workers.  And a similar problem:   In times of deflation, interest rates should be negative.  How do you charge negative interest rates?   Business relies on the availability of reasonably priced credit.  If they can't borrow, that further depresses economic activity. 

There are some cases when deflation is good, like from the result of increased productivity.   This is called the Wal-Mart effect.  But monetary deflation is bad, bad, bad.  You do not want it.  Yet deflation is part of Bitcoin's DNA. 

I hope I don't sound too much like a broken record, but Bitcoin's designers came up with some brilliant tech, but they never stopped to think about how money works.   By design but not purposefully, they crippled Bitcoin's functionality such that it can never be in widespread use as a currency.  Some limited special use cases are possible, of course.

That leaves Bitcoin's sole use as a store of value.  There are some problems, there too. 

LateStarter

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Re: What do you think of adding a low% of crypto allocation
« Reply #987 on: February 06, 2022, 12:36:15 PM »
Never mind crypto, right now it would make financial sense to postpone spending and:
  • get next year's even better (deflationary) mobile phone for the same price or less. But people buy phones - a lot of them.
  • get next year's even better (deflationary) laptop (or virtually any tech product) for the same price or less. But people buy laptops and other tech products - a lot of them.
  • save up for that (pseudo-deflationary) fancy car. But people don't - they want it now - screw the 25% APR, the monthly payment is affordable, etc.
The idea that everyone, or a significant majority, would cut spending to the bone as described in your fevered tale is ludicrous. It's far more likely that spending would reduce by a moderate amount, ie. the world would become moderately more Mustachian. I'm struggling to see the problem here.

https://www.mrmoneymustache.com/2012/04/09/what-if-everyone-became-frugal/

@ChpBstrd was being hyperbolic and perhaps a bit wordy.  I'd summarize it like this:

Bitcoin is deflationary by design, with a maximum number of possible coins.   

Bitcoin is disinflationary by design. A universally adopted Bitcoin would almost certainly be stable aside from a little "lost coins" deflation.

There are several well known and well understood economic effects of deflation.   One is that people tend to delay purchases--because things are perceived to be cheaper in the future--which slows down economic activity. But employers have a different problem.  Deflation means real wages are going up, even as their incomes are going down.  The solution for that is to cut jobs.  Not good.

Would people really postpone / reduce spending to any great extent in a moderately deflationary world ? My examples above ring true in my experience. In general, people seem to buy the things they want when they want them with little consideration of the future. I would anticipate some reduction in consumer spending in proportion to deflation, but not a drastic collapse.

And, I know it attracted some ridicule, but my general point stands: When did the MMM community start thinking that a reduction in (partially debt-fuelled) consumer spending was a bad thing ?

On the consumer side, the real cost of things like mortgages and car loans are going up, thereby consuming a bigger and bigger share of the household budget.  That leaves less money to spend on consumer goods.  Which means less demand, and the need for fewer workers.  And a similar problem:   In times of deflation, interest rates should be negative.  How do you charge negative interest rates?   Business relies on the availability of reasonably priced credit.  If they can't borrow, that further depresses economic activity.

This is just smoke and mirrors though, isn't it ?
Debt in an inflationary world isn't really cheap. It's cheap to the borrower in immediate terms, but the borrowers gains are funded by society's currency devaluation losses. Inflation seems to privatise the benefits of borrowing and socialise (some of) the costs.

I'm not an economist and I'm not advocating for a deflationary world but some of the assertions about the perils of deflation seem weak / overblown.
Also, most of the arguments seem to assume that a universally-adopted Bitcoin's deflation% would be considerable. I don't see good grounds for that assumption.

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Re: What do you think of adding a low% of crypto allocation
« Reply #988 on: February 06, 2022, 01:17:11 PM »
The thing to remember here is that a steady-state economy might sound pretty appealing to someone living in the US or Japan or Western Europe. In the rest of the world, the vast majority of people live in pretty awful poverty and some form of economic growth is the only way out. So killing off capitalism/debt with deflationary currency (and yes, a fixed supply of currency will be deflationary unless you have a falling population/shrinking economy to go with it) is probably not really in the interest of 90% of humans.

Now, you could easily design a currency that stays stable with population, or inflates VERY slowly at whatever rate you choose, or indexes itself to some other variable to achieve whatever desired outcome. But BTC does not do any of those things, and if it was universally used as currency, it would lead to a worldwide economic collapse at some point, most likely, since simply holding onto your BTC rather than lending/spending it would be the ideal way to get richer.

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LateStarter

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Re: What do you think of adding a low% of crypto allocation
« Reply #989 on: February 06, 2022, 01:35:58 PM »
The thing to remember here is that a steady-state economy might sound pretty appealing to someone living in the US or Japan or Western Europe. In the rest of the world, the vast majority of people live in pretty awful poverty and some form of economic growth is the only way out. So killing off capitalism/debt with deflationary currency (and yes, a fixed supply of currency will be deflationary unless you have a falling population/shrinking economy to go with it) is probably not really in the interest of 90% of humans.

There may be some truth here - not sure. Would a deflationary currency prevent economic growth / kill capitalism ? It's not clear to me that the one necessarily leads to the other.
And, at the same time, isn't much of the developing world currently being crushed by inflation ? Why is that preferable ?


Now, you could easily design a currency that stays stable with population, or inflates VERY slowly at whatever rate you choose, or indexes itself to some other variable to achieve whatever desired outcome. But BTC does not do any of those things, and if it was universally used as currency, it would lead to a worldwide economic collapse at some point, most likely, since simply holding onto your BTC rather than lending/spending it would be the ideal way to get richer.

But do people just want to get richer ? What's the point ?
Or do they want the things that riches can buy ? - which requires spending.

Telecaster

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Re: What do you think of adding a low% of crypto allocation
« Reply #990 on: February 06, 2022, 02:22:09 PM »

Bitcoin is disinflationary by design. A universally adopted Bitcoin would almost certainly be stable aside from a little "lost coins" deflation.

How to you get to almost certainly?  Let's say Bitcoin is universally adopted and the world economy grows by 2%.   That means the value of each Bitcoin will go up by 2%.  That is the definition of deflation.   

Would people really postpone / reduce spending to any great extent in a moderately deflationary world ? My examples above ring true in my experience. In general, people seem to buy the things they want when they want them with little consideration of the future. I would anticipate some reduction in consumer spending in proportion to deflation, but not a drastic collapse.

And, I know it attracted some ridicule, but my general point stands: When did the MMM community start thinking that a reduction in (partially debt-fuelled) consumer spending was a bad thing ?

The effect of deflation on consumer spending is well researched and well understood, it isn't hypothetical.   There have been many instances of deflation throughout history.  There is no shortage of case studies.  And note, I'm talking about a secular period of deflation.  There was a short period of deflation in 2015, for example.   But it didn't turn into a deflationary spiral. 

RE: Mustachianism.  I have a couple quibbles with this thesis, but they don't apply to this discussion, so I'll hold off.  But what he's saying is that if people bought less stuff, they save more AND there would be plenty of cheap capital for entrepreneurs to access.  So cheap capital = good.   Deflation = expensive capital.  So deflation isn't part of the Mustachian vision. 

A different part if his thesis is that if people spent less, then they could work fewer hours or fewer years.   But remember, deflation is accompanied by wage cuts and job losses.  Wage cuts and job losses make it harder to save.   So deflation isn't part of the Mustachian vision in that regard either.     

On the consumer side, the real cost of things like mortgages and car loans are going up, thereby consuming a bigger and bigger share of the household budget.  That leaves less money to spend on consumer goods.  Which means less demand, and the need for fewer workers.  And a similar problem:   In times of deflation, interest rates should be negative.  How do you charge negative interest rates?   Business relies on the availability of reasonably priced credit. If they can't borrow, that further depresses economic activity.
This is just smoke and mirrors though, isn't it ?
Debt in an inflationary world isn't really cheap. It's cheap to the borrower in immediate terms, but the borrowers gains are funded by society's currency devaluation losses. Inflation seems to privatise the benefits of borrowing and socialise (some of) the costs.

I'm not an economist and I'm not advocating for a deflationary world but some of the assertions about the perils of deflation seem weak / overblown.
Also, most of the arguments seem to assume that a universally-adopted Bitcoin's deflation% would be considerable. I don't see good grounds for that assumption.

The part in bold is the key:  Reasonably priced credit.   You can have expensive credit in inflationary environments too.  But because of the zero bound on interest rates, real returns can be negative in a deflationary environment.  That tightens yield curves...a lot.   Besides banks, who else lends money?  People like you and me who save money in the form of bonds.   

Another artifact of deflation is the redistribution of wealth from debtor to creditor.  For example, let's say I write you a mortgage at 3%.   We fall into a period of secular -2% inflation (2% deflation).   So now I'm getting richer and you are getting poorer.   But there is another problem, because the underlying collateral is deflating too.   If you default because the mortgage payments became too high, I still might not be made whole by foreclosing.   That combined with the yield curve problem I described above means that banks just don't like to lend money in those conditions.

Again this is not hypothetical.  This is exactly what happened in Japan in the 1990s.   Even though interest rates were at zero, credit markets were incredibly tight.   Since business couldn't borrow money, so they couldn't expand, and so the economy couldn't expand.  It is called "Japan's Lost Decade." 

Telecaster

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Re: What do you think of adding a low% of crypto allocation
« Reply #991 on: February 06, 2022, 02:43:29 PM »
There may be some truth here - not sure. Would a deflationary currency prevent economic growth / kill capitalism ? It's not clear to me that the one necessarily leads to the other.
And, at the same time, isn't much of the developing world currently being crushed by inflation ? Why is that preferable ?

It isn't a binary choice.  Much of the developing world have mitigated this risk by pegging their currencies (or actually adopting) stable currencies like the USD or the Euro.  The downside is that they don't have control over their own currencies.  But if they were using Bitcoin they wouldn't have control either. 

StashingAway

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Re: What do you think of adding a low% of crypto allocation
« Reply #992 on: February 06, 2022, 04:49:05 PM »

But do people just want to get richer ?

Yes. Or, at least enough of them do for it to be a problem.

lifeanon269

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Re: What do you think of adding a low% of crypto allocation
« Reply #993 on: February 06, 2022, 06:59:47 PM »
OK, let's take a look at the halfway point in a hypothetical process that takes decades, a point where half of the transactions that used to be done in USD are now done in a particular cryptocurrency, and the other half still occur in USD. The percentage of transactions in cryptocurrency is growing and the percentage in USD is shrinking, and that's how we've arrived at this 50/50 midpoint.

At the end of the day you're attempting to describe your typical deflationary spiral hypothesis. But you're really only taking into account consumer habits when there are so many other factors at play.

Should we really place such a heavy negative emphasis on something that really doesn't have any historical precendent to back it up? No, the Great Depression was not a deflationary spiral and no Japan was not a deflationary spiral either. Almost all periods of temporary deflation were preceded by periods of heavy monetary inflation. In fact, if we look at the 19th century, prices declined throughout the century as a result of large increases in productivity, new inventions, and economies of scale. This results in large increases of wealth expansion for many and now more people were able to afford many luxuries that were often only available to the rich. What appears at the surface as being a deflationary depression was actually a period of great prosperity and wealth expansion.

Your analysis of a deflationary spiral lacks many variables that must be taken into account. They're too often described just like you have described it. But in your scenario, what about the price of goods and what about the supply and production of those goods? What about wages in your example? Why do you assume that humans will always suddenly go against consumerism in all these market dynamics? Why does the expectation of buyers change but not the expectation of sellers (essentially we're all both buyers and sellers). So somehow the same person will hold a future expectation as a buyer but a completely different expectation as a seller? What makes you pick the numbers you pick for your example without also including so many other factors? Is it just to fulfill this wild scenario you have for the doom that a stable monetary supply might perpetrate on our economy?

So let's take a step back and examine some things in a little more detail and not just with a nightmarish (albeit perplexing) lens you cast from the consumer only perspective.

Before we do, I think it is important that we differentiate between monetary inflation and price inflation. Monetary inflation being when the money supply expands and price inflation being when the cost of goods goes up. If you have a small enclosed village with its own economy and everyone produces the same amount of goods every year and the amount of money circulates every year then the price of goods will stay the same and everyone's earnings and profits continue to stay static.

The price of goods inflates when the ratio between money supply and goods increases. If the money supply increases but the amount of goods stays the same, then the price of those goods will go up (price inflation AND monetary inflation). But you can also have monetary inflation without price inflation as there are many inflationary and deflationary forces at play. Increased productivity is a deflationary force (more goods in the market), for example. In otherwords, in a more stable monetary climate, the value of the monetary supply expands alongside GDP.

If we examine your scenario a little closer and look at more variables than just the consumer expectation variable, your scenario will begin to fall apart. Let's assume like you did that half the world economy is now a circular economy with bitcoin and half the world economy is a circular economy with the USD. We have to understand that under such a scenario, goods would be priced separately in both USD and bitcoin. The price of goods would not be a set static price only in USD. This is one mistake you seem to make in your scenario. It looks at things in a similar lens today where USD is our main unit of accounting, but in a world where half of it is a circular economy in bitcoin, the goods will have their own price in bitcoin terms separately from a USD price. That is no different than today how goods have their own prices in the Euro like they do in US dollars. This fact is never addressed in your scenario at all. It assumes that all prices stay relative to the USD price index and that is simply not true.

Wages would also be set separately in a bitcoin circular economy. Today wages are increased to counter act inflation. In a deflationary world wages would not go up over time because you would need wages to counter act an increase in the monetary supply. You might even have wage decreases for new hires over time.

An inflationary money supply hides a lot of the positive impacts that human production has provided for us. This is why we often don't feel the full impact of expansive monetary policy in the price of our goods. We produce goods way more efficiently that we have ever before in all of human existence and yet we work more hours. When there is no monetary inflation that counteracts the deflationary forces of increased productivity, we end up feeling the full force of improved productivity in our economy. While you assume that people who are able to afford a new iPhone will hold off on purchasing said new iPhone (a wild theory that goes against consumerist impulses with no historical precedent) you also fail to acknowledge that many people that could never before afford an iPhone can suddenly afford one and that they may now take advantage of that fact. This is very similar to what took place in the 19th century. The slightly lower cost of goods means more people are entering the market that were not in the market for those goods before. While there are some people that might hold off on making purchases and save more, in such an economic climate there are also many more people who will now enter markets that were not capable of doing so before. This is great because it is not a result of increase money supply so people just think they got a pay raise when they didn't. It is the cost of goods going down because we as humans became more productive and there is no monetary inflation that hides those impacts.

Also, the idea that if money is holding its value then people will be less likely to invest in business is absurd. If businesses are operating on a bitcoin balance sheet and goods are priced in bitcoin, then so are the profits and returns. So there is still incentive in the market to invest in successful businesses here to receive some of those bitcoin dividends!

Finally, with regards to the currency competition aspect in your scenario, I also don't think it plays out the way that you laid out either because again, you left our so many variables. And frankly I think there are so many variables that no one could ever guess how it would actually play out, so it is kind of pointless to debate it. In all likelihood bitcoin goes the way of being a gold equivalent for quite some time and so it really doesn't have much of an impact on the economy. Because most bitcoin would be held as a store of value and thus would have little impact due to a small circulating supply in the market. Heck, in that scenario I would even see it peeling away gold's market share and so any gains made by bitcoin are most likely also gold's losses. 

If there is ever a transition to a wide spread bitcoin circular economy, the you'd have goods being priced in bitcoin terms and along with consumers migrating to bitcoin, you'd also have sellers and producers as well. So it really wouldn't be any different than if you had a country equivalent today that had a very conservative fiscal policy in the world (albiet without borders) and I don't think that would cause too many problems, especially for the US dollar. I could see there being some much smaller countries that would feel some more intense pressure to adopt bitcoin due to local instability though.

Long story short, forgive me if I don't get too worried about deflationary spirals that haven't really happened much in history...especially when we deal with a deep recession every 10 years that is a result of inflationary policies leading to malinvestments across every market.

ChpBstrd

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Re: What do you think of adding a low% of crypto allocation
« Reply #994 on: February 07, 2022, 10:53:50 AM »
The thing to remember here is that a steady-state economy might sound pretty appealing to someone living in the US or Japan or Western Europe. In the rest of the world, the vast majority of people live in pretty awful poverty and some form of economic growth is the only way out. So killing off capitalism/debt with deflationary currency (and yes, a fixed supply of currency will be deflationary unless you have a falling population/shrinking economy to go with it) is probably not really in the interest of 90% of humans.

There may be some truth here - not sure. Would a deflationary currency prevent economic growth / kill capitalism ? It's not clear to me that the one necessarily leads to the other.
And, at the same time, isn't much of the developing world currently being crushed by inflation ? Why is that preferable ?
Yes. Deflation demolishes economic growth when it happens. Read up on the Great Depression and how banks quit making loans, bond markets seized up, and consumers shut down every last bit of spending they could. The Great Depression only relented when the government took actions that spurred inflation.

A much less dramatic deflationary period occurred in Japan in the 1990s. Two "lost decades" of flatlined economic growth trends in one of the world's most sophisticated economies followed.
Quote
Now, you could easily design a currency that stays stable with population, or inflates VERY slowly at whatever rate you choose, or indexes itself to some other variable to achieve whatever desired outcome. But BTC does not do any of those things, and if it was universally used as currency, it would lead to a worldwide economic collapse at some point, most likely, since simply holding onto your BTC rather than lending/spending it would be the ideal way to get richer.

But do people just want to get richer ? What's the point ?
Or do they want the things that riches can buy ? - which requires spending.
Imagine that you are thinking about buying a house that is $500k today, but because of deflation it will probably be worth $490k in one year. Imagine thinking about buying a car model that is $25k today, but you live in a deflationary economy so next year's model will sell for $22k. Imagine you are penciling out a business plan for your new endeavor and you have to factor in a steady decrease in the prices you can charge over time, you have to constantly convince employees to take pay cuts, and you have to find a landlord willing to cut the rent each year to keep your margins afloat. Imagine you are an employee earning $X a year, and you notice that wages for your same job are falling everywhere. Imagine you are a bank with a customer who wants to take out a loan, but (a) you could skip the whole risk of default and still make a good profit by just holding your depositors' cash as it appreciates, and (b) you know this customer will earn fewer and fewer dollars over the course of the loan that could be used to pay back the loan, and (c) you fear a bank run if economic conditions continue to worsen.

All these things happened across the world during the Great Depression. Almost half the banks in the US collapsed. Unemployment was near 25%. Living standards plummeted. That's why deflation is not desirable.

My point with my "wordy" narrative is that a crypto featuring a declining or fixed money supply cannot compete with a slightly inflationary currency because consumers wouldn't spend it, banks wouldn't lend it, employers wouldn't commit to paying people in the future with it, and it wouldn't circulate. People in a dual-currency environment will always prefer to use their inflationary currency, which means Bitcoin will always be a collectible never to see widespread use as an actual currency.

After a decade of Bitcoin, and a scaling up to what we were once told would be the critical mass, the results are in. There's still almost nobody using it for transactions bigger than a publicity stunt. Its primary use case is still getting US dollars out of other people's pockets, even after all these years and hundreds of billions of dollars in development/mining.

lifeanon269

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Re: What do you think of adding a low% of crypto allocation
« Reply #995 on: February 07, 2022, 12:57:38 PM »
Imagine wanting the cost of a new car to continue to go up, pricing people out of new cars because wages are sticky. Prices aren't static and they're set by markets. A deflationary monetary supply does not mean that goods will always be cheaper. That depends on supply and demand. If real estate is scarce (which it is), then that does not mean the price of new houses will go down. Value of goods are relative. A stable currency market will just mean that housing prices will remain stable given equal demand/supply of housing. Flooding the markets with large amounts of new cash means that housing costs sky rocket (just look at housing costs at the moment). If you have easy money, why wouldn't you throw it at things at harder to come by (real restate, assets, collectibles, etc). What do you think happens to the price of something that is scarce (housing) being purchased with easy (inflated) money? Having monetary policy skew market prices and flooding markets with extra money that people need to then throw at riskier and riskier endeavours is not the way.

No, the Great Depression was not caused by deflation, as I mentioned in my earlier post. Yes, definitely do read up on the Great Depression. Read up on the credit bubble of the 1920's that preceded the 1929 crash. Read up on the Smoot-Hawley tariffs that exacerbated already strained exports/imports. Read up on the widely understood sentiment shown in the public polls and markets at the time of FDR's policies killing investor confidence. Read about FDR's New Deal policies and how they exacerbated unemployment at the time. If anyone reading about what took place with the Great Depression and comes away with the conclusion of "deflation is bad", then I am questioning their understanding of what actually took place. Blaming the banks collapsing and 25% unemployment on deflation is an amazing rewriting of history.

Never mind the credit bubble in Japan that popped in the early 90's. Ever wonder why these dreaded periods of deflation that people always love to prop up as examples of why deflation is so horrible are always preceded by massive credit bubbles that popped? What goes up always comes down. Never mind the fact that Japan's deflation has always been under 1 percent and that it's economic performance was only outperformed by other developed nations from '92-'97 (GDP per capita).

Look, I am not advocating for deflation of 5%+ being good for the economy. As I said earlier, too much of something is not a good thing. Too much deflation/inflation is not good. My point was relevant in the scenario being that bitcoin is widely used in a circular economy, in which case bitcoin's deflation rate would probably be below 5% at that point (based on coins lost and GDP growth of bitcoin economy). For what it is worth, I don't think bitcoin would make a good monetary base if its volatility frequently is above 5%. But volatility would be greatly tamed in a circular and less speculative economy. In my opinion deflation in today's monetary environment of fast and easy money among many is widely demonised for being something it is not. It is especially surprising how demonised it is here on these Mustachian forums. In my opinion, given an economic climate of 2% deflationary money supply versus 2% inflationary money supply, I would take the former every time.

PDXTabs

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Re: What do you think of adding a low% of crypto allocation
« Reply #996 on: February 07, 2022, 12:59:19 PM »
I'm curious . . . what sorts of stuff are you buying with your cryptocurrency?

Gray market goods from international sellers that MasterCard doesn't want on their network even if the goods are legal to sell.

Ah.  That makes sense.

Semi-legal to illegal markets seem to have seen the biggest acceptance of crypto as a currency.

I happened to run across this today: CNBC: Bitcoin has become a lifeline for sex workers, like this former nurse who made $1.3 million last year. Basically, it isn't illegal to sell porn, but banks don't care to be involved. "Her interest kicked off in 2014, which is when she says several vendors, including PayPal, Square Cash, and Venmo, shut down her accounts because of red flags related to sex work."

GuitarStv

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Re: What do you think of adding a low% of crypto allocation
« Reply #997 on: February 07, 2022, 01:57:12 PM »
I'm curious . . . what sorts of stuff are you buying with your cryptocurrency?

Gray market goods from international sellers that MasterCard doesn't want on their network even if the goods are legal to sell.

Ah.  That makes sense.

Semi-legal to illegal markets seem to have seen the biggest acceptance of crypto as a currency.

I happened to run across this today: CNBC: Bitcoin has become a lifeline for sex workers, like this former nurse who made $1.3 million last year. Basically, it isn't illegal to sell porn, but banks don't care to be involved. "Her interest kicked off in 2014, which is when she says several vendors, including PayPal, Square Cash, and Venmo, shut down her accounts because of red flags related to sex work."

That's a pretty darned good argument!  Definitely a legal industry that is underserved by current banks that would benefit from using crypto for transactions.

It's weird to me that so many banks don't want to be involved with sex workers.  Not sure how that money is any dirtier than the other stuff banks are involved in.

PDXTabs

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Re: What do you think of adding a low% of crypto allocation
« Reply #998 on: February 07, 2022, 02:26:51 PM »
That's a pretty darned good argument!  Definitely a legal industry that is underserved by current banks that would benefit from using crypto for transactions.

It's weird to me that so many banks don't want to be involved with sex workers.  Not sure how that money is any dirtier than the other stuff banks are involved in.

A quick google says that global porn market was ~$97B in 2014. It isn't going to go away. Either banks can cater to them or they'll find a way to get their money. FWIW that is more than the entire GDP of some states.

DiscoverJupiter

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Re: What do you think of adding a low% of crypto allocation
« Reply #999 on: February 07, 2022, 02:58:07 PM »
That's a pretty darned good argument!  Definitely a legal industry that is underserved by current banks that would benefit from using crypto for transactions.

It's weird to me that so many banks don't want to be involved with sex workers.  Not sure how that money is any dirtier than the other stuff banks are involved in.

A quick google says that global porn market was ~$97B in 2014. It isn't going to go away. Either banks can cater to them or they'll find a way to get their money. FWIW that is more than the entire GDP of some states.

Yes, the global market. Most companies are not US-based because of the wars the federal government fight against adult workers.

Obama's administration enacted the notorious Operation Choke Point to go after businesses that didn't met their ideals (guns, adult performers), with the idea being to cut them off from the banking system:
https://www.vice.com/en/article/4w74jg/how-the-financial-sector-is-making-life-miserable-for-sex-workers-714

Similarly, the Trump administration went after them during the pandemic by denying them unemployment AND disallowing any business that ever received money via adult-related services from applying/approval of EIDL grants.
https://reason.com/2020/04/01/u-s-sex-workers-and-prurient-businesses-explicitly-excluded-from-covid-19-disaster-loans/


Compare to a two-days matured event where GoFundMe seized funds donated legally to the Canadian truck protest, likely at the behest of the government.

Crypto has a strong use case outside of purely illegal ones. It was designed to overcome governmental and private business pressures, which it is insanely good at. All we need now are for a few to stand up and start offering non-kyc entry and exit points, which I plan to do once my schedule frees up.