A salient lesson for those jumping onto financial bandwagons

Generali

Bitcoin isn't a unit of account nor is it really a store of value. It is undeniably a unit of exchange though.

dryhat

Generali wrote: »

Bitcoin isn't a unit of account nor is it really a store of value. It is undeniably a unit of exchange though.

Of course it's a unit of account. And a very good one at that, since the blockchain is a permanent, public available distributed ledger showing precise balances and movements of funds from one person to another without the need for third party afdministration.
That is a technological breakthrough which was never possible before Bitcoin was invented.

Bitcoin isn't a store of value?
Compared to what? Pounds and dollars? :rotfl:

wotsthat

I bought some gold in September 2012. Unfortunately I managed to hit the top of a 5 millennium bull market. Fortunately, it was just a small punt.

Too many people are expecting too much inflation and gold is overpriced as a result. I expect the price to fall further but won't be selling - those red numbers along with the somewhat larger red number associated with my Lloyds punt (a bet that the credit crunch was overblown ) serve a valuable lesson.

doughnutmachine

MFW_ASAP wrote: »

I remember we used to warn them about buying into bubbles, and even when the Gold price started falling they claimed it was a "Buying opportunity". It's fine to buy into a rising asset class, jumping onto a bandwagon. You just need to know when to get off it!

Those enjoying the bitcoin 'boom' would do well to learn from recent history.

I think the best thread ever on MSE was the Xcite one. It was full of people getting excited and telling each other what a good investment it was. Xcite hasn't done too well in recent years...

I find it funny how people only post on investments when they are going up.

wotsthat

dryhat wrote: »

In its short history, bitcoins have been all three and proven to be very good at all of them.

The Bitcoin technology (remember this is a brand new, revolutionary invention which was never possible before) has fascinating and ingenious possibilities which go way beyond a mere payment system.

On these technological grounds alone, it is something worth celebrating.

Out of interest have you been similarly passionate about gold and silver in the past and just hit the reset button?

MFW_ASAP

dryhat wrote: »

Bitcoin isn't a store of value?
Compared to what? Pounds and dollars? :rotfl:

This is what I really fail to understand. The precious metal rampers used to back up their position by mocking 'fiat' currencies and stating that precious metals were a better store of wealth because they had intrinsic value. Theer was a certain merit in this when currencies were being devalued.

The bitcoin fanatics have the same mocking tone (as seen above) about fiat currencies, yet their new God has zero intrinsic value and zero backing from a central bank. It's even more of a 'joke' than fiat currencies.

This argument is why I feel that a lot of the bitcoin fanatics were once precious metal fanatics and they are using the same arguments because they don't know any better. Their logic barely worked for Gold, and doesn't work for bitcoins.

dryhat

wotsthat wrote: »

Out of interest have you been similarly passionate about gold and silver in the past and just hit the reset button?

Not really.

Although I did buy 10 sovereigns back in 2008 when there was talk of financial armageddon and whatnot.

I'd sort of forgotten about them but now you mention it, I might sell some of them now and buy some more bitcoins.

MFW_ASAP

wotsthat wrote: »

Out of interest have you been similarly passionate about gold and silver in the past and just hit the reset button?

He has the same fanatical, enthusiastic, 'sweaty', excited approach to bitcoins as the PM freaks had with Gold and Silver. An almost Born Again Christian sort of religious fanaticism.

I didn't believe that the PM nuts had any significant holdings of Gold or Silver, not did I believe they bought in at the start of the boom. I have the same reservations with the bitcoiners.

EDIT: A prediction. Bitcoins hit a peak of $900 and then lost a third of their value in a day down to $600. They are now peaking and troughing but on a downward trajectory.

My prediction is that, just like the PM fanatics when their bubble burst, dryhat and co will state that these falls will 'represent a buying opportunity'. They will be buying into a deflating bubble that will erode any profits they made on the climbs and they will end up losing money. Just like the PM fanatics, they will then vanish from MSE.

Linton

dryhat wrote: »

In its short history, bitcoins have been all three and proven to be very good at all of them.

The Bitcoin technology (remember this is a brand new, revolutionary invention which was never possible before) has fascinating and ingenious possibilities which go way beyond a mere payment system.

On these technological grounds alone, it is something worth celebrating.

The only certain thing is that they are technically interesting. But Bitcoins cannot successfully both be a unit of exchange and as a store of value and most likely will be neither.

If they are a store of value why would anyone want to use them for exchange except in an emergency? People will accumulate them reducing the number in circulation which will increase their value relative to goods, thus making them even more desirable as stores of value to be hoarded rather than spent. People would much rather use barter or tokens or fiat currency for paying the grocery bills.

This is known as Gresham's Law and seems to be a major reason why Gold (which like Bitcoins can be infinitely subdivided) fell out of use as a means of exchange.

As to why Bitcoins will probably be neither - why would a rational population move to a currency where a few early adopters have already grabbed the majority of the wealth? If a virtual currency is to be widely accepted it would be much more sensible to create a new one. Perhaps using the same algorithms as Bitcoin but of necessity incompatible with it.

No - Bitcoins are effectively pyramid selling of tulips.

ColdIron

Gold has an essential advantage over BitCoin - history

Neither have intrinsic value beyond that in the eye of the beholder but gold has billions of those beholders, from sovereign nations to Indian grandmothers. It has been perceived as a store of wealth for millennia easily pre-dating the pharaohs and barring an act of alchemy that defies physics there is every reason to suppose it always will

BitCoin could be consigned to the celestial byte bucket by something so simple as an act of legislation