Bitcoin is an asset with a limited supply. Thus, it is like almost every normal asset out there - lumber, corn, gold, oil, etc. None of these things can be "printed" out of thin air. They are scarce by their natural properties.
A monetary system could work with any of these commodities - markets will figure out how to price the borrowing of money. The idea that a money must be, by its nature, unlimited in supply, is a sophism (and a very dangerous one).
Topic: Bitcoin is a Zero-Sum Game - Long-term interest bearing instruments viable? - page 13. (Read 14623 times)
September 18, 2012, 02:44:57 PM
September 18, 2012, 02:40:29 PM
It means that loans will be rare in a Bitcoin economy. Growth will come from savings (capital formation).
Instead of being able to borrow money to buy a car and a flatscreen TV you'll need to save the money first.
Instead of being able to borrow money to buy a car and a flatscreen TV you'll need to save the money first.
Why would loans be rare? All you do is adjust the interest rate for the expected amount of deflation.
September 18, 2012, 02:29:58 PM
It means that loans will be rare in a Bitcoin economy. Growth will come from savings (capital formation).
Instead of being able to borrow money to buy a car and a flatscreen TV you'll need to save the money first.
Instead of being able to borrow money to buy a car and a flatscreen TV you'll need to save the money first.
September 18, 2012, 02:12:51 PM
If you mean that trading BTC futures is risky, then I agree. We all know price might suddenly go to 100$ or 1$, and one side of the deal is screwed.
Calling it a zero-sum-game is misleading though. That's like saying a market is a zero-sum-game, which it isn't. Trade is an important part of various forms of productivity, so if someone makes money by trading things around, it's a strange thing to say that someone else must have lost the same amount.
What kind of "long term bearish arrangements" are you talking about?
Calling it a zero-sum-game is misleading though. That's like saying a market is a zero-sum-game, which it isn't. Trade is an important part of various forms of productivity, so if someone makes money by trading things around, it's a strange thing to say that someone else must have lost the same amount.
What kind of "long term bearish arrangements" are you talking about?
It is zero sum because there is no built in inflation past the known issuance of 21 million coins. Coins don't just come out of no where. Its not a perfect analogy but I hope you see the part I am trying to apply to Bitcoin for this discussion?
"Interest bearing" not "bearish". Basically anything arrangements that pay out an interest rate over time, not a one-off deal.
September 18, 2012, 02:07:44 PM
I had similar thoughts when I initially learned about Bitcoin. Deflation is going to kill the economy, etc etc. But then, some people pointed out to me, perhaps inflation is artificially inflating the economy by encouraging bad investments and increasing debt-based ventures?
To me, the ideal currency would have a supply that inflates exactly according to GDP growth. Thus, it would neither inflate nor deflate pricing, and wouldn't over-encourage bad investments or too much saving. There's no perfect way to achieve such a system though. Bitcoin is interesting too, and would only result in effective deflation equal to the increase in GDP growth + deflation due to lost coins.
*shrug*
It definitely discourages investments, but it certainly won't stop investments entirely. People will just start weighing the opportunity cost of holding BTC vs other investments.
To me, the ideal currency would have a supply that inflates exactly according to GDP growth. Thus, it would neither inflate nor deflate pricing, and wouldn't over-encourage bad investments or too much saving. There's no perfect way to achieve such a system though. Bitcoin is interesting too, and would only result in effective deflation equal to the increase in GDP growth + deflation due to lost coins.
*shrug*
It definitely discourages investments, but it certainly won't stop investments entirely. People will just start weighing the opportunity cost of holding BTC vs other investments.
September 18, 2012, 02:06:54 PM
If you mean that trading BTC futures is risky, then I agree. We all know price might suddenly go to 100$ or 1$, and one side of the deal is screwed.
Calling it a zero-sum-game is misleading though. That's like saying a market is a zero-sum-game, which it isn't. Trade is an important part of various forms of productivity, so if someone makes money by trading things around, it's a strange thing to say that someone else must have lost the same amount.
What kind of "long term bearish arrangements" are you talking about?
Calling it a zero-sum-game is misleading though. That's like saying a market is a zero-sum-game, which it isn't. Trade is an important part of various forms of productivity, so if someone makes money by trading things around, it's a strange thing to say that someone else must have lost the same amount.
What kind of "long term bearish arrangements" are you talking about?
September 18, 2012, 02:00:48 PM
I just wanted to point out as "food for thought" that Bitcoins are a fixed issue currency. This means is can not be expanded at this point beyond the initial 21 million projected coins. I believe we have some people that have not really applied this to how they think about Bitcoins. It is very interesting to see any long-term interest bearing arrangements that are marketed.
If I agree to accept your coins and pay you an interest, that means regardless if my business idea I use creditors funds for is profitable, I still need to continually go into the market to not only cover principle but also the interest. This becomes increasingly difficult with Bitcoins. Like the title says, its a zero-sum game, to get Bitcoins, someone needs to sell Bitcoins. As the supply gets more and more concentrated that will cause the nominal price of a Bitcoin to increase. Even through Bitcoins are a useful exchange unit, I believe more people are actually "saving" Bitcoins as a store of wealth.
This is why I question any long-term interest bearing arrangement or instrument that is not paying out in USD (or other currency) with the OPTION to get paid in BTC at the current spot price to remove the exchange risk from the person running the investment operations.
What do you think about this perspective?
If I agree to accept your coins and pay you an interest, that means regardless if my business idea I use creditors funds for is profitable, I still need to continually go into the market to not only cover principle but also the interest. This becomes increasingly difficult with Bitcoins. Like the title says, its a zero-sum game, to get Bitcoins, someone needs to sell Bitcoins. As the supply gets more and more concentrated that will cause the nominal price of a Bitcoin to increase. Even through Bitcoins are a useful exchange unit, I believe more people are actually "saving" Bitcoins as a store of wealth.
This is why I question any long-term interest bearing arrangement or instrument that is not paying out in USD (or other currency) with the OPTION to get paid in BTC at the current spot price to remove the exchange risk from the person running the investment operations.
What do you think about this perspective?
Jump to: