> Have fun watching your fiat lose value to inflation
Where did crypto fans get this weird idea that the only two options for storing wealth are fiat cash or cryptocurrency?
It’s bizarre that these crypto investors think anyone with significant wealth is keeping it in a bank account earning 0.05% APY and losing to inflation. I suspect many of them aren’t coming from backgrounds with much, or maybe any, education about basic personal finance.
I don’t understand how these crypto people can talk about their crypto prices all day in terms of fiat dollar value, yet not realize that we do the same thing for stocks, bonds, real estate, and other assets too.
This idea that crypto is the only way to escape inflation is one of the weirdest and most easily disprovable myths, but every crypto thread is full of crypto holders who want to believe it’s true. It’s also silly to watch the proliferation of ever-increasing numbers of crypto currencies and crypto assets being generated out of thin air being willfully ignored in the money printing conversations. Do people really not understand that crypto currencies are being printed and injected into the crypto ecosystem all the time?
> but every crypto thread is full of crypto holders who want to believe it’s true.
It's because they want their crypto holdings to go to the moon. HODLing works if you got in early which in the case of BTC when it was around <$9 - $500 with more than 50,000x returns. Right now? It does not.
They do not know how to trade it and take profit, so they just hold it all the way up and never take it out; even if it crashes back down, which you can buy it back at a lower price.
> It’s also silly to watch the proliferation of ever-increasing numbers of crypto currencies and crypto assets being generated out of thin air being willfully ignored in the money printing conversations.
Yes. Everyday there are new worthless tokens and coins being generated and listed on lesser known exchanges and NFTs being minted it out of thin air. Almost all of them have no use case or reason to exist other than having the creator dumping their creation onto the retail crypto holder. Thanks to cointool [0], now anyone can create and list their own ERC-20 scam coin and anyone can create a .PNG, .JPG NFT and mint it out of thin air.
> Do people really not understand that crypto currencies are being printed and injected into the crypto ecosystem all the time?
They will find out the hard way. Some are doing this very quickly until a 2018 style crash will come due to more regulations or a full crackdown.
The issue is that people are forced to hold cash, and this disproportionately impacts the low class that are not financially educated and do not own or understand stocks, bonds, real estate. Inflationary currency is a class warfare attack on the poor. Stocks, bonds, real estate are not a potential replacement to fix this malicious situation because they are not suitable for transactions. It also allows creep into many metrics such as minimum wage which are not fairly adjusted.
Inflation has been at roughly 2% for 20 years. It's been below 5% for at least 40 years. If high inflation is really that bad for the "low class" then how come they are doing so poorly despite avoiding it for so long?
Your insight is doubly poignant because even though inflation has been thoroughly throttled for most of the time Paul Graham has been alive, the average American worker still somehow has ended up earning less, in inflation adjusted dollars, than 40 years ago. https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
Think about that. In 40 years the average worker hasn't even gotten a 5% raise.
So that points to it not being a fiat currency issue, but more something along the lines of labor exploitation? Excluding some industries, there has been no forcing factor to increase wages and the outsourcing of labor just taking money off the table entirely. That's in stark contrast to incredible year over year profits for corps.
The world isn't only USA. And even those percentages add up to be significant over time. I have known people directly that hold all their savings in cash for decades because they dont understand how to invest. It is catastrophic when you consider compound effects
While it's not wrong that there are other options for storing wealth, crypto is the first one that is easily transferable across borders and thus far has shown to be resilient at not being controllable by government.
Multiple attempts have been made over a decade to control crypto. The most recent China banning miners for example showed that crypto just adapts and overcomes.
This of course is scary for the people who used to have complete control over money, and even more so for countries that can no longer control their citizens by seizing their assets.
Crypto is tiny proportion of your assets. Even in the most favourable scenario, where you own nothing but crypto, you're still vulnerable because you have a physical body. The simple fact is that crypto does nothing to hinder the government's ability to control citizens.
Here’s something to consider: Right now AMZN is worth something because it is believed that it can be sold to the next person for more than was paid to the previous holder. What about the last person that will ever hold that share? How will they profit from owning it?
> What about the last person that will ever hold that share? How will they profit from owning it?
They will have voting rights on the board and perceive dividends from one of the most successful companies in recent history?
Even if the company stopped its activities today, liquidating its assets: land, patents, infrastructure, contracts, data, etc. would bar the stock from going to zero.
> Right now AMZN is worth something because it is believed that it can be sold to the next person for more than was paid to the previous holder.
This is not the reason AMZN is worth something at all. The reason is because 1. assets > liabilities and 2. it's a business that generates a stream of net income.
And this is independent from what the stock market thinks AMZN is worth. For example, if the stock market thought AMZN was worth zero, you could buy the entire company for nothing and liquidate it for a profit, or keep it running and pocket the business profits, so it would still be worth something.
We have hundreds of articles complaining about companies doing stock buy backs... how companies value their shareholders more than their employees. There is even an internet myth that companies have to be maximally profitable if they don't want to be in legal trouble versus their shareholders.
It's really quite simple. Companies grow and make profits. They issue dividends or do stock buybacks and return excess cash to investors. The market might be overvalued but bubbles burst eventually.
Can you expand on this? What about crypto will make it such that you can afford a home? That more people throwing in more money will increase your valuation such that you can exit to fiat and leave the bag for someone else to hold for them to hope people throw in more fiat?
Unfortunately I think you’ve nailed it. But speculation on risky assets is a symptom of desperation amidst a growing wealth gap, I just don’t see this disappearing soon. It’s a very clever scam
I agree that some crypto folks may not have basic personal finance education (although some people investing in stocks, and promoting that to others, also do not have basic personal finance education). I also agree though that some cryptos basically print money (as one example, go look into the inflation rate of Curve DAO, a popular DeFi protocol, which I don't invest in, due to the inflation rate).
Bitcoin does not print money or have a high inflation rate, and that is the point of it (it was the original cryptocurrency that took off, so saying that the whole crypto sphere is bad is kind of like saying that because there is some bad software that all software is bad, or that because there is one stock that is bad that all stocks are bad). The max supply of Bitcoin is capped. I don't think that Bitcoin is the only digital asset worth investing in, but I also don't think it is valid to claim that all crypto is printing money, or that all crypto is bad.
I am a crypto fan. I don't think that it's the only way of storing wealth. I also invest in an S&P 500 index. I do think that crypto has a higher potential to beat inflation over time, with inflation currently at 5.4% [1], vs stocks. US stocks have been propped up by The Fed printing USD (which they can due to it being the world reserve currency, which may or may not last forever) and investing it into Wall Street, as well as dropping lending rates to essentially zero, since the March 2020 crash. The Fed has already signaled their intention to raise rates in the next few years, which would damper some of the bullishness of the stock market.
Crypto is a new asset class that investors can consider if they have some risk tolerance, with the potential for a high reward. The thing that I think a lot of people miss is that traditional finance is by no means perfect. There are negative interest rates in some parts of the world (i.e. see Europe). There have been synthetic assets in traditional finance like CDO's (i.e. see The Big Short), which are detached from reality (and assets like that will continue to be created because big money will continue to be bailed out). The current P/E ratios of even some popular stocks (i.e. TSLA) don't reflect traditional fundamentals, so there is a lot of speculation, just like with crypto (I don't think that speculation is bad, there are folks betting on what a company or a technology can become in the future). Also, the US Debt increases every year, with no signal that they will ever pay it back. Based on all this, I think it is worth considering some other asset classes to invest in vs purely traditional finance.
Anyway, just because crypto is not perfect and the space has many digital assets (and not everyone understands them), it doesn't mean that as a whole that it's bad and should be destroyed. There's so much already invested in the crypto space, and it's not just capital, it's startups and human time invested (like any other software project or field). People will continue down this path in one way or another. Regulation will likely mature the space and more people will feel comfortable to invest in it based on that. I think that crypto will at least exist alongside traditional finance, even if it does not completely transform it, and it's worth being open to seeing how this technology can benefit us all.
I hear that argument often, but don't crypto traders always cash out to fiat sooner or later and thus, end up in the same loop?
It was naive to think cryptocurrencies will ever have wide spread adoption without getting regulated at least as much as fiat I think.
The long term goal for many in the crypto community is to get to a point where you don't need to cash out. More merchants accepting crypto, landlords accepting crypto, etc. We aren't there yet, but that remains the goal.
It’s never going to happen unless they can solve the deflation problem. Why would I use a unit of cryptocurrency to pay my rent today, if I think the real value of the cryptocurrency unit will buy even more rent next month? The Internet is full of stories from people who bought like a pizza with Bitcoin years ago and realize that same amount of Bitcoin would be worth like $10,000 today.
Using cryptocurrency to transact every day items is directly contrary to the “HODL” culture around cryptocurrency that exists today. It works in society like an investment, not a currency.
The ever-decreasing value of the dollar is a feature not a bug. It encourages people to transact their dollars for items of real value like pizza, and store their wealth in items of real value like real estate, stocks, etc.
We’ve had pretty long periods of time when currency valuations remained flat or slightly deflationary. In reality, folks buy what they want when they want with the currency that is most convenient. I think you’re overthinking it.
This is a completely invalid argument. You have no choice but to pay rent. If there is an asset that goes up in value, you will want to store your wealth in it. if you can directly pay with something that is also a good store of value, then for the individual that is simply the superior choice.
>Using cryptocurrency to transact every day items is directly contrary to the “HODL” culture around cryptocurrency that exists today. It works in society like an investment, not a currency.
That is due to other factors, not deflation. Not many people accept payment, people are forced to hold dollars, paid in dollars and there is friction when converting. Bad money gets spent first (Gresham's law). If you have dollars from your job anyway and your risk profile is to hold some % in crypto, then of course it doesnt make sense to spend your investment which would need to rebuy to rebalance your portfolio.
The deflation problem that you imagine doesn't exist. There are other more worthwhile arguments against deflation but you didn't use them
>This is a completely invalid argument. You have no choice but to pay rent.
I don't know what you think you are saying but you've just proven the argument. If you only make the minimum necessary transactions then your economy will be of minimum size.
>If there is an asset that goes up in value, you will want to store your wealth in it.
It's just a balance sheet. If the value of the asset goes up it just means the allocation of resources is biased to BTC earned in the past. You also cannot store wealth in Bitcoin. You have to give up real wealth to own Bitcoin.
>if you can directly pay with something that is also a good store of value, then for the individual that is simply the superior choice.
Sure, the individual wants his share of wealth to grow at the expense of everyone else. After all, who the hell would be against free shit that you don't have to work for?
>That is due to other factors, not deflation.
>Not many people accept payment, people are forced to hold dollars paid in dollars and there is friction when converting.
Literally nobody is forced to hold onto dollars. If anything central banks want people to stop holding dollars because of low inflation/the deflation problem.
> Bad money gets spent first (Gresham's law).
I don't know if you have noticed but bad money being spent first is snowwrestlers' argument. You've supported a supposedly completely invalid argument yourself...
>The deflation problem that you imagine doesn't exist. There are other more worthwhile arguments against deflation but you didn't use them
They boil down to the same thing. Deflation doesn't increase real wealth it only responds to real wealth increases by allocating the real wealth to people who held onto more currency. It is equivalent to an income tax that is then redistributed via a UBI that pays out proportional to how much BTC you own.
If you know that you will get more wealth extorting other people you will refuse to spend your Bitcoin because it increases your ability to extort people in the future.
I was replying to "Why would I use a unit of cryptocurrency to pay my rent today, if I think the real value of the cryptocurrency unit will buy even more rent next month?". To be honest I don't understand what you're saying at all, within that context
I do pay my rent with crypto, because I don't have any USD/EUR income and it is less friction for me. Why would I want to go through extra effort to get dollars? Due to my situation I see quite directly that whether individuals choose use it as a payment method has no direct relationship with deflation
>If you only make the minimum necessary transactions then your economy will be of minimum size.
This is completely unrelated to the decision making of individuals
That will never happen. If I were a merchant that accepts Bitcoin I would want to acquire as much today as possible and my desire to adopt it would shrink as its value goes up.
The best years for Bitcoin adoption are already over.
I'm fine with rational regulation that doesn't effectively outlaw the technology and keeps a level playing field, which is the opposite of what they're attempting right now.
Who exactly keeps a significant fraction of their savings in money? It’s function as a medium of exchange is largely independent of it’s fiction as a store of value.
Of course debt is different because that’s paying interest.
What an amusing comment! Fiat is worthless and everyone knows that. It's just an entry in a balance sheet. Wealth doesn't exist in the balance sheet. The balance sheet merely allocates wealth. Inflation can only hurt the balance sheet if it results in people abandoning the instrument. Inflation doesn't destroy real wealth. Deflation doesn't create real wealth.
Inflation causes people to flee into the real world. They instinctively create durable real wealth as a result of inflation because the real world degrades slower than money.
Deflation causes people to flee the real world and seek safety in the balance sheet. Their allocation of resources increases simply because the rules of the balance sheet say so. In fact, people are incentivized to destroy real wealth early as the balance sheet lets their allocated share of wealth grow faster than if they put in the effort to create real wealth.
It's the gold standard that collapsed under deflation and if fiat were to collapse today, it would again collapse under deflation.
