What do you own if you hold a money market cash position? The exact same thing as Bitcoin - faith of other people that currency is worth something. Look, I'm not a crypto bro or anything, but Vanguard talking about speculation is the absolute comedy gold. They operate a casino.
For discussion, what's wrong with the statement "if you hold a money market cash position [you hold] the same thing as Bitcoin [or a crypto ETF]"? Or, say, you hold one of Vanguard's Gold ETFs. (Good faith)
You don’t own the exact same thing as bitcoin. A money market cash position is backed by money market instruments whereas bitcoin is bitcoin. A gold etf is backed by gold holdings. That’s not the same as bitcoin either. It’s like saying a baguette is the exact same thing as a mac and cheese. It just isn’t the same. You might like them all equally, like some but not the others or like none of them. Any of those positions is fine because it’s your money - but it makes absolutely no sense to think they’re the same.
Money we are using now is backed by obligation of people to pay it back and very well developed institutions that enforce it.
If you hold 100$ you know someone, somewhere needs it to pay their debt. If you hold Bitcoin no one ever needs to buy it from you unless they hope they can find a bigger sucker later.
Instruments in money market are of the kind of: "give me 100$ now and I will give you 101$ 3months later". Bitcoin is not backed by such contract. It's only backed by the hope of finding a bigger sucker later.
I don't think Vanguard offers a gold ETF. (Gold ETFs do exist, Vanguard just doesn't do it.)
I'm pretty sure there's a lot of evidence that gold is a great inflation hedge but otherwise doesn't offer much in the way of returns on a long run basis. Which is a reason in various cases to hold or diversify into it over a money market fund (essentially over cash). That said, currently crypto has not proven itself to be either much like cash or much like gold.
That doesn't address the spirit of the argument you are replying to.
Vanguard is 1. what they mention in their anti-cryoto thesis, all the real value makers that you don't need Vanguard to get into + 2. a casino on top of 1.
They sold you the idea, that their casino on top of 1. brings you money. I sincerely doubt it. You are making money on 1, true, and probably losing them on Vanguard.
Also, in BTC your Vanguard funds went down significantly on average.
Are you complaining about Vanguard's tiny fund management fees? I think they are worth the convenience to not have to buy 10,000 different stocks myself.
Vanguard is not a for-profit business, it's more like a credit union, it is owned by its own customers.
Vanguard is a service that manages your portfolio so you don't have to. Literally the definition of providing an economic service.
Owning the portfolio does come with risk, but it's not fixed odds, rather the odds track the literal economy. If you buy index funds, your ballot tracks the value of the country you invested in. When society does well, so do you. And guess what? Everyone, including the government, spends their life trying to generate value and wealth.
It isn't a casino. Likening the US economy to a casino is perhaps the most disingenuous nonsense I've heard from the church of crypto.
> Vanguard is a service that manages your portfolio so you don't have to. Literally the definition of providing an economic service.
How is it different from Bitcoin conceptually? Bitcoin reflects financial markets overall just as well as any Vanguard-managed fund. It does not matter that Vanguard intention is precisely that while Bitcoin's isn't if the outcome is the same.
Just in case I'll explain what I mean by an analogy: Imagine we are sailing an ocean in a small ship, and consequentially the ship rocks really hard. There's a table with two straight sticks on it in everyone's room, and the sticks constantly slide around the table due to rocking. And for whatever reason the parent comment author is tasked with keeping them as parallel as possible, while not stopping their movement alltogether. To do so he makes a contraption with electric motors attached to one end of each stick and sensors that detect when sticks are not parallel, which causes motors to align them. In the mean time in my room I took my sticks from the table and attached them to the ceiling instead because they look nice there. Here despite the lack of intention on my part my sticks will tend to stay parallel without much effort.
Bitcoin has no intrinsic tie to the financial markets.
The financial markets are all based on goods, services, and economic value. They build meta layers on top of it and sometimes those layers are bad, but nonetheless they are based on value.
Bitcoin is based on speculation. It offers no inherent value. No one needs or wants Bitcoin. People do want or need food, shelter, health, entertainment, education, human connection, etc, that the rest of the financial markets are based on.
I think a lot of crypto advocates don't understand that the stock market isn't made up. Yes there is volatility, yes it isn't perfect. But it isn't a pure casino.
Bitcoin has sometimes* correlated with the broader financial markets, but not because it was an indicator of the markets but because it was accidentally caught up in them as an inconsequential side thought. It got treated as an investment commodity by some big asset managers and thus followed the same trading patterns. When the asset managers thought outlook was poor, they sold a bit of everything, and everything would go down.
> Bitcoin has no intrinsic tie to the financial markets.
Not an obvious one for sure.
> The financial markets are all based on ...
> Bitcoin is based on ...
I don't understand why people consider this to be any kind of argument. The very same one also applies to AI discussions and comparing hardware used to run it to brains.
What does it matter what the thing "is based" on? Gas turbines, photovoltaics, and nuclear reactors are based on completely different phenomenon, and yet they all generate electricity.
I think you missed the whole point of my previous comment. Maybe the analogy was unclear? What do you think I was trying to say?
You forgot to say "so far". One of my managers was also flying high circa 2000 - multiple lakefront properties, Porsches you name it, the guy was living the life. In 2002 he was bankrupt - didn't sell his tech stocks in time, thought they'd "bounce back".
But I'm not talking about stocks. I'm talking about cash here. Cash is literally an article of faith and nothing else. It's not backed by any asset.
> Cash is literally an article of faith and nothing else. It's not backed by any asset.
The US dollar is backed by the federal government, a behemoth that handles more assets than any other entity on earth. For example we know they target 2% inflation on average. So US dollars are much more stable than if I were to issue my own "klipt bucks" currency.
Cash isn’t an investment. It’s a temporary store of labor value. Since work now is worth more than work later, of course cash has value decay. If it didn’t, it wouldn’t be very good at its raison d’être.
The main reason the value of cash decays and the main reason central banks target 2% is downward wage rigidity. If you reduce wages of people, they get angry, sometimes very angry to the point of strikes. If the value simply drops, they don’t get as mad. It’s as simple as that, a matter of psychology and social institutions.
There is no reason why payment for labor should be a “temporary store of labor value”, whatever that means. There is no reason one cannot receive wage in productive assets, commodities, credit and whatnot.
>There is no reason one cannot receive wage in productive assets, commodities, credit and whatnot.
You're right about that. It's called the barter system and we don't use it anymore because it's inefficient and sucks shit.
>The main reason the value of cash decays and the main reason central banks target 2% is downward wage rigidity. If you reduce wages of people, they get angry, sometimes very angry to the point of strikes. If the value simply drops, they don’t get as mad. It’s as simple as that, a matter of psychology and social institutions.
No, it's because if cash has a fixed value, then the "temporary" part of labor storage goes away and the economy grinds to a halt.
> You're right about that. It's called the barter system and we don't use it anymore because it's inefficient and sucks shit.
Barter sucks because of coincidence of wants. It doesn’t suck because paying in S&P500 ETF doesn’t correspond to magical temporary store of labor whatever that is supposed to mean.
> No, it's because if cash has a fixed value, then the "temporary" part of labor storage goes away and the economy grinds to a halt.
What would grind to a halt exactly? Sorry, plebs, only rich people are allowed to be paid in stocks and other non-inflationary assets. You have to suffer, otherwise economy grinds to a halt!
>It doesn’t suck because paying in S&P500 ETF doesn’t correspond to magical temporary store of labor whatever that is supposed to mean.
How many shares of SPY does a car cost? Before you answer that, you cannot convert any value of this into currency first. I certainly can't answer it!
>Sorry, plebs, only rich people are allowed to be paid in stocks and other non-inflationary assets.
Rich people are paid in cash. When the CEO of a company gets $10m in stock grants, nobody involved in the transaction is working on number of shares of stock, they work with dollars and figure out how many shares they need to meet that number. If I get a $500 bonus from work and immediately buy a few shares of AAPL, there's no fundamental difference between that and me getting a $500 stock grant of AAPL. They're even taxed the same.
> How many shares of SPY does a car cost? Before you answer that, you cannot convert any value of this into currency first. I certainly can't answer it!
How many wons does a car cost? Why would I know it? You seem to keep missing the point that the unit of payment doesn’t need to be inflationary. And that there is no magical requirement for it to be a temporary store of labor value.
> Rich people are paid in cash.
You confuse a store of value with a unit of account.
> If I get a $500 bonus from work and immediately buy a few shares of AAPL, there's no fundamental difference between that and me getting a $500 stock grant of AAPL.
Ok? If there is no fundamental difference then how is swapping one for another supposed to bring an economy to a halt?
Yeah I know the dollar is intended to lose value on average:
> we know they target 2% inflation on average
That's why you don't put all your long term savings in USD. But it's good to have your emergency fund in USD because it has less short term fluctuations than assets like stocks.
… I mean, yeah, you’re not _supposed_ to invest in cash. Cash is, essentially, for using. If, say, your pension is in cash, you’ve been very poorly advised.
Cash is a thing that has, at its base, value in so far as you can pay your taxes with it. If the whole world (including American citizens) stopped using USD tomorrow, it would still have value since the US Government still demands it.
I dislike that take. Taxes don't really matter, and there are examples of currencies that are worth something and that are not used for taxation. Cigarettes in prison is an example of a currency that is not taxed per se, the early US dollars are another example.
Currency is useful because people have faith in its properties: scarcity and ubiquity as a medium of exchange. Dollar is important because people have faith in the US government to not dilute it (too much), and because everyone in the world accepts it.
Bitcoin _is_ a currency. Its scarcity is limited by its construction, and it's widely accepted. But it's a bad currency, that is mostly backed by illicit transactions, and its "mechanical" usability just sucks due to delays and transaction fees.
>Cigarettes in prison is an example of a currency that is not taxed per se.
Yes, cigarettes, like the dollar have an intrinsic value. You can smoke them and nicotine makes you feel good. It is similar to the way that I can pay my taxes in USD and feel comfort in the fact that I won't have to barter for cigarettes in federal prison.
Bitcoin is not a currency because it no longer meets the primary economic definition of currency - a medium of exchange. It is a speculative asset. A security, if you will. It can be used as a currency in the same way as gold bars and bricks of cocaine can (barter system) but it's not a currency.
Makes you wonder if Vanguard will change their position if the new administration gives crypto any sort of US backing. So far it seems like the new admin has only been interested on the scam side of crypto though.
That money market account is backed by bonds, which are assets. Why not also make the argument that stocks are an article of faith. You have faith that the business will act in your interests and the currency you invested in will still exist when its time to sell.
If your old manager went bankrupt by mis-timing the market with a handful of tech stocks, then he most certainly didn't invest the Vanguard way: diversify and hold on for the long haul.
>> I'm talking about cash here. Cash is literally an article of faith and nothing else. It's not backed by any asset.
It's backed by contracts to pay it back. There are powerful institutions employing people with guns and other means to make you pay back.
"Faith" undersells the situation. We developed the whole system to force people to pay their loans back.
Can I buy (foreign) cash as an investment on Vanguard (I genuinely don't know)? The money market fund is about interests from debtors not currency speculation.
Cash is backed by a government that can exert influence and control over its population and counterparts with policy, laws or - at the extreme end - force.
I think the difference is that the US dollar is actually used regularly as a currency and has the power of a government (and in particular the world's most powerful government) working to make sure that it operates as a useful currency.
On the other hand Bitcoin doesn't seem to have significant use as a currency outside of crime. Meme coins are even worse in that they don't have any use at all other than speculation.
In all fairness a money market cash position is basically accepting central bank interest while you decide what actual investment you want to put your money in.
People use it as part of an allocation, sure, but nobody plans to retire with interest from a checking account, which is pretty much what you'd be doing if you invest in a money market fund.
You may have a point that since fiat currency has no inherent value compared to physical commodities there's no reason that the right crypto couldn't function as a fiat currency, which seem true. But if crypto were fit for use as a fiat currency, you wouldn't expect it to be an investment at all - at least no compared to stocks, bonds, etc.
It always gets me when people are like this about, of all things, the US dollar. You can argue that there are faith problems with, say, the Turkish Lira, but the USD is the hard currency that people flee to when others fail, and is accepted unofficially as hard currency in a lot of countries that have currencies of their own.
Even bitcoin is priced in USD and operates trades via a Tether/Circle "stablecoin" "backed" by USD.
