Square invests $50 million in Bitcoin

[NightAntilli]

No, nothing like gold. Gold never loses 50% of its value within a few days, nor does it double in value equally fast. Bitcoin embodies volatility. Even this year -- one of its most stable -- it has been several times as volatile as gold.

That has very little to do with the asset, and pretty much everything to do with the maturity of the market. How long has Gold been around? Bitcoin just came around, and obviously the whales will have a lot larger influence on its total price compared to Gold. Gold lost 50% of its value from 2011 to 2016. It's the exact same thing, except the cycles take a lot longer compared to Bitcoin, simply because a lot more people are in it. That can easily change in the future.

Another immense difference between the two is that gold as a commodity has intrinsic value, whereas Bitcoin does not. Gold has thousands of uses that do not depend on it being a medium of exchange; Bitcoin has none.

Yes. Bitcoin has two primary purposes. Storage of value, and transactions. I fail to see how that is a con though. It is both easer and cheaper to transact and store Bitcoin than it is Gold.

@QuantumPhysics and I may disagree on other issues, but he is perfectly correct on this. Bitcoin can be favorably compared to certain fiat currencies around the world, but should never be compared to gold.

Bitcoin has a few things that actually makes it superior to gold.

The ease of transaction, as already mentioned.
Accessibility from anywhere with an internet connection. I.e. it is portable.
You can actually own it, rather than requiring someone else to store it for you. I.e. it is easier to store and harder to steal.
It is more divisible.

Gold will never be portable, easily divisible or easy to secure/store. Bitcoin is a better store of value and easier for transactions. If you're too emotionally unstable to deal with its volatility, it's easier to stick with gold.

Bitcoin is FAR from being similar to fiat currencies. Fiat currencies by default depreciate in value, Bitcoin does not. Fiat has a potentially infinite supply, bitcoin does not. Fiat is centralized, Bitcoin is not. Bitcoin actually requires work to generate new coins, fiat does not. And so on and so on.

 

[Endymio]

@NightAntilli, you make several valid points, but a few I must address.

It is both easer and cheaper to transact and store Bitcoin than it is Gold....Bitcoin has a few things that actually makes it superior to gold. It is easier to store and harder to steal. It is more divisible.

Your original point was that Bitcoin was just like gold -- now you're arguing that its differences make it superior. Which is it? And of course several of the above statements are patently false. Bitcoins are only divisible down to what, 1 in 100 million? Gold is divisible down a single atom, meaning I can divide a single Troy ounce of gold 95,200,000,000,000,000,000,000 times.

Bitcoin may or may not be harder to steal -- I won't debate elliptic-curve security at present -- but storing Bitcoin requires the presence of a worldwide network of participating computers all running up-to-date blockchain software. Storing gold requires nothing beyond a space to put it. As for cost and ease of transaction, transferring gold can be done at zero cost, nor does it require each party to have a computer, a network connection, and wallet software. Bitcoins, however, always carry a transaction cost:

Bitcoin Transaction Fees Rise 2000% in 2020

[The volatility] has very little to do with the asset, and pretty much everything to do with the maturity of the market. How long has Gold been around? Bitcoin just came around..

You're arguing at some future hypothetical point in time, Bitcoin will be no more volatile than gold. Perhaps so. But your original statement was about Bitcoin now.

Fiat currencies by default depreciate in value, Bitcoin does not.

Untrue. Most fiat currencies do, but this is not an inherent quality of them. Japan's currency, for instance, has been deflating since the early 1990s, thus appreciating in value.

 

[Karlos95]

@NightAntilli, you make several valid points, but a few I must address.

Your original point was that Bitcoin was just like gold -- now you're arguing that its differences make it superior. Which is it? And of course several of the above statements are patently false. Bitcoins are only divisible down to what, 1 in 100 million? Gold is divisible down a single atom, meaning I can divide a single Troy ounce of gold 95,200,000,000,000,000,000,000 times.

Because someone will buy a single atom. Please be realistic.
Say we can only use the decimal places of a BTC so 8. if you buy 0.00000001 of a BTC at $10,000,000 it will cost you 10c.

Now I am not saying it could or could not obtain that figure in the future. But at least the maths works out for current dollar valuation. Could be less if the smart americans keep devaluing their dollar by printing more. Pretty ludicrous to think it is normal to create 20% of your currency in a single year.

You're arguing at some future hypothetical point in time, Bitcoin will be no more volatile than gold. Perhaps so. But your original statement was about Bitcoin now.

And right now there are a substantial a lot less of BTC than there are gold making it more valuable regardless of volatility.

Untrue. Most fiat currencies do, but this is not an inherent quality of them. Japan's currency, for instance, has been deflating since the early 1990s, thus appreciating in value.

But still worth less than what it was to USD.

Can you seriously say you would rather own YEN to BTC?
$1m YEN in 2010 in USD is 11k is now worth $10991.03.
$1m BTC in 2010 is 12.5mBTC (valued at 8c) is now worth $144,503,750,000.

 

[NightAntilli]

Untrue. Most fiat currencies do, but this is not an inherent quality of them. Japan's currency, for instance, has been deflating since the early 1990s, thus appreciating in value.

Did a quick check of this... There doesn't seem to be any charts from before 2006. But in 2007, the value of the US Dollar against the Japanese Yen was slightly higher than it is today. Considering the correlation in value between the two, I highly doubt that the Yen is appreciating. It might appreciate against the dollar, but that doesn't say much.

 

[Endymio]

Did a quick check of this... There doesn't seem to be any charts from before 2006. But in 2007, the value of the US Dollar against the Japanese Yen was slightly higher than it is today. Considering the correlation in value between the two, I highly doubt that the Yen is appreciating.

A few things confused here. Forex engage rates are driven more by balance of payments and relative interest rates than simply by inflation, and a nation's CPI is primarily the result of the price of domestic goods and services, not foreign ones.

When a currency's inflation rate is below zero (I.e. deflation is occurring) the currency is by definition appreciating in value, in this case the Yen's ability to buy Japanese goods and services is increasing. The Yen was deflating briefly in the 1980s, throughout much of the 1990s and 2000s, and again just recently. Google "Japanese deflation" and you will get plenty of references.

Because someone will buy a single atom. Please be realistic.

The point I was disputing was that Bitcoins were "more" divisible than gold. This is false.

Pretty ludicrous to think it is normal to create 20% of your currency in a single year

Do you believe this is a "normal" year?

Can you seriously say you would rather own YEN to BTC?
$1m YEN in 2010 in USD is 11k is now worth $10991.03....

If you're allowed to cherry-pick your start date, you can make any security look good. Compare BTC to the Yen over the last three years, and you get a far different picture.

 

[NightAntilli]

Google "Japanese deflation" and you will get plenty of references.

Funny, how all of them correlate the deflation with the stagnation of the economy, I.e. a bad thing.

Fiat is designed to inflate. If it is deflating it has failed.

 

[Endymio]

Funny, how all of them correlate the deflation with the stagnation of the economy, I.e. a bad thing.

Deflation is generally considered a disincentive to investment, under the rationale that it requires a higher ROI for investments to be profitable. Whether or not that is true does not affect the primary point that fiat currencies do not inflate "by default". They inflate only when governments force them to do so.

 

[Karlos95]

The point I was disputing was that Bitcoins were "more" divisible than gold. This is false.

Again, is it? You can do the same with the energy it takes to make a BTC.

But it is not a real representation of something useful.

Do you believe this is a "normal" year?

Depends how you look at it.

Plenty of recessions in the past. Plenty of plagues. (if you can even categorise this one the same)

Maybe the pollies are becoming more stupid...

If you're allowed to cherry-pick your start date, you can make any security look good. Compare BTC to the Yen over the last three years, and you get a far different picture.

The point was for value and being the better investment.

Most investors are long term. And since that is about when it started was best price point.

And in 1 year you will probably still like BTC in that equation for 3 years since if you are buying you bought pretty low to where I project it will be in the next year.

 

[NightAntilli]

Deflation is generally considered a disincentive to investment, under the rationale that it requires a higher ROI for investments to be profitable. Whether or not that is true does not affect the primary point that fiat currencies do not inflate "by default". They inflate only when governments force them to do so.

If deflation is seen as a problem, inflation is the default. Just like a flat tire can happen, it is not the default/normal function for a car. Deflation can happen with fiat, but it is not the normal way it works. The tire must be inflated. Obviously not hyper-inflated, otherwise it explodes.

And it's not that governments 'force' it. They HAVE to do it to keep the currency afloat. How else are they going to pay back the debt for it?

 

[Endymio]

If deflation is seen as a problem, inflation is the default...Deflation can happen with fiat, but it is not the normal way it works.

Actually, you have it exactly backwards. In an expanding economy, fiat currency deflates by default. In the days before central banks, fiat currencies regularly deflated. Inflation only occurs when a central bank generates additional money in excess of cyclical demands. See the Friedman k-Percent Rule, a staple of basic monetary policy.

And it's not that governments 'force' it. They HAVE to do it to keep the currency afloat.

Again, you have it backwards. The higher the rate of inflation, the less attractive a currency is. The U.S. dollar's reign as the world's reserve currency is a measure of its strength, and is directly related to its lengthy history of, compared to other major currencies, stability and low inflation.

 

[NightAntilli]

Actually, you have it exactly backwards. In an expanding economy, fiat currency deflates by default.

Provided the fiat currency supply stops or remains the same, which pretty much never happens.

In the days before central banks, fiat currencies regularly deflated.

In the days before central banks, currencies couldn't really be considered fiat in the first place. Fiat by default has no commodity backing it. All other 'fiat' currencies before central banks were backed (or at least pretended to be backed) by Gold or Silver. We definitely know that those deflate.

Inflation only occurs when a central bank generates additional money in excess of cyclical demands. See the Friedman k-Percent Rule, a staple of basic monetary policy.

See below.

Again, you have it backwards. The higher the rate of inflation, the less attractive a currency is

Exactly... And if the currency is less attractive, people are more willing to spend it on something else. If it becomes too attractive, I.e. deflation, the economy stagnates, because saving is actually viable, and spending drops. That's exactly why fiat currencies are kept on an inflating cycle. That's what the Friedman k-Percent rule is all about.

The U.S. dollar's reign as the world's reserve currency is a measure of its strength, and is directly related to its lengthy history of, compared to other major currencies, stability and low inflation.

Why isn't the Japanese Yen the world's reserve currency if deflating fiat currencies are so great? Doesn't a light turn on when the world's reserve fiat currency is an inflating one?
The dollar has been 'relaunched' multiple times to avoid it from crashing, which is the inevitable result of all fiat currencies. First by decoupling it from Gold, then by coupling it to Oil, and 2008, and so on.

Bitcoin is far different from fiat, because you can't pump it whenever you want, it actually is a good store of value, and it doesn't need a single entity backing it.