Here is a chart of bitcoin priced in ounces of silver. The shape looks quite familiar to the bitcoin versus US dollar chart which is due to relative stability of US$ and Silver versus highly volatile bitcoin.
Currently 1 bitcoin costs about 26.26 ounces of silver. This is down from a recent peak of about 33 ounces of silver but looks like might bounce here on support and bitcoin keep rising.
I remember well being excited when bitcoin first overtook 1 ounce of silver in price but those days are way behind bitcoin now.
My prediction is that bitcoin is going to overtake one ounce of gold and keep going up against silver.
To be honest I still don't know why Craig totally ignores crypto when this site is supposed to be about hedging yourself against the end of 'the great keynsian experiment'. Crypto is an increasingly hard to ignore elephant in the room.
The currency preferred by Criminals worldwide!
After computer hack, L.A. hospital pays $17,000 in bitcoin ransom to get back medical records
Spartacus don't worry, criminals won't demand silver, you're safe.
I've got to say I miss turdville. Lurking around in the bitcoin section of the Traders half of the forum just doesn't seem the same as when i was allowed to comment on mainstreet :-( maybe eventually i'll stump up the fee to buy in.
Meanwhile since I seem to enjoy listening to my echos in my own echo chamber heres an update to my last chart which was a ratio of bitcoin with silver.
AS I thought last time bitcoin bounced off that support and went higher. But look at this. Maybe you can make it out but silver has broken out of a down trend. Or what it looks like on this chart which is reversed perspective, bitcoin has fallen through an important silver support. Maybe it portends a rally in silver (which GSR also is screaming at the moment)
The more normal view of bitcoin is versus US $ which this is how is looking just now
Against US$ it looks to me like bitcoin is poised to break upwards and potentially take out old all time highs. Within next few months bitcoin supply is cut in half.
Well getting tired so not going to elaborate my idesas any further just now.
All the best turdville
I appreciate your bitcoin notes..
Sunday, March 27, 2016
Is Bitcoin a Safe Asset?
You're probably thinking no, of course not. The dollar price of bitcoin can be quite volatile (see here). One can easily gain or lose 50% over a very short period of time. So if we're talking about an asset that offers a stable rate of return, Bitcoin ain't it.
Except that this is not what I mean by a safe asset.
I'm not even sure how to precisely define what I mean by safe asset. Loosely speaking, I'm thinking about an asset that people flock to in bad or uncertain economic times. In normal times, it's an asset that is held despite having a relatively low rate of return, perhaps because of its use as a hedge, or because of its liquidity properties.
U.S. dollars (USD) and U.S. treasuries (UST) are examples of safe assets today. Now, you might think that they're safe because they're close to risk-free in terms of what they promise in the way of a nominal rate of return. A paper USD promises a zero nominal interest rate and you'll be sure to get that if you hold on to the note over time (USD in the form of central bank reserves presently earn 1/2%, but only depository institutions get this rate.). A UST bill also promises zero nominal interest and you can be sure to get that with full principal repayment upon maturity. The coupon payments associated with a UST bond are virtually risk-free.
But that's not a complete way to think about the risk associated with a security. First, economists (rightly) focus on the real rate of return on an asset. Investors don't care how many paper dollars are promised to them in the future. They (presumably) care about the purchasing power of those future dollars. If inflation turns out to be high, that future purchasing power will be low. The opposite holds true if inflation turns out to be low.
As for the "risk free" UST bill, its market price will generally fluctuate between the issue date and maturity date. This is sometimes called "interest rate risk." If you buy a bill that promises $100 a year from now for $99, you will make about 1% if you hold the bill to maturity. But if market interest rates spike up in the interim, and if you are forced to sell your bill to raise cash, you're likely to realize a substantial loss.
That's the thing about a safe asset. It's return can appear to be stable for long periods of time and then--bam--something happens. (Something always happens.) Interest rates may spike up--a sudden sell-off in bonds may occur. What might trigger such an event? All sorts of news. Foreign banks may need to liquidate their foreign reserves consisting of USTs for political or economic reasons. A sudden increase in inflation expectations would lower the expected real rate of return on nominal bonds, inducing a sell-off. A bond sell-off might even be triggered by a good news event. An increase in productivity growth increases the expected return on private capital investment, inducing portfolio substitution out of bonds, for example.
Another thing to keep in mind is that the asset classes that constitute safe assets can change over time. In my recent piece on secular stagnation, I noted that a "flight to safety" seems to occur near regime changes that imply productivity slowdowns. In 1974, investors flocked to gold and real estate--they ran away from USD (rapidly rising price-level) and UST (rapidly rising nominal interest rates). In 2008, the situation was quite a bit different--both USD and UST were highly sought after safe havens (with investors fleeing real estate).
The observations above suggest that the monetary policy regime matters a great deal for whether a fiat currency is perceived to be safe or not. When Nixon and his advisers chose to abandon the gold standard (against the recommendation of Fed chair Burns) in 1971, monetary policy appeared to lose its nominal anchor. So when the oil price shocks and productivity slowdown hit in the early 70s, investors ran away from cash. Gold is often credited as being a safe asset because of its supply "policy." But there must be more to it than this because, like gold, the supply of real estate is not very elastic. And yet real estate was not a safe asset in 2008.
Patience, Grasshopper. I will get to Bitcoin soon. Before I do, I want to ask "what makes an asset safe?" According to Gary Gorton, it has a lot (perhaps everything) to do with information asymmetry:
A "safe asset" is an asset that can be used to transact without fear of adverse selection; that is, there are no concerns that the counterparty privately knows more about the value of the asset. (Safe Assets, Working Paper, March 2016).
In other words, a safe asset is an object with attributes that traders can mutually agree on very quickly and at little cost. Objects with this property tend to become monetary instruments or, to use a more broad term -- exchange media (which includes objects commonly used as collateral to support lending arrangements). Safe assets tend to be "simple" assets. Historically, commodities such as salt, precious metals, or coined tokens. It's easy to verify your salary in salt (just taste it). It's a bit more difficult to assay gold. The whole purpose of coinage was to make objects easily recognizable without much effort.
It goes without saying that most financial instruments are complicated objects. Consider your life insurance policy, which is relatively simple as far as financial products go. The reason you can't buy your morning latte with a slice of that asset is because it's simply too costly for the vendor to do the necessary due diligence. So you pay in cash. Everyone knows what cash is. Cash may be "junk" (i.e., unbacked), but at least everyone can agree that it's junk. There's nothing complicated about cash. (The same principle holds true for UST, which are used extensively as collateral in overnight lending arrangements.)
Cash and gold are "simple" objects. The fact that they pay no interest makes them even simpler. In particular, there's no need to spend time investigating the reliability of a dividend paid by "barren" asset--everyone can agree right away that the dividend is zero. This type of informational symmetryappears to be in high demand in times of financial uncertainty (when nobody knows for sure what other people know about the securities they're selling.) Of course, the situation is somewhat more complicated when counterparties are involved, but this is true of any asset.
This brings me to Bitcoin. I think that Bitcoin could be the world's next great safe asset. At least, it certainly seems to have all the properties that are desired in a safe asset.
Importantly, it is a "simple" asset. It's simple in the sense that it's a pure fiat object--the monetary objects (called bitcoin) constitute no legal claim against anything of intrinsic value. Bitcoin is simply a record-keeping technology (and economists have known for a long time that money is memory). It pays no interest. Possession corresponds to ownership (unless counterparties are involved). The ledger has proven itself secure (not a guarantee that is can never be compromised, of course).
Now one might object that Bitcoin is not that simple, not to the average person on the street, at least. Bitcoin consists of 30MB of C++ code. And the algorithm that governs the accuracy and security of the ledger can be hard to understand. But I liken this to the way most people understand how their car engine works. We have a vague notion of how internal combustion works, how power is transmitted through the drive train, blah, blah, but all we really know for sure is that our collective experience with the technology has proven useful. We also know that there are mechanics out there that do know how a car engine works. Because the Bitcoin code is open source software, attempts to modify the code for personal gain at communal expense are easily detectable through expert eyes. And we trust that there are many expert eyes on the watch.
Finally, Bitcoin has a very simple monetary policy. Essentially, the policy is to keep the money supply fixed (actually, it will grow asymptotically to a fixed number, 21 million units). Although this money supply rule could potentially be modified by communal consent, there are reasons to believe that this is unlikely to happen. And even if it does happen, it can only happen if it somehow serves the community of Bitcoin users in some broad sense.
As is well known, there's been a bit of a civil disturbance in the Bitcoin community as of late. The issue, as I understand it, concerns a proposed amendment to the Bitcoin constitution (see blocksize controversy). People fear that if the amendment does not pass (and it does not look like it will), thenSatoshi Nakamoto's original vision of a low-cost, high-speed, high-volume P2P payment system may fail to materialize. Others are confident that a solution, in some form, will eventually be found. (These people breathe optimism, remember. It's the fuel that powers entrepreneurship.)
But suppose that the original vision doesn't pan out. Suppose instead that Bitcoin hits a hard limit on the volume of transactions it can process (presently far below what Visa can accomplish). Suppose further that as the subsidy on block rewards (the seigniorage revenue used to finance book-keeping costs) becomes negligible. Then a fixed transaction fee (and possibly a substantial one at that) will have to be paid, since someone has to finance the book-keeping costs. If this were to happen, then it would only make sense to hold Bitcoin for large-value transactions (the fixed cost associated with each transaction would make small-value transactions uneconomical.)
This "Bitcoin as a large-value transfer system" does not destroy my thesis: Bitcoin can remain a desirable safe asset. (Smaller players could presumably get involved by investing in Bitcoin ETFs, although doing so would introduce counterparty risk.)
I've argued before that Bitcoin makes for lousy money. I still believe this. If it isn't the unit of account, users are subject to extreme exchange rate volatility. In a world where it is the unit of account, a "flight to safety" event would cause an unexpected and severe deflation. We have the experience of the early 1930s to show us what a Bitcoin monetary policy can lead to. (And while a Bitcoin monetary system may free people from the inflation tax, it won't free them from more general forms of taxation.)
However, even if Bitcoin is not, in my opinion, a particularly ideal monetary instrument, this does not preclude it from serving as a safe asset or longer-term store of value. Once market penetration is complete, its return behavior is likely to mimic the return behavior of any other safe asset. Safe assets generally earn a low expected return (that is, they are priced dearly). Investors can expect to earn unusually high returns in a crisis event. But if you buy at the top, you can expect to realize unusually high losses when the crisis subsides. In short, it's a great investment -- assuming you can predict when a crisis will occur and when it will end!
There are a host of issues related to safe assets that I think deserve some attention. Let me offer a few that come to mind here. First, it's not even clear that safe assets are socially desirable. Bryant (2005) demonstrates that the existence of a safe asset can induce coordination failure. Is this an argument to be taken seriously? Second, I think that policymakers should be aware that the class of safe assets may change over time. Should policy be conditioned in any way on the existing set of safe assets? Third, how should we think about "close-to-safe-asset" substitutes that seem to proliferate in periods of prolonged economic tranquility? Barren assets like cash, gold and Bitcoin generate no income. It is evidently very tempting to construct "safe senior tranches" of private interest-bearing debt to compete with these low-return barren assets--a practice that sometimes gets out of hand--and with disastrous consequences. Should a central bank issue its own interest-bearing digital cash to discourage the practice?
30 min - choc-a-block with information:
adoption increasing / blocksize / block reward halving = price increase / comex & manipulation / prepping for the future
A great recent presentation by Andreas Antonopoulos - addressing the viability and future of bitcoin:
Do watch this 7 minute video where a Japanese financial analyst reviews the future for bitcoin. Using some convincing charting history he predicts either $5 or $30,000 by the end of this year:
I am looking at Bitcoin as a set & forget mini investment. Do you have any market or wallet recommendations for an older lady in NZ?
What do you guys use?
SilveryBlue For you I'd probably recommend the electrum wallet which I haven't used myself but I've heard good things about. (I use the bitcoin core wallet but that requires you to have the whole blockchain synced on your computer.)
I find LocalBitcoins https://localbitcoins.com/ is a good way to buy them.
Last time I looked at bitcoin priced in silver it was about 26 ounces of silver for one bitcoin. Today you need about 41 ounces of silver for one bitcoin.
Bitcoin priced in gold looks very similar shape
( but your one ounce of gold will still get you more than one bitcoin but not quite 2 whole bitcoins)
Are there any people on here actively trading Bitcoin? I see it's somewhat quiet in here. As a total charting and trading noob I've decided to start and get some practice in the crypto arena as it's more accessible to small traders. While working through the reading list that's been posted by AM.
After reading Jesse Livermore's book and having started in Edwards' I'll try to post some charts as I learn. Hopefully it helps other aspiring traders.
So far the Bitcoin bull market that has been initiated in October shows no signs of ending soon. There seems to have been plenty of accumulation from January till late May which suggests that a high percentage of BTC was ( and still is?) held by "Strong Hands" at the start of the last two legs up. (More FX turmoil in 2016, problems with Ethereum, and underestimation of the halving and scalability might further support the bulls.)
While the bull market is not over I would say that the 5000 Yuan resistance will not be broken too easily. Actual (profit taking) or potential(!) selling is likely to weaken the bulls resolve at that level and allow the bears to temporarily take over again. Looking at the chart I would say we will have to test it a few times and I don't have the impression that we'll break it before the halving (ETA 10 July). On the downside the 3900 Yuan support appears to be pretty solid.
*As most BTC trading is done in China the Chinese prices seem to be most significant. Dollar, Euro and EM currencies should definitely be taken into account as well though. Volume data from Chinese exchanges should be taken with a grain of salt though.
The picture in USD is quite similar. The support zone at 600 has been hit briefly with decent volume which suggests that it's strong. The resistance around 750-760 is seems relatively weaker but I'd be surprised if it falls instantly. That said, the current price level is not a bad entry point for buy and hold investors and/or those that have 0 exposure to Bitcoin at the moment. Mostly because it's not very likely to go significantly lower than the current price and the risk of price running away from you through 760 is still there. Traders might want to put some buy orders in close to 600 USD, just in case it does retest to that point.
Similar question to that of SilveryBlue, but for Canadians. (I wish we were in NZ, to be honest...).
Where is a good place for a Canadian to get a primer on how to get set up with bitcoin, and recommended sites for buying/selling, wallets, etc.?
Coinbase and Kraken are probably the easiest way for a Canadian to buy Bitcoins. BitNZ and NZBXC appear to be the most popular kiwi exchanges.
Looking at Reddit, all of these look pretty solid. Coinbase and Kraken are certainly ok, the kiwi exchanges probably as well. Still I would recommend to transfer you Bitcoins to your own wallet as fast as possible.
For a primer, Bitcoin.org is probably the best place to start. To stay up to date with news I would check Reddit and Twitter.
I agree, I've used Electrum myself in the past and it's a good wallet. Most open source wallets work fine though, so any of those listed on bitcoin.org will do.
Remembered someone had mentioned bitcoin wallets @TFMR a while back, thought I'd copied info, didn't, searched TFMR and voila!
This has got to be the #1 site for current events, news, investing, surviving, not to mention stacking. What a window on the world.
This is a perspective that shouldn't be ignored in my eyes.
While I'm cautiously optimistic on the effect crypto-currencies will have on liberty, they do have the potential to help bring forward a dystopian future. They're great for protecting yourself from the ongoing currency wars and (practicing) trading though.