Can Bitcoin Become a Long-Term Store of Value?

[BWV]

Dollar bills are intrinsically valuable for paying taxes if you are a US citizen.

 

[russ_watters]

Dollar bills are intrinsically valuable for paying taxes if you are a US citizen.

That isn't what people mean by "intrinsic value". The intrinsic value is what you can do with or what it takes to make the thing based on what it is, as independent of market forces as you can manage. Water has value because you can drink it. A house has value because you can live in it and it took raw materials and labor to build. A dollar bill is just a decorated piece of paper that cost 5 cents to make. It is only worth a dollar because the US government promises it is.

 

[BWV]

No, there is no economic value independent of market forces and government fiat. If the government requires I pay my taxes with pieces of paper that ‘cost 5 cents to make’ that gives those pieces value. Additionally, soverein currencies derive value from the creditworthiness of the issuing government, which is why US dollars are more valuable than Venezuelan bolivars.

The idea of intrinsic value is an outdated notion

https://en.wikipedia.org/wiki/Subjective_theory_of_value

 

[russ_watters]

No, there is no economic value independent of market forces and government fiat.

If the government collapses, that dollar bill will become a small amount of kindling, but I'll still be able to exchange a bushel of potatoes for a gallon of gasoline. That's value independent of any financial system.

 

[BWV]

No, just people value things differently based on circumstances - what is the gasoline / potato exchange rate and how is it determined? What about air and water, which are much more ‘intrinsic, than gasoline? Maybe in 50 years gasoline goes the way of whale oil. You know the Keynes quote about practical men being slaves to defunct economic thinking? Try reading the wiki link I posted

 

[Rive]

The idea of intrinsic value is an outdated notion

It is just your understanding what's makes you think so. Just because pricing does not follows the intrinsic value, it does not mean that this definition would be anything 'outdated'.

The intrinsic value is what you can do with or what it takes to make the thing based on what it is, as independent of market forces as you can manage.

This is a definition, more or less. Won't do as basis of many types of financial or monetary analysis, but still has its own merit. Especially in cases mentioned in #20, for example.

 

[russ_watters]

No, just people value things differently based on circumstances...

Valuing things *differently* based on circumstances is not the same as saying there is no intrinsic value. The value of most goods or services can *mostly* be based on market forces, but cannot *totally* be based on market forces. The intrinsic value of labor and materials means their cost can never go to zero. If I offer to pay laborers 1 cent per hour, nobody is going to take me up on that, even if they are unemployed. Their time is simply worth more than that.

The biggest misapplication of the totally subjective theory of value I've seen is solar power advocates who 10 years ago would draw these impressive hyperbolic curves showing how the cost of solar power would essentially go to zero as supply caught up with demand. But there's a real floor based on the real value of labor and raw materials and the price is leveling-off, above zero.

Things who's value can go to zero:
-Beanie Babies (well I suppose you could burn them as fuel...)
-Dollar Bills
-Bitcoin
-Service companies that have no assets.

Things who's value cannot go to zero:
-Potatoes
-Fuel
-Labor
-Buildings
-Solar plants
-Companies with physical assets

...what is the gasoline / potato exchange rate and how is it determined?

Being difficult to determine/subjective doesn't mean something doesn't exist. The reason I use the zero point is because that's where the existence or lack of intrinsic value becomes clear. At zero you don't need a value system: in dollars, Euros, bushels of potatoes, whatever, zero is zero. And zero times a billion is still zero.

Maybe in 50 years gasoline goes the way of whale oil.

I don't think you're using the whale oil example correctly:
1. We don't use whale oil anymore because it's illegal, not because it has no value. But its decline started due to scarcity and mining of oil...
2. As it was replaced by mined oil, it happened because the cost (value) was too high, not too low.

 

[russ_watters]

This is a definition, more or less. Won't do as basis of many types of financial or monetary analysis, but still has its own merit.

Agreed, it's a very limited concept because as I said value is *mostly* driven by market forces. But this thread - this example of Bitcoin - is one of those rare cases where it becomes important.

The, er, value of the concept of "intrinsic value" is that it speaks to the likelihood that the asset value of something can go to zero. If I buy a house, I can be assured that based on market forces alone (eg., not a fire), the value of that asset can never go to zero. I will always be able to trade it for something, whether it be dollars, gallons of fuel, whatever. It is very difficult to determine the floor of that value (and it isn't constant), but it's there.

Assets that go to zero do so because their value is driven *only* by market forces.

 

[BWV]

Not sure why you all are attempting to reinvent your own economics here. The notion of intrinsic value is a fallacy

Karl Menger provided this defintion of value:
value is the importance that individual goods or quantities of goods attain for us because we are conscious of being dependent on command of them for the satisfaction of our needs

Back to the OP, this is the standard by which cryptocurrencies might have a long term value

another piece to read to get a summary of thought on the subject

https://partiallyexaminedlife.com/2...r-paradox-and-the-subjective-theory-of-value/

Agreed, it's a very limited concept because as I said value is *mostly* driven by market forces. But this thread - this example of Bitcoin - is one of those rare cases where it becomes important.

The, er, value of the concept of "intrinsic value" is that it speaks to the likelihood that the asset value of something can go to zero. If I buy a house, I can be assured that based on market forces alone (eg., not a fire), the value of that asset can never go to zero. I will always be able to trade it for something, whether it be dollars, gallons of fuel, whatever. It is very difficult to determine the floor of that value (and it isn't constant), but it's there.

Assets that go to zero do so because their value is driven *only* by market forces.

That is your definition, but does not hold. It can go to zero - the structure will become worthless at some point in time if not maintained and, depending on the location, the demo costs could offset the land value. Some natural disaster could possibly destroy the land value. By your definition, no patent or copyright holds any value because either time or a better alternative could destroy their value. Someones job skills may be valuable currently but worthless in 10 years because of some advance in technology.

 

[Rive]

Agreed, it's a very limited concept because as I said value is *mostly* driven by market forces.

More like, it has a bad reputation because it was/is used for some ideological beliefs as synonym for 'fairness' or such.
It is a kind of funny that with that history it tends to shine when other beliefs shatter.

Not sure why you all are attempting to reinvent your own economics here.

Well, I know an old joke for this. The driver of a car hears in the radio that 'warning, one car is riding the wrong direction on the highway!'. The he breaks in rant that 'just one? All of them!'
Your posts reeks of beliefs almost at religious level.

 

[BWV]

one car is riding the wrong direction on the highway!'. The he breaks in rant that 'just one? All of them!'
Your posts reeks of beliefs almost at religious level.

No, the religiosity is the belief that objects are endowed with some objective value (by whom?). Just pointing out that 200 years of economics has hashed out these arguments pretty well, so why not learn from it?

 

[Rive]

I take my freedom to guess that that 'objective' is something you assume/believe to be the equivalent of 'intrinsic'.

 

[BWV]

I take my freedom to guess that that 'objective' is something you assume/believe to be the equivalent of 'intrinsic'.

What is the difference then? What is more 'objective' than a market price?

 

[russ_watters]

Not sure why you all are attempting to reinvent your own economics here. The notion of intrinsic value is a fallacy...

This isn't new economics, it is old economics - it's Adam Smith. Again, it is mostly obsolete, but not completely. In our day-to-day lives and investments we don't have to worry about the issue much - we just pay what the market demands if we feel like it. It's pretty much only relevant for extreme situations, and Bitcoin is such an extreme.

But "intrinsic" or not, people base "value" on *something*. I might pick one car over another because they look identical to me but one is priced cheaper, for example. I might buy a stock because I think its price is below a certain multiple of what the company is expected to earn. For most markets, there's benchmarks and things to compare to find value.

The reason Bitcoin varies so widely and the reason it could go to zero is there is *nothing*, whether we call it "intrinsic" or not, from which to calculate a reasonable value for it. It is 100% market forces and zero "fundamentals", "intrinsic", or whatever you want to call the things people normally do to figure out how much to value something.

Karl Menger provided this defintion of value:
value is the importance that individual goods or quantities of goods attain for us because we are conscious of being dependent on command of them for the satisfaction of our needs

Back to the OP, this is the standard by which cryptocurrencies might have a long term value

How do we use that to calculate a long term value of Bitcoin?

That is your definition, but does not hold. It can go to zero - the structure will become worthless at some point in time if not maintained and, depending on the location, the demo costs could offset the land value. Some natural disaster could possibly destroy the land value.

I would have hoped my "fire" exclusion would have made it clear I'm not referring to any kind of decay or act of God here. This isn't about *a* house, it is about *houses*. If we use 10 year old, 1,500 square foot townhouses as our benchmark, the value of such an asset will never go to zero.

By your definition, no patent or copyright holds any value because either time or a better alternative could destroy their value. Someones job skills may be valuable currently but worthless in 10 years because of some advance in technology.

There most certainly is no requirement for "intrinsic value" to be permanent. But humans have permanent needs, so assets based on those permanent needs are likely to permanently have value.

Again, the bottom line reason we're having this discussion is we're talking about Bitcoin. What is your position on the long term viablility of Bitcoin? Do you think there is a chance (small, big, dunno) it could go to zero? Or do you think that like gold it could eventually become a relatively stable long-term store of value? And if so, why? You're arguing a lot of theory here but I see no useful connection to the topic of he thread.

 

[BWV]

Answering the OP requires an adequate concept of value. If your definition says that only things with Intrinsic Value(whatever that is) can serve as a store of value and then define the term in a way that excludes fiat currencies, then you have a much broader debate than just bitcoin - you have excluded most securities as well. Do you mean to say that bitcoin and US Treasury bonds are equally bad stores of value because neither has ‘intrinsic value’?

If people find bitcoin useful as a method to hold savings and conduct transactions then it will be a viable long term enterprise. However, in my opinion, for that to happen, several likely insurmountable issues need to be fixed. The blockchain architecture is not sustainable, the proof of work requirement results in wasting power resources that are better spent elsewhere and the risk of collusion in majority attacks increases with consolidation among miners and a stagnant price. A more fixable problem is the operational risks of theft and lost keys

 

[BWV]

,

I would have hoped my "fire" exclusion would have made it clear I'm not referring to any kind of decay or act of God here. This isn't about *a* house, it is about *houses*. If we use 10 year old, 1,500 square foot townhouses as our benchmark, the value of such an asset will never go to zero.

Did you ever watch The Wire and see the rows of abandoned, presumably worthless Baltimore townhouses? Your ability to store value in real property also depends on the preservation of a legal system that recognizes your title - not a trivial consideration in many parts of the world. If you are saying that all houses everywhere will never go to zero for whomever enjoys the ownership rights, then that is trivially true, but not really relevant. Houses are not fungible, you can't own *houses* - you can only own a finite number of properties that have their own unique risks

 

[Evo]

The thread OP's question has been answered and the thread is now veering off course, so is closed.