<<No doubt—though in reality, ANY loan does that.
It’s the creation of the loan that matters, not the item used as security.>>
Yes, and now there’re extra trillions of security to make loans.
If bitcoin price crash, bad loans secured by bitcoin could also cause financial crisis. There’s nothing good to the society other than those who ‘created’, that probably is the main reason Buffett and Munger are so against it.
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Bitcoin passes the “duck test” for gold, it looks and feels just like gold.
Bitcoin fails the “duck test” for gold, it looks and feels nothing like gold.
FTFY
Rob
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All you have to understand is, the market cap of Bitcoin is $900 B, bigger than Berkshire. So there are lot of people understand it, and we don’t.
Extending your concept, since the net worth of the real estate in US is $35 T ($35000 B), perhaps you should trade your bitcoin reserves for houses for a big boost in your investment value.
R:
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I think the fundamental question is whether any entity other than the government is allowed to issue currency or pseudo-currency like bitcoin.
Sure. One example is frequent flier miles. They can be exchanged or sold on the open market. Maybe a better example is cell phone minutes which are used like currency in some developing nations because they are easier and safer to use than cash.
Of course the biggest example relevant to people on this board is shares of stock. These are issued by private companies who can also “unissue” (retire) them. Companies especially in Si Valley use shares of stock like their own private currency, paying wages and for other things companies need with them, or even better, with just the written promise of them in the future (warrants).
Pretty much there are myriads of things issued by myriads of kinds of organizations that look like private money. But not many of them are more obvious or more highly capitalized that stonk.
R:
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Jim:
How much wealth will thereby have been created? None.
You can replace the word “Bitcoin” with any other static asset and get the same result: gold, Rembrandts, diamonds, Beanie Babies.
So what is the source of value creation that distinguishes it from other appreciating assets?
If I dig gold out of the ground and refine it, have I created value?
If I dig iron out of the ground and refine it, have a I created value?
If I take the iron an wrought a nice table from it have I created value?
If I take the table from where it was built to a retail store have I created value?
If I take the table from the store to where a customer wants it after buying it have I created value?
Ultimately it seems to me that appreciation of assets is virtually the only source of value creation. If I grow enough corn to feed a country I have created value, but if I then grow 3X as much corn as the world can eat I have not. If I wrought steel into a Tesla I have created more value than if I wrought it into a Trabant. If I refurbish a house and sell it for more than I bought it for I have created value.
If I buy a painting for one price and bring it to an auction where it commands a higher price I have created value.
I don’t think you can meaningfully judge some difference between an increasing demand for bitcoin vs an increasing demand for computers in their role in indicating the creation of value.
But maybe you can, I would love to learn.
R:
PS I don’t value bitcoin at all either, that’s not the point. The point is value is not some purely subjective thing that I can reject or accept as it pleases me.
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Things you can put your money into fall into two different categories.
Static capital assets, and investment assets.
I don’t think it is easy, or in principle possible to distinguish these two.
If I build an empty building on some land I own, it looks like a static asset. If I rent the building out, it now seems like a dynamic asset. If I tear the building down, uh oh, a static asset again. If I grow cash crops on it, we are dynamic again.
Anything I hold as a static asset can be rented out to make it dynamic. I supply rich people with rotating original masterpieces on their walls for a monthly fee, my van gogh just became dynamic! Someone wants to start a business, I don’t have any cash but I rent him a ton of gold, my gold just became dynamic.
I own a working factory which pays me rent in perpetuity. I place it in a trust and write a trust document that states that this building and all the income it produces will be stored in a specified way and cannot be unlocked and received by anybody until this piece of paper is sold to someone on or after 2057 May 11. Is that trust document a static asset?
This may seem trivial, but honestly it is hard to escape the sense that value is independent of whether it comes from a static or a dynamic asset. That the gold mine, yielding 1 tonne of gold per year is only a valuable dynamic asset because gold is a valuable static asset. That the output of a factory may be static assets but the factor itself is a dynamic asset with investment value that derives completely from the static non-investment value of its outputs.
R:
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Have always liked R’s posts!