Everytime I see news like this I imagine a lot of economists laughing.
From an economist perspective, price fluctuations on money is not a feature it is a very serious bug. There is a whole lot of economic theory worried on preventing it. "Good" money should avoid being the target of speculation, it should be stable, boring, predictable. Money that changes their prices is like an unit of measure (meters, quilos) that stretches and shrinks unexpectedly.
There was a long time ago when I could use bitcoins to buy web templates. Today almost no one accepts it as payment. Exactly because it is unstable.
I think it’s misleading to view a currency’s price “stability” as some intrinsic quality that determines whether or not it is suitable for broad adoption. Wild price fluctuations are a consequence of incomplete adoption, relative to the quote currency. Higher adoption leads to less fluctuation as the demand is more constant from day to day.
If we judged the stability of a currency by its supply stability, then Bitcoin would be the most stable currency ever to exist. But for now, it must compete with sovereign fiat currencies and everything is priced in those currencies, so it will appear extremely unstable and perhaps unusable for most transactions.
It’s like using a wire transfer (~$30 fee) for every transaction. Most people use credit cards or other “delayed settlement” payment methods even with existing fiat currency, so it’s not really fair to compare Bitcoin blockchains transactions to this. Sidechains and other enhancements can easily make low-risk Bitcoin transactions as fast as existing fiat payments.
I used to be very bearish on crypto because all I saw was scam after scam and an unstable "currency" (Bitcoin) that no one used.
But as I've been getting more and more into crypto, especially DeFi, it's clear to me that we are on the cusp of something incredibly revolutionary. Right now, DeFi is to finance what the world wide web was to communication and content in 1993
The internet managed to break every established industry that relied on network effects and scale - media, commerce, communication. But it didn't do much for finance. The world's biggest banks are still the same as they used to be 30 years ago (whereas internet based companies have taken over media and commerce).
DeFi is going to change that. If you rummage through the scams (and there are a LOT of them), there are some truly exciting ideas being explored in this space. It legitimately feels like the internet in 1994. Heck, even the web design is wild and adventurous as it used to be instead of the boring, tame "professional startup" crap we see everywhere now.
I am still skeptical about crypto, at least in its current form: What problem does it solve?
It has failed as a payment system, as a currency, as a reserve currency, a remittance channel, a timestamping service, a settlement layer, a bank for the "unbanked", a cypherpunk liberator, a money laundering tool, a drugs-by-mail tool, a unit of accounting, a store of value, and as a "disruptive" fintech technology.
When I think of crypto/Bitcoin, I am reminded of Warren Buffett's view on gold:
> Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
> Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
[…]
> A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Perhaps it's just the current implementations of 'crypto' that are lacking, and a Crypto 4.0 will get the details right at some point in the future so that it because useful.
You have to start by decoupling crypto and bitcoin. I don't know what use Bitcoin is anymore except as a reserve of value. Some of the more interesting crypto projects are even using BTC as a "peg" currency.
The most interesting use case of crypto to me is synthetic assets. That's where the majority of money in the trading world is stored and made.
Think of margin trading, and buying insurance on being margin called, and trading those insurance tokens - all of these are not "real" assets. They're synthetic; they've used a real asset (say, a stock), multiplied that manifold and enabled trade on it, unlocking exponentially higher value to be created.
Trouble is that this entire world is completely closed to you and I. Goldman Sachs can trade it, but you can't. You can't drop into a bank and ask to underwrite the insurance on my trading account being liquidated - only the bank can.
DeFi changes that. Any asset on-chain can be theoretically combined and made tradable. You can get a loan on DeFi platforms like AAVE. Another platform can offer insurance on those loans. And another platform can offer people the chance to bet on the insurance being called. Since everything is on-chain, a single asset can create exponential value. And since it's all decentralized, anyone can participate, not just banks.
DeFi is honestly in its infancy. The biggest platforms are barely a few years old. The idea of synthetic assets has just taken root. New platforms are just starting to explore opportunities for synthetic assets. There are some very interesting new ideas about stable currencies (look at Ampleforth, Basis Cash, Dynamic Set Dollar). There are new insurance platforms coming up where you can add money into an insurance pool and take a cut out of insurance payments.
If it works - and I truly hope it does - I can't imagine anything more exciting. The internet hasn't managed to break down the walls of traditional finance, let alone investment banks and insurance companies. DeFi is the chance to do that.
Explore this space. I used to dismiss it as just memes and scams. But the more I've dug in, the more I've realized how important it is to make money - and the opportunities to make money - free from banks.
> Trouble is that this entire world is completely closed to you and I. Goldman Sachs can trade it, but you can't. You can't drop into a bank and ask to underwrite the insurance on my trading account being liquidated - only the bank can.
Fifty years ago you hand to walk into a physical office and buy shares in block of 20/50/100 or lots of a $500 multiple: no longer the case. Thirty years ago most people, could barely have diversification, and index funds were barely known: no longer the case. Nowadays you have to have at least a seven-digit account if you want to be able to do direct indexing: how long before that's won't be the case?
Many things were only available to the large players because they were only practical/economical at a certain scale. Technology has improved efficiencies to the point that many product offerings are now available 'down market' to where they used to be.
> Explore this space. I used to dismiss it as just memes and scams.
I never (quite) believed that it was "just memes and scams", but rather solutions trying to solving so-called problems where (a) the problems were imagined, or (b) the creators of the solutions didn't understand things well enough to make useful solutions. (Deflationary currencies? Really?)
Tell me more about some used of DeFi. So far I have only seen DeFi being talked about in the context of yield farming which isn't an economically productive activity.
maybe it's not "good" money. Bitcoin is a store of value and it's volatile, much like e.g. the stock of tesla. Conventional money is protected from speculation and swings by guns. Bitcoin is not going to have such protection, but it doesn't seem people who invest in it mind very much. Maybe the concept of what is "good money" has shifted.
Tesla is a company which produces goods and services in return for money. When you own stock in Tesla you own part of the company so it's not something that would be classified as a store of value since it's economically productive.
Maybe. But the alternative hypothesis we have to evaluate against is that people don't expect Bitcoin to be good money in the first place, and their investments are driven by a desire to be part of the movement or a hope that they'll be able to get rich off of it. A sudden spike and then fall in Dogecoin, which was never intended to be taken seriously, is a pretty strong pointer in that direction.
From an economist perspective, price fluctuations on money is not a feature it is a very serious bug. There is a whole lot of economic theory worried on preventing it. "Good" money should avoid being the target of speculation, it should be stable, boring, predictable. Money that changes their prices is like an unit of measure (meters, quilos) that stretches and shrinks unexpectedly.
There was a long time ago when I could use bitcoins to buy web templates. Today almost no one accepts it as payment. Exactly because it is unstable.