pull down to refresh
279 sats \ 9 replies \ @Undisciplined 2 Mar freebie \ on: Capital Formation Weekly #2 mostly_harmless
I'm glad you resurfaced Siggy's post. I missed it at the time. This is a great way to keep some of these conversations alive and connected.
I haven't majorly updated my views on bitcoin purchasing power since my post (that you kindly linked to) and I intuitively agree with your take that we've missed the boat on getting stupendously rich just from converting spare change into bitcoin. However, I am wondering if it's that unreasonable for substantially more than 100x returns.
Just thinking about myself here, I'm one of the most active users on one of the most active bitcoin sites, but almost none of my daily economic transactions involve bitcoin. My own usage could easily grow by more than 100x and my bitcoin demand is far greater than anyone I know irl.
Of course, as an economist, my first thought about asset pricing is that everything is already priced in. The Efficient Markets Hypothesis has lots of assumptions built in, though, and we may just not be in that paradigm. For one thing, I can assure everyone that the professional finance/econ establishment knows absolutely fuck-all about bitcoin. Those who do understand it only have a limited supply of capital and probably can't fully price in the available information about bitcoin.
Another aspect of this that's really important are the feedback loops. I have occasionally aspired to write an essay on this but I think it's at least 5k words and so have not. But the argument is something like:
- It's easy to see certain flywheels -- the more users, the more they want it, the more it's worth, the more buzz, the more users.
- But flywheels in complex systems contain their own negations. There are other countervailing forces in play that people usually omit, that constrain the infinite growth implied by the flywheel.
- e.g., the more users, the more they want it, the more it's worth, the more established players stand to lose, the more enemy attention it draws, the more they oppose it and the bend the system toward that opposition
- In the btc ecosystem, we've seen this play out in a number of ways; notably, the entire existence of altcoins is testimony -- everybody wants their 1000x returns and they just keep forking the ecosystem in search of it
- Few people are content to let some other lords who got their share during more fruitful times (e.g., Boomers, in the current zeitgeist) just sit there and get richer; in a system that is foundationally constructed around social coordination, they go in search of a more favorable equilibrium
- This countervailing force, combined with the elastic limits of human psychology, short-circuit what look like nearly infinite gains (infinity / 21m) that more caricaturish models would predict
Something like that.
reply
Yes. "Something like that" is very relevant. My view is that those insights may be sufficient to explain the reluctance to move huge shares of capital into bitcoin at any given time. The dynamics you describe mean timing is even more difficult than with normal assets and totally rational risk aversion is continuing to direct capital towards conventional assets.
Another element is the enormous gulf in expectations. Many of us (myself included) are expecting this technology to be truly revolutionary and emerge as the global money. The vast majority of people have no such expectation. That means the price will remain well below where people like myself expect it to end up.
However, the implication of that line of reasoning is closer to "If we're right, there will be tremendous returns once everyone else realizes that we're right." So, a question emerges: "Should we proceed as though we're right, or not?"
reply
Slight refinement:
"If we're right, there will be tremendous returns once everyone else realizes that we're right."
On what timescale, though? That's everything. If I was eighteen, maybe I would care less.
So, a question emerges: "Should we proceed as though we're right, or not?"
Concretely, what would that mean to you?
To me, the timescale issue seems entirely determinative of this question. Like, if you're Saylor, and so rich your entire btc portfolio can go to zero and you still have a yacht, you can lean into this one. If you're a normal person, maxing out all debt instruments is either epic-level ballsy or else a cautionary tale about the dude who ruined his family's lives.
reply
I agree that the timescale is highly relevant, as is uncertainty in the timescale. My reluctance to go all-in has more to do with my uncertainty in the timescale of mass adoption than thinking I won't see it.
I strongly believe the maxim that "The market can stay irrational longer than you can stay solvent" and in that meantime I have to materially provide for my family.
I haven't fully thought through what behavioral differences I should take with these radically different purchasing power estimates, but it would be ridiculous to treat an asset going to $100k the same as an asset going to $10B.
I'll probably end up rationalizing that I should be spending more time on Stacker News, since that's the conclusion I want to reach anyway.
reply
I'll probably end up rationalizing that I should be spending more time on Stacker News, since that's the conclusion I want to reach anyway.
When I reflect on my financial decisions over the last few years, the one constant is that I would've done better had I focused more on bitcoin. I've often avoided focusing on bitcoin by listening to the rational-sounding maxim, “Past performance doesn't guarantee future success.” But part of rationality is knowing when common proverbs don't apply too.
Having posted here ~2 years now, I've observed my old posts growing in value over time, which is an odd feeling when compared to the incorrigible timesinks of other social media sites.
reply
Meaning literally growing in value -- accumulating sats? Or a more expansive sort of value, like seeming increasingly true?
reply
Well, both actually. What I said has becoming increasingly true, since I was writing about El Salvador and the propaganda push that was being prepared against them, which............ 🤡
But apart from that, yes, I meant the sats. The buying power those posts generated has grown, so I can buy more ribeye steaks 🥩 today than I could then.
So the work I did here on SN is still generating value. That's actually not even the case with my fiat mining job. The energy I put into fiat writings 2 years ago is gone, whereas even my SN shitposting energy is preserved and something I can still access.
(That's what I was trying to express to @Undisciplined too, that our posts here on SN can be deceptively valuable, in the sense that even our shitposting energy generates value that doesn't go away.)
reply
Agreed, it's a powerful idea for sure. Makes me full of anticipation for the future.
I'll probably end up rationalizing that I should be spending more time on Stacker News, since that's the conclusion I want to reach anyway.
The human condition in one sentence :)
reply