The Wealthy Are Hoarding $10B of Bitcoin in Bunkers

According to its proponents, Bitcoin is digital gold. (Interestingly it’s not an “electronic currency” anymore even though that was the original title of the 2008 whitepaper. I suppose Lightning Network or something is supposed to fix that with new transaction layers backed by the Bitcoin gold.)

One aspect of gold’s historical value is that it’s traditionally recognized even in societies in collapse. I’ve never understood how Bitcoin is supposed to hold its value in such an event — something on the scale of nuclear war, or Germany in 1945.

After an EMP wipes out data centers and cell phone towers, you can probably still bribe people with Krugerrands. Who’s going to accept Bitcoin transfers when the infrastructure is either gone or under military control?

Or is the idea that Bitcoin will be valuable again when the wealthy finally crawl out of their New Zealand bunkers and reestablish the financial system?

* Your USD wallet at Coinbase is FDIC insured.

Bitcoin seems to have already undergone a deflationary collapse. Its original goal of Internet money has been abandoned in favor of the concocted idea that it is a "store of value." Unfortunately it's a poor store of value since it requires a constant stream of electricity to maintain. Gold, land, and other traditional idle stores of value just sit there and are free to maintain with the exception of the cost of physical security. On top of this Bitcoin is fragile as it requires an operating Internet or at least operating computers. In the event of a severe stress or collapse scenario it will cease to exist, while gold and other assets will continue to be viable units of tradable value.

I still don't understand why significant deflation is a desirable characteristic for a currency. Mild deflation is tolerable unless the economy is experiencing hyper-growth like the early 20th century, but Bitcoin is more deflationary than gold. Strong economic arguments that I don't have time to type in can be made that an ideal currency (as a medium of exchange) is slightly inflationary (in the monetary base sense) to the degree that the economy as a whole is growing.

Edit: collapse you say? But its value has held up! But this is exactly what happens (for a while) in a deflationary collapse. The value of money skyrockets but its velocity tanks.

http://charts.woobull.com/bitcoin-velocity/

Of course given all of Bitcoin's undesirable characteristics as a store of value I suspect that its value in USD/EUR/etc. will eventually tank as well. This might take a while unless something causes a panic since the market for BTC is slow and thinly traded.

IMHO all deflationary cryptocurrencies will undergo this kind of collapse.

Of course not all cryptocurrencies need be deflationary. Software defined money can be programmed to do anything you want it to do within the bounds of what is possible under e.g. the CAP theorem and other relevant concepts from distributed systems.

Cryptocurrency as a system is also inflationary in a whole-systems sense as new money can be created by forking a code base or creating a token on those coins (e.g. Ethereum) that support it. This argument holds as long as all these currencies are reasonably fungible without too much hassle. As it stands things like shapeshift.io make converting them fairly easy at least for the popular ones.

Yes but it's important to note that the FDIC insurance is only for your USD-denominated balance.

Your BTC (or all crypto?) balance is insured by Lloyd's. I assume this is only insured against thefts/failures of Coinbase's, so if your balance were stolen by attackers who had your Coinbase credentials I suspect your balance would not be covered. But this might be similar to your liability from normal online banking fraud/theft?

The fact that Coinbase pays those private insurance premiums makes them the no-brainer suggestion to people who are considering holding some BTC.

Those were speculative investments, not bank accounts. Nobody lost money in an FDIC insured account.

The comparison is also dubious for another reason: everyone who did even the tiniest bit of diligence knew the mortgage and derivative markets were in a huge bubble. Phrases like “liar loan” were common, they had to invent new ways to rate derivatives which didn’t meet the traditional standards, etc. but so many people were banking on the greater fool theory lasting long enough for them to cash out before it popped. All the crash proved was that the traditional banking standards were there for a reason and the people who never abandoned them were fine.

This is relevant in the Bitcoin discussion because we see the same dynamic where people who pay attention to the fundamentals are saying it’s a bubble and the get rich quick crowd is saying that the rules are completely different now because magic.