What is an economic safe haven? Is bitcoin?

[Inca]

As the Chinese proverb goes, 'May you live in interesting times'. I feel this applies today more than ever with central banks intervening in the markets, buying government debt and now openly buying US stocks with freshly printed monies.

I was attracted to bitcoin at first because I saw the beauty of hard money secured by a global network of nodes/miners and secured by the power of unbreakable cryptography. I was terribly excited by the concept of a peer-to-peer network functioning as a global payments network and store of value, a completely new asset class and system, one that was untouched by the hands of central bankers or private banking institutions.

Since 2008 I have struggled with the concept of how to value assets when most of the general public do not realise that indices are buoyed by a silent massive buyer in the markets, one who cannot go bankrupt. QE programs have ballooned the balance sheets of the major central banks, bailed out the insolvent financial institutions around the world and supported global asset prices whilst keeping interest rates near zero. In recent days there has been significant volatility in the global markets - ostensibly due to the China slowdown - and again the silent hand of our friendly central bankers was felt with prices immediately recovering most of their ground only to gradually give it away yesterday.

Are we at an inflection point where central bankers must decide to "double down" and increase their public (and likely silent) asset purchase programs and unleash a shock and awe QE4 which will lift all markets and crush commodities, precious metals and gold to levels not thought possible? What will bitcoin do in this scenario? Is there a limit to how effective such a program would be? Especially given the negative economic indicators coming out of the US and China.

If we listen to the Fed they are talking about raising rates and Quantitative Tightening in an attempt to return the world to something approaching economic normality. In reality such a program would lead to a spike in interest rates and a global market rout of the like not seen since 2008. So I think we need to look at the actions of the central bankers instead.

Traditionally in times of deep uncertainty precious metals are thought of as an economic safe haven. A quick glance at the price shows that it has failed in that regard - ever since QE was initiated it has illogically fallen in price. Whether this is gold working off it's bubble or simply being managed by the paper gold market I don't know. Bonds such as US treasuries have been a rock solid run to position in the past but now China is beginning to divest it's horde accumulated over the last decade. Bond values would also be eviscerated if rates rise in an uncontrolled fashion.

I am interested to know what role the forum members feel bitcoin has to play in the ongoing global disaster that is unfolding. Will it rally from the ashes of a global market crash? Will it be punished as an alternative to fiat currency by central banks (it would be/is trivial to do so)?

I will continue to hold my bitcoins in cold storage in any case..

EDIT: oh and congratulations on the new forum..excellent work.

 

[cypherdoc]

As a believer in Cycle Theory, for my answers to these questions, i look to the charts.

what i see is a long >1.5 yr decline (longest in history) in the Bitcoin chart with a 90% retracement (usual). i look at the Dow ($DJI) as a major indicator of consumer sentiment in the markets overall and i see a 7 yr rally of extreme proportions from it's bottom at 6666 in March 09 to 18334 in May 15. my assessment is that we are long overdue for a major top in the Dow. the normal 4 yr cycle that has played out over much of the last 100 yr in the Dow has been majorly stretched out over the last 15 yr to a 7 yr cycle from persistent QE by central banks. that manipulation will have consequences. as a keen observer of the market and oftentime participant, i can see the exuberance of speculative excess in even ordinary citizens i interact with. low interest rates for real estate and low margin rates for stocks and bonds contributes to excessive risk taking. one can really see this in China. the amounts of money made over there have been extraordinary as Chinese tend to be gamblers. we've clearly seen that peak out. and when the ship turns, it keeps turning until it crashes.

as i've said, i don't think it's a coincidence that Bitcoin is at the bottom of another one of it's vicious pullbacks. in fact, if you flip the Bitcoin chart over and layed it on top of the Dow, they'd both be rolling together. if we hadn't had this blocksize debate, i believe we'd be higher right now. but overall, the trend can't be stopped. Bitcoin continues to work well w/o any hacks or bugs and should slowly benefit from lower asset prices.

i'm hodling.

 

[Erdogan]

The role of bitcoin... I think it is not ready to take a role that is significant in the macro environment, but for those who grasp bitcoin, it can be a a way to save themselves.

I think the fiat system, now global, has run its way, or maybe they can try a limited crash and more QE to take it another leg. But time is running out. If there is a next QE, it will be the final, and it will not last long.

What remains are only the questions: Who are going to lose all (you), who will be blamed (you), who will appear as those who warned, although they could not save the world (because of you): IMF, World Bank.

 

[Inca]

http://www.zerohedge.com/news/2015-09-05/europes-biggest-bank-dares-ask-fed-preparing-controlled-demolition-stock-market

I tend not to believe the hyperbole on zerohedge these days. But this is interesting reading. I wonder if you are right Erdogan and bitcoin is not important enough in a macro sense that it may not plummet if we have a proper crash.

Cypher: good to hear your position is unchanged.

 

[Erdogan]

I read Zero Hedge these days. Some articles are good, but not all. Many articles are just "this apparantly happened - some got crushed - haha". Some are overlaying two graphs to find something, that with a stretch can be seen as correlations, without any thought of the logic behind it. Then they use some loaded language, like greed and speculation. All the oil price have not grasped the essence, which is decennia of overinvestment (in this long-time-from-project-to-product business) due to zero interest rate policy, and exhausted consumers also for the same reason. And bitcoin - they can not dig into it and see what it really is. The format of the comments section may be the culprit, it does not seem to encourage deep discussions.

But some articles are good, especially I have learned something on macro money movements. As a news aggregator, they introduce me to other sources.

In total, I recommend reading it, but critically, you need to discard 90 percent.

 

[solex]

I have read ZH since it started and on balance there is more useful information than not.
Anyway, their recent post (from Acting-Man) shows the polar opposite of an economic safe haven:

There is definitely a truism that everything has its day in the sun.
Taxi medallions undone by Uber.
Gold to be undone by Bitcoin?

 

[Inca]

The price must rise for it to act as a safe haven. Bitcoin is tiny by market cap with so much potential. Simply continuing to exist as the world is digitised and becomes connected should be enough for it to take off.

My concern remains the volatility we have seen. The drop from 260 to 160 on finex was clear manipulation. On a regulated exchange market the trades would have been rolled back. Instead we get incredible volatility and lose some new users. The idea that this will work itself out as the price rises and the cost to move the market also grows is contingent on the price rising in the first place.

That said if we do break back up significantly I have no doubt it will follow a narrative (blocksize debate sorted, halving is here) which Joe public can get behind..

 

[cypherdoc]

the price must rise and we need to get more users onboard transacting. this will create the depth you're searching for which will lead to decreased volatility over time. we have to get rid of the constraints.

 

[Inca]

I agree cypher. Also a rising price draws in new blood.

Ultimately we may need a degree of engineering to start this process off again

 

[humanitee]

I used to think it was, not so any more. There is real danger of nothing significant being done about the block limit (> 32 MB) which will make Bitcoin pretty useless as a transaction medium. I've posted on various forums trying to debunk every claim I can against BIP101 but it seems a majority of users want a low limit cap, even though BIP 101 can be softforked to provide a limit. This includes places like cryptocrypt where a large majority of older bitcointalk users reside (whom I assumed were rational). Bitcoin cannot be a safe haven if users cannot use it to transact.

If Bitcoin gains even more users year on year, making significant changes to the protocol is going to be even harder. The way the devs are acting now inspires 0 confidence, they seem largely fine with censorship and restricting the voice of a large portion of the community. I'm also very disappointed with the community, as it seems a large majority want to at least discuss XT/BIP101 and visit a censored subreddit to do so, day in and day out, further empowering the censurers.

Everyday I think of selling most of my stash and moving into land or gold. It's amazing to me that just as in politics, the masses can be controlled by censoring debate and passing off predefined, carefully crafted narratives that serve the status quo as fact. I find it unbelievable that Bitcoin has succumbed to this, as it was supposed to be the antithesis of control and censoring.

Knowledge is power, but most users will not seek it on their own as they do not possess the technical knowledge to separate fact from fiction and hyperbole from truth. I see about 10%-15% of the community pushing back, but that is such a small minority in the grand scheme of things.

My only hope left are the merchants and exchanges. Miners aren't going to do shit. Node operators can't do shit. And January is fast approaching.

So no, Bitcoin is not an economic safe haven.

 

[Inca]

Thank you for a very thoughtful post.

Most users don't need to know how btc works or whether it scales. Censorship is a sign of desperation. The free market and will of people will circumvent such attacks to create solutions (shout out to bloomie and soon hopefully Roger Ver).

I don't see the situation being quite as bleak as you, though I have toyed with divesting a portion of my coins briefly.

What prevents me is that miners will act to increase the blocksize with or without Core support when the need arises. There is overwhelming support that bitcoin needs to scale from pretty much everyone except blockstream devs over this now. Blocks aren't full yet so there is still time to consider the options, though not much longer. The spam attacks are also showing how weak bitcoin is right now, with such a cheap and obvious attack vector left open.

The blame for this impasse lies squarely at the feet of the Core developers who have been in charge for only a year yet are already trying to wreck the project through inaction and this illusory notion of programming by committee or consensus (or worse, through conflict of interest).

Bitcoin will survive. Will the price though? If we do eventually choose a solution then I expect a strong rally, hopefully into the halving and another media mania.

 

[solex]

Everyday I think of selling most of my stash and moving into land or gold.

This was where I was until XT was launched.

Blockstream-Core are ignoring one important factor: market forces. If demand from new users for legitimate transaction throughput overwhelms the 1MB, as it must based upon historical trend, then many people will find their transactions unconfirming, even with decent fees.
There will be a huge take-up in XT as people realise BS-Core have fouled up, although I could see BS-Core releasing their own semi-crippled block limit increase which might delay their obsolescence for a while. However, I consider BIP100 a viable middle-ground. The 32MB is not a significant concern at present.
Gavin is playing it smart. His support for XT is like buying an insurance policy.

The miners are worried. 75% of them want action taken now. They have millions of dollars in hardware which will have its ROI wrecked if the price collapses because the ecosystem is crippled. They will abandon BS-Core if no serious block limit change is done.

We are bumping at the floor price. A resolution to the block limit and halving in 10 months sets the scene for another bull market.

 

[humanitee]

What prevents me is that miners will act to increase the blocksize with or without Core support when the need arises. There is overwhelming support that bitcoin needs to scale from pretty much everyone except blockstream devs over this now. Blocks aren't full yet so there is still time to consider the options, though not much longer. The spam attacks are also showing how weak bitcoin is right now, with such a cheap and obvious attack vector left open.

I was thinking along these lines initially as well, until I saw posts by F2Pool and the vast inaccuracies of their statements. I still have some hope that individual miners will band together and do something in the event of a crisis, but I think miners are quite reactive and not proactive. So we'll see a crisis (which could be horrible) before a solution.

Hopefully the situation will deter immediate investing, allowing more time for proactive action should the January date pass. Imagining the block size, transaction delay, and fees during another bubble scenario isn't a pleasant experience.

I hope you and solex are right though.

 

[Erdogan]

@humanitee
No need to get out of bitcoin. The current blocksize conundrum is a drag, but the excellent properties of this new money type will make sure that it succeeds. The hunger for larger blocks is a tsunami, and it will be resolved somehow.

 

[Zangelbert Bingledack]

Honey Badger will come through. What is happening here is a smallish problem (blocksize) is holding down the price, but the longer it does so the greater the chance that a much larger problem and much bigger impediment to prices rises (centralized development) will be removed. Whether we get a big rally soon or a humongous rally later, Honey Badger will have the last laugh.