Gold is Losing Buyers to Bitcoin

Discussion of the Gold portion of the Permanent Portfolio

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dualstow
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Gold is Losing Buyers to Bitcoin

Post by dualstow » Wed Nov 01, 2017 8:28 am

This is a fact, not a perception or opinion.

WSJ headline: “Gold Bugs Embrace Bitcoin, Upending Retail Sellers
A weak dollar and geopolitical tensions have meant gains for gold futures in 2017, but retail sales of gold are at their lowest levels in a decade” (I’ll link if anyone wants it).

Obviously, bitcoin could implode and that would send gold skyward. But what if it doesn’t? What if it takes ten more years?

In the meantime, do you think it will affect the spread? I mean, by affecting volume?
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Re: Gold is Losing Buyers to Bitcoin

Post by Kbg » Wed Nov 01, 2017 8:48 am

I think it is really hard to say what will happen going forward. I'm relatively certain Bitcoin specifically is "the" bubble of this decade and will not end well. However, CME (I think) said they were rolling out futures which is a sure sign of them seeing potential scale sufficient to become a futures market. By all my readings, the technology is here to stay and will likely be a significant part of our commerce going forward. And there is zero doubt that Bitcoin is becoming an "alt currency" which means it is now in competition for that aspect of what gold represents (gold represents a bunch of other things too). The main difference is gold is physical and Bitcoin never will be so there will continue to be a theoretical SHTF advantage for gold.

Things to watch going forward...

1. Competitors...most analysts looking at this from a technology vs. financial perspective don't think the technology race is over yet and it is anyone's guess what the market will settle on.

2. Government reaction...it would not be difficult for governments to completely take over the medium of exchange/currency aspect of Bitcoin and almost all central banks are discussing the technology and what to do about it. Also, just like gold, governments can make Bitcoin quite useless if they chose to. (Side note: China is clearly cracking down on it.)

3. Commercial use...much discussion on what is and is not valuable about the technology.

Bottom line...consensus is something "big" is underway but everyone is still trying to figure it out. If you can pick a good horse or two it is one of those times that being a good evaluator of horse flesh could make you very wealthy.
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Wed Nov 01, 2017 8:52 am

That’s a thoughtful response. Thank you!
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Re: Gold is Losing Buyers to Bitcoin

Post by whatchamacallit » Wed Nov 01, 2017 9:18 am

I am no doubt envious of people's gains from bitcoin and continue to watch the price climb from the sidelines.

I still just cannot take it seriously. It still feels like a ponzi scheme and if I was king I would prosecute promoters as such.
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Wed Nov 01, 2017 9:27 am

It does feel very Ponzi, doesn’t it. If I could use bitcoins like cash or credit cards, including small purchases down the street, I’d jump right in.

I’m sticking with gold.
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Re: Gold is Losing Buyers to Bitcoin

Post by doodle » Wed Nov 01, 2017 11:14 am

What are the advantages of Bitcoin to Gold? The only one that I can think of is divisibility.. If someone created a gold backed redeemable internet currency that gave people the ease of transport and divisibility that bitcoin provides this seems like it would be the best of all worlds. I too think bitcoin is looking highly speculative at the moment and very frothy. I don't think it will take much to rattle people out of it...nearly a 50% fall in gold from highs didn't shake my confidence too much. A similar fall in bitcoin would sap all my confidence.
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Wed Nov 01, 2017 11:24 am

doodle wrote:What are the advantages of Bitcoin to Gold? The only one that I can think of is divisibility.
Is that really all you can think of? I know very little about blockchain, but off the top of my head:
*With bitcoin you only need to keep your password safe, whereas your gold can be stolen. It's a bearer instrument.
*You can buy some things with bitcoin directly, while gold pretty much has to be converted to currency first.
*We may continue to find gold in the earth (or even off it; or synthesize it) but bitcoin really is finite by design. Of course, there is no limit to the number of alternate coins that will be created, and maybe bitcoin will lose out to ethereum (sp?) or something.
*I'm not sure how the fee compares with the markup- er, spread, for buying gold. I'll leave that to one of our resident experts.
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Re: Gold is Losing Buyers to Bitcoin

Post by Kbg » Wed Nov 01, 2017 1:39 pm

doodle wrote:What are the advantages of Bitcoin to Gold? The only one that I can think of is divisibility.. If someone created a gold backed redeemable internet currency that gave people the ease of transport and divisibility that bitcoin provides this seems like it would be the best of all worlds. I too think bitcoin is looking highly speculative at the moment and very frothy. I don't think it will take much to rattle people out of it...nearly a 50% fall in gold from highs didn't shake my confidence too much. A similar fall in bitcoin would sap all my confidence.
My guess is that, today, one could do exactly that. The first part already exists and is known as an ETF. Combine an ETF with unique blockchains for each share (oz.) and there you have it.

I would caution not to mix frothy and utility. Anything computer/internet related in the late 1990s was frothy...and that stuff is still quite useful and has tangible and intangible value. Blockchain is likely to be in the same category...as are trains (1800s bubble)...as are REITS (1700s bubble).

As far as your wealth, a 50% decline is a 50% decline regardless of asset class and is always measured in your home country's currency.
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Re: Gold is Losing Buyers to Bitcoin

Post by buddtholomew » Wed Nov 01, 2017 3:47 pm

Since when does Gold underperform silver by 2%?
Gold, what a disaster...
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Wed Nov 01, 2017 4:05 pm

buddtholomew wrote:Since when does Gold underperform silver by 2%?
Gold, what a disaster...
I just hope we look back on this as a sale.
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Re: Gold is Losing Buyers to Bitcoin

Post by jhogue » Wed Nov 01, 2017 4:53 pm

Perhaps I am missing something, but consider the following:

An absolutely critical difference between gold and bitcoin is that bitcoin is created, but gold cannot be created—at least under present conditions.

Alchemists tried for centuries to create gold, but in the end they always failed. As a recent thread pointed out, astronomers think they have recently observed the creation of gold at the sub-atomic level as a byproduct of the collision of neutron stars. This process has not been duplicated under laboratory conditions, nor is it likely to happen any time soon.

On Earth, gold is mined by various extraction techniques, which are expensive and serve to limit the growth rate in the supply of available gold. Repeated gold rushes in the past (California, South Africa, the Yukon, etc.,) were triggered by the mistaken but widespread perception that the valuable metal could be cheaply extracted in specific localities. Clearly, the expense of extraction, along with its scarcity and durability, have historically supported gold’s low volatility and high price relative to other commodities.

Unlike gold, bitcoin was first created in 2008. Since then, bitcoin bugs have loved to use the term “mining” to describe how this cryptocurrency is created. I wonder if this favored term-- “mining” --has been intentionally used to mislead potential buyers of the stuff and deflect attention from the indisputable fact that bitcoin is created by human technology and only human technology. If bitcoin is created by human technology, what prevents it from being created and/or destroyed by other human technologies? Isn’t the existing supply of bitcoin vulnerable to a radical expansion by the efforts of sophisticated counterfeiters on the one hand, or mass destruction via computer viruses on the other?

Before I could accept bitcoin as a substitute for gold, those questions would have to be satisfactorily addressed. In the meantime, I have heard you can get a great deal on old Dutch tulips—get ‘em while they are hot!
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Wed Nov 01, 2017 4:57 pm

Isn’t the existing supply of bitcoin vulnerable to a radical expansion by the efforts of sophisticated counterfeiters on the one hand, or mass destruction via computer viruses on the other?
No, I think you are indeed missing something, j.

However, any number of alt-currencies, cousins of bitcoin, can be created.
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Re: Gold is Losing Buyers to Bitcoin

Post by Libertarian666 » Wed Nov 01, 2017 5:52 pm

dualstow wrote:
Isn’t the existing supply of bitcoin vulnerable to a radical expansion by the efforts of sophisticated counterfeiters on the one hand, or mass destruction via computer viruses on the other?
No, I think you are indeed missing something, j.

However, any number of alt-currencies, cousins of bitcoin, can be created.
Yes, as I expected several years ago, a lot of them have already been created.

So the argument that "there is a limited number of Bitcoins that can ever be created" is true but irrelevant.

It's a bubble, just like LNUX was in 1999. Look up what people were saying about that then...
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Re: Gold is Losing Buyers to Bitcoin

Post by eufo » Wed Nov 01, 2017 9:18 pm

It's an interesting point about the "mining". To my understanding Bitcoins can be created to infinity, but requiring more and more computing power as time goes on. How many barrels of oil, pounds of coal, etc. have been burned to provide the electricity to create these extraneous virtual currencies? Way to go, humanity.
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Wed Nov 01, 2017 9:20 pm

Type

Code: Select all

is bitcoin finite
into google.
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Wed Nov 01, 2017 9:53 pm

O0 Too much drinking and fighting.
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Re: Gold is Losing Buyers to Bitcoin

Post by eufo » Wed Nov 01, 2017 10:02 pm

dualstow wrote:Type

Code: Select all

is bitcoin finite
into google.
Good grief... now I really don't get the point of it.
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Re: Gold is Losing Buyers to Bitcoin

Post by ochotona » Thu Nov 02, 2017 6:03 am

"Once miners have unlocked this many Bitcoins, the planet's supply will essentially be tapped out, unless Bitcoin's protocol is changed to allow for a larger supply."

Wow, I would not trust that "unless".
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Re: Gold is Losing Buyers to Bitcoin

Post by jhogue » Thu Nov 02, 2017 9:10 am

Yup.

Google "bitcoin cash."
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A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Gold is Losing Buyers to Bitcoin

Post by doodle » Thu Nov 02, 2017 10:14 am

This is a pretty interesting short glimpse inside a Chinese Bitcoin mining operation: https://youtu.be/K8kua5B5K3I
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Thu Nov 02, 2017 10:18 am

doodle wrote:This is a pretty interesting short glimpse inside a Chinese Bitcoin mining operation: https://youtu.be/K8kua5B5K3I
At least they don't get lung disease.
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Re: Gold is Losing Buyers to Bitcoin

Post by Kriegsspiel » Thu Nov 02, 2017 2:22 pm

eufo wrote:It's an interesting point about the "mining". To my understanding Bitcoins can be created to infinity, but requiring more and more computing power as time goes on. How many barrels of oil, pounds of coal, etc. have been burned to provide the electricity to create these extraneous virtual currencies? Way to go, humanity.
The last time I looked into it was around the time of the VICE article a couple years ago that stated that mining a bitcoin used as much energy as 1.57 American households a day. Although:

"The actual figure is likely worse, given that a large number of transactions are exchanges and miners moving bitcoins around and other low-value 'dust' transactions," said Matthew Green, a cryptography expert at Johns Hopkins University. "So each transaction where there's an exchange of goods or services happening is really representing even more electricity."

It also doesn't seem likely, considering (if this is still valid information):
Keeping power consumption high in general also makes the network more secure by making it harder for any one entity to gain control. "The right way to think about this is that the energy expenditure provides a level of protection against attacks—it establishes a price floor, currently in the many millions, to launch a 34 percent or 51 percent attack [where an attacker can block transactions and double spend bitcoins as they please]," Emin Gun Sirer, a Cornell professor and blogger at Hacking Distributed, explained in an email.

However, that same level of security could be maintained while allowing for more transactions, he said, shrinking the cost per transaction.

All that needs to happen, then, is to expand the userbase so we have more transactions, right?

Unfortunately for Bitcoin, if user adoption spikes, so will price—and so must power consumption. Bitcoin mining leads to an arms race among miners to grab a slice of the fixed rewards doled out by the network, Stolfi said. The higher the financial rewards, the more miners will invest in powerful equipment to keep up with the competition. The Bitcoin protocol will continue to increase the difficulty of the cryptopuzzles to keep rewards constant, continuing the arms race until the last block is mined.
So... the higher the financial rewards, the more energy use. And the more energy the collective "you" puts in, the more energy required to mine the same amount of coins; a Red Queen Effect. Back in mid-2015, when that article was written, the bitcoin index was at 226. It was at 4,153 as of Sep 2017, half a year after the follow-up article on VICE went up.

"Updated calculations with optimistic assumptions show that in a best-case hypothetical, each bitcoin transaction is backed by approximately 90 percent of an American household's daily average electricity consumption. So even though that's still about 3,994 times as energy-intensive as a credit card transaction, things could be getting better since 2015.

Unfortunately, it's more likely that things are getting worse. A new index has recently modeled potential energy costs per transaction as high as 94 kWh, or enough electricity to power 3.17 households for a day. To put it another way, that's almost enough energy to fully charge the battery of a Tesla Model S P100D, the world's quickest production car, and drive it over 300 miles."

Now, it's gonna take resources to make money, how does bitcoin compare to gold in the resources it takes to "make" it: bitcoin is about 7x more resource-intensive than gold. That's using an "optimistic" number for the energy requirements of bitcoin. Taken from here. But if a bitcoin is worth $6,800 and an ounce of gold is worth $1,275, maybe you could say that bitcoin is only 1.3x as resource intensive ($673 worth of currency created/barrel of oil vs $910 for gold) using the same numbers?

So all in all, I dunno.
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Re: Gold is Losing Buyers to Bitcoin

Post by eufo » Thu Nov 02, 2017 7:49 pm

Very interesting, Kriegsspiel!

I knew it consumed a decent amount of electricity, but had no idea it was that much. I still don't understand how it's worth anything to anyone.
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Re: Gold is Losing Buyers to Bitcoin

Post by dualstow » Thu Nov 02, 2017 9:00 pm

eufo wrote: I still don't understand how it's worth anything to anyone.
Nor do I. A very generous member gave us (fractional) bitcoins for free. I’m strongly thinking about cashing out this week and buying Amazon credit-

Unless you’re reading this, Marc, and you need it back. Contact me by Friday. O0
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Re: Gold is Losing Buyers to Bitcoin

Post by barrett » Fri Nov 03, 2017 4:37 am

Desert wrote:I think I'm losing my mind, because I keep reading this thread title as "God is Losing Buyers to Bitcoin," and another thread as "Designated Hitler." I might need to get more sleep.
Let's not forget Pointedstick's "Carless Living" thread that many of us were misreading as "Careless Living." I thought he was off in a brothel in Bangkok but he was, in fact, just trying to make his life incrementally better.
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