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Why is bitcoin inherently volatile?
Author
fernandonm
commented
Oct 25, 2022
- An ideal money would have no holding cost or provide any return beyond those justified by productivity growth. The cost of holding a fiat currency balance (like the ones we have now) would be its devaluation and the uncertainty of its value relative to the mentioned ideal. Fiat currencies rarely provide a positive expected return, just a convenience yield matching the holding cost.
- Unless the supply of an asset can increase, issuing substitutes implies shorting it naked. This is a non-ergodic strategy and very different from issuing gold substitutes when its price rises, which can be backed by future gold production and hence an ergodic strategy.
- If you cannot suppress price growth perpetually, suppressing it in the sort run is economically impossible. It is like giving money away for free.
- I'm not familiar with this argument, sorry.
From my points 1, 2, and 3:
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Pay attention to the difference between predictable vs. unpredictable returns. I was making the narrow point that in expectation and in equilibrium, you'd expect the return to be 1/discount_rate, which is the risk-free rate.
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I'm not sure how useful it is to define away the subjective discount factor and treat it all as risk. Are people indifferent between a guaranteed 1 util today and a guaranteed 1 util in one year? Also not sure if this changes my interpretation of your argument or not.
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This point is circular, so I don't see how it proves anything about a hypothetical world where we used S&P or Bitcoin as money. If we denominated salaries in S&P shares, there would also be no uncertainty in nominal income.
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