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Offline starspirit

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What happens if BitAssets eventually surpass their real Assets?
« on: September 06, 2014, 07:39:17 AM »

Since BitAssets are not backed by any real assets, it is theoretically possible that BitAsset markets get bigger than their real Asset equivalents. Then is the focus on the peg even relevant or is that the tail wagging the dog, so to speak? Maybe realAssets start to peg to the Bit Assets? Maybe BitAssets find their own market value based on stability and convenience? And then if they do ultimately de-peg and the market finds value in BitAssets in and of themselves, are not all BitAssets then equivalent and converge in price? Are we currently focusing on the right properties of these assets in the current debate?

Offline santaclause102

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #1 on: September 06, 2014, 08:36:16 AM »
imo it wouldnt matter. Because for example BitGold is bought for a different reason than physical gold. The first is bought for ease of trading, dividibility etc. then latter is bought for wealth protection which is not bound to any system or entity you have to trust.

Offline Empirical1.1

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #2 on: September 06, 2014, 09:32:20 AM »
I'd say some commodities futures trading in the real world is often a case of the tail wagging the dog.

Gold on the Comex is hardly backed at all and there is frequent trading and particularly shorting far in excess of what could be reasonably acquired on the physical market resulting in the underlying physical commodity, gold, being under-priced. BitAssets like BitGold would just be a reflection of an already existing dynamic for something like that.

Only something like BitStocks could realistically become an issue imo.

Offline santaclause102

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #3 on: September 06, 2014, 10:09:48 AM »
Only something like BitStocks could realistically become an issue imo.
why?

Offline Empirical1.1

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #4 on: September 06, 2014, 01:34:44 PM »
Only something like BitStocks could realistically become an issue imo.
why?

Because stocks generally have smaller CAP's than most commodities markets and obviously currencies.

As an extreme example a BitAsset for MaidsafeCoin. (Which currently only has a CAP of $9 million)
could conceivably attract a market so big on BTSX that the majority of people who held BitMaidSafe couldn't conceivable sell and replicate their position in actual Maidsafe without moving the price considerably. 

A BitMaidSafe market that big could conceivably wag the dog and underprice MaidSafe as a result imo.

Offline santaclause102

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #5 on: September 06, 2014, 05:16:36 PM »
Quote
couldn't conceivable sell and replicate their position in actual Maidsafe without moving the price considerably
Didn't get that part.

Offline theoretical

Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #6 on: September 06, 2014, 05:54:08 PM »

Quoting my own post from my own thread:

When the BitUSD economy gets big enough, and BitUSD serve as a substitute for real USD, we've essentially hijacked monetary policy from the real-life Federal Reserve by printing our own USD equivalent.  In the long-term, the interest [1] will ultimately be paid for by inflation of *all* USD!  But of course this effect is negligible as long as BitUSD is a small fraction of real USD.

[1] On long BitUSD, if that is ever implemented.
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Offline santaclause102

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #7 on: September 06, 2014, 06:03:29 PM »

Quoting my own post from my own thread:

When the BitUSD economy gets big enough, and BitUSD serve as a substitute for real USD, we've essentially hijacked monetary policy from the real-life Federal Reserve by printing our own USD equivalent.  In the long-term, the interest [1] will ultimately be paid for by inflation of *all* USD!  But of course this effect is negligible as long as BitUSD is a small fraction of real USD.

[1] On long BitUSD, if that is ever implemented.

I'd say a bitUSD has a different value propositon then as bitAPPLESTOCK since you can use the bitUSD like USD but you can not get any dividends from apple with bitAPPLESTOCK. So bitUSD inflates all USD (incl. bitUSD) and bitAPPLESTOCK justs servers speculation / trading purposes but does have any use apart from speculation and therefore does not inflate Applestock.
bitUSD is therefore longterm not the perfect money. bitASSETBASKET (incl. stock indices, gold etc.) would be better because the underlying can not be used for money and therefore can not be inflated.
« Last Edit: September 06, 2014, 06:06:31 PM by delulo »

Offline Empirical1.1

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #8 on: September 06, 2014, 06:09:22 PM »
Quote
couldn't conceivable sell and replicate their position in actual Maidsafe without moving the price considerably
Didn't get that part.

Meh I'm sure economics guys can explain it better but to me it works like this -

If you have a BitBTC then in theory you should be able to sell it and buy yourself a real BTC if you want for not too much loss whenever you want to sell your BitBTC because BitBTC tracks & holds the value of BTC.

However if a BitAsset market gets too big it can misprice the market it's mirroring because the price for that good is set somewhere else.

So for example Maidsafe's price is determined by how much people are willing to pay for an actual Maidsafe coin.

If we made BitMaidsafe it would track the price of a Maidsafe coin but it wouldn't set it.

So if there was say $7 million of BitMaidsafe in existence & $10 million of actual MaidSafe then

-it underprices Maidsafe because if the money invested in BitMaidsafe was invested in Maidsafe itself the price would be much higher &
-if even 10% of the people wanted to convert their BitMaidsafe into a real Maidsafe position over a short period or in an emergency they couldn't do so without sending the price of Maidsafe very high in which case BitMaidsafe won't have done a good job of storing Maidsafe value in some instances.

Some commodity markets have a worse problem in that they wag the dog & set the price of the underlying market, so gold for example is really mispriced and there will be a huge upswing in the gold price if a small % of people who hold a paper gold position try to replicate that in real gold.



Offline theoretical

Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #9 on: September 06, 2014, 06:18:44 PM »
I'd say a bitUSD has a different value propositon then as bitAPPLESTOCK since you can use the bitUSD like USD but you can not get any dividends from apple with bitAPPLESTOCK. So bitUSD inflates all USD (incl. bitUSD) and bitAPPLESTOCK justs servers speculation / trading purposes but does have any use apart from speculation and therefore does not inflate Applestock.
bitUSD is therefore longterm not the perfect money. bitASSETBASKET (incl. stock indices, gold etc.) would be better because the underlying can not be used for money and therefore can not be inflated.

This assumes investors care about dividends only.  The stock market hasn't been very dividend-driven for over half a century.  Most investors care about capital gains, and many investors care more about capital gains than dividends.

According to Milton Friedman, Inflation is always and everywhere a monetary phenomenon.  As a corollary, printing a close substitute for any money-like commodity will cause inflation.
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Offline santaclause102

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #10 on: September 06, 2014, 06:22:44 PM »
Quote
couldn't conceivable sell and replicate their position in actual Maidsafe without moving the price considerably
Didn't get that part.

Meh I'm sure economics guys can explain it better but to me it works like this -

If you have a BitBTC then in theory you should be able to sell it and buy yourself a real BTC if you want for not too much loss whenever you want to sell your BitBTC because BitBTC tracks & holds the value of BTC.

However if a BitAsset market gets too big it can misprice the market it's mirroring because the price for that good is set somewhere else.

So for example Maidsafe's price is determined by how much people are willing to pay for an actual Maidsafe coin.

If we made BitMaidsafe it would track the price of a Maidsafe coin but it wouldn't set it.

So if there was say $7 million of BitMaidsafe in existence & $10 million of actual MaidSafe then

-it underprices Maidsafe because if the money invested in BitMaidsafe was invested in Maidsafe itself the price would be much higher &
-if even 10% of the people wanted to convert their BitMaidsafe into a real Maidsafe position over a short period or in an emergency they couldn't do so without sending the price of Maidsafe very high in which case BitMaidsafe won't have done a good job of storing Maidsafe value in some instances.

Some commodity markets have a worse problem in that they wag the dog & set the price of the underlying market, so gold for example is really mispriced and there will be a huge upswing in the gold price if a small % of people who hold a paper gold position try to replicate that in real gold.
I got you! Agree that there would be a problem when many people all at the same time try to convert from bitAsset to Asset.
As for the pricing I guess that Maidsafecoin's value would be halved if bitMaidsafecoin would go to half the size of Maidsafecoin.

Offline santaclause102

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #11 on: September 06, 2014, 06:31:08 PM »
This assumes investors care about dividends only.  The stock market hasn't been very dividend-driven for over half a century.  Most investors care about capital gains, and many investors care more about capital gains than dividends.
Agree that price appreciation is the focus of most investors. The value proposition of bitApplestock and Applestock is mostly the same but different in that bitAPPLESTOCK does not entitly you to everything a apple stock holder is entitled to: dividends, voting rights, food at the shareholder meeting, rewards from insolvency proceedings.

According to Milton Friedman, Inflation is always and everywhere a monetary phenomenon.  As a corollary, printing a close substitute for any money-like commodity will cause inflation.
Agree. That is why I pointed to non money like indices and gold. Gold isn't used as money.
« Last Edit: September 06, 2014, 06:38:10 PM by delulo »

Offline theoretical

Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #12 on: September 06, 2014, 07:00:25 PM »
Agree. That is why I pointed to non money like indices and gold. Gold isn't used as money.

This is not necessarily true.  Suppose the gold market conists of "traditional" physical gold (coins, bars, etc.), or 100% physical-gold-backed depository receipts which must be backed by real gold in vaults.  Then BitGLD comes along and trades at the same price but has much lower fees, faster transaction times and greater liquidity.  Then some fraction of the people who want price exposure to traditional gold will switch to BitGLD relieving upward price pressure on traditional gold.

For many investors, they really want exposure to the price.   Having possession of a physical commodity (or the right to demand possession) is only important insofar as it assures them they will get the desired price exposure.  Some investors will accept the BitGLD peg as sufficient assurance they will have the desired price exposure; some will not.  The investors who do believe in the peg may go long BitGLD instead of physical gold.  This will lower demand pressure on physical gold, reducing its price for everyone.

Just because something like gold exists as a physical object does not magically make its value stable or make it immune to the laws of supply and demand.  If a close substitute is created, demand pressure will go down.  This means the price of physical gold will be lower than it would be in the alternate universe where BitGLD does not exist.  (In other words, if there are other strong forces pushing the price of physical gold upward, they may "win" and the effect of BitGLD may be merely to slow physical gold's rise in price, so the existence of BitGLD does not mean the price of physical gold will drop.)

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Offline santaclause102

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Re: What happens if BitAssets eventually surpass their real Assets?
« Reply #13 on: September 06, 2014, 07:56:44 PM »
So the initial question was whether bitAssets will inflate the (Underlying + bitUnderlying)?
What I was trying to say was that a bitMONEYLIKEASSET (USD for example) is either inflated (if e.g. bitUSD ads additional value to the USD asset) or has to share its market capitalization with the underlying without inflation of (underlying + bitunderlying).
The same applies to bitSTOCK or bitGLD like you pointed out but only with respect to speculation / price exposure characteristics. Apart from the price exposure, even if that motivates 99% of all buyers to buy the asset, the bitAsset is not a full substitute (see physical qualities of gold and shareholder rights of stock) for the Asset and therefore does not change the supply of it. Now this also applies to USD but to a lesser degree maybe which is why I will cross that out.


Would you agree that the answer whether (Underlying + bitUnderlying) is inflated can be reduced to whether the respective bitUnderlying adds value to holding and trading the underlying?

As you said also Gold would have to share its market capitalization. Therefore the best money, which does not have the effect Empirical.1 pointed out before (would the consenus form around the actual market cap or the actual market cap + the market cap of bitUnderlying; for this bitUnderlying to work the consensus would have to form around the latter. If the consensus tracks the latter moving a lot of value from bitUnderlying to underlying should not be a problem) would be a bitUnderlying where the underlying does not have any value in itself, e.g. an index.

I would also say that ppl might understand BitAssets better and not say "you cant create USD out of noting" if the underlying is not an asset = has no value in itself.

I replaced the term bitAsset with bitUnderlying since the underlying does not always have to be an asset.
« Last Edit: September 06, 2014, 08:11:31 PM by delulo »

 

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