Citi Chief Economist: Bitcoin is Closest Commodity to Gold

Discussion in 'Financial Cents' started by VisuTrac, Nov 27, 2014.


  1. VisuTrac

    VisuTrac Ваша мать носит военные ботинки Site Supporter+++

    Citi Chief Economist: Bitcoin is Closest Commodity to Gold

    Citi Chief Economist: Bitcoin is Closest Commodity to Gold

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    Gold is a commodity like bitcoin and other cryptocurrencies, Citi's chief economist argues in a research note published yesterday, ahead of a Swiss vote that could cause the global gold price to spike.
    Switzerland will hold a popular referendum on Sunday called 'Save Our Swiss Gold'. If passed, it would mandate the Swiss National Bank to hold a fifth of its assets in gold and to repatriate its holdings from England and Canada. The bank would also be banned from selling its gold in future.
    Gold prices have dropped as markets await the referendum. If the referendum is passed, gold prices will surge, although this is unlikely, CNBC reported.
    Polls show that the initiative has the support of only 30% of voters, short of the 50% required, the broadcaster said.
    Value by agreement
    The low chance of a successful referendum hasn't stopped the mega-bank's chief economist, Willem Buiter, from warning that the proposal is a bad idea. Buiter spends much of the 14-page note describing the similarities between gold and cryptocurrencies like bitcoin.
    "Gold as an asset is equivalent to shiny bitcoin," he wrote in his note to clients.
    Gold, Buiter continues, is unlike any other commodity, but bitcoin and cryptocurrencies bear the closest resemblance to it. Like gold, bitcoin has to be mined, is limited in supply and has no significant utility.
    He also notes that both gold and bitcoin are anonymous to a degree and are "outside assets" – that is, assets that are not a liability to any other party.
    Fiat currencies, he argues, are defined not by the legitimacy conferred upon them by political rulers, but by the fact that they have no intrinsic value. Instead, they are valuable only because enough people agree that they are. Therefore, Buiter says, gold can be thought of as a 'fiat commodity'.
    In the note, he also likens gold to the currency of the Isle of Yap – stone disks called 'rai' with a limited supply.
    The popular online course hosted by the University of Nicosia and taught by Andreas Antonopoulos and Antonis Polemitis also uses the rai example, except it is likened to bitcoin. In both cases, the stone currency has no intrinsic value, beyond what is agreed upon by the people on the island.
    Buiter writes:
    "This intrinsically useless form of money ... is in all essential respects equivalent to gold today. Another example would be pet rocks ... another is bitcoin, a fiat virtual currency."
    Humanity's oldest bubble
    Both gold and bitcoin are, in Buiter's view, in "benign bubbles". The analyst argues that since fiat money is intrinsically useless, it should be valued at zero in a hypothetical economy in a state of 'fundamental' equilibrium. Gold's positive value therefore shows that it is in a bubble, Buiter says.
    "The gold bubble, is, of course, pretty impressive ... It has had a positive value for nigh-on 6,000 years. That must make it the longest-lasting bubble in human history," he writes.
    The fact that gold is in a bubble is no indicator of its future value, Buiter says. The same would apply to bitcoin's future price. Investors in either asset, then, should brace themselves for "an exciting ride", he says.
    Buiter writes:
    "Even though I view gold as a pure bubble, that bubble may well be good for another 6,000 years ... investing a vast amount of money in something whose value is based on nothing more than a set of self-confirming beliefs will make for an exciting ride."
    Since gold has no intrinsic value and it is in a bubble, the Swiss central bank would be exposed to undue risk if is mandated to hold a fifth of its reserves in gold, Buiter says.
    Instead, he advocates a balanced portfolio of commodity exchange-traded funds for the bank.
     
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  2. HK_User

    HK_User A Productive Monkey is a Happy Monkey Site Supporter

    What a lot of Bull. "Since gold has no intrinsic value"

    Until we find another source to replace gold in the production world then the Citi Chief Economist is way wrong.

    Gold is mined and produced to use in a number of ways. God has an intrinsic value depending on market demands for any given use which is also set depending on the investment to produce the final product. JMHO.
     
  3. ghrit

    ghrit Ambulatory anachronism Administrator Founding Member

    Which is exactly the point. The value of gold is in its value as a commodity, not as having intrinsic value in and of itself.
     
  4. HK_User

    HK_User A Productive Monkey is a Happy Monkey Site Supporter

    I guess we see intrinsic value as something else.

    In finance, intrinsic value refers to the value of a company, stock, currency or product determined through fundamental analysis without reference to its market value.

    In this case the fundamental analysis would be what it takes to get gold out of the ground and in a useful state.

    OTOH

    Intrinsic value is an ethical and philosophic property. It is the ethical or philosophic value that an object has "in itself" or "for its own sake", as an intrinsic property. An object with intrinsic value may be regarded as an end or (in Kantian terminology) end-in-itself.[1]

    I'm not into the jive of gold holding/having any philosophic property.
     
    Last edited by a moderator: Jan 13, 2015
  5. ghrit

    ghrit Ambulatory anachronism Administrator Founding Member

    We agree.
     
    Last edited by a moderator: Jan 13, 2015
  6. vonslob

    vonslob Monkey++

    I am not quite sure what to make of bitcoin. There is no real metric to properly value it. It does not represent the GDP of a viable economic entity, does not represent a basket of currencies, it is not a commodity because it is not a finite resource. Citi bank economists are usually above the curve as far as the practitioners of the voodoo science of economics goes, but something about this is making my BS meter starting to peg. A mathematical algorithm does not make a commodity, or a store of value. After reading this article i suddenly want to run to the coin store. I wonder what citibank is up to.
     
  7. kellory

    kellory An unemployed Jester, is nobody's fool. Banned

    If what I read about it is true, it IS a finite resource. It becomes harder to mine, the further you progress, and there is a mathmatical limit it can not pass, beyond which it can not progress. This is part of the design that prevents it from automatically devaluing on it's own.
    I have not invested in bitcoin, but many believe in the principle, and as long as they do, bitcoins has value.
     
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  8. Mindgrinder

    Mindgrinder Karma Pirate Ninja Jedi Bipolar WINNING M.L.F.

    Right and wrong...

    Wrong:
    Bitcoin IS finite...when 21 million are mined - it's over....expected to peak later than 2099 but could happen much sooner once some DARPA funded mega-corp points a few quantum computers at "mining".

    Right:
    Bitcoin is not a commodity. It's 1's and 0's arranged in a public block chain.
    Sounds complex - it aint.
    A commodity is a physical thing you can touch.
    1's and 0's are like ideas - untouchable.

    With that being said, the article is absurd to compare bitcoin to gold claiming they are the same in holding value because of "perceived value". You can make something out of gold....plate stuff etc...you can't do anything with a bitcoin except compute it.

    If you want to compare bitcoin to gold...think on this.
    The total market for bitcoin is (approx is 10-15 billion USD.
    The total market for physical gold (approx 165,000 tons) is 6-10 trillion USD.

    Seems to me 15b is pretty soft for a "global currency" and can be (has been) easily manipulated.

    Would I buy bitcoin now?
    Not while silver is under $20.

    My .02 cents.
     
    Gator 45/70 likes this.
  9. vonslob

    vonslob Monkey++

    Can you say for sure that it is finite. It is "mined" from a computer. Gold and other real commodities can not be made but you can make "1" and "0" all day long. If it is created by a computer so it is not finite, no matter what anyone tells you. My personal opinion
     
  10. DarkLight

    DarkLight I self identify as a Blackhawk Attack Helicopter! Site Supporter

    Yes, as it sits, the number of bitcoin possible is finite. It's in the code to limit the number of blocks that can be mined to generate bitcoin. Could the code me modified to increase the number? Technically yes but literally everyone would have to agree to run the new code that accepts more blocks/bitcoin, otherwise the blockchain forks and as has been seen before, when the blockchain forks, one of the forks ALWAYS dies because nobody is mining it. It's also in everyone's interest to keep the original limits for the reasons already stated about the value of something finite.
     
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  11. Gator 45/70

    Gator 45/70 Monkey+++

    I'm pretty antiquated
    I stick with what's worked in the past for me.
    Gold
    Silver
    Brass
    Lead
     
    VisuTrac likes this.
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