
How can Bitcoin stabilize if it's a Keynesian Beauty Contest? - whysonot
https://www.tonysheng.com/keynesian-beauty-contest-bitcoin
======
apo
The meaning of the word "stabilize" isn't clear from the article, despite
being used 12 times in the body and once in the title.

It would have been easy to make the article more clear. Simply explain what
aspect of Bitcoin is supposed to stabilize.

Given the unending fascination with the USD/BTC exchange rate, it can be
assumed that the author is referring to this metric. The inclusion of the
heading "Does the price of Bitcoin have a Nash equilibrium?" also supports
this idea.

However, if this is the case, why does the author include the following quote
the middle of the article:

 _Why has Amazon stabilized, and will bitcoin do the same? When Amazon shares
debuted back in 1997, earnings were non-existent. […]_

The USD price of AMZN has in no way stabilized:

[http://bigcharts.marketwatch.com/quickchart/quickchart.asp?s...](http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=amzn&insttype=&freq=2&show=&time=13)

As you can see, it's a concave-upward curve, punctuated by various declines,
all the way back to 2003.

This may sound like hair-splitting, but I think there's a real possibility the
author is actually talking about USD/BTC exchange rate volatility. This is an
animal of a completely different stripe.

~~~
derekp7
I would say that stability refers to purchasing power, and doesn't need to be
a flat line. It can also be a simple math function (liner, logarithmic,
exponential) which means that it is somewhat predictable. (Edit: I think a
better word than "stable" may be "dependable", which is probably what the
article meant).

For example, the US Dollar loses purchasing power over time, but that is OK,
since it is mostly at a predictable rate. But when something has wild swings
up and down, and random times, then it is less suitable to either use as a
currency (the stock person with the price gun will be working overtime
correcting prices on everything several times a day), and it isn't that good
of a store of value if there isn't any reason for it to not lose all of its
value over a given period of time.

The Amazon graph you linked to does look fairly stable, a nice exponential
function that has very good reasons to remain so for a good period of time
(not saying this or anything else is guaranteed, but at least there is
something tangible behind that price).

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mastermojo
So the article concludes that Bitcoin can gain stability by being anchored to
the price of gold. However isn't gold a "Keynesian Beauty Contest"? That is,
gold is valuable because other people believe other people believe it is a
store of value.

~~~
posixplz
Gold also has intrinsic utility to industry. The same cannot be said for
Bitcoin.

~~~
charlesdm
That value is minimal however, in comparison to the total market cap of gold.

~~~
doyoulikeworms
I think there's something to be said about gold's utility _as money_. It's
remarkably good at being money compared to other materials. It's easy to
store, identify, divide, it's fungible, and it's scarce enough. If
civilization were to collapse, I think that there's a fair chance that we'd be
using gold and other precious metals as money again, whether or not it was
used in the past.

~~~
charlesdm
I'm not sure I believe that. If civilization were to collapse, you'd want
food, medicine, potentially gas. Potentially solar cells, and some other
things.

I think you'd see more traditional bartering than money being introduced again
in its earliest stages.

~~~
fjsolwmv
The problem with bartering is that useful but rare products are a poor store
of value because peot need to use those things. Useless but rare things are
better as money, as long a users are confident that there is economic growth
to spend money on (decoupling consumption from production)

------
DINKDINK
Bitcoin doesn't need to stabilize to be successful. In the same way that the
exchange rate of the hyperinflating German Mark and gold didn't need to
stabilize. All bitcoin needs to do is continue to operate with it's programmed
monetary policy such that its value can't be inflated away through coercion.

Money is a commodity whose goal is to transport value through space and time.
We are living through -- in human-species scale -- a brief 90-year experiment
in the artificial elimination of a free market of monies by violence of the
state (until bitcoin was invented).

Artificially increasing and decreasing the supply of money in an economy has
about just as much utility as artificially increasing and decreasing the
supply of any other good -- which is none.

Bitcoin's success narrative doesn't depend on the amount of non-scarce dollars
the market is willing to trade for it ceasing to change ('stabilize'). The
success narrative is: an increasing set of people understanding that the
hardest money always wins. Bitcoin is one halvening away from being harder
than gold and is _the_ hardest money ever in existance. Those who have taken
exposure to bitcoin will have more wealth preserved than those who denominate
their value in inflatable dollars. As more people see bitcoin improving the
quality of life of individuals they also take exposure to bitcoin. This
process doesn't need a planner nor intelligent agents, it just needs
bricolage.

~~~
craigc
Thank you for posting this. Not surprising to see you getting downvoted to
oblivion here, but this is something that people really need to keep an open
mind about.

~~~
fjsolwmv
It's downvotes because it's using false facts as a basis for opinion, and
using weak logic to connect them. Fiat money is over 90years old, Bitcoin is
deflationat by design, and neither of these facts matter. The open market is
subject to manipulation (counterfeiting and cornering) as much as government
fiat.

~~~
craigc
Can you please point out the false facts to me?

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darawk
It is empirically the case that Keynesian beauty pageant assets can have
stable prices: e.g. gold.

------
mrb
Bitcoin has actually become a lot less volatile, when measured objectively
over the last few years:

[https://twitter.com/lsukernik/status/864920873718951937](https://twitter.com/lsukernik/status/864920873718951937)

[https://news.bitcoin.com/volatility-
decreasing/](https://news.bitcoin.com/volatility-decreasing/)

~~~
wilg
Yes these two links to two images presented without comment from a
cryptocurrency VC and news.bitcoin.com scream "objective" to me.

~~~
mrb
Price data is freely available from many sources for you to examine and issue
your own conclusion. Here is another chart:

[http://images.woobull.com/2016/10/volatility-btc-vs-
fiat.png](http://images.woobull.com/2016/10/volatility-btc-vs-fiat.png) (from
[https://woobull.com/bitcoin-volatility-will-match-major-
fiat...](https://woobull.com/bitcoin-volatility-will-match-major-fiat-
currencies-by-2019/))

The long-term trend is that BTC is becoming less and less volatile.

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andreygrehov
There is a belief that Bitcoin is following specific pattern [0] and will
stabilize in 2030 at ~$1M per coin. So far the model was pretty accurate.

[0] [https://1nodld1ltmqu3jimmy2xsgcu-wpengine.netdna-
ssl.com/wp-...](https://1nodld1ltmqu3jimmy2xsgcu-wpengine.netdna-ssl.com/wp-
content/uploads/2017/11/Bitcoin-Chart.png)

P.S. Dear downvoters, this is not a financial advice!

~~~
brokensegue
that chart is currently off by like 100%

~~~
andreygrehov
This is chart is not off at all. There is, actually, an updated version
[https://cryptoslate.com/wp-
content/uploads/2018/10/chart.png](https://cryptoslate.com/wp-
content/uploads/2018/10/chart.png). I have no idea if the trend will continue.

~~~
ironSkillet
Your first chart stated that BTC would be over $10,000 by the beginning of
2018, and be somewhere in the ballpark of $20,000+ by now. Your second chart
drastically reduces that forecast. You do know you are just overfitting a
curve to data here, right?

~~~
salty_biscuits
Well to be fair it is just refitting not overfitting. If it was overfitting it
would have heaps of free parameters and match the data really closely. The
criticism should be what is the mechanistic explanation for why you would
expect this logarithmic trend (for the log price, is that just linear or am I
just confused?)

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adrianscott
Bitcoin is stable in reference to itself, just as USD is stable in reference
to itself.

~~~
threeseed
USD is also stable in reference to almost everything else.

Bitcoin isn't.

~~~
adrianscott
Would you consider USD also subject to a Keynesian Beauty Contest?

~~~
lordnacho
Yes, there's a 24/5 FX market where people decide what it's worth in relation
to other currencies.

~~~
fjsolwmv
FX markets are open all night but close on weekends?

~~~
derekp7
To paraphrase Jimmy Buffet, It is always between 9:00 AM and 5:00 PM
somewhere.

