In Defense Of Bitcoin Hoarding

Tyler Durden's picture

Authored by Jeffrey Tucker via The Foundation of Economic Education,

In Internet slang, they are called the HODLers, the people who are clinging to their Bitcoin and refusing to spend it. Instead, they just refresh their wallet apps, feeling richer by day while deferring consumption. Many of these burgeoning millionaires live like paupers. I’ve met many of them: all over the U.S., in Israel, in Brazil. They believe that every dollar they spend today is two dollars they won’t make in a few months. Probably they are right.

Bitcoin is undergoing a historic deflation, which simply means that its value is growing relative to the goods and services it can purchase.

This is in contrast to inflation, in which the value of the currency falls relative to its purchasing power. Inflation inspires spending – better to get rid of the money while it is more valuable. Deflation inspires saving – better to keep it so that your wealth rises over time.

So there is nothing selfish, strange, or weird about holding an asset that is rising in value. It would be irrational to do otherwise. And there is nothing odd about spending like mad in an inflation either. Our expectations of the future determine what we do today in every life and especially in monetary economics.

Some Money! 

This tendency to hold rather than spend is giving rise to a new claim. Bitcoin isn’t really a viable medium exchange, they say. You can’t buy a sandwich with it. Few people are paid in it. Adoption in the retail sector is slow. The total market capitalization is $219 billion and yet the trade volume nowhere near reflects that.

And it is true that most of the big money people are just holding it. James Mackintosh, writing in the Wall Street Journal, summarizes the conclusion: “It has become a vehicle for hoarding by libertarians for gambling by hordes of speculators attracted to its wild price swings.”

I’m looking now at the total market capitalization of the entire sector of cryptoassets: it approaches $400 billion. That is larger than the market cap of JP Morgan, by the way. That valuation is in private hands, growing in value at incredible rates. It’s risen 1,000% in 2017, and many people are predicting much higher growth in 2018.

The Implications

Under old-style Keynesian theory, economic growth is driven by consumer spending, not saving, so anyone who is hoarding money under the mattress is holding back progress. Hoarders are the enemy. “Every such attempt to save more by reducing consumption will so affect incomes,” wrote J.M Keynes, “that the attempt necessarily defeats itself.” He popularized what became known as the “Paradox of Thrift.”

It’s supposed to be counterintuitive. You think that saving up for the future is a good thing. Whoops, you are hurting others and, in the long run, hurting yourself. You should be spending, even going into debt to spend.

But sometimes “counterintuitive” is just wrong. That is the case here. There is no paradox. The intuition is right. Thrift is a good thing, on the individual level or for the whole society. Deferring consumption is the necessary precondition to permit saving. Saving is never wasteful. It’s true that infinite saving is pointless but that’s not how this works.

You are always saving for something. The end of saving is eventual consumption in some form. More importantly for economic growth, saving is the precondition for investment. Investment is what extends the complexity of the structure of production. This leads to employment, expansion of the division of labor, and the eventual rise of wealth.

 Consider the classic case of Crusoe on the island. Every day he is out catching fish to eat. He doesn’t have time to weave a net because he is always fishing with a pole. But at some point, he realizes that he could catch more with a net. In order to gain time, he has to stop fishing. So he saves up a few days of fish so he can eat without fishing, during which time he weaves a net. That net allows him to multiply his catch by 10 times. The deferring of today’s consumption for great overall wealth later is what makes progress possible.

The Policy of Pillage

Once the wrong (Keynesian) theory took hold in the 1930s, it became national policy to incentivize consumption over spending. Gold was confiscated from people. Government spending, it was believed, would goose the economy to make up for the ability or willingness of people to spend. The gold standard itself was destroyed in order to build a monetary system that could be inflationary – so that the money would be worth less in the future than it is today, thereby motivating the desire to spend.

This whole policy became a disaster for economic growth. After World War II, the US underwent a huge expansion as a result of the hoarding that occurred throughout the Depression and the War, and this was despite (and not because of) federal policy.

After the initial boost in economic growth, the Federal Reserve began its inflationary path. The personal savings rate peaked at 15% but then savers were blindsided by a wicked hyperinflation that hit in the late seventies, pillaging the savings that had been built up for the last two decades. No surprise: personal saving fell and fell, incomes flattened, and economic growth became ever more of an uphill climb. In our own times, inflation has been fixed but now we deal with near-zero interest rates, which harms saving as well.

As you can see in the chart, the economic crisis of 2008 traumatized a generation to the point that people began to save at much greater rates. No more would be trust the system to take care of them. It was exactly at this point that Bitcoin came into being, and created something that is really the opposite of the dollar: a currency designed to rise in value over time.

Many of the metaphors surrounding Bitcoin were drawn from the old-world gold standard. We speak of mining, for example, and proof of work (think of miners wearing jeans, panning gold from stream or banging picks into mountains). As with gold, there is a limit on the amount that can be created. And there are multiple levels of standards to determine authenticity and truth in accounting. In some ways, Bitcoin was invented to be the ultimate anti-Keynesian monetary praxis.

Up with Thrift

Now we see the results. Bitcoiners are HODLers. They save. They hoard. They have turned against consumption in favor of saving. I see it myself all around me. Young people who are invested in Bitcoin turn down luxury consumption. They don’t own cars. They bike and walk. They don’t spend big on dinners. They live off cheap groceries. They know that everything they consume today eats into their capacity for consumption, investment, and building wealth for the future.

So much for the Paradox of Thrift. Bitcoin is about the Virtue of Thrift. The pundits can decry it all day. Bitcoin doesn’t care. What’s more, you don’t need economic theory to understand this. You only have to follow the money.

If you ever despair of the future, just consider how much capital is currently being built up in the crypto sector. There will come a time, maybe in five to 15 years, when all this deferred consumption is going to be unleashed on the world economy in the form of real capital to build wealth and prosperity. And consider too: this is not about one economy, not about one nation. It’s about the whole world, capital and prosperity without borders.

The pundits can fulminate all they want. Technology doesn’t care.

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BaBaBouy's picture

Again they show GOLD to represent Bitcoinz ...

They are just serial numbers in a Blockchain Database in NowhereLand.

I_rikey_lice's picture

Wait till the environmentalists come at bitcoin full force. Chinese miners powered by coal generated electricity isn't a selling point. Oh yeah, also the bubble, fraud and ponzi stuff isn't a selling point either.

Gap Admirer's picture

I'm hoarding Beanie Babies instead. They are headed back to the Moon!!! Again!!!

Raffie's picture

Best ask your mommy 1st if that ok sweetie.

Gap Admirer's picture

Awwww... Vwey cute comment, cupcake.

Bud Dry's picture

You mean CryptoKitties?

DownWithYogaPants's picture

 BaBaBouy Your dentures fell out and plopped into the toilet.  You want I should rinse them off before you put them back in?

chumbawamba's picture

It's a classic tulip bubble.  One day it'll pop.  It's just a matter of time.

In the meantime, please enjoy your profits early and often.

I am Chumbawamba.

Raffie's picture

u children will be there forever wishing cryptos are fake, while stroking your PM stacks that do nothing but eat the monkey hammer.

God Emperor's picture

Tokens.

Tokens of appreciation, until they'll burst and puff..it's gone.

But don't you worry guys, those most hit by the bubble bursting will be the pot head millennials. They're crazy enough to put all the money in bitcoin.

Can't wait to see all the hipsters biting the dust and start selling their asses to make ends meet. There will be a lot of competition for the attention-whores already doing it:

Gamer and Vloggerr Abigale Mandler Leaked Nudes and Blowjob VIDEO

http://celebrity-leaks.net/gamer-and-vloggerr-abigale-mandler-leaked-nud...


RAT005's picture

Better:  I don't have time to sharpen my axe, I have too many trees to chop down.

I love those thrifty saver types, make great neighbors, wish I had more like them.

Raffie's picture

u old fools are to ignorant to see what is going on as u sit in the corner of the basement petting your PM coin saying "one day......any day now...almost there"

You will die with stacks of PM that never got gains like cryptos could have got u if you just woke up for 5 minutes.

Hipsters are age 20-30ish so thx for the compliment u old geezer. 

Yogizuna's picture

That explains a lot of it. "Gotta buy me some more bitcoin dude!" (takes another huge toke) "It's goin' to the moon dude!" (slurps down a whole quart of Haagen Dazs) "Never sell it man, Have faith bro!" (passes out on the floor, wakes up and discovers bitcoin has crashed once again) "Buy the fuckin' dip man!!!"  

Heavy McNuggets's picture

Uh, most cryptos are trending down and futures, the very thing they use to "monkey hammer" gold start trading on bitcoin this sunday. 

Raffie's picture

Just wait till 2018.... you haters will be crying on a biblical level. ROFL... 

Bitcoin is inhailing most the money right now, the money will slosh back like it has over 200 times now and counting. 

Enceladus's picture

Its all fake including gold. So what's the problem? 

booboo's picture

And Looking at a ledger don’t fall under “enjoying your profits”

glenlloyd's picture
"Never In Human History Have So Many Things That Weigh Nothing Had So Much Value"

Although in this instance I think it would be wise to modify that statement to say So Much Dubious Value.

I'm sorry folks but I believe you're buying tulips...

Occident Mortal's picture

Would love to see Nanex pointing their tools at Bitcoin exchanges.

hedgeless_horseman's picture

 

You can have my bitcoin when you pry it from my cold storage wallet.

Raffie's picture

Even if they pry my wallet from hand, have fun decoding it....

gilhgvc's picture

hackers do it EVERY day. good for you if you have made out in the initial run up. it's called dumb luck

Raffie's picture

they do and they don't... only one way to tell.

Michigander's picture

it's called dumb luck?

It may be dumb luck, but that dumb luck is paying off my 400K mortgage this week.

Luck is where preparation meets opportunity.

Hodling only gold is just plain dumb.

DownWithYogaPants's picture

You have to be careful what you say around grandpa.  He'll choke on his dentures when you talk about gold like that.

Michigander's picture

+1 for the chuckle...

Oh, and I'd really like to see the front view of them Yoga pants!

Raffie's picture

CRYPTOS ARE THE NOW!

PM way down the road someday....

Yogizuna's picture

Every generation sees themselves as better than the previous one, it's a defect of human nature.

aurum4040's picture

Bitcoin rally is about to be done, for today anyway. Volume is drying up.  higher highs on lower volume...Trade accordingly. 

slyhill's picture

Hope you shared yer privates with Mrs Hedge. Hear she makes a great rabbit stew.

hedgeless_horseman's picture
 
I'll take that as a threat.
  
Be careful with what you fuck with, literally.
  
Raffie's picture

Just feed him the ban hammer.

 

bamawatson's picture

your comment assumes environmentalists actually care about the environment, are rational, and are informed

I_rikey_lice's picture

I just mass emailed every environmental group I could find the facts behind the massive electricity consumption of crypto "mining". I care about this planet and they do as well. Look for carbon taxes at a minimum for all bitcoin transactions. Most likely will result in a total ban in the next year if my sources are correct.

 

DownWithYogaPants's picture

Somebody has a red baboon ass over BTC's run. 

Gold takes enormous amounts of energy to mine too.  So if they do actually start targeting BTC I'll have to email them about gold.

What a loser you are.

Yogizuna's picture

Good for you! It is one thing to invent fake money and bid it up to the sky, but quite another to hurt the environment with it. 

Solosides's picture

"Wait till the environmentalists come at bitcoin full force"

And absolutely nobody will listen, or care

Yogizuna's picture

We'll see about that, unless they change significantly of course.

cheech_wizard's picture

Estimated current energy usage spent mining bitcoins/cryptocurrency - .14% of the total energy output of the planet.

Standard Disclaimer: Yes, I have a link somewhere, but I posted it on the other much lengthier bitcoin thread.

 

Yogizuna's picture

And what will it be one year from now? Two years from now?

Yogizuna's picture

I am very surprised at how slow clean energy advocates are waking up to just how dirty bitcoin mining truly is. But eventually they will have to, unless things change dramatically. 

Occident Mortal's picture

Feds will DDOS it to pop the bubble and use “money laundering prevention” as their cover story.

Raffie's picture

U seem triggered. ROFL....

Wanna talk about it pumpkin?

tmosley's picture

They showed Scrooge McDuck too. What do you think the evil satanic occult symbolism is behind that?

any_mouse's picture

Your avatar is a one eye sign.

Be careful slinging "evil satanic occult symbolism" around.

tmosley's picture

He's actually a character from a famous anime whose story is almost a perfect analogy for the relationship between the central banks and governments.

But don't let that stop you from being completely retarded.

daggerhashimoto's picture

lol god you're so ignorant.

read the fucking white paper! it's 9 fucking pages you lazy fucktard.

Joe Mama 3's picture

good thing i buried my plata in da nat. forest on fed land where it will  never be found !!!!