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I'm referring to bitcoin specifically, as I was specifically trying to determine whether or not it's a good idea to hold BTC right now. I'm obviously more bullish than 5% on "future blockchain technology that replaces it" (such as Ethereum or others)"; if I wasn't I would not be a full-time member of the industry :)

If you do that you can change the equation from Bitcoin winning and continuing to have value, versus the blockchain technology succeeding and some instance of it continuing to have value.

But then, the question becomes: if you're bullish in blockchain tech, but not bitcoin, then why not invest exclusively in the other blockchain tech and not bitcoin?

Maybe -- that entirely depends on whether BTC actually has value and that hinges on, as you put it, "maintaining constant salience" which is the real issue.

Okay, this helps. So "will BTC be able to (i) maintain constant salience, and (ii) be countercyclical in the long term, and if it does what value will it have?" seems like the object level issue; definitely makes things clearer than some abstract notion of replacing gold.

Ah I think I've been misunderstanding you. I was thinking in terms of the probability distribution over BTC's long-term value, but I think you're referring to about my probability distribution over the probability that BTC will get to the $34k (or more precisely, my probability distribution over what probability estimate I would have on the topic if I knew more and was wiser). Is that closer to correct?

Quantum computers actually will not kill bitcoin. It'll take a significant coordination, but it'll survive:

Now, P = NP will kill bitcoin. But I rate that risk as being much lower than scifi gold mining techniques.

Thanks, I think this might actually be the argument I was looking for.

Whether the Bitcoin markets are efficient enough to worry about this is an open question

Right, so now the question is one of, does this idea of adverse selection actually apply?

I suppose one reformulation of the point made in the article is: if I believe X will happen with probability 5%, then I do not necessarily want to bet on X at 4.99% and bet against X at 5.01%, because it could be that my confidence is low enough that the very fact that someone wants to bet for or against me will shift my estimation of X in either direction outside that range.

So a safety factor is necessary. Question is, how large? The current markets are willing to bet on the proposition at 0.7% (as a first approximation; in reality the rectangle of $34000 * 5% is only part of the probability distribution so it's probably more like 0.2%). I'm not sure that many people are willing to bet against it at 0.7%; my hunch is that the people shorting it now would disappear once some threshold is passed (eg. the old $1242 all-time high) and are merely going on short and medium-term technicals.

In general, I'm hypothesizing that the Bitcoin markets have an inefficiency in that many people who are in them are already in them deeply, and so marginal additional investment even at positive expected value is a bad idea for them because in those worlds where BTC goes up a lot they would already be very rich and so they would rather optimize the remainder of their portfolio for the worlds where that doesn't happen; essentially limitations due to risk.

A claim that would significantly work against my hypothesis is the BTC price not going up by much or at all over the next year, as Bitcoin ETFs for mainstream investors are now available.

For instance, a bitcoin detractor could argue that the reference class should also include Beanie Babies, Dutch tulips, and other similar stores of value.

True, I hadn't thought of those. Of course, the case of Beanie Babies is more comparable to Dogecoin than Bitcoin, and the Dutch tulip story has in reality been quite significantly overblown (see , scrolling down to "Legal Changes"). But then I suppose the reference class of "highly unique things" will necessarily include things each of which has unique properties... :)

Indeed, I am aware. Though now a black swan supply event of that kind is rare, since we've already explored all the low-hanging fruit on earth, hence why exotic stuff like space mining, nanotech mining or nuclear transmutation may need to be involved. But I suppose something similar to this oil event: could also happen right here on our own planet.

Right, I agree, my 5% $34000 is only slightly Pascalian. I'm only using the Pascal reference because it is the best representative example I know of the general class of such scenarios (note that other "Pascalian" scenarios of this type are fairly common in the investment world; every startup crank loves throwing out the whole "if you think there's only a 0.1% chance I'm right, you'll get an EV of $100b 0.001 = $100m" line). If you know of a better name for the category, please share. I also used the Drake Equation as an analogy elsewhere in that r/buttcoin thread; perhaps that might be a better fit.

In the West the predominant store-of-value right now is financial securities (stocks and bonds).

Mostly, yes. But gold still has a $7t market cap. But this does open up an interesting argument: that gold is on the whole dying as a store of value and it's being propped up almost entirely by tradition; in this case central bank gold holdings will probably decline 90%+ over the next century. In this scenario, BTC has no chance to replace gold because there's no new interest in gold anyway.

However, I would still argue that there is diversification value in BTC if it simultaneously manages to (i) have value increase proportionately to economic growth in the long term (that basically requires maintaining constant salience in a growing society), and (ii) be countercyclical to stocks; if that pattern repeats over two or three business cycles then I could see investment specialists advocating it in place of gold as part of an "all seasons" portfolio (essentially replacing gold here: ).

But I wonder why are you focusing solely on the store-of-value function, you don't think Bitcoin will be valuable as a medium of exchange?

A couple of reasons:

  1. MoE usage brings much lower valuation prospects. You can see a currency getting to $10 billion simply from people trading it, but the serious $1t+ valuations come from people actually holding it in huge quantities. MV = PQ (where currency value is P^-1); M is constant, so the use cases that push P^-1 high are the ones where V is very low.
  2. With MoE you can make a credible case that it will simply be continually replaced by superior technologies that improve on block time, scalability, anonymity, transaction cost, functionality, etc. Blockstream's sidechains project potentially allows protocol upgrades to come together with continued BTC use, but that itself is a bet. Also, for MoE people desire price stability much more, so my bets as far as cryptocurrency goes have been on stablecoins ( ). So because of that last point particularly I would place MoE dominance probability at under 5%.

Depends on the resources brought against you, threat model still matters.

Agree. Anonymity depends pretty much completely on threat model in our high-info-inequality society.

Huh? I don't understand that. And, by the way, what is your point estimate? A mean? A median? Mode, maybe? :-)

$34000 is my "5% chance it will be above this" target (though my discussions here and in that debate have revised me a bit down to 2.5-4%). My mean is around $5000 I suppose, though I include only the 34000 * 0.05 rectangle in my final answer of $1700 as a sort of way of giving myself a safety margin. Median is under $200, mode is $0 :-)

And what exactly is the reference class that you put Bitcoin into?

Roughly speaking, assets which have received a major amount of public attention and whose store-of-value functionality is the dominant factor in their price. Gold, silver, land and internet domain names are the only others I can think of that vaguely fit there.

So your argument is that gold has a very very large network effect? Reasonable I suppose, but technology has disrupted similarly entrenched things over the past two decades, so you have to add a lot of fundamental uncertainty.

Another big advantage of gold is anonymity which Bitcoin will not be able to replicate either.

It's quite possible to be anonymous with BTC; the $400m MtGox theft at least is pretty good evidence of that. It just takes a lot of skill. Also, with the growth of meatspace surveillance, I would not be surprised if gold became easier to track than BTC over the next few years.

Recall that the original Pascal Mugger is Omega and I doubt that you can incentivize Omega by cooperating or not.

So for every world where the mugger is Omega, there is a world where the mugger is someone incentivizeable. And I have no idea how to weigh the relative probability of those worlds.

We are entering nonsense territory here, as the set up implies that someone who can torture ^^^3^^^ people for fun still need something from you and, moreover, needs your free and willing consent.

He clearly very likely wants something from me: the subjective experience of seeing my submissive reaction. Bully psychology 101.

Don't think in terms of point estimates, think it terms of full distributions (which here will not be symmetric).

I fully agree. However, the full distribution is at least the size of the rectangle defined by my point estimate, so that's actually a point in my favor.

So a wager is about a positive outcome, but there is a standard knockdown argument saying that the wager argument is incorrect precisely because of the possibility of negative outcomes, ie. G' sending you to hell for worshipping G, if it turns out the G' and not G is real. A mugging is about avoiding a negative outcome, but my proposed argument shows how not cooperating with the mugging can also avoid a negative outcome. Bitcoin is actually a third category: investing in BTC has a probability of a very positive outcome, but it is not the case that either (i) investing in BTC has a probability of a very negative outcome (well ok some future government may do a witch hunt of BTC holders, but everyone agrees that's 5 orders of magnitude less likely than BTC taking over), or (ii) not investing in BTC has a probability of a very positive outcome. It's very specifically a question of how to weigh a small probability of a large gain ($34k per coin) versus a very high probability of a small loss (-$245 per coin from BTC dropping to zero).

you were making the gold comparison as a way to determine the scale of the mentioned large positive outcome, correct?


The superrational strategy is indeed to switch to B with some probability approaching 0.5 (or, if the system allows it, vote for A with 51% of one's capital and for B with 49% of it).

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