SLP1 - Bitcoin as Sound Money with Saifedean Ammous, Austrian Economist
Jul 23, 2018
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Stephan interviews Saifedean Ammous, Austrian Economics Professor and author of The Bitcoin Standard. They explore Bitcoin's potential as sound money, its volatility and challenges in establishing stability, the importance of money as a store of value, Bitcoin's block difficulty adjustment, its monetary policy and competition, the potential for fractional reserve banking on Bitcoin, and debunking Keynesian economics.
Bitcoin's scarcity and slow supply growth contribute to its potential as a widely accepted form of sound money.
Bitcoin's volatility is a natural part of its path towards becoming a hard form of money.
Bitcoin offers a decentralized alternative financial system built on hard money principles, eliminating the negative impact of centralized financial institutions.
Deep dives
Bitcoin as Sound Money and Saleability
Bitcoin is seen as sound money because it fulfills certain characteristics that make it valuable, similar to gold. It has a high stock to flow ratio, meaning the existing supply of Bitcoin is large compared to the new supply being produced. This scarcity makes it a desirable store of value and medium of exchange. The concept of saleability is crucial, as it refers to the widespread acceptance of a currency as a store of value. Bitcoin's slow supply growth and increasing adoption contribute to its potential to become a widely accepted form of sound money.
Bitcoin as Hard Money and Volatility
Bitcoin's volatility is often misconstrued as a sign of instability. However, considering its relatively short existence of nine years, it has already achieved significant volume and liquidity. The path to becoming hard money is not smooth, and its value fluctuates as new participants enter and exit the market. Despite short-term volatility, Bitcoin's supply growth rate is gradually decreasing, making it a scarce and hard form of money in the long run. As more people recognize its store of value properties, its market depth and saleability will continue to increase.
Bitcoin and the Need for Sound Money
The current monetary system lacks a reliable store of value, forcing people to take greater risks by investing in real estate, stocks, and bonds. This has led to speculative bubbles and distorted markets. Bitcoin offers an alternative financial system built on hard money principles. With a decentralized network and no central bank control, Bitcoin can provide a secure and reliable store of value. It can also serve as an alternative interbank settlement and payment network, allowing for thousands of central banks to offer final clearance of payments across the globe. This decentralized approach would eliminate unelected and unaccountable financial institutions that manipulate money supply and negatively impact economies worldwide.
Bitcoin's Potential for Outperformance
Bitcoin has the potential to outperform other forms of value storage and investment due to its hardness and limited supply. Unlike most monetized assets, which offer around a 5% annual return, Bitcoin has historically averaged a 500% yearly return over the past eight years. This trend is likely to continue given Bitcoin's scarcity and the demand it generates. As more people invest in Bitcoin and its value rises, it attracts further investment, leading to increased wealth and value. Despite price fluctuations, Bitcoin's unique qualities make it a strong contender for long-term outperformance.
Bitcoin's Immutability and Economic Value
The value of Bitcoin lies in its immutability and hard monetary policy. Unlike other altcoins and forks that can change their code or supply, Bitcoin's fixed supply brings credibility and trust to its value proposition. Bitcoin's scarcity and immutability make it suitable as a store of value, distinguishing it from currencies focused on quick payments or mass transactions. While there may be debates about its scalability and limitations, the fact that Bitcoin remains unchanged and decentralized adds to its appeal as a sound money option. Bitcoin's credibility and decentralized nature distinguish it from other cryptocurrencies and highlight its potential as an emerging form of global money.
Stephan interviews Saifedean Ammous, Austrian Economics Professor and author of The Bitcoin Standard. In this podcast episode we take a deep dive into the case for Bitcoin as sound money, and what is potentially the hardest money the world has ever seen.
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