Quote from: gentlemand on February 02, 2018, 01:37:49 AM

What about gold minus speculation? That's probably around $20-$50 of actual usage too.

You're right, concerning gold. Gold is THE speculative asset over history. However, exactly its very, very long history has more or less "frozen in" the speculative value of gold.

There are two sources of value: utility and belief. One usually takes it that "rational" value is only related to utility. That's called the "fundamental". Utility has to do with human joy, or absence of human suffering, in the largest sense possible. If some good or service G provides joy, or helps avoiding suffering of another human being (or something that that human being likes, like his cat), it has economic utility: that human, in need of G, is, in his turn, ready to provide utility (joy) to another human being, if that's the only way to obtain good or service G. The negociation/power game/.... of all humans concerning the goods and services that bring them utility vs. what they need to sacrifice for it, sets the market price, normally, of things. The market price is nothing else but the relative ratio's of G one can obtain for other good or service H.

Humans can make plans, and some plan to make a lot of G, in order to sell it to those desiring G, and to obtain a lot of H in place. The execution of those plans also create needs in an indirect way: production capital. Production capital derives its value from the amount of G you can make with it, even though nobody is directly in need of that production capital. As such, the utility of G is what is the "fundamental" of the derived utility of that production capital. You can now promise production capital, promise plans and all that, and package this in investment assets. Investment assets are, in principle, things that have to do with ownership and/or exploitation of future or present plans and production capital. Of course, if it concerns plans for future production of future goods and services, it is hard to predict the future. So people can have different value estimations of the real fundamental utility of plans and production capital. This is the stock market. Even though uncertainties concerning the future are what drives trading in the stock market, normally, the game is to try to be as close as possible to the "true fundamental future value" of stock. This is "rational speculation".

Of course, at a certain point, things can become very opaque, and there can be assets of which the future estimation of actual fundamentals is extremely uncertain. Then it is a gamble. You can't really know. But even in that case, that gamble is still based upon a rational expectation of, ultimately, some fundamental utility (human joy).

But there's an entirely different way in which assets can acquire value: recursive belief ! These assets can be totally devoid of any relationship to anything of economic utility, it can be that people there is a lock-in of a common belief that others will believe that this asset has value ; if it does, then it HAS value. The ONLY reason to acquire this asset, is to be able to sell it to someone else. At no point, we think that it is remotely related to anything of utility. We only think that the belief in its value will not wane.

There can be two types: one type is "same fool". You know perfectly well that the asset is worthless in itself, but you firmly believe that others believe, and will continue to believe, in the SAME value (more or less) than you are going to spend it on. Gold is of this type. Famous old paintings are of this type. It is a "store of value". This is a belief that can last for a very, very long time.

The other type is "greater fool". A pyramid game. You know that the asset is worthless, but you expect to be amongst the early birds in a mode phenomenon, where you'll find a greater fool to sell your asset for MUCH MORE than you paid for it. In order to stimulate this even more, there needs to be a megalomaniac story that it is ACTUALLY a very useful asset of some future important capital with strong fundamentals, but that only visionaries can see it. Say, the "monetary system of the future". This kind of stuff always ends in a bang.

Now, go and think: most people buying bitcoin, do they do this because there are obvious fundamentals (which are not a megalomaniac story that won't work if you think about it 5 minutes) ; do you think that most people do it to put their savings safe, without an expectation of a lot of return, just a safety against loss ; or do you think that most people bought it to sell it to much higher bidders ? What is YOUR motivation ?

Well, then you know in what category we're playing...