[Bitcoins] The Fainting Goat of Money

Xix

I'm talking about money market mutual funds not the bank's money market accounts.

Literally only a few (like 3 or 4) money market mutual funds have broken the buck in US history.

And now there are regulations in place to make this an even rarer occurrence, at the cost of a smaller yield.

They are not a "haven". When the shit goes down, the real real shit where people trade bullets and food and money is burned for warmth, the argument of what is more worthless becomes academic.

In the mean time though, a big stash of money is more feasible to manage and safer in money market funds than scattered around a bunch of banks in 250k piles. Money market funds don't have FDIC insurance, but they don't need it.

Goumindong

So now were from "a well diversified portfolio" to money market funds but not money market accounts at banks? Care to backpedal further before I explain how it's necessarily true that insure funds are more secure than non insured funds which share the same risk profile?

bowen

It's from the same line of thinking where people will tell you to stash all your emergency savings in a high risk investment account because economies don't depress very often and you usually come out ahead!

Crazy, basically.

bowen

"But it comes with it's own checkbook, that means it's just like a checking account but better!"

jmcdonald

Xix wrote: »

I'm talking about money market mutual funds not the bank's money market accounts.

Literally only a few (like 3 or 4) money market mutual funds have broken the buck in US history.

And now there are regulations in place to make this an even rarer occurrence, at the cost of a smaller yield.

They are not a "haven". When the shit goes down, the real real shit where people trade bullets and food and money is burned for warmth, the argument of what is more worthless becomes academic.

In the mean time though, a big stash of money is more feasible to manage and safer in money market funds than scattered around a bunch of banks in 250k piles. Money market funds don't have FDIC insurance, but they don't need it.

You do realize that FDIC insurance protects the depositor and not the institution correct? And that a mutual fund is a fundamentally different vehicle from any of the multitude of bank deposit accounts?

If the FDIC fails, then the major structural issue that caused that event will by default affect the commercial paper and t-bills that underly a money market fund.

There is no safe haven in that hypothetical scenario.

Like, the banks "failing" have no effect on the depositors money.

Aioua

Goumindong wrote: »

So now were from "a well diversified portfolio" to money market funds but not money market accounts at banks? Care to backpedal further before I explain how it's necessarily true that insure funds are more secure than non insured funds which share the same risk profile?

Seriously, Xix, I don't even.

Unless you believe the FDIC/NCUA is somehow going to become insolvent while mutual funds remain solvent, you're talking nonsense.

There is no place safer than a government-insured account. It's probably not very profitable, and worse-case scenario you might not be able to access your funds over a three day weekend. Yet that money is never going to disappear unless the entire Fed does.

ATIRage

The FDIC's job is simply to ensure that a bank remains solvent so that the public doesn't make a run on the bank. They do that through several measures, like covering your deposits up to 250k and taking over a bank when a community bank has failed to keep sufficient money to operate. For that system to fail the federal government would have to fail. That's not happening anytime soon.

Xix

jmcdonald wrote: »

Xix wrote: »

I'm talking about money market mutual funds not the bank's money market accounts.

Literally only a few (like 3 or 4) money market mutual funds have broken the buck in US history.

And now there are regulations in place to make this an even rarer occurrence, at the cost of a smaller yield.

They are not a "haven". When the shit goes down, the real real shit where people trade bullets and food and money is burned for warmth, the argument of what is more worthless becomes academic.

In the mean time though, a big stash of money is more feasible to manage and safer in money market funds than scattered around a bunch of banks in 250k piles. Money market funds don't have FDIC insurance, but they don't need it.

You do realize that FDIC insurance protects the depositor and not the institution correct? And that a mutual fund is a fundamentally different vehicle from any of the multitude of bank deposit accounts?

If the FDIC fails, then the major structural issue that caused that event will by default affect the commercial paper and t-bills that underly a money market fund.

There is no safe haven in that hypothetical scenario.

Like, the banks "failing" have no effect on the depositors money.

FDIC protects the depositor and makes the institution a more attractive place to put money. Would you deposit money in a bank that wasn't FDIC insured?

MMFs don't come with insurance but people use them anyway for years with success. Historically, they are safer than banks. Money that is not growing past the inflation rate is losing value every year, that's what happens in most banks. Remember FDIC doesn't protect value, only a dollar amount.

The best place to put your money varies based on circumstances. There are way too many different levels of catastrophe described in this thread to hold a consistent position.

None of this should be taken as a investment advice, consult your financial advisor to find a solution right for you.

Kipling217

ATIRage wrote: »

The FDIC's job is simply to ensure that a bank remains solvent so that the public doesn't make a run on the bank. They do that through several measures, like covering your deposits up to 250k and taking over a bank when a community bank has failed to keep sufficient money to operate. For that system to fail the federal government would have to fail. That's not happening anytime soon.

And should this scenario happen, no investment will be better then canned goods, shotgun/w shells and a can-opener(amazing how many people forget that last part).

Dollar bills will become less valuable then toilet paper. I mean have you tried wiping your ass with a dollar bill lately?

Bitcoins will have no value as they are completely virtual. Which is another way of say they are not real.

Aioua

Xix wrote: »

jmcdonald wrote: »

Xix wrote: »

I'm talking about money market mutual funds not the bank's money market accounts.

Literally only a few (like 3 or 4) money market mutual funds have broken the buck in US history.

And now there are regulations in place to make this an even rarer occurrence, at the cost of a smaller yield.

They are not a "haven". When the shit goes down, the real real shit where people trade bullets and food and money is burned for warmth, the argument of what is more worthless becomes academic.

In the mean time though, a big stash of money is more feasible to manage and safer in money market funds than scattered around a bunch of banks in 250k piles. Money market funds don't have FDIC insurance, but they don't need it.

You do realize that FDIC insurance protects the depositor and not the institution correct? And that a mutual fund is a fundamentally different vehicle from any of the multitude of bank deposit accounts?

If the FDIC fails, then the major structural issue that caused that event will by default affect the commercial paper and t-bills that underly a money market fund.

There is no safe haven in that hypothetical scenario.

Like, the banks "failing" have no effect on the depositors money.

FDIC protects the depositor and makes the institution a more attractive place to put money. Would you deposit money in a bank that wasn't FDIC insured?

MMFs don't come with insurance but people use them anyway for years with success. Historically, they are safer than banks. Money that is not growing past the inflation rate is losing value every year, that's what happens in most banks. Remember FDIC doesn't protect value, only a dollar amount.

The best place to put your money varies based on circumstances. There are way too many different levels of catastrophe described in this thread to hold a consistent position.

None of this should be taken as a investment advice, consult your financial advisor to find a solution right for you.

Okay, you're using the word "safer" in a way no one else in finance does.

Xix

If you are seriously considering hedging against total catastrophic collapse you should be investing in canned goods and supplies, not depending on FDIC or a MMF.

If your goal is to be "safer" in merely turbulent times go with an MMF. If the value of a dollar drops you need something that is protecting your money against that scenario through steady growth

Although MMF yields are kind of shitty these days due to new regulations, you'll probably need slightly more risky investment vehicles.

Dark White

Aioua wrote: »

Xix wrote: »

jmcdonald wrote: »

Xix wrote: »

I'm talking about money market mutual funds not the bank's money market accounts.

Literally only a few (like 3 or 4) money market mutual funds have broken the buck in US history.

And now there are regulations in place to make this an even rarer occurrence, at the cost of a smaller yield.

They are not a "haven". When the shit goes down, the real real shit where people trade bullets and food and money is burned for warmth, the argument of what is more worthless becomes academic.

In the mean time though, a big stash of money is more feasible to manage and safer in money market funds than scattered around a bunch of banks in 250k piles. Money market funds don't have FDIC insurance, but they don't need it.

You do realize that FDIC insurance protects the depositor and not the institution correct? And that a mutual fund is a fundamentally different vehicle from any of the multitude of bank deposit accounts?

If the FDIC fails, then the major structural issue that caused that event will by default affect the commercial paper and t-bills that underly a money market fund.

There is no safe haven in that hypothetical scenario.

Like, the banks "failing" have no effect on the depositors money.

FDIC protects the depositor and makes the institution a more attractive place to put money. Would you deposit money in a bank that wasn't FDIC insured?

MMFs don't come with insurance but people use them anyway for years with success. Historically, they are safer than banks. Money that is not growing past the inflation rate is losing value every year, that's what happens in most banks. Remember FDIC doesn't protect value, only a dollar amount.

The best place to put your money varies based on circumstances. There are way too many different levels of catastrophe described in this thread to hold a consistent position.

None of this should be taken as a investment advice, consult your financial advisor to find a solution right for you.

Okay, you're using the word "safer" in a way no one else in finance does.

You're beating him up over extremely fringe situations.

What, I believe, Xix is getting at (though I agree 'safer' is the wrong word) is that in order to meet financial goals your odds of success are higher using MMMFs than with deposits in an FDIC insured bank.

The odds of inflation eroding my value is significantly greater than the odds of Apocalypse.

ATIRage

There is an equivocation going on here that needs to be cleared up. What is "best" for investing your money depends on what you are looking for. If security is what matters insured savings accounts in an FDIC bank is a pretty good bet. On the other end, investing in volatile currency isn't. Best, from what I can gather from Xix, also means the vehicle most likely to pay money on your investment. MMF's aren't safer than a bank account in terms of security but they are statistically more likely to go up in value.

To get back on topic, bitcoins aren't secure and they are a very volatile currency, making the investment incredibly risky.

jmcdonald

Dark White wrote: »

Aioua wrote: »

Xix wrote: »

jmcdonald wrote: »

Xix wrote: »

I'm talking about money market mutual funds not the bank's money market accounts.

Literally only a few (like 3 or 4) money market mutual funds have broken the buck in US history.

And now there are regulations in place to make this an even rarer occurrence, at the cost of a smaller yield.

They are not a "haven". When the shit goes down, the real real shit where people trade bullets and food and money is burned for warmth, the argument of what is more worthless becomes academic.

In the mean time though, a big stash of money is more feasible to manage and safer in money market funds than scattered around a bunch of banks in 250k piles. Money market funds don't have FDIC insurance, but they don't need it.

You do realize that FDIC insurance protects the depositor and not the institution correct? And that a mutual fund is a fundamentally different vehicle from any of the multitude of bank deposit accounts?

If the FDIC fails, then the major structural issue that caused that event will by default affect the commercial paper and t-bills that underly a money market fund.

There is no safe haven in that hypothetical scenario.

Like, the banks "failing" have no effect on the depositors money.

FDIC protects the depositor and makes the institution a more attractive place to put money. Would you deposit money in a bank that wasn't FDIC insured?

MMFs don't come with insurance but people use them anyway for years with success. Historically, they are safer than banks. Money that is not growing past the inflation rate is losing value every year, that's what happens in most banks. Remember FDIC doesn't protect value, only a dollar amount.

The best place to put your money varies based on circumstances. There are way too many different levels of catastrophe described in this thread to hold a consistent position.

None of this should be taken as a investment advice, consult your financial advisor to find a solution right for you.

Okay, you're using the word "safer" in a way no one else in finance does.

You're beating him up over extremely fringe situations.

What, I believe, Xix is getting at (though I agree 'safer' is the wrong word) is that in order to meet financial goals your odds of success are higher using MMMFs than with deposits in an FDIC insured bank.

The odds of inflation eroding my value is significantly greater than the odds of Apocalypse.

Well sure. But that isn't what he said:

Xix wrote: »

bowen wrote: »

Sounds like he's disagreeing and the whole concept has become the play of some conspiracy theory or something.

All of a sudden the thread took the tone of "Bitcoins are okay because real dollars don't have any protections either!"

250k is not a whole lot of money to live 40 years off of in a booming economy no, but if you're in a situation where a great depression hits and you are FDIC insured for 250k, you're better off than pretty much everyone, sorry.

Your 401k is worthless.

Your investments are worthless.

Your real estate is worthless.

Chances are dollars are the only thing that is worth anything whatsoever.

Good luck getting paid that 250k though in an orderly and timely fashion.

Chances are you'll get fucked anyway when the shit goes down like that.

Your money is in fact safer in a well diversified portfolio at the right risk levels, than in a Bank which can fail completely.

bowen

And it's worth noting, your money is in fact, not safer in a well diversified portfolio. That's why they're higher risk.

It's very definition and origin makes it less safe. It's hedged better against inflation, but with that comes, again, incredible risk.

If a bank collapses, FDIC is still better. If all your investments collapse lol. It wasn't too long ago that 401ks lost nearly what... 80% of their value? Early 2000s or so, you probably noticed it most in you day to day wallet money because hey, gas was $1.80 again!

Goumindong

Xix wrote: »

FDIC protects the depositor and makes the institution a more attractive place to put money. Would you deposit money in a bank that wasn't FDIC insured?

MMFs don't come with insurance but people use them anyway for years with success. Historically, they are safer than banks. Money that is not growing past the inflation rate is losing value every year, that's what happens in most banks. Remember FDIC doesn't protect value, only a dollar amount.

The best place to put your money varies based on circumstances. There are way too many different levels of catastrophe described in this thread to hold a consistent position.

None of this should be taken as a investment advice, consult your financial advisor to find a solution right for you.

The risk profile of a MMF at a bank is exactly the same as the risk profile of a demand deposit account

There is one difference. If the bank goes tits up the then the demand deposit account does not fail, but the MMF does fail.

Additionally demand deposits are more liquid than money market funds which typically have withdraw restrictions

There are plenty of legitimate reasons for holding money in demand deposit accounts. It is in fact, an essential portion of a "Well diversified portfolio" because demand deposit accounts, unlike all other investment vehicles are both liquid and immune to systematic shocks.

There exist many many people who have so many assets (stocks, bonds, money market accounts, real estate holdings), that rainy day demand deposit accounts at the 250k cap make a lot of sense, they're the most liquid asset aside from a briefcase full of cash, they're immune to systematic shocks(and theft risk) because they're FDIC insured (in fact they're likely to have foreign currency denominated insured demand deposit accounts as well, so they can also mitigate currency risk)

Dark White

I think you're blurring the distinction between a Money Market Account and a Money Market Mutual Fund.

An MMA has the same risk profile as a demand deposit account. They're really the same vehicle, just one promises a slightly higher interest rate while restricting your liquidity somewhat. They're both FDIC insured.

A money market mutual fund is mechanically no different from a stock mutual fund with the caveats that the SEC restricts it to only investing in extremely short duration, low volatility holdings. Additionally, fund companies strive to keep the share value exactly $1.00. Most of these funds also act as sweep funds for brokerage and investment accounts, in which case they offer full liquidity.

We are currently in a historically low interest rate environment so the real return difference between a MMMF and a savings account with the bank are hard to notice. But historically, you can expect a MMMF to outpace deposit accounts with a bank. Because of this, and because of the chance of losing money (though incredibly unlikely), they have a different risk profile than a demand deposit account with a bank.

Xix

A bank not helping your money outpace inflation is losing you purchasing power year after year.

Goumindong

Xix wrote: »

A bank not helping your money outpace inflation is losing you purchasing power year after year.

Any investment which does not achieve the highest expected return is "losing you purchasing power year after year". Expected return is not the same as risk and choosing things with lower expected return in exchange for lower risk is common practice. This does not change just because the real return on an investment is below inflation (the real return on an MMA and MMMF will also tend to be below inflation). Indeed, the existence of negative real interest rate equilibrium is one of the defining factors for why "low and steady inflation" is the ideal.

Knight_

Hey, could you guys start a (god damned :P ) separate thread for your argument about money market funds vs banks? Kinda on a massive derail here.

Echo

http://www.youtube.com/watch?v=000al7ru3ms

bowen

Bitcoin never was this much fun.

bowen

http://np.reddit.com/r/Bitcoin/comments/1yg9s1/obvious_insider_trading_is_obvious/cfk81dw

bwahahahahaha

chrisnl

Man bitcoins are so great. Now I have a clear example of why government regulation of currency and the like is so necessary!

Schrodinger

chrisnl wrote: »

Man bitcoins are so great. Now I have a clear example of why government regulation of currency and the like is so necessary!

https://twitter.com/The_Pocius/status/435568115791826945

Morat242

chrisnl wrote: »

Man bitcoins are so great. Now I have a clear example of why government regulation of currency and the like is so necessary!

Man, bitcoin has failed so many times that it's actually giving us clear examples of why each individual regulation was needed. They're running through the history of currency disasters at the speed of internet.

bowen

Great academic study at least.

Kind of like the Hakkar bug in World of Warcraft was a great way to see a population's reaction to something like the spread of the swine flu.

Schrodinger

Morat242 wrote: »

chrisnl wrote: »

Man bitcoins are so great. Now I have a clear example of why government regulation of currency and the like is so necessary!

Man, bitcoin has failed so many times that it's actually giving us clear examples of why each individual regulation was needed. They're running through the history of currency disasters at the speed of internet.

It would be nice if they understood the laws of thermodynamics...

Xix

Are those physical metal bitcoins I see all the time worth anything? Are they even real or a photoshop?

jmcdonald

Xix wrote: »

Are those physical metal bitcoins I see all the time worth anything? Are they even real or a photoshop?

Don't buy bitcoins!

gavindel

Serious answer: No. Physical bitcoins aren't worth anything. They're a collectible, and have about as much value as grandmother's collection of state quarters.

Real answer: Tiddlywinks.

DevoutlyApathetic

Some of the physical bitcoins have the digital information of the bitcoin under a tamper resistant hologram. So they do represent an actual bitcoin.

You know, if you missed all the downsides of physical currency when you switched to all the downsides of a digital currency, now you can have both at once!

Aioua

gavindel wrote: »

Serious answer: No. Physical bitcoins aren't worth anything. They're a collectible, and have about as much value as grandmother's collection of state quarters.

Real answer: Tiddlywinks.

To be fair, assuming someone hasn't already peeled off the sticker and used the code, they're worth some amount of bitcoin.

Daedalus

Xix wrote: »

Are those physical metal bitcoins I see all the time worth anything? Are they even real or a photoshop?

The scrap value of aluminum is expected to rise in the near term as more automakers use it for weight reduction. So, yes.

SmallLady

Ars Technica's bias is showing.


Harvard supercomputing cluster hijacked to produce dumb cryptocurrency

chrisnl

To be fair, even proponents of Dogecoin tend to call it dumb. Also that was an extremely stupid thing to do, the penalty far outweighs the potential gain, since there is no way you are getting all 4096 cores working on one thing.

Alistair Hutton

In case anyone is wondering, the Bitcoin price to Google trends correlation is still basically 1.

Synthesis

Xix wrote: »

Are those physical metal bitcoins I see all the time worth anything? Are they even real or a photoshop?

There's also some fantastically ugly paper money if that's more your thing.

Goumindong

The supreme irony of physical BTC is that because it has to contain the wallet info on it the act of verifying the BTC negates its trade value (as now no one can trust that the value in the wallet is the value of the BTC.

Aioua

Goumindong wrote: »

The supreme irony of physical BTC is that because it has to contain the wallet info on it the act of verifying the BTC negates its trade value (as now no one can trust that the value in the wallet is the value of the BTC.

Yeah, they're more of a check made out to "cash" than they are an analog to actual cash.