Bitcoin value and small probability /​ high impact arguments

I had a rather fun de­bate with peo­ple from the always cyn­i­cal r/​buttcoin red­dit com­mu­nity, dis­cussing my es­ti­ma­tion of the ex­pected value of Bit­coin in the fu­ture, which was pred­i­cated on what I es­ti­mated as a 5% prob­a­bil­ity that it will dis­place part of gold due to its su­pe­rior prop­er­ties in the store-of-value realm:


Note that I am cer­tainly not a Bit­coin max­i­mal­ist or ide­ologue; I’ve be­come quite a bit more skep­ti­cal lately and am ac­tu­ally much closer to the “cur­rency meh, blockchain cool” per­spec­tive that is be­com­ing pretty main­stream in the parts of the broader IT and fi­nance com­mu­nity that I’ve spent the most time in­ter­act­ing with. Here I ended up ar­tic­u­lat­ing and defend­ing a po­si­tion I ac­tu­ally dis­agree with in any rea­son­able sense of the term “dis­agree”; the de­bate is en­tirely on whether the prob­a­bil­ity of the po­si­tion be­ing cor­rect is 5% (my view) or 0.0000000005% (what seems like their view).

I’d like to ask this com­mu­nity, to what ex­tent are my po­si­tion and my ar­gu­ments cor­rect? I’m in­ter­ested first in a few ob­ject-level is­sues:

1. Gold is a Ve­blen good both in its store-of-value and its aes­thetic use cases. If gold was not rare, peo­ple would not care about it for jew­ellery pur­poses, as plenty of other forms of jew­ellery ex­ist with a bet­ter aes­thet­ics-to-cost ra­tio. Gold’s pre­mium over other pretty things is purely a re­sult of sta­tus/​pres­tige con­sid­er­a­tions. Hence, the “floor” to which gold could fall due to a sim­ple equil­ibrium flip is very low (per­haps $50 from in­dus­trial use). So Bit­coin’s lack of a “fun­da­men­tal use value” floor is not a se­ri­ous dis­ad­van­tage of Bit­coin against gold.

2. A $100 price floor is 90% as bad as a $0 floor. To see why, note that you can make the cus­tom as­set of { 9 parts BTC, 1 part oil } which has a pretty iden­ti­cal ra­tio of cur­rent price to price-floor-from-fun­da­men­tal-use-value.

3. The prob­a­bil­ities of the var­i­ous events re­quired for BTC to re­ceive this sta­tus are roughly within an or­der of mag­ni­tude of the 5% mark.

4. There is a long-term risk to black swan sup­ply in­creases in gold due to any of { space min­ing, nan­otech-en­abled ul­tra­cheap earth min­ing, nu­clear trans­mu­ta­tion }; this does not ex­ist for BTC

And also par­tic­u­larly in one very im­por­tant meta-level is­sue: is my ex­pected-value es­ti­ma­tion (10% of gold mar­ket cap = $700b = $34000 per BTC * 0.05 chance = $1700 per BTC EV; the fact that the BTC price prob­a­bil­ity dis­tri­bu­tion is a power law and not a square in­creases this in prac­tice but I do not count that in or­der to give my­self a safety fac­tor) a good way of mak­ing es­ti­mates in these kinds of sce­nar­ios? Many com­menters ar­gued that 5% is far too high, and offered the jus­tifi­ca­tion that I was putting BTC in a much more priv­ileged refer­ence class than would be ra­tio­nal, and so I offered some counter-ar­gu­ments for why it de­served a priv­ileged po­si­tion from an out­side view in a much more sig­nifi­cant way than Ran­dom Joe walk­ing up to you say­ing “in­vest $10000 in my com­pany! Look at the $700b mar­ket and if I only get as lit­tle as 1% you’ll be rich!” would not (namely, be­cause there are a mil­lion en­tities at least as salient as Ran­dom Joe in the world mak­ing similar claims, Ran­dom Joe would de­serve a prior of at most 1/​1000000, whereas BTC’s refer­ence class is much smaller).

Is my gen­eral line of rea­son­ing cor­rect here, and is the style of rea­son­ing a good style in the gen­eral case? I am aware that Eliezer raises points against “small prob­a­bil­ity mul­ti­plied by high im­pact” rea­son­ing, but the fact is that a ra­tio­nal agent has to have a be­lief about the prob­a­bil­ity of any event, and in­ac­tion is it­self a form of ac­tion that could be costly due to miss­ing out on ev­ery­thing; priv­ileg­ing in­ac­tion is a good heuris­tic but only a mod­er­ately strong one. Is “take the in­verse of the size of the best-fit­ting refer­ence class” a de­cent way of get­ting a first-or­der ap­prox­i­ma­tion? If not, why not? If yes, what are some heuris­tics for op­ti­miz­ing it?

In other news, I dis­cov­ered an­other (pos­si­bly already known, but I have not seen it be­fore) ar­gu­ment against com­ply­ing with Pas­cal’s mug­ger: there is a strong eco­nomic ar­gu­ment that co­op­er­at­ing with mug­gings is anti-util­i­tar­ian be­cause it in­cen­tivizes the per­pe­tra­tor to com­mit more of them, and in those wor­lds where some­one ac­tu­ally can tor­ture 3^^^3 peo­ple for fun they will likely be able and will­ing to do it again, so my co­op­er­a­tion may end up lead­ing to the tor­ture of more than 3^^^3 peo­ple from the re­sult of fu­ture mug­gings car­ried out by the now-en­couraged per­pe­tra­tor; there­fore since I don’t even know the sign of the EV of the re­sult it’s bet­ter not to co­op­er­ate. Be­cause this dou­ble-sid­ed­ness prop­erty is also one of the stan­dard knock­downs against Pas­cal’s Wager (“for ev­ery god G who would put you into heaven for wor­ship­ping him, there ex­ists a god G’ who would put you in hell for wor­ship­ping G, so why priv­ilege G over G’?”), I am start­ing to think that it might form the ba­sis of a more fun­da­men­tal case against wa­gers/​mug­gings of that class. Is this a good line of rea­son­ing, or am I tread­ing too dan­ger­ously close to how Roth­bar­dians some­times defend de­on­tolog­i­cal liber­tar­i­anism by try­ing to take ev­ery in­di­vi­d­ual knock­down sce­nario that op­po­nents provide and find­ing some pedan­tic non-cen­tral fea­ture that in­val­i­dates that par­tic­u­lar ex­am­ple?

My think­ing is that if dou­ble-sid­ed­ness is the cor­rect knock­down to Pas­calian sce­nar­ios, then the stan­dard prej­u­dice against low-prob­a­bil­ity/​high-im­pact sce­nar­ios would ap­ply less here be­cause there very clearly is only the up­side and not the down­side (BTC can­not be worth less than $0).