Author Topic: Is it too late [bitcoin]?  (Read 77513 times)

maizeman

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Re: Is it too late [bitcoin]?
« Reply #600 on: January 04, 2018, 01:00:09 PM »
The truth of the matter is that almost all of these alt-coins only have trade pairs in Bitcoin or possibly Ethereum. As has been shown time and time again, whenever Bitcoin goes down by a significant amount, all the other alt-coins do as well because panic ensues that if Bitcoin vanished, then your exit from your alt-coin position would vanish as well. So if your main concern is that Bitcoin won't be around in 5 years, then how would diversifying from Bitcoin into other alt-coins help hedge that? Until this situation changes, diversifying in other crypto-currencies makes no sense.

Well it really depends on why a particular person is thinking bitcoin may have reduced value or disappear entirely in five years.

If they take the position that cryptocurrencies are a solution in search of a problem, and one day people will wake up and realize the ones and zeros they bought aren't actually worth anything, then yes, if bitcoin vanishes, the ability to convert most altcoins to dollars vanishes at the same time. <-- the "bitcoin is a ponzi scheme" argument

If they take the position that cryptocurrencies address real needs and are going to be with us for the foreseeable future, but that bitcoin's present position as the most highly valued/widely traded currency is a result of first mover advantage and network effects which can be overcome by other currencies with different (potentially better designs), then if bitcoin vanishes, it will be because its role has been replaced by some other cryptocurrency, and to the ability to convert between altcoins and dollars wouldn't be effected. <-- the "bitcoin is myspace" argument.

The people who argue bitcoin-is-a-ponzi scheme probably aren't any more excited about any other cryptocurrencies, so most of the people who think bitcoin might not be a going concern in 5 years but are interested in buying other cryptocurrencies probably fall into bitcoin-is-myspace camp.

lifeanon269

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Re: Is it too late [bitcoin]?
« Reply #601 on: January 04, 2018, 01:06:40 PM »
It will become increasingly harder and harder for larger marketcaps to make increases, but the newer, promising crypto should have larger returns in the same timesets.

Also, other trading-pairs have emerged and are on the rise. Btc's position and reliance as a trading pair is decreasing, especially when coinbase/gdax starts offering more crypto and more exchanges start offering different trading-pairs.

I mentioned in the other crypto thread how market cap doesn't mean anything and I'll state it again here. Market cap means nothing in the crypto space. That is especially true with crypto-currencies that are pre-mined. I can create a cryptocurrency with 1 trillion tokens and sell one for $1 and suddenly the market cap for my cryptocurrency is $1 trillion. Pre-mined currencies are essentially printed money.

The reason why they're going up in price so quickly has nothing to do with market cap size and everything to do with the fact that there is absolutely no liquidity in these markets. It only takes a few thousand/million dollars to move the prices of these currencies massive percentages in price. If you look at the 30 day volume trend for any of these alt-coins over the last 30 days, you'll see that 30 days ago they likely had non-existent trading volume.

I agree there are a few instances where trading pairs are opening up in USD for other alt-coins, but again, liquidity matters. These trading pairs are still low volume and not common. If you expect those few trading pairs to pick up the slack in the event of a bitcoin crash, you're being naive.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #602 on: January 04, 2018, 01:12:54 PM »
I rightly deserved Sol's criticism for my position. When I make recommendations to other people, I try to consider the highest degree to which I can persuade them to make a move that will be beneficial. If I think owning no Bitcoin is the best, then I think owning less bitcoin is better than the current state. the sell 4% immediately suggestion seems like it should be a no-brainer even for someone who is quite bullish.

One other factor to consider is transaction costs/friction. The "if you wouldn't buy it sell it" logic works best when transactions are easy and low cost, for example with stock positions one purchased before deciding to switch over to index investing. As we've seen, people who have cryptocurrency for some reason other than recently purchasing it on an exchange (for example seattlecyclone's experience trying to sell their ripple) often don't have a straightforward way to convert it to US dollars,** and the costs of setting up a way to cash out their positions* may exceed the value of their current cryptocurrency holdings.

I still have a bit of bitcoin although I wouldn't buy bitcoin, and the primary reason I haven't sold it is that for exactly the reasoning above.

*Time spent learning how to use exchanges, time spent finding and filling paperwork to get properly authorized accounts at exchanges which is generally more onerous for people pulling USD out than people putting USD in, the risk that now an awful lot of their personal information is held at an exchange and they are at risk of being swept up in things like the recent attempt by the IRS to subpoena the identities and financial information of everyone with a coinbase account as potential tax cheats.

**People who wish to do a celebratory dance about how the preceding phrase proves cryptocurrencies are not really currencies can feel free to do so at this point. I disagree, but here's a nice GIF you can use.

sol

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Re: Is it too late [bitcoin]?
« Reply #603 on: January 04, 2018, 01:20:07 PM »
This is where risk analysis comes into play, and crypto enthusiasts need to understand what they are buying, what has fundamentals, what has strongest chance to survive crashes, how to decrease risk, etc.

I'm pretty sure all of this techno-speak about cryptocurrencies is going to sound pretty ridiculous in a year or two.  Imagine making these same arguments about tulip bulbs and you'll get some idea of why I think so.  Fundamentals?  Risk mitigation of diversification?  Underlying technologies?  Um, none of that actually exists in any relevant way.

We're taking about a runaway market bubble in theoretical abstractions.  Price is totally decoupled from anything you might call a fundamental.  The only way to make money here is for someone else to lose money.  We're speculating on future demand, for something with no known use, so the only demand out there is driven by the growing demand.  It's the classic definition of a bubble, only made more obvious by the lack of any underlying value stream.  At least tulip bulbs could be used to make your garden prettier.
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lifeanon269

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Re: Is it too late [bitcoin]?
« Reply #604 on: January 04, 2018, 02:05:18 PM »
the "bitcoin is myspace" argument.

I just wanted to clarify my position a little deeper on why diversifying with alt-coins doesn't make much sense at the moment.

The entire point of diversifying is to reduce risk. But, if you take the market position where your funds are diversified equally across a variety of crypto-currencies, then you've increased your risk in the short-term because of the fact that the liquidity in the diversified portion is either negligible or is directly dependent upon another currency that you're supposedly diversifying from (Bitcoin).

What I wasn't saying was that that will always be the case. Maybe 10 years from now another currency overtakes Bitcoin and has massive liquidity in every trading pair imaginable. Even knowing that in the long term doesn't reduce the risk of the marketplace reality in the short term.

Anyone is free to put money into any alt-coin they please, but don't do it because you feel you're diversifying and reducing risk. What you're really doing is taking on short-term risk in hopes of long term fortune...another name for that is gambling.

shadow

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Re: Is it too late [bitcoin]?
« Reply #605 on: January 04, 2018, 03:18:55 PM »

I'm pretty sure all of this techno-speak about cryptocurrencies is going to sound pretty ridiculous in a year or two.  Imagine making these same arguments about tulip bulbs and you'll get some idea of why I think so.  Fundamentals?  Risk mitigation of diversification?  Underlying technologies?  Um, none of that actually exists in any relevant way.

We're taking about a runaway market bubble in theoretical abstractions.  Price is totally decoupled from anything you might call a fundamental.  The only way to make money here is for someone else to lose money.  We're speculating on future demand, for something with no known use, so the only demand out there is driven by the growing demand.  It's the classic definition of a bubble, only made more obvious by the lack of any underlying value stream.  At least tulip bulbs could be used to make your garden prettier.

I never made any arguments against why we're not in a bubble. My statements have referenced the entire market crashing.

Right now, there are over a thousand crypto. Most will probably fail. However, some of the crypto that people are speculating on have the premise of solving problems like financial coordination, remittance, providing financial services to those without banking access or credit system, reducing cost of financial transactions, etc; and all this done on an underlying decentralized tech. All these transactions will have fees, which are rewarded to stakers. These types of crypto, created to address social problems, have a strong probability of being around one or two years from now. The current working model of decentralization is that it needs costs and incentives for distributed entities to agree on a valid transaction; the speculation is on the number of transactions and fees paid to crypto stakers. Regardless of market cap valuation, the fees will be paid dependent on network traffic. The expectation is that people will use blockchain because, for various reasons, it improves some aspect of their lives.





     

shadow

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Re: Is it too late [bitcoin]?
« Reply #606 on: January 04, 2018, 03:23:47 PM »
the "bitcoin is myspace" argument.

I just wanted to clarify my position a little deeper on why diversifying with alt-coins doesn't make much sense at the moment.

The entire point of diversifying is to reduce risk. But, if you take the market position where your funds are diversified equally across a variety of crypto-currencies, then you've increased your risk in the short-term because of the fact that the liquidity in the diversified portion is either negligible or is directly dependent upon another currency that you're supposedly diversifying from (Bitcoin).

What I wasn't saying was that that will always be the case. Maybe 10 years from now another currency overtakes Bitcoin and has massive liquidity in every trading pair imaginable. Even knowing that in the long term doesn't reduce the risk of the marketplace reality in the short term.

Anyone is free to put money into any alt-coin they please, but don't do it because you feel you're diversifying and reducing risk. What you're really doing is taking on short-term risk in hopes of long term fortune...another name for that is gambling.

I'm aware of how volume, liquidity, and marketcap works. You're taking my generalization and narrowing it into a specific narrative about market liquidity.

Also, the assumption you're making is that btc is responsible for how the entire crypto will perform, when it could very well be these crypto outperform btc or eats into its market share.

sol

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Re: Is it too late [bitcoin]?
« Reply #607 on: January 04, 2018, 03:31:54 PM »
some of the crypto that people are speculating on have the premise of solving problems like financial coordination, remittance, providing financial services to those without banking access or credit system, reducing cost of financial transactions, etc; and all this done on an underlying decentralized tech. All these transactions will have fees, which are rewarded to stakers. These types of crypto, created to address social problems, have a strong probability of being around one or two years from now.

These hypothetical applications of blockchain will never work until the associated currency is stable.  Like if the US government were to issue a coin worth one dollar, and offer to always buy one or sell one for one dollar, then it could be used for money transfers.  But when the price fluctuates 25% in a matter of hours, the currency is pretty useless for this purpose.

And just to put a finer point on it, it is the speculators who are driving the price fluctuations, and thus preventing the widespread adoption of a coin.  Cryptocurencies are doomed as long as everyone continues to speculate in cryptocurrencies.
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shadow

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Re: Is it too late [bitcoin]?
« Reply #608 on: January 04, 2018, 03:55:13 PM »

These hypothetical applications of blockchain will never work until the associated currency is stable.  Like if the US government were to issue a coin worth one dollar, and offer to always buy one or sell one for one dollar, then it could be used for money transfers.  But when the price fluctuates 25% in a matter of hours, the currency is pretty useless for this purpose.

And just to put a finer point on it, it is the speculators who are driving the price fluctuations, and thus preventing the widespread adoption of a coin.  Cryptocurencies are doomed as long as everyone continues to speculate in cryptocurrencies.

What if the crypto is not used as a medium-of-exchange? What if the blockchain allows anyone to transact in their token or currency of choice? What if banks or governments start to issue a crypto version of their currency on top of these blockchains? What if the crypto is not merely a currency, but represents a unit of accounting particular to a service?

Most of the questions have already been redressed, and banks like mitsubishi are conducting blockchain experiments:

https://news.bitcoin.com/mitsubishi-testing-cryptocurrency/


sol

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Re: Is it too late [bitcoin]?
« Reply #609 on: January 04, 2018, 05:26:39 PM »
What if banks or governments start to issue a crypto version of their currency on top of these blockchains?

This one is the only valid use case I can possibly see.  Basically, the blockchain becomes the serial number of a specific dollar bill.  It just has to be worth exactly one dollar, at all times, for this to work.
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lifeanon269

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Re: Is it too late [bitcoin]?
« Reply #610 on: January 04, 2018, 05:48:09 PM »
I'm aware of how volume, liquidity, and marketcap works. You're taking my generalization and narrowing it into a specific narrative about market liquidity.

Also, the assumption you're making is that btc is responsible for how the entire crypto will perform, when it could very well be these crypto outperform btc or eats into its market share.

Apologies, my intention wasn't to imply that you didn't know how markets worked, but merely to explain my personal opinion and take on the current state of the markets and why diversifying into other alts doesn't reduce your short term risk.

I also am not implying that there aren't some amazing crypto-currencies out there beyond bitcoin that have viable use-cases. Decentralized storage solutions are of particular interest to me as I think there is a great need for something like that to compete against their centralized alternatives (especially considering the recent CPU vulnerabilities).

So my opinion against diversifying isn't an argument against alt-coins or their legitimacy in particular, but more an argument with regards to the current state of the markets and their immaturity that makes reducing risk via diversification rather pointless until that changes.


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maizeman

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Re: Is it too late [bitcoin]?
« Reply #612 on: January 05, 2018, 03:17:45 PM »
https://www.cnbc.com/2018/01/05/visa-bans-cryptocurrency-backed-cards.html

Doh!

Indeed, that is not good news. I will be interested to hear their reasoning (if they ever release a public statement beyond "we're not doing this anymore"). Lifeanon, was the card you use impacted by this?

runbikerun

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Re: Is it too late [bitcoin]?
« Reply #613 on: January 05, 2018, 03:35:42 PM »
And yet Bitcoin spent the day going up. It's almost as though its price is unrelated to the real world...

sol

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Re: Is it too late [bitcoin]?
« Reply #614 on: January 05, 2018, 03:42:04 PM »
Or is related to the amount of media coverage it gets, positive or negative.
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lifeanon269

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Re: Is it too late [bitcoin]?
« Reply #615 on: January 05, 2018, 06:02:48 PM »
Indeed, that is not good news. I will be interested to hear their reasoning (if they ever release a public statement beyond "we're not doing this anymore"). Lifeanon, was the card you use impacted by this?

No, the headline is extremely click-baity. VISA is not banning crypto-backed credit cards. They shutdown one single issuer (Wavecrest) that a lot of crypto-currency payment providers happened to use in Europe for not being compliant and violating license agreements. It does not impact any US residents and the bitcoin debit card I use (Shift card) is still completely functional as are many others. That's pretty crappy of VISA to at least not give customers a 30 day notice though as I'm sure it left a lot of people high and dry. Or perhaps the blame is on Wavecrest if VISA gave them plenty of time to become complaint (which could certainly be true).

Either way, if anything this goes to show why a permission-less payment network is desperately needed.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #616 on: January 05, 2018, 06:04:25 PM »
That does put a different spin on it, thanks!

L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #617 on: January 06, 2018, 11:29:38 AM »
https://www.cnbc.com/2018/01/05/visa-bans-cryptocurrency-backed-cards.html

Doh!

Indeed, that is not good news. I will be interested to hear their reasoning (if they ever release a public statement beyond "we're not doing this anymore"). Lifeanon, was the card you use impacted by this?

Why is this "not good news"?

I agree that it is a strike against mainstream adoption of cryptos.  But, perhaps that is as it should be. 

I think it is a totally appropriate response given that cryptos are fake money currently held aloft by popular delusion.


maizeman

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Re: Is it too late [bitcoin]?
« Reply #618 on: January 06, 2018, 12:09:24 PM »
Why is this "not good news"?

I agree that it is a strike against mainstream adoption of cryptos.  But, perhaps that is as it should be. 

I think it is a totally appropriate response given that cryptos are fake money currently held aloft by popular delusion.

Doesn't this start to get a little circular?

One of the oft repeated arguments on this thread is that cryptocurrencies aren't real money because you cannot buy things with them.

It sounds like your view is that people shouldn't be allowed to buy things with cryptocurrencies because they aren't real money.

Note that neither of those positions have much to do with the price of cryptocurrency, or the people currently trying to buy them up as a get rich quick scheme.  But anyway, yes, if we start with the assumption that people being able to spend cryptocurrencies is bad, then visa cutting off this payment processor is good news rather than bad news.

PDXTabs

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Re: Is it too late [bitcoin]?
« Reply #619 on: January 06, 2018, 12:16:13 PM »
L.A.S.,

Would you be okay with silver backed debit cards?

WhiteTrashCash

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Re: Is it too late [bitcoin]?
« Reply #620 on: January 06, 2018, 12:16:40 PM »
What I really want to know is if it's too late to invest in MMM's fingernail clippings. I'm worried that I missed my chance with that.

L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #621 on: January 06, 2018, 12:20:03 PM »
Why is this "not good news"?

I agree that it is a strike against mainstream adoption of cryptos.  But, perhaps that is as it should be. 

I think it is a totally appropriate response given that cryptos are fake money currently held aloft by popular delusion.

Doesn't this start to get a little circular?

One of the oft repeated arguments on this thread is that cryptocurrencies aren't real money because you cannot buy things with them.

It sounds like your view is that people shouldn't be allowed to buy things with cryptocurrencies because they aren't real money.

Note that neither of those positions have much to do with the price of cryptocurrency, or the people currently trying to buy them up as a get rich quick scheme.  But anyway, yes, if we start with the assumption that people being able to spend cryptocurrencies is bad, then visa cutting off this payment processor is good news rather than bad news.

Nope, its not circular at all.

When one buys things in local currency with a Visa -- even a crypto linked Visa -- they are not buying anything with a crypto.  They are buying things with Visa.  Visa is using their local currency to credit the merchant according to their contract relationship with the merchant and the merchant allows a person to walk off with the goods. 




L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #622 on: January 06, 2018, 12:25:16 PM »
L.A.S.,

Would you be okay with silver backed debit cards?


No, silver is to volatile and has a lot of the same problems as gold when it comes to use as a currency. 

Note: if you are trying to drag in another thread I started about silver.... Ain't gonna work.  That was a thread I started because I was curious about what people thought about it as an asset class for investing purposes.  I don't believe I was suggesting it should be used to replace fiat currency. 

maizeman

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Re: Is it too late [bitcoin]?
« Reply #623 on: January 06, 2018, 12:33:44 PM »
Yes, but you are saying that it's a good thing that people not be able to purchase things in a local currency (say USD) with a visa card when their payment to their credit card provider is settled in bitcoin.

I presume you're okay with people being able to purchase things in a local currency with a visa card when their payment to their provider is settled in a non-local currency (say Euros)?

If so, then the difference between the two scenarios is that you're saying cryptocurrencies are fake money, and euros are real money, and we're back to the circularity issue of cryptocurrencies being fake money because you cannot spend them, and you shouldn't be able to spend them because they're fake money.

If I'm wrong and you're instead saying you don't think I should be allowed to buy things in USD with a visa card if I'm paying my bill in euros, then I guess all I can say is that I don't really understand the basis for that position at all, but I'd be curious to hear your reasoning.

L.A.S.,

Would you be okay with silver backed debit cards?
No, silver is to volatile and has a lot of the same problems as gold when it comes to use as a currency. 

Maybe we should clarify whether we're talking about what people should be allowed to do, and what actually makes business sense to do. I certainly wouldn't want to start a company issuing visa cards that let people buy things in USD and settle their bills to be in either silver or bitcoin (or Turkish Lira for that matter, sorry Turkey). The volatility is such that I imagine sooner or later I'd lose my shirt. But if someone else wants to run that risk, I don't see any societal reason we shouldn't allow them to do so.

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Re: Is it too late [bitcoin]?
« Reply #624 on: January 06, 2018, 01:02:02 PM »
L.A.S.,

Would you be okay with silver backed debit cards?


No, silver is to volatile and has a lot of the same problems as gold when it comes to use as a currency. 

Note: if you are trying to drag in another thread I started about silver.... Ain't gonna work.  That was a thread I started because I was curious about what people thought about it as an asset class for investing purposes.  I don't believe I was suggesting it should be used to replace fiat currency.

Sure, but you are basically arguing against liquidity in an asset class that you hold. You are fine with me buying and selling silver, but you aren't fine with me making it easier for others to buy and sell silver? Isn't more liquidity always better for almost anyone in an asset class? I would certainly rather invest in a more, rather than less liquid asset.

PS - Obviously, silver != BTC != cryptocurrency, but for the sake of commodity backed VISAs, they all seem the same to me. If I want a corn futures backed VISA, who are you to stop me?

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Re: Is it too late [bitcoin]?
« Reply #625 on: January 06, 2018, 01:12:36 PM »
This is where risk analysis comes into play, and crypto enthusiasts need to understand what they are buying, what has fundamentals, what has strongest chance to survive crashes, how to decrease risk, etc.

I'm pretty sure all of this techno-speak about cryptocurrencies is going to sound pretty ridiculous in a year or two.  Imagine making these same arguments about tulip bulbs and you'll get some idea of why I think so.  Fundamentals?  Risk mitigation of diversification?  Underlying technologies?  Um, none of that actually exists in any relevant way.

We're taking about a runaway market bubble in theoretical abstractions.  Price is totally decoupled from anything you might call a fundamental.  The only way to make money here is for someone else to lose money.  We're speculating on future demand, for something with no known use, so the only demand out there is driven by the growing demand.  It's the classic definition of a bubble, only made more obvious by the lack of any underlying value stream.  At least tulip bulbs could be used to make your garden prettier.

I don't care about bitcoin, but I wonder about this reasoning as applied to investing in the market in general.  We know that people tend to buy high and sell low, and more "irrational" people will pile into the market as they see the price peaking.

So why should we trust the stock market and congratulate ourselves on not worrying about irrational highs (see top is in thread), but in the bitcoin world we can "clearly" see that the market is overvalued and pride ourselves on staying out?

Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?

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Re: Is it too late [bitcoin]?
« Reply #626 on: January 06, 2018, 01:28:04 PM »

These hypothetical applications of blockchain will never work until the associated currency is stable.  Like if the US government were to issue a coin worth one dollar, and offer to always buy one or sell one for one dollar, then it could be used for money transfers.  But when the price fluctuates 25% in a matter of hours, the currency is pretty useless for this purpose.

And just to put a finer point on it, it is the speculators who are driving the price fluctuations, and thus preventing the widespread adoption of a coin.  Cryptocurencies are doomed as long as everyone continues to speculate in cryptocurrencies.

What if the crypto is not used as a medium-of-exchange? What if the blockchain allows anyone to transact in their token or currency of choice? What if banks or governments start to issue a crypto version of their currency on top of these blockchains? What if the crypto is not merely a currency, but represents a unit of accounting particular to a service?

Most of the questions have already been redressed, and banks like mitsubishi are conducting blockchain experiments:

https://news.bitcoin.com/mitsubishi-testing-cryptocurrency/
So why do I need a cryptocoin when I can have IBM implement a blockchain for my needs?

https://www.ibm.com/blockchain/use-cases/
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shadow

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Re: Is it too late [bitcoin]?
« Reply #627 on: January 06, 2018, 11:15:02 PM »
So why do I need a cryptocoin when I can have IBM implement a blockchain for my needs?

https://www.ibm.com/blockchain/use-cases/

The original concept of a blockchain is a peer-to-peer permissionless, public network without reliance on intermediaries. Ibm's version of a blockchain is a private, permissioned network where the identities of all participants are known. They use a membership consensus model so they don't need a cryptocurrency to reach agreement and validate transactions. Their use-cases are geared towards businesses, offering or developing custom permissioned blockchains for financial services, vehicle registration and other government services, supply chain management, dispute resolution, healthcare, etc. Different from a public, permissionless blockchain where entities and transactions can be obfuscated, ibm offers "provenance"; every transaction of a blockchain can be observed; each step of the process, the entities and processes being conducted are known. These members serve as intermediaries and they control the rules of the network.

A public, permissionless blockchain offers more flexibility and includes other use-cases that is potentially more cost-effective to transact, such as direct consumer-to-business transactions, or business-to-business that don't require their own custom blockchains. Anyone can use them and newer participants can join without having to invest infrastructure cost and with less barriers.

Ibm's private, permissioned blockchain has a different intention and use-case from a public, permissionless blockchain. If they're able to address all your needs, there's no reason not to use them.


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Re: Is it too late [bitcoin]?
« Reply #628 on: January 07, 2018, 05:48:10 AM »
I don't care about bitcoin, but I wonder about this reasoning as applied to investing in the market in general.  We know that people tend to buy high and sell low, and more "irrational" people will pile into the market as they see the price peaking.

So why should we trust the stock market and congratulate ourselves on not worrying about irrational highs (see top is in thread), but in the bitcoin world we can "clearly" see that the market is overvalued and pride ourselves on staying out?

Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?

Different markets. The stock market is made up of professionals, many with advanced degrees and certifications, all trying to outsmart each other. The best of the best are determining prices. Yes, we have still had bubbles. Yes, we have still had periods where the prices seem overvalued. You can read endless research papers arguing that prices are too high or too low. There will be news articles tomorrow on financial websites arguing the price is too high and others arguing it is too low. All of that back and forth is what makes the stock market efficient. It isn't perfect, people can still make impulsive decisions. Also, at the end of the day stocks have intrinsic value. They are worth something to the owner even if they can't sell it.


Bitcoin's price isn't determined by professionals who have been debating with each other going back decades. It's determined solely on speculation. I'd wager the vast majority of the people trading it have no idea what they are trading. The only people I've heard make educated arguments for it are in this thread. Bitcoin's value if no one wants to buy it from you equals zero. There is no intrinsic value from holding onto it. IMO people are trading worthless pieces of code as if they are worth something. The whole market is completely irrational.

sol

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Re: Is it too late [bitcoin]?
« Reply #629 on: January 07, 2018, 07:57:36 AM »
Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?

Of course it does.  I'm also smarter than my local craigslist market, but not the global stock market.  Know your competition.
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ChpBstrd

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Re: Is it too late [bitcoin]?
« Reply #630 on: January 07, 2018, 09:32:16 PM »
I don't care about bitcoin, but I wonder about this reasoning as applied to investing in the market in general.  We know that people tend to buy high and sell low, and more "irrational" people will pile into the market as they see the price peaking.

So why should we trust the stock market and congratulate ourselves on not worrying about irrational highs (see top is in thread), but in the bitcoin world we can "clearly" see that the market is overvalued and pride ourselves on staying out?

Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?
This is a very smart point.

How do we know cryptocurrencies didn't actually increase in value/utility by thousands of percent in the past year or so? Market prices might simply reflect that change, right? The fact that it went up fast doesn't mean it didn't deserve to go up fast. For example, a company that puts in a couple quarters of 100% revenue gains, or locks in exclusive rights to a lucrative market like drug companies or commodities producers do, might see its stock skyrocket. We would observe these circumstances and say efficient markets were at work. Hence the crypto-thusiasts explaining to the naysayers that they just don't get the underlying rationale.

You can count me among the crypto-naysayers, but I do cringe a bit when past stock returns are used to extrapolate future portfolio performance or justify an AA. That is just as irrational as the people investing their life savings in cryptocurrencies because it's already gone up 5,000% and they just want the next 20%.

I've argued with folks who have the "never sell your stocks" perspective by asking them if there could ever be a price so outrageously high that they'd sell out. E.g. If the S&P rises 200% next year and P/Es were at like 100 would you sell? The response is often "that could never happen, markets are too efficient" but crypto-mania, like the dot-com mania before it, proves that defense false. It could happen. People are willing to chase past returns to the moon. If you don't have a plan to get out at a certain over-valuation, you'll be the one to lose at musical chairs.

To be clear, with stocks you are buying the expectation of owning future cash flows. Companies that quickly grew their cash flows in the past are expected to offer bigger cash flows in the future because they are doing something right. Oftentimes this assessment is correct. Bets on fast-rising but expensive companies like Microsoft, Intel, Facebook, Google, Apple, etc. have paid off handsomely. New investors look at the growing streams of cash flow and find a rational reason to buy shares from the old investors. The supply of investors interested in purchasing cash flows has always been vast.

With cryptocurrencies, you are buying the expectation that other people will pay you more for your coins than you paid, for whatever reason. Cryptocurrencies that have skyrocketed in the past couple years are expected to attract ever more speculators because speculators chase performance. However, since cryptocurrencies produce no cash flows, this game must end at the point when the supply of new speculators dries up. In theory, when "x" coin becomes the new standard world currency or whatever, demand will increase and each coin will be worth millions of dollars. This theory closely mirrors the rationale of goldbugs ("when the US dollar finally collapses, the price of gold is USD will skyrocket").

Both the goldbugs and the cryptothusiasts are betting on a specific scenario playing out that would make them comparatively wealthier. Stock investors are simply betting, for example, that the company's factories will continue producing X tons of product next year, which will be sold for about Y at a profit of about Z. Stocks, because they are priced based on expected cash flows, have a built in pressure release. If prices get too high, alternative sources of cash flow such as bonds become more attractive, which usually, but not always, pushes the price of stocks down. Greater-fool theory investing has no such pressure release, except in the case of gold the consumption of jewelry might be elastic with the price.




Cycling Stache

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Re: Is it too late [bitcoin]?
« Reply #631 on: January 08, 2018, 12:57:30 PM »
Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?

Of course it does.  I'm also smarter than my local craigslist market, but not the global stock market.  Know your competition.

This is a facile response.  I expect better.

What is your information advantage with respect to the crypto market?  What do you know that makes you smarter than the market?

Who exactly are the irrational people buying up cryptos enough to drive the market price?  Do you know who the market is?  Surely, you've got something better than I heard from my uncle that his friend bought $20 worth kind of analysis.

I have all my money in VTSAX and the I fund (international index).  I believe those are smart investments.  But I don't know what 80% of the companies are, what they do, how they make money, or what their competitive advantage is.  I'm guessing you don't either.  And yet we take pride in making those investments automatically and regularly because we're "not smarter than the market."

So what do we know that the crypto market does not?  What is our information advantage?  It doesn't bother you when Bob at the sandwich shop buys stocks because he heard that just hit an all-time high, but it does when you read an article about someone buying crypto?  Of course, the increase in perceived crypto value seems ridiculous, but is it that much more ridiculous than the 30-40% increase in the stock market we've seen since Trump was elected, especially considering that the SP500 futures were down like 5% on election night when it looked like Trump might win?

Again, I don't have any crypto investments and I'm solidly MMM-certified with my all index fund portfolio (although I did pay off my house), but I think it's a fair question worth considering why we think we're smarter than some markets when one of the fundamental tenants of this board is that, generally, we (and everyone else) is not smarter than the market.

To be clear, I'm not looking for a rehash of the arguments against crypto.  I'm asking what our informational advantage is with respect to the crypto market that does not also apply to the stock market.

sol

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Re: Is it too late [bitcoin]?
« Reply #632 on: January 08, 2018, 01:14:38 PM »
sol will be totally offline for most of June 2018.  You cannot reach me.  You will not hear from me.  I am not dead, just away from civilization.

waltworks

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Re: Is it too late [bitcoin]?
« Reply #633 on: January 08, 2018, 01:23:36 PM »
I think it's because there's an inherent difference between things with inherent value (ownership of a company or bond or commodity, or even a beanie baby) and things that have no inherent value and only a theoretical use right now.

I mean, dollars have a use case, are widely accepted and established, backed by the most powerful nation/military on earth - and I don't want them either! I only want enough to use to buy and sell things. Otherwise, I want to own stuff that has inherent value.

You can certainly overpay for a stock, and any given stock can go to zero. If you buy the whole market, though, you aren't worried about that because the entire market going to zero would probably coincide with some incredible catastrophe. Crypto currencies could drop to zero and a bunch of people would be angry - but the fallout would be pretty limited otherwise. So while I don't care about the possibility of VTSAX dropping to nothing when I make investment decisions, it's a huge concern if I'm going to buy crypto (or stock in a single company).

Stocks and bonds also have a long history. Crypto has essentially none. At some point there will probably be companies doing work with crypto and doing it well, and THOSE would be worth investing in, just like you can invest in a big banking corporation or a payment processor or any other financial firm.

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Cycling Stache

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Re: Is it too late [bitcoin]?
« Reply #634 on: January 08, 2018, 01:39:13 PM »
This is a facile response.

Yay!

I think we may have just had a Princess Bride moment.  I don't think that means what you think it means.

I think it's because there's an inherent difference between things with inherent value (ownership of a company or bond or commodity, or even a beanie baby) and things that have no inherent value and only a theoretical use right now.

I mean, dollars have a use case, are widely accepted and established, backed by the most powerful nation/military on earth - and I don't want them either! I only want enough to use to buy and sell things. Otherwise, I want to own stuff that has inherent value.

Again, I'd like to focus on what our informational advantage is, not what the pros and cons might be.  You might not hold dollars or gold (which arguably could work like crypto currency), but you would expect to receive whatever the market value is for them.  You don't pay $10,000 for an apple because dollars don't have inherent value.  You (probably) don't scoff at people who hold gold as 10% of their portfolio because there is some history to support it as a reasonable allocation, even though gold has no inherent value.

So why do we not mock the people who buy gold as 5-10% of their portfolio (even if we don't own it)?  Is it just because there's a history to support the valuation?  If so, then that's just one factor in setting the price, not a reason that it's really worthless.

I don't own crypto and I don't plan on owning crypto.  But there's a certain smugness of tone in the dismissive nature of a lot of these posts that caused me to wonder how good our analysis really is and why we think we know better than the market.  It mirrors almost exactly the dismissiveness in the "Top Is In" thread (and in which I've shared), but there celebrating that we're not smarter than the market.
« Last Edit: January 08, 2018, 01:43:40 PM by Cycling Stache »

runbikerun

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Re: Is it too late [bitcoin]?
« Reply #635 on: January 08, 2018, 02:00:06 PM »
I think there's a very big difference between "I'm not smarter than the market" and "I can beat the market". We index not because we believe the first, but because we believe the second.

An iced tea company trebled its stock price overnight by changing its name to include the word Blockchain and making vague noises about moving into blockchain tech. Am I smarter than the morons who bought at treble the company's earlier share price? Quite possibly. Can I beat the market? No.

There are plenty of things I'm happy to say I think the market has wrong. Uber is a catastrophic money bonfire that loses a billion dollars a year and collects lawsuits like Eddy Merckx collected victories, and it's valued at nearly fifty billion dollars. I'm pretty sure that's a disaster in the making and that it's going to collapse completely, but I'm not going to try to make money off that because I remember the most important rule: the market can remain irrational longer than I can remain solvent.


sol

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Re: Is it too late [bitcoin]?
« Reply #636 on: January 08, 2018, 02:01:46 PM »
This is a facile response.

Yay!

I think we may have just had a Princess Bride moment.  I don't think that means what you think it means.

Nay!
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waltworks

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Re: Is it too late [bitcoin]?
« Reply #637 on: January 08, 2018, 02:15:36 PM »
Again, I'd like to focus on what our informational advantage is, not what the pros and cons might be.  You might not hold dollars or gold (which arguably could work like crypto currency), but you would expect to receive whatever the market value is for them.  You don't pay $10,000 for an apple because dollars don't have inherent value.  You (probably) don't scoff at people who hold gold as 10% of their portfolio because there is some history to support it as a reasonable allocation, even though gold has no inherent value.

So why do we not mock the people who buy gold as 5-10% of their portfolio (even if we don't own it)?  Is it just because there's a history to support the valuation?  If so, then that's just one factor in setting the price, not a reason that it's really worthless.

I don't own crypto and I don't plan on owning crypto.  But there's a certain smugness of tone in the dismissive nature of a lot of these posts that caused me to wonder how good our analysis really is and why we think we know better than the market.  It mirrors almost exactly the dismissiveness in the "Top Is In" thread (and in which I've shared), but there celebrating that we're not smarter than the market.

I'd happily pay $10k for an apple if that was the going price for apples (and such hyperinflation had also increased the value of my holdings commensurately). Dollars are just tokens. Who cares about dollars? If I need a hammer, I care about having a hammer. I don't stockpile any more than I plan to use. If bitcoins, or whatever, become widely used for exchange, then I'll happily use those if they work better than dollars - and I'll still hold onto as few as possible.

My point is this: it's doesn't require a special information advantage to say that MMM's newly created market for fingernail clippings is crazy, and that nobody should buy said clippings. The existence of a "market" for something doesn't inherently mean anything about whether putting money in is worthwhile.

We are judging the whole *universe* of crypto as (currently) inherently useless and valueless. We have lots of evidence that the "currencies" aren't being used as such in any meaningful way, and that lots of low-information people are buying the tokens not because they understand or plan to *use* the tokens, but because they want to sell them for more money later.

There's lots of history on these kinds of speculative manias. It's not hard to make that call.

-W

Cycling Stache

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Re: Is it too late [bitcoin]?
« Reply #638 on: January 08, 2018, 03:26:44 PM »
My point is this: it's doesn't require a special information advantage to say that MMM's newly created market for fingernail clippings is crazy, and that nobody should buy said clippings. The existence of a "market" for something doesn't inherently mean anything about whether putting money in is worthwhile.

VTSAX owns stock in 3,606 companies.  Do you know what the 2,800th biggest company is?  Do you know what they do?  Do you know what use there is for that company?  I couldn't even find a list of all the companies in VTSAX.  But I own stock in that 2,800th biggest company, and you probably do too. 

Why?  Because enough money has gone into the market for that company's shares to set a price for them, and you trust that market price even though you have no idea what that company is, what it does, or why it should be valued at whatever price it is. 

If bitcoin was traded by 12 people, each putting in $10, I'd agree with you.  That's an insufficient market.  But you haven't offered any evidence that bitcoin is currently an insufficient market.  Just that you don't think bitcoin makes sense.

So what is the difference in your analysis between bitcoin and the 2,800th biggest company in VTSAX?  That we have independently worked out that the bitcoin market got it all wrong, but that the market for the 2,800th biggest company in VTSAX is just right even though we know nothing about its business or anything else about it?

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Re: Is it too late [bitcoin]?
« Reply #639 on: January 08, 2018, 03:46:58 PM »
My point is this: it's doesn't require a special information advantage to say that MMM's newly created market for fingernail clippings is crazy, and that nobody should buy said clippings. The existence of a "market" for something doesn't inherently mean anything about whether putting money in is worthwhile.

VTSAX owns stock in 3,606 companies.  Do you know what the 2,800th biggest company is?  Do you know what they do?  Do you know what use there is for that company?  I couldn't even find a list of all the companies in VTSAX.  But I own stock in that 2,800th biggest company, and you probably do too. 

Why?  Because enough money has gone into the market for that company's shares to set a price for them, and you trust that market price even though you have no idea what that company is, what it does, or why it should be valued at whatever price it is. 

If bitcoin was traded by 12 people, each putting in $10, I'd agree with you.  That's an insufficient market.  But you haven't offered any evidence that bitcoin is currently an insufficient market.  Just that you don't think bitcoin makes sense.

So what is the difference in your analysis between bitcoin and the 2,800th biggest company in VTSAX?  That we have independently worked out that the bitcoin market got it all wrong, but that the market for the 2,800th biggest company in VTSAX is just right even though we know nothing about its business or anything else about it?

The 2800th biggest company in VTSAX is either making an actual profit or is expected to at some point.  Bitcoin makes nothing.  There is no profit and never will be. 

waltworks

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Re: Is it too late [bitcoin]?
« Reply #640 on: January 08, 2018, 04:25:57 PM »
My point is this: it's doesn't require a special information advantage to say that MMM's newly created market for fingernail clippings is crazy, and that nobody should buy said clippings. The existence of a "market" for something doesn't inherently mean anything about whether putting money in is worthwhile.

VTSAX owns stock in 3,606 companies.  Do you know what the 2,800th biggest company is?  Do you know what they do?  Do you know what use there is for that company?  I couldn't even find a list of all the companies in VTSAX.  But I own stock in that 2,800th biggest company, and you probably do too. 

Why?  Because enough money has gone into the market for that company's shares to set a price for them, and you trust that market price even though you have no idea what that company is, what it does, or why it should be valued at whatever price it is. 

You need to explain why this doesn't apply to the 90's Beanie Baby "market", or the Dutch tulip "market".  Would you invest in those, on the theory that you're not smarter than the "market"?

VTSAX (or the global world of stocks generally) has a HUGE diversity of companies, most of which are profitable, listing their shares under government (SEC) oversight. They can't lie/cheat/steal from their shareholders (usually) without severe consequences. It's *many* orders of magnitude larger than the BTC market, and it is connected to basically everything every human on earth does daily. Knowing what the 2800th largest company does is irrelevant unless you're trying to pick individual stocks. There's a long, long history to look at when deciding to invest (or not).

Moreover, there's tons of statistical evidence to show us that it's almost impossible to beat the stock market. It might be that in some number of years the same is true of the crypto world, but as of right now, it's certainly not.

They're not even vaguely comparable.

-W

maizeman

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Re: Is it too late [bitcoin]?
« Reply #641 on: January 08, 2018, 04:44:48 PM »
Well this gets a bit into the natural of probability.

Let's say that there is a 1% chance that an apple might be worth $1M on February 1st. That would give it an expected value of $10,000 today ($1M * 0.01). Even if that were that case, I wouldn't be running around trying to snap up apples for six or seven thousand dollars, because I'm comfortable with my FIRE plan and don't feel the need to indulge super high risk investments where I'm not sure if the expected value is more or less than the current asking price.

Now let's say on February 2nd, the sun comes up, and apples are still worth what they've always been ($0.30-$1 or roughly $1-$3/lb). Does that make people who decided they were willing to make the extremely high risk gamble and pay $5k for an apple because it had an expected value of $10k irrational? As long as they realized it was an extremely high risk gamble, no, I would argue it doesn't necessarily make them irrational.

I think I am not smarter than the crypocurrency market to the extent that, while I have absolutely no desire to buy into it as a high stakes lottery ticket where I have no way of confidently knowing if the expected value is more or less than the current selling price, I also wouldn't want to be in the position having shorted the market (which is what a lot of folks are trying to figure out how to do over in the "how to profit off of the bubble" thread). I would even argue it is much easier for mostly intelligent rational people to get burned on investments where 99% of the time you make a modest profit and 1% of the time* you lose your shirt (shorting cypto) than the opposite (buying crypto which in an ideal world everyone would understand is an extremely high risk gamble).

I also would not have felt comfortable short selling tulips or beanie babies without the benefit of future knowledge.

*I'm using one percent because it's simple to type. Please feel free to substitute any probability between 10% and 0.0000000000000001% depending on your own assessments of the probability a given crypocurrency actually becomes widely used as a payment network.

Indexer

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Re: Is it too late [bitcoin]?
« Reply #642 on: January 08, 2018, 05:08:08 PM »
Quote
VTSAX owns stock in 3,606 companies.  Do you know what the 2,800th biggest company is?  Do you know what they do?  Do you know what use there is for that company?  I couldn't even find a list of all the companies in VTSAX.  But I own stock in that 2,800th biggest company, and you probably do too. 

For starters I agree with everything waltworks and dougules have said. Comparing bitcoin to the 2800th largest doesn't make any sense.

That said, the holdings of VTSAX are available online. The 2800th largest holding as of 11/30/2017 was Universal Stainless & Alloy Products Inc(USAP). Their market cap is 159 million. Here is a link to their annual report: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_USAP_2016.pdf

That company has assets, 2016 revenues were 154 million, and it's been around since 1994. That company could fail. Luckily, it's lumped together with over 3600 different stocks.

Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.

Yes, I can say a market trading something with zero intrinsic value is irrational, and I'm not going to participate in that market.

phil22

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Re: Is it too late [bitcoin]?
« Reply #643 on: January 08, 2018, 05:34:07 PM »
Quote
VTSAX owns stock in 3,606 companies.  Do you know what the 2,800th biggest company is?  Do you know what they do?  Do you know what use there is for that company?  I couldn't even find a list of all the companies in VTSAX.  But I own stock in that 2,800th biggest company, and you probably do too. 

For starters I agree with everything waltworks and dougules have said. Comparing bitcoin to the 2800th largest doesn't make any sense.

That said, the holdings of VTSAX are available online. The 2800th largest holding as of 11/30/2017 was Universal Stainless & Alloy Products Inc(USAP). Their market cap is 159 million. Here is a link to their annual report: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_USAP_2016.pdf

That company has assets, 2016 revenues were 154 million, and it's been around since 1994. That company could fail. Luckily, it's lumped together with over 3600 different stocks.

Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.

Yes, I can say a market trading something with zero intrinsic value is irrational, and I'm not going to participate in that market.

there are thousands if not millions of cryptocurrencies that actually are just code.  you haven't heard of 99.99% of them, nobody uses them or cares about them, and therefore they are worthless.

bitcoin is not just code.  there are millions of bitcoin users and owners around the world, and the most powerful network of computers ever assembled running 24/7 keeping bitcoin transactions running and keeping them secure.  it's a global community of people with a shared belief physically doing things to keep bitcoin running.

you may not agree with them or think bitcoin is going to 0 quicker than they do, and that's fine, but bitcoin is not just code.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #644 on: January 08, 2018, 06:00:58 PM »
We started out with the interesting question of whether cryptocurrency prices are subject to the efficient market hypothesis. Somehow this degenerated into the rehashed to death argument over whether or not cryptocurrencies are stocks. Bitcoin is not a stock. Monero is not a stock. PizzaCoin is not a stock. However, this observation doesn't help us get at the answer to the original question, because stocks are not the only things which have efficient markets.

Currency exchange rates (which is what bitcoin and other crypocurrencies are trying to be) are subject to the efficient market hypothesis. Modern currencies have no intrinsic value. They provide no direct return. The fact that currency exchange rates are governed by efficient markets does not mean that there is an economic argument for you to buy a cap weighted index funds of the world's biggest currencies. Yet despite all of those statements, still the markets are efficient.

Now maybe you reject the idea that bitcoin is a currency. The next best analogy still isn't a stock, it's a commodity. This is a less perfect analogy, since most (though I'm not sure all) commodities do have some intrinsic value/use. Still porkbelly markets are subject to the efficient market hypothesis. Frozen orange juice futures are subject to the efficient market hypothesis. If I saw that the price of porkbellies had gone up 1,600% in one year, I'd be shocked. But I won't go out and short sell porkbellies.

A good test for whether or not markets are efficient is to ask the question "Is there a risk free way to make free money?" If the answer is yes, the market is inefficient (but if you take advantage of that opportunity you'll bring it closer to efficiency). If the answer is no, you've failed to disprove the hypothesis that the market is inefficient. And repeatedly failing to disprove a hypothesis is the closest anyone can come to proving something.

Now let's say you think the bitcoin market isn't efficient and the price of a bitcoin today is a lot higher than the "real" expected value of a bitcoin. There's a wonderful mechanism in place to take advantage of that fact. The rational response to being absolutely sure that bitcoin prices are above their real expected value is to go out and sell bitcoin futures, get paid about what people are willing to pay for the coin today, and then when the price crashes, given them back a worthless string of ones and zeros. If you and enough people like you come to the same conclusion, and are willing to sell enough futures at low enough prices, eventually the price will drop to whatever the "real" value of a bitcoin is, even if that value is zero and the market will have become efficient. Markets are fun like that.

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Re: Is it too late [bitcoin]?
« Reply #645 on: January 08, 2018, 06:31:45 PM »
We started out with the interesting question of whether cryptocurrency prices are subject to the efficient market hypothesis. Somehow this degenerated into the rehashed to death argument over whether or not cryptocurrencies are stocks. Bitcoin is not a stock. Monero is not a stock. PizzaCoin is not a stock. However, this observation doesn't help us get at the answer to the original question, because stocks are not the only things which have efficient markets.

Currency exchange rates (which is what bitcoin and other crypocurrencies are trying to be) are subject to the efficient market hypothesis. Modern currencies have no intrinsic value. They provide no direct return. The fact that currency exchange rates are governed by efficient markets does not mean that there is an economic argument for you to buy a cap weighted index funds of the world's biggest currencies. Yet despite all of those statements, still the markets are efficient.

Now maybe you reject the idea that bitcoin is a currency. The next best analogy still isn't a stock, it's a commodity. This is a less perfect analogy, since most (though I'm not sure all) commodities do have some intrinsic value/use. Still porkbelly markets are subject to the efficient market hypothesis. Frozen orange juice futures are subject to the efficient market hypothesis. If I saw that the price of porkbellies had gone up 1,600% in one year, I'd be shocked. But I won't go out and short sell porkbellies.

A good test for whether or not markets are efficient is to ask the question "Is there a risk free way to make free money?" If the answer is yes, the market is inefficient (but if you take advantage of that opportunity you'll bring it closer to efficiency). If the answer is no, you've failed to disprove the hypothesis that the market is inefficient. And repeatedly failing to disprove a hypothesis is the closest anyone can come to proving something.

Now let's say you think the bitcoin market isn't efficient and the price of a bitcoin today is a lot higher than the "real" expected value of a bitcoin. There's a wonderful mechanism in place to take advantage of that fact. The rational response to being absolutely sure that bitcoin prices are above their real expected value is to go out and sell bitcoin futures, get paid about what people are willing to pay for the coin today, and then when the price crashes, given them back a worthless string of ones and zeros. If you and enough people like you come to the same conclusion, and are willing to sell enough futures at low enough prices, eventually the price will drop to whatever the "real" value of a bitcoin is, even if that value is zero and the market will have become efficient. Markets are fun like that.

Everything on earth is subject to supply and demand...

I think the question is: are peoples' perceptions of the marginal utility of cryptos rational?

Fiat currency although having no required physical properties still has marginal utility because they can be used to satisfy tax and private debts which if left unsatisfied would result in confiscation of real property and chattels.  And fiat currency is used as a medium of exchange to buy goods and services in jurisdictions where the government backs it as currency and administers it.  So there's that. 

Cryptos on the other hand have no real, legitimate marginal utility.  There is really nothing legitimate that can't be done with fiat currencies and which requires a crypto.  Having one unit of crypto leaves a person really no better off than having none.  However, people perceive it to have marginal utility.  And so this is creating temporary, delusional demand -- just like with tulip bulbs and .com stocks.  Supply will always meet demand at the price.  Perhaps these individuals of delusional demand believe they can sell the cryptos later for more money to a dumber fool, and they will derive utility that way.  Or they believe that one day business will be transacted in their chosen crypto and they will be able to buy goods and services using it later.  Or they derive the warm fuzzies from running with the herd, who is also buying cryptos.  Or there is a social esteem benefit from being able to show off ones skills as a crypto "investor."  Or perhaps they want to buy something illegal, or need or want to pay someone who is forbidden from using the traditional, legal banking system.  With the exception of the last utility, none of these are real.  And I don't know why on earth we want to facilitate people to buying illegal things or doing business with criminal enterprises, terrorists, and rogue nations.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #646 on: January 08, 2018, 06:38:04 PM »
We started out with the interesting question of whether cryptocurrency prices are subject to the efficient market hypothesis. Somehow this degenerated into the rehashed to death argument over whether or not cryptocurrencies are stocks. Bitcoin is not a stock. Monero is not a stock. PizzaCoin is not a stock. However, this observation doesn't help us get at the answer to the original question, because stocks are not the only things which have efficient markets.

I think the question is: are peoples' perceptions of the marginal utility of cryptos rational?


No, that's a different question from the one we were talking about.

lifeanon269

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Re: Is it too late [bitcoin]?
« Reply #647 on: January 08, 2018, 06:57:03 PM »
VTSAX owns stock in 3,606 companies.  Do you know what the 2,800th biggest company is?  Do you know what they do?  Do you know what use there is for that company?  I couldn't even find a list of all the companies in VTSAX.  But I own stock in that 2,800th biggest company, and you probably do too. 

Thank you Cycling Stache. You've made some excellent points. You bring up a lot of good counter points to those that espouse the benefits of index stock investing while condemning investing of any kind into crypto-currencies.

Earlier in another post I mentioned that it isn't a bad idea to put just 1% of your portfolio into bitcoin since, for the most part, it is a non-correlated asset. I am a big advocate of index investing, but while I suggested a 1% allocation for Bitcoin, it was criticized by those who say that index investing is the only viable investment choice.

It is often the argument, that being profit driven businesses, they provide dividends and grow as a business becoming more valuable in the future. The criticism against Bitcoin is that it has no "intrinsic" value (which I disagree with) and does not generate revenue of any kind. However, businesses only generate profit if the business that they are in is a demanded business. If a business does not generate profit, then there are no dividends given to investors. Furthermore, obviously not every business succeeds. Given a lack of demand for a company's product, the company can decline dramatically, go bankrupt, etc. Many companies have come and gone within the S&P 500 index. Everyone that promotes index investing has no idea of the actual valuations, earnings, future productivity, competition, debt, assets, etc of all of the companies within the index.

If the critique against Bitcoin is the fact that it isn't a revenue generating company, and the main path promoted for investing in revenue generating companies is to do so through index investing, then to take that logic further, one must be willing to advocate for investing in railroads, luxury goods, retail, software, airlines, publishing, insurance, aerospace, apparel, semiconductors, banking, restaurants, and all manner of markets that exist within the index. Much of these markets themselves have no "intrinsic" value to the human race as well. If you can't make a case for investing in the future of each one of those markets individually, then the argument for indexing becomes less about the fact that you're investing in revenue producing companies in those markets and more about the fact that you're divesifying your investment across a large number of those markets such that your exposure to each one is limited.

So if you can't make the case for specifically investing in the future of railroads or any other individual market that exists in the S&P 500, but you do advocate for investing in it at a miniscule amount (say 1% or less), then how can one criticize the choice to put 1% in a crypto-currency? As I said, this isn't about the revenue producing aspects of a company as, absent profits, there are no dividends for investors. It then comes down to whether or not you feel that the future railroads market has a brighter future than the Bitcoin market. Insert whatever S&P 500 market you'd like in for railroads and I'm sure you could come across something that you don't fully understand or something that would likely have a questionable future. Yet, buy index investing, you're buying into that. Combine this with the fact that you could potentially be investing in some very questionable markets during times where their valuations are extremely high, and you'd probably find yourself some very risky investments being made (albeit at small percentages <1%) within your index. Yet we're OK with that simply because of the fact that it only makes up a small percentage of our portfolio.

The point about not being smarter than the market or not trying to beat the market simply comes from the diversification that indexing provides. It isn't that indexing provides us deep insight to the stock market that allows us to feel like expert investors.

So again, promoting investing into potentially declining markets through indexing (even though diversified) allows one to criticize someone who chooses to invest an equally diversified portion of their portfolio (1% or less) into cryptocurrencies? The Bitcoin market is larger than most S&P 500 companies. If we can't individually make the case for investing directly into each and every one of the companies within the S&P 500 index, then how can you make the case for or against investing in a market the size of Bitcoin, especially if you don't fully understand that market? The argument seems pretty arbitrary otherwise as to what we're OK with investing via an index.

Personally, I know more about the crypto-currency market and the technologies within it than I do about any given market that exists within the S&P 500 index. I am a big proponent of index investing, but I allow myself to extend my diversification beyond what the S&P 500 index provides because of how closely I follow what is going on in the Bitcoin space and the fact that I actively participate in the technology of it. Bitcoin may not replace fiat currencies in our lifetime, but I believe that there is a large enough following and large enough demand for it that it will not go to $0 any time soon. Much to the same extent that open-source Linux is not a common desktop choice for every day users in their home, there is still a large enough niche market for it to continue to exist and evolve for personal desktops.

Cycling Stache, I know this is one step further than the argument you're making, but I thought I'd add in and go a little bit further with the points you were making. Good discussion none-the-less.

L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #648 on: January 08, 2018, 06:58:06 PM »
We started out with the interesting question of whether cryptocurrency prices are subject to the efficient market hypothesis. Somehow this degenerated into the rehashed to death argument over whether or not cryptocurrencies are stocks. Bitcoin is not a stock. Monero is not a stock. PizzaCoin is not a stock. However, this observation doesn't help us get at the answer to the original question, because stocks are not the only things which have efficient markets.

I think the question is: are peoples' perceptions of the marginal utility of cryptos rational?


No, that's a different question from the one we were talking about.

Please explain why, then.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #649 on: January 08, 2018, 07:22:51 PM »
You can have efficient markets for items with no intrinsic value.

You can have non-efficient markets for items with intrinsic value.

So whether or not something has intrinsic value doesn't tell you whether the market for it is efficient, and whether or not the market for something is efficient doesn't tell you whether or not it has intrinsic value.