Author Topic: Is it too late [bitcoin]?  (Read 35278 times)

maizeman

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Re: Is it too late [bitcoin]?
« Reply #700 on: January 11, 2018, 11:19:10 AM »
I mean, a way that DOESN'T involve a libertarian screed about how governments are evil and you'll be glad you have a global currency when your government inevitably collapses. We've all heard that line before and while it's fun thought experiment in the US, in China that attitude gets your bitcoin mining operation nationalized while you "commit suicide in prison".

@Gondolin, have I at any point posted anything that resembles a libertarian screed about how governments are evil?

I'd be happy to discuss your other questions if you like, but not if you're going to insult me by ascribing positions to me that I have never asserted.

Gondolin

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Re: Is it too late [bitcoin]?
« Reply #701 on: January 11, 2018, 11:35:20 AM »
Oh no no, not you specifically! You've never said anything like that.

I just meant that I've not seen an answer to the contradiction I mentioned above that didn't involve condemnation of government as a given. When I said, "we've all heard..." I meant generally, people following these discussions have heard that line of argument.

I'm sorry. I'll edit my original post - I was thinking to myself while typing and can see that I was not being coherent.
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maizeman

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Re: Is it too late [bitcoin]?
« Reply #702 on: January 11, 2018, 11:49:21 AM »
Oh gotcha, thanks for the clarification Gondolin! I to try to maintain a rational discussion, so it was quite upsetting to think I might be coming across like that.

You mentioned that there were lots of currencies in the 19th century. Now they we've moved away from that model, what makes you think governments (especially repressive ones) will be willing to go back?
I think most governments would prefer all transactions occur in currencies they issue. The question is how much work is it to prevent people from using other media of exchange vs how big is the benefit from doing so. At one extreme, I'm sure the IRS would prefer that people refrain from barter, and technically I believe you're supposed to report barter income on your taxes. But the amount of repression it would take to track and/or eliminate every last barter transaction in the country is a lot more work (and would use up a lot more political capital) than the benefits to the government of doing so.

Similarly, while there are things governments can do to discourage people from using cryptocurrencies, at this point I think it would be difficult to eliminate their use entirely, particularly in ineffective repressive regimes like Venezuela.

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At this time the primary argument for cryptocurrency I've seen is that you can dodge governments and transact anonymously. However, for mass adoption, crypto would need to become as regulated as fait (if not more so).
The other primary argument is that you can dodge using credit card processors or paypal when paying people when you're not in the same room as them. Until recently that meant saving money (and it may again if some of the 2nd or 3rd iteration cryptocurrencies live up to their current promises, but we'll have to wait and see). It also means not being constrained for legal transactions where it is difficult to secure the business of a payment processor (either because of terms of use which are more stringent than "nothing illegal") or because you're in a business with high levels of chargeback fraud (which is a quick way to get blacklisted from credit card processors).

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So crypto is the future because it's not like fait but, to be widely adopted, it has to become like fait, which removes the impetus for its adoption. Is there a way out of this contradiction?

Well it depends on whether you're excited about the potential of cryptocurrency to replace gold  -- I'm not, but then I wasn't excited about gold itself either -- to to replace credit card payment processors.

For me, the exciting part of cryptocurrencies isn't their use as a store of value -- maybe that'll come someday if actual payment volumes go up enough for volatility to go down -- but as a medium of exchange that lets me pay someone anywhere in the world without us having to rely on a mutually trusted 3rd party, who will take a significant cut of our transaction, may take several days to give the money to that other person after I give it to them, and can always decide that they don't approve of why I'm sending a payment, even if the reason for that payment is completely legal.

None of the above is an argument to buy cryptocurrencies as an investment.

shadow

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Re: Is it too late [bitcoin]?
« Reply #703 on: January 11, 2018, 11:57:09 AM »

However, for mass adoption, crypto would need to become as regulated as fait (if not more so).

So crypto is the future because it's not like fait but, to be widely adopted, it has to become like fait, which removes the impetus for its adoption. Is there a way out of this contradiction?


Can you elaborate on this premise? And why the assumption there is a contradiction?

KTG

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Re: Is it too late [bitcoin]?
« Reply #704 on: January 11, 2018, 01:24:34 PM »
Wow so much selling off today. Ripple down 40%!!! God can you imagine if that was a stock that you owned?!?!

Or the $100 bill in your pocket was now worth $60 today?

This is madness. I don't care about the technology, or the fact that it could bounce back tomorrow. This is insane. Anything related to money should not be this volatile unless there are real economic meltdowns going down.

Anyone who might have *sold* something yesterday and was paid in Ripple, has to be like WTF. Then again, not a lot you can buy with Ripple anyway.

I cannot understand how supporters of this nonsense can still think these are worthwhile investments or alternatives to $$$. Unless you are in Venezuela or North Korea.

Telecaster

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Re: Is it too late [bitcoin]?
« Reply #705 on: January 11, 2018, 01:45:11 PM »
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The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat.

This is the crux of the issue for me. How is the creation of a non-government backed currency not a fundamental attack on the very definition of a nation state? Governments have been trying to regulate the economy and tax transaction since the first coins were minted. Is there any chance that the powerful governments of the world just shrug their shoulders at the loss of such a core part of their sovereignty?

Currently the technology is ahead of the law but, as soon as the wished-for adoption of any crypto starts to happen, that crypto will be globally criminalized in an instant.


Unlikely.  Here's why:  By law, in the US taxes AND wages must be paid in USD. 

Optimiser

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Re: Is it too late [bitcoin]?
« Reply #706 on: January 11, 2018, 02:54:52 PM »
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The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat.

This is the crux of the issue for me. How is the creation of a non-government backed currency not a fundamental attack on the very definition of a nation state? Governments have been trying to regulate the economy and tax transaction since the first coins were minted. Is there any chance that the powerful governments of the world just shrug their shoulders at the loss of such a core part of their sovereignty?

Currently the technology is ahead of the law but, as soon as the wished-for adoption of any crypto starts to happen, that crypto will be globally criminalized in an instant.


Unlikely.  Here's why:  By law, in the US taxes AND wages must be paid in USD.

I'm not saying you're wrong. Just posting a related article.

https://www.coindesk.com/arizona-lawmakers-want-let-people-pay-taxes-bitcoin/

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According to the text, the measure would allow for the use of "a payment gateway, such as bitcoin or other cryptocurrency, using peer-to-peer systems" in order to pay "tax and any interest and penalties" owed to the state government.

The bill goes on to state:

"The Department [of Revenue] shall convert cryptocurrency payments to United States dollars at the prevailing rate within twenty-four hours after receipt and shall credit the taxpayer's account with the converted dollar amount."

Whether the measure gains traction in the Arizona legislature remains to be seen. A similar effort was undertaken in New Hampshire in 2016, but concerns expressed by some state lawmakers Ė primarily around bitcoin's volatile price Ė ultimately led to the bill being scuttled.
« Last Edit: January 11, 2018, 03:55:13 PM by Optimiser »

thenextguy

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Re: Is it too late [bitcoin]?
« Reply #707 on: January 11, 2018, 03:18:09 PM »
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The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat.

This is the crux of the issue for me. How is the creation of a non-government backed currency not a fundamental attack on the very definition of a nation state? Governments have been trying to regulate the economy and tax transaction since the first coins were minted. Is there any chance that the powerful governments of the world just shrug their shoulders at the loss of such a core part of their sovereignty?

Currently the technology is ahead of the law but, as soon as the wished-for adoption of any crypto starts to happen, that crypto will be globally criminalized in an instant.


Unlikely.  Here's why:  By law, in the US taxes AND wages must be paid in USD.

I'm not saying your wrong. Just posting a related article.

https://www.coindesk.com/arizona-lawmakers-want-let-people-pay-taxes-bitcoin/

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According to the text, the measure would allow for the use of "a payment gateway, such as bitcoin or other cryptocurrency, using peer-to-peer systems" in order to pay "tax and any interest and penalties" owed to the state government.

The bill goes on to state:

"The Department [of Revenue] shall convert cryptocurrency payments to United States dollars at the prevailing rate within twenty-four hours after receipt and shall credit the taxpayer's account with the converted dollar amount."

Whether the measure gains traction in the Arizona legislature remains to be seen. A similar effort was undertaken in New Hampshire in 2016, but concerns expressed by some state lawmakers Ė primarily around bitcoin's volatile price Ė ultimately led to the bill being scuttled.

It's worth noting this is for Arizona state taxes. There may be different regulations for federal taxes.

But still, very interesting!

phil22

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Re: Is it too late [bitcoin]?
« Reply #708 on: January 11, 2018, 05:26:23 PM »
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I don't see how a currency not issued by a particular government is an attack on a nation's sovereignty. ....

All good points and I think sovereignty was the wrong word to use.

You mentioned that there were lots of currencies in the 19th century. Now they we've moved away from that model, what makes you think governments (especially repressive ones) will be willing to go back?

At this time the primary argument for cryptocurrency I've seen is that you can dodge governments and transact anonymously. However, for mass adoption, crypto would need to become as regulated as fait (if not more so).

governments may not "enjoy" having currencies they don't control, but there's nothing they can do aside from making those currencies illegal and going after the participants.  but that hasn't stopped the pirate bay or drugs or human trafficking or whatever else.  governments don't have ultimate control and many governments are corrupt and perhaps even profit from enabling all kinds of "illegal" activities -- cryptocurrencies would be no different.

So crypto is the future because it's not like fait but, to be widely adopted, it has to become like fait, which removes the impetus for its adoption. Is there a way out of this contradiction?

I mean, we've all heard the argument that a way that governments are evil and you'll be glad you have a global currency when your government inevitably collapses but, the source of such declarations are usually less than credible.

if a government of a country (Japan may be closest currently, or perhaps North Korea or Venezuela or somewhere) does allow bitcoin to be used as a national currency, i don't think that would make bitcoin "like fiat" in any way.  the "rules" governing the currency itself would still be set by the consensus of the global bitcoin community, not by that government.  i don't see a contradiction there.

runbikerun

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Re: Is it too late [bitcoin]?
« Reply #709 on: January 12, 2018, 02:08:13 AM »
I've seen variations on both on this form and elsewhere of an argument that can be summarised as "even if crypto is in a bubble right now, putting my money in a crypto index means I'll hold the winning currency when it all shakes out, and my profits will easily cover my losses on the others".

I happen to think this is a very poor argument already, because there's no guarantee that any rise will follow on from a crash, no matter how many times people compare the current situation to 1999 dot-com valuations. But that comparison has me thinking: if you had followed a broadly similar approach in 1999, assuming the winners would cover the losers, would you have done well?

In a word: no. In two words: fuck no. Going back in time and investing in a basket of dot-com stocks would be a catastrophic money bonfire for years to come.

Let's leave off the losers entirely: the likes of boo.com, which simply burned down. Let's assume our internet index investor was lucky enough only to invest in companies which still exist.

Their stake in AOL Time Warner has never recovered from the crash: it remains well below its peak price. Every dollar put into it is about a 35 cent drag on the rest of the portfolio.

Their Microsoft stake was conservative, and passed its 2000-peak valuation in...late 2016. Factor in inflation, and it's joining AOL in the "bust" column.

Our investor's stake in Amazon and Apple was smart, but looked pretty dumb until 2005 for Apple and 2009 for Amazon, when each stock finally returned to its 2000 peak (again, not factoring in inflation).

Google did not go public for several more years, and Facebook wouldn't exist for several years yet.

Investing in an index of cryptocurrencies, based on the example of the dot-com crash, therefore appears to be an idea without any real-world backing, and indeed circumstantial evidence that it may be an objectively bad idea. I think it's because, for FIRE advocates, the idea that "the index recovers speedily" is so heavily ingrained. That only appears to hold true for the index as a whole: there's no reason an index focused on a subset of the market can't suffer for an extended period.

Cycling Stache

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Re: Is it too late [bitcoin]?
« Reply #710 on: January 12, 2018, 02:57:28 AM »

well some is buying them for $14k. But I'm equally curious why anyone would pay $2k for them..

Alot of people that buy into bitcoin or any crypto don't really understand the tech behind it. Perhaps they're mistaken in how they evaluate its value, believing it's scarce currency, believing it will somehow find mainstream use. Whatever the reason, they believe there is some value that will drive demand. Someone will buy it from them at a higher price than they bought it. Or maybe alot of them understand there is no value and shill and hype it for the less sophisticated speculator to dump into.

There are undeniably elements of the greater fool.

How do you know this?

Empirically seeing alot of forum comments, outside of mmm forums. Noncyber discussions with others where they believe bitcoin has a very high probability of being a global currency for the masses (this belief was as recent as two months ago). "It has brand name recognition. I'll get in now while everyone is doing it, and then sell when I double or triple, etc".

Many don't understand how wallets and addresses work. Many don't fully grasp the tech. Mark Cuban himself saying people should get in on it with no more than 10% of your financial worth, but offered no reason why it will continue to go up other than "something is worth what someone else is willing to pay for it" (https://youtu.be/vYdrMXkYQfM?t=62).

The point I hoped to elicit is what is your informational advantage with respect to bitcoin that the market doesn't know and hasn't priced in?

Do you know how many people bought Ford today and for what reasons?  Do you know which stocks in the 3,606 companies in VTSAX have gone up more than 50% in the last year?  Do you care?  Are you basing your investments decisions whatsoever on that information, or the lack thereof?

When a cabbie tells you he saw that the stock market went up and might invest, do you sell?

It's interesting how very, very little we know about our investments in index funds, and yet (if we're smart) we don't question them because we have confidence in an efficient market, at least over the long term.

Yet we see something like bitcoin and we're sure it has to be a bubble because . . . why?

We know something that nobody else does?

We see something that is absolutely clear but the $224 billion market for bitcoin hasn't figured out how to price in?

We saw a post by someone in a forum who claimed to like bitcoin but didn't really understand it, and we conclude that poster could skew the entire market?  How many people do we think are completely uneducated and betting money large enough to skew a $224 billion market?  What is the data based on?  How many forum posts do we have to see to conclude that a significant number of investors investing enough money to matter must be making idiotic decisions just hoping for other suckers?

Stock prices are a gamble on the uncertainty associated with the future projected earnings or value of a company.  Generally, the companies that we're familiar with don't move by large amounts because their markets are well understood and there is a track record of data.  When Coca Cola has a good quarter, its price may increase by a few percent.  A company like Apple can increase significantly over a 10-year period based on a couple of big plays that turn out to be incredibly successful.  The stock price is not a reward for that behavior.  Rather, it's a prediction about how much Coca Cola or Apple will earn or be worth going forward.

Bitcoin is harder because its much more difficult to assess the potential success, and difficult to assess the worth if it explodes.  There might be a 99% chance that bitcoin goes to zero, and 1% chance that it becomes worth gazillions.  We might intuitively want to treat 99% as the same as 100% and conclude therefore that bitcoin is worthless, but a $224 billion market right now is betting differently.  While markets can certainly be inefficient in the short-term, the real question is what is our special ability--our informational advantage--to know that it's an inefficient market.

I have no idea whether bitcoin will be a success or what it could be worth.  But I also realize that I don't have information better than the market, and therefore--like Warren Buffett--I would never short it, or conclude that it must be worthless based on something I believe I know that a market of that size doesn't.

I've seen variations on both on this form and elsewhere of an argument that can be summarised as "even if crypto is in a bubble right now, putting my money in a crypto index means I'll hold the winning currency when it all shakes out, and my profits will easily cover my losses on the others".

I happen to think this is a very poor argument already, because there's no guarantee that any rise will follow on from a crash, no matter how many times people compare the current situation to 1999 dot-com valuations. But that comparison has me thinking: if you had followed a broadly similar approach in 1999, assuming the winners would cover the losers, would you have done well?

In a word: no. In two words: fuck no. Going back in time and investing in a basket of dot-com stocks would be a catastrophic money bonfire for years to come.

This is a tempting argument, but it follows a typical behavioral economics error--the belief that a person would have seen patterns at the time once he/she knows the pattern after the fact.

Bubbles always seem "clear" after the fact.  Of course the dot com bubble seems ridiculous now.  But a trillion dollars or more at the time disagreed with that assessment.  In retrospect it was wrong, but that was not the best estimate at the time.  Everyone can see now that the housing market was absurd in 2007 before prices plummeted, yet that was not the perception in 2007 (at least any more than it was in 2000 when prices were already on their way up), and interestingly, I think housing prices in most major markets are already back and past those "absurd" prices again now.

It is entirely possible that bitcoin is going to be worthless.  Indeed, it might be the most likely outcome.  But given the amount of money that has been invested in that market, I'm skeptical of any individual's claim that it is "obvious" to them that bitcoin is worthless for reasons that a $224 billion market couldn't figure out.  I'm also skeptical of claims that it must be because of a bunch of uninformed people investing, because really, how many people investing in index funds understand the fundamentals of Ford's business, much less the fundamentals of the 3,605 other companies in VTSAX. 

brooklynguy

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Re: Is it too late [bitcoin]?
« Reply #711 on: January 12, 2018, 07:24:10 AM »
Yet we see something like bitcoin and we're sure it has to be a bubble because . . . why?

We know something that nobody else does?

We see something that is absolutely clear but the $224 billion market for bitcoin hasn't figured out how to price in?

Again, as maizemain pointed out, the efficiency of a market itself tells you nothing about the suitability of the underlying asset as an investment.  And bitcoin has no intrinsic value, so the bitcoin market can be efficient in the sense that it quickly incorporates all available material information about itself into itself (which does not imply that the price established by the market reflects any sort of intrinsic value (which, again, doesn't exist in the case of bitcoin)).  Like the stock market, the bitcoin market can be thought of as a Keynesian beauty contest in which traders are setting prices not necessarily based on what they believe the inherent value to be, but based on what they believe everyone else believes the inherent value to be, or even based on what they believe everyone else believes everyone else to believe the inherent asset value to be, and so on (ad infinitum, if you wish), which can explain the rise of bubbles without resorting to any challenge to the efficiency of the market.  The material information being incorporated into the market includes the very fact that a mania around the market appears to have developed, creating a self-reinforcing feedback loop that drives the market price higher and higher.

In the case of assets that do have intrinsic value (and that are traded in efficient markets) (like stocks), in the long-run, the market runs out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the market in the long-term corrects the overvaluation created by the "voting machine" that is the market in the short-term.  In the case of assets that do not have any intrinsic value (like bitcoins, or MMM's fingernail clippings), there is no fundamental value that the market can converge towards in the long-run, and purchasing those assets in the hope that their market value will rise in the future is not investment but speculation.

Cycling Stache

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Re: Is it too late [bitcoin]?
« Reply #712 on: January 12, 2018, 07:43:22 AM »
In the case of assets that do have intrinsic value (and that are traded in efficient markets) (like stocks), in the long-run, the market runs out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the market in the long-term corrects the overvaluation created by the "voting machine" that is the market in the short-term.  In the case of assets that do not have any intrinsic value (like bitcoins, or MMM's fingernail clippings), there is no fundamental value that the market can converge towards in the long-run, and purchasing those assets in the hope that their market value will rise in the future is not investment but speculation.

But see gold.  It doesn't have an intrinsic value and nobody is holding it to do stuff with (for the most part), yet it has a market for it that is highly developed and efficient.  Gold buyers are not all betting that a greater sucker will come along some day, but rather that because gold has been used as a basis for trade in the past and can be so used today and in the future (although nobody has to), that it's worth holding.

The error is in thinking that because of the extent of the uncertainty about bitcoin's ultimate price, that it must therefore necessarily be a bubble.  It could be, in the same way that many companies that start off hot may ultimately crash.  The bet is on the potential price, and even if there's one chance in a hundred that it's worth gazillions, that bet can be worth it.  That doesn't mean that bitcoin is necessarily a good investment.  But it does mean that bitcoin may not be worthless, and enough money is being put in to consider that possibility.

Here's an easy example.  If I charged you a penny for a 1-in-100 chance of winning $2, you would and should play that game as long as I let you (assuming it doesn't take you any time!), even though 99 times out of 100 you'll lose.   The bitcoin market--like any market--is trying to figure out both the likelihood of success and the value if it hits.  Those factors are incredibly uncertain, and the price movements reflect that, but that's different from saying that it's worthless.

brooklynguy

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Re: Is it too late [bitcoin]?
« Reply #713 on: January 12, 2018, 08:03:27 AM »
Gold buyers are not all betting that a greater sucker will come along some day, but rather that because gold has been used as a basis for trade in the past and can be so used today and in the future (although nobody has to), that it's worth holding.

If they are purchasing gold with the hope/expectation that its market price will increase, that's exactly what they're doing.  See any of Warren Buffett's writings on the subject for excellent discussion of exactly this point.

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Those factors are incredibly uncertain, and the price movements reflect that, but that's different from saying that it's worthless.

I didn't say bitcoin is worthless.  Nothing that has a market of ready and willing buyers can ever be worthless, because it will always be worth at least as much as what a ready and willing buyer will pay for it.  But bitcoin has no intrinsic value.  Maybe tomorrow buyers will stand ready and willing to purchase bitcoins for 200% of today's market price, or maybe 0%.  Because there's no intrinsic value, your return is entirely dependent on what other people are willing to pay in the future.  Same story with MMM's fingernail clippings.  That's speculation, not investment.

Cycling Stache

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Re: Is it too late [bitcoin]?
« Reply #714 on: January 12, 2018, 08:18:55 AM »
Gold buyers are not all betting that a greater sucker will come along some day, but rather that because gold has been used as a basis for trade in the past and can be so used today and in the future (although nobody has to), that it's worth holding.

If they are purchasing gold with the hope/expectation that its market price will increase, that's exactly what they're doing.  See any of Warren Buffett's writings on the subject for excellent discussion of exactly this point.

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Those factors are incredibly uncertain, and the price movements reflect that, but that's different from saying that it's worthless.

I didn't say bitcoin is worthless.  Nothing that has a market of ready and willing buyers can ever be worthless, because it will always be worth at least as much as what a ready and willing buyer will pay for it.  But bitcoin has no intrinsic value.  Maybe tomorrow buyers will stand ready and willing to purchase bitcoins for 200% of today's market price, or maybe 0%.  Because there's no intrinsic value, your return is entirely dependent on what other people are willing to pay in the future.  Same story with MMM's fingernail clippings.  That's speculation, not investment.

I understand the point you're trying to make, but it all feels a little circular.

I'm buying index funds in large part with the hope that I'll be able to sell those funds to someone later at a higher price.  Sure, they pay me a dividend along the way, but I'm not buying them for their dividend payments.

What about the 80 companies in the S&P 500 that don't pay dividends?  Why am I buying them?  They don't pay me anything, and they're not about to go into forced liquidation, so why do I buy them?  Because I'm hoping the price will go up in the future.

The problem with the term speculation is that it's ambiguous as used.  We typically think of it as taking a flyer on something that is risky, but technically, it applies to the purchase of almost every investment where you're buying with the hope that the price will increase in the future.   Indeed, here's the applicable OED definition for what it's worth:

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Speculation -- "Investment in stocks, property, etc. in the hope of gain but with the risk of loss."

brooklynguy

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Re: Is it too late [bitcoin]?
« Reply #715 on: January 12, 2018, 08:34:13 AM »
What about the 80 companies in the S&P 500 that don't pay dividends?  Why am I buying them?  They don't pay me anything, and they're not about to go into forced liquidation, so why do I buy them?  Because I'm hoping the price will go up in the future.

They are productive assets.  Even in the total absence of any ability to ever sell them, they will produce value for you (by generating profits that could ultimately be paid out as dividends, whether or not those companies are currently choosing to pay out dividends).  Their ability to generate profits in the future is being taking into account by the market in setting the price at which you could sell your ownership stake into the market today, but there is no need to ever sell them in order to realize value from them.  So, unlike assets without intrinsic value, they are not being priced solely on the basis of expectations about what others are or will be willing to pay for them; they have actual intrinsic, fundamental value (which gets factored into the price that others are willing to pay for them).

runbikerun

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Re: Is it too late [bitcoin]?
« Reply #716 on: January 12, 2018, 10:00:13 AM »
Cycling Stache: my point wasn't based on recognition that the dot-com bubble was a bubble. What I was pointing out was that a rationale I've seen a number of times from crypto indexers - that even if the market is in a bubble, buying coins across the board will leave you holding the eventual winners and turning a good profit - isn't supported by the evidence, and in fact is strongly contradicted by the evidence of the 2008 collapse. Even if someone had correctly called the bubble in 2000, indexing dot-com stocks would not have been a good plan.

sol

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Re: Is it too late [bitcoin]?
« Reply #717 on: January 12, 2018, 10:18:26 AM »
But see gold. 

I think gold is a GREAT example, but for the opposite reason that you do.

Gold used to be money.  It was physically mined and then used as an anonymous medium of exchange.  Prices were mostly stable as long as it was ubiquitous, but hoarding sometimes caused deflation (think kingdoms with every cent stored in the castle vault, leaving the citizens destitute).

The global economy abandoned gold for a reason.  There wasn't enough of it to be a useful medium of exchange.  Libertarians who pine for the days of the gold standard because they oppose the entire concept of fiat currency have an unsurprisingly large amount of overlap with libertarians who pine for a future ruled by bitcoin because they oppose the concept of fiat currency.  Both groups misunderstands how money works in our economy.  Both groups can prop up an otherwise inadequate asset by selling it back and forth to each other, and convincing new buyers to play along.  Bitcoin enthusiasts are just modern day gold bugs.

Gold still has industrial uses, and some companies are absolutely dependent on buying and consuming a steady supply.  They do not set the price, though, because of all the speculators.  I imagine that in the future we may discover new industries that are dependent on blockchain (not bitcoin), and which buy and consume a steady supply.  Just like with gold, the value of the asset to them is unlikely to be related to the market price set by speculators. 

The price of bitcoin and the price of gold are both controlled primary by media coverage, not utility.  The price is denominated in dollars, which are money, because gold/bitcoin is not money.

shadow

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Re: Is it too late [bitcoin]?
« Reply #718 on: January 12, 2018, 10:35:55 AM »

The point I hoped to elicit is what is your informational advantage with respect to bitcoin that the market doesn't know and hasn't priced in?

Do you know how many people bought Ford today and for what reasons?  Do you know which stocks in the 3,606 companies in VTSAX have gone up more than 50% in the last year?  Do you care?  Are you basing your investments decisions whatsoever on that information, or the lack thereof?

When a cabbie tells you he saw that the stock market went up and might invest, do you sell?

It's interesting how very, very little we know about our investments in index funds, and yet (if we're smart) we don't question them because we have confidence in an efficient market, at least over the long term.

Yet we see something like bitcoin and we're sure it has to be a bubble because . . . why?

We know something that nobody else does?

We see something that is absolutely clear but the $224 billion market for bitcoin hasn't figured out how to price in?

We saw a post by someone in a forum who claimed to like bitcoin but didn't really understand it, and we conclude that poster could skew the entire market?  How many people do we think are completely uneducated and betting money large enough to skew a $224 billion market?  What is the data based on?  How many forum posts do we have to see to conclude that a significant number of investors investing enough money to matter must be making idiotic decisions just hoping for other suckers?

Stock prices are a gamble on the uncertainty associated with the future projected earnings or value of a company.  Generally, the companies that we're familiar with don't move by large amounts because their markets are well understood and there is a track record of data.  When Coca Cola has a good quarter, its price may increase by a few percent.  A company like Apple can increase significantly over a 10-year period based on a couple of big plays that turn out to be incredibly successful.  The stock price is not a reward for that behavior.  Rather, it's a prediction about how much Coca Cola or Apple will earn or be worth going forward.

Bitcoin is harder because its much more difficult to assess the potential success, and difficult to assess the worth if it explodes.  There might be a 99% chance that bitcoin goes to zero, and 1% chance that it becomes worth gazillions.  We might intuitively want to treat 99% as the same as 100% and conclude therefore that bitcoin is worthless, but a $224 billion market right now is betting differently.  While markets can certainly be inefficient in the short-term, the real question is what is our special ability--our informational advantage--to know that it's an inefficient market.

I have no idea whether bitcoin will be a success or what it could be worth.  But I also realize that I don't have information better than the market, and therefore--like Warren Buffett--I would never short it, or conclude that it must be worthless based on something I believe I know that a market of that size doesn't.

Information will have a gap and will be incomplete. This incompleteness is also the basis of decision-making. Those who know a little more or have a better understanding have an advantage. Information is also situational.

Gathering information has to start somewhere, from what people say and think. And when alot of people indicate their knowledge level, you can fairly consider it circumstantial enough, and you can reasonably include it within the spectrum of reasons. Also, I make no determination why the price is what it is; I only provide reasons why people are willing to buy at whatever price it is. If you're asking me how do I know what price bitcoin should be? I did not make this analysis about what price it should be. If you're asking why people are buying at different price levels? I can reasonably provide various reasons.

George Soros shorted the bank of england. Nassim Taleb shorted derivatives. Post-bitcoin fork to bitcoin cash, if you had accounts on various exchanges, and you held bitcoin cash on bittrex, you could have immediately sold your bittrex and bought it back for half price on other exchanges. The first two days of eos ico, you could immediately sell the tokens after the daily sale and sell for 2-3x the price. In various investment books, they talk about hedge fund managers who used to beat the house as professional gamblers, but the occupation held a physical safety risk, so they turned to stocks and used their informational advantage. Situationally at times, we see instances of information advantage.

I don't care about bitcoin. I do compare it to other crypto. Holding bitcoin alone does nothing in terms of cashflow, other than the ability to liquidate it. However, certain crypto actually pay dividends or fees if you own them. This will generate income regardless of the market price of the coin itself; whether the yield ratio is worthwhile or not is another matter. How many people know this about crypto and can this be considered information advantage?

Indexer

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Re: Is it too late [bitcoin]?
« Reply #719 on: January 12, 2018, 03:09:37 PM »
I love the increasingly obscure justifications why BTC et al is useful. But no good explanation why it useful to the rest of us 99.99% of people.

You know that huge fee you pay when you buy a house... I think they call it escrow... Something like ETH can change that expense from 100's (or thousands) of dollars down to pennies. This is just one use case, and there are many like this.

What about the massive fee's charged to move money between countries? I work with a lot of foreigners that send a lot of money home, they are saving a ton of money not paying those fees.

Have you tried to move large sums of money around in our banking system? Just the other day I deposited my normal paycheck for a side hustle and the bank said they had to put a 10 day hold on it before it clears because it's a large amount. I do not have this problem with crytpo to crypto exchanges, there is no banks forcing me to wait.

There has never been before a way to share a piece of data that can be only in one place at a time. In time you will be able to secure your private data and other communication so companies cannot share it like equifax just did. Even if you do not know it yet, you will be using this technology all the time in your daily life.

Massive fees moving money between countries? It's $4.99 with XOOM to send money to most countries, and most of the exceptions to that rule still cost less than $10.00. Bitcoin transactions on average costs $28 right now.

Your problem at the bank is because you were using a check. You are comparing 1900 technology to 2017 technology and surprised it doesn't work as well. My direct deposit is available same day. I can move tens or hundreds of thousands of dollars between accounts for free if I can wait 2-3 days, or for $15 same day. Bitcoin would be $28... again, not helpful.

Sharing information= that's blockchain. Not bitcoin. Most people agree that blockchain will have uses. That doesn't mean squat for bitcoin.

Bitcoin is trying to solve problems that don't exist. Let me rephrase... people are trying to justify Bitcoin's existence by making up problems that it could hypothetically solve if those problems existed. You can transfer money electronically really easily. That isn't a problem that needs to be solved. Bitcoin let's you do it with a numbered account which is great for illegal transactions, but other crypto currencies are doing that better now.

phil22

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Re: Is it too late [bitcoin]?
« Reply #720 on: January 12, 2018, 05:27:39 PM »
In the case of assets that do have intrinsic value (and that are traded in efficient markets) (like stocks), in the long-run, the market runs out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the market in the long-term corrects the overvaluation created by the "voting machine" that is the market in the short-term.  In the case of assets that do not have any intrinsic value (like bitcoins, or MMM's fingernail clippings), there is no fundamental value that the market can converge towards in the long-run, and purchasing those assets in the hope that their market value will rise in the future is not investment but speculation.

i agree with Cycling Stache.  the difference between the stock market and say the bitcoin market is just the long history of the stock market.  that's it.

the stock market has apparently not run out of "greater fools".  the average stock is priced 3x its book value, meaning 2/3 of the market price of your stocks is pure speculation.  you are absolutely hoping a "greater fool" comes along to buy your shares of stock/VTSAX/whatever some day.  the stock market is not converging on the book value of your stocks.

phil22

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Re: Is it too late [bitcoin]?
« Reply #721 on: January 12, 2018, 05:38:41 PM »
Sharing information= that's blockchain. Not bitcoin. Most people agree that blockchain will have uses. That doesn't mean squat for bitcoin.

blockchains are useless without a built-in valuable token to incentivize participation.  you can't have a valuable blockchain without a valuable token, and you can't have a valuable token without a valuable blockchain.

Bitcoin is trying to solve problems that don't exist. Let me rephrase... people are trying to justify Bitcoin's existence by making up problems that it could hypothetically solve if those problems existed. You can transfer money electronically really easily. That isn't a problem that needs to be solved. Bitcoin let's you do it with a numbered account which is great for illegal transactions, but other crypto currencies are doing that better now.

bitcoin stands on its own.  it's a self-contained secure system.  no one needs to justify its existence, it just exists.  no one needs to justify the market price of bitcoin either.  if you personally think the market price is too high, don't buy any.

there are literally billions of people around the world without access to modern banking or non-corrupt fiat currencies.  is bitcoin the solution?  maybe, maybe not.

lifeanon269

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Re: Is it too late [bitcoin]?
« Reply #722 on: January 12, 2018, 05:39:17 PM »
Massive fees moving money between countries? It's $4.99 with XOOM to send money to most countries, and most of the exceptions to that rule still cost less than $10.00. Bitcoin transactions on average costs $28 right now.

Your problem at the bank is because you were using a check. You are comparing 1900 technology to 2017 technology and surprised it doesn't work as well. My direct deposit is available same day. I can move tens or hundreds of thousands of dollars between accounts for free if I can wait 2-3 days, or for $15 same day. Bitcoin would be $28... again, not helpful.

Sharing information= that's blockchain. Not bitcoin. Most people agree that blockchain will have uses. That doesn't mean squat for bitcoin.

Bitcoin is trying to solve problems that don't exist. Let me rephrase... people are trying to justify Bitcoin's existence by making up problems that it could hypothetically solve if those problems existed. You can transfer money electronically really easily. That isn't a problem that needs to be solved. Bitcoin let's you do it with a numbered account which is great for illegal transactions, but other crypto currencies are doing that better now.

I just want to dispute the idea that fees are $28 for a transaction on the Bitcoin network at the moment. That's just a myth that is often spewed by media when talking about the fees with Bitcoin. The truth is that 140 satoshis/byte transactions are routinely confirmed everyday. Furthermore, transactions with a fee of about 200 satoshis/byte will generally get you confirmed within an hour or two. If you're using a SegWit wallet, your typical transaction (1 input>2 outputs) will be about 166 bytes in size. That means that for a transaction with a fee rate of 140 s/byte, it will cost you about ~$3.25 depending the price of BTC at the time. If your transaction is slightly higher priority, you can bump your fee rate up to 200-300 s/byte and have it confirmed within an hour and that will cost you about ~$5.80. You can do this at any time of day, any day of the week, which isn't something your traditional bank will be able to accomodate.

This is why averages don't mean anything because many people are way overpaying their fees when sending their transactions to be included in a block. That's like going to a bank and having the bank teller ask you what fee you'd like to pay and the teller tells you can pay as little as $3.25, but everyone else is paying $20 on average...what fee do you think you'll choose to pay? The average doesn't mean anything, what does matter is the minimum fee you can personally get away with and still have a transaction confirmed.

For current fee rates that are being confirmed, you can use these charts:

https://dedi.jochen-hoenicke.de/queue/#24h
http://bitcoinfees.earn.com/

As far as additional use cases with Bitcoin go, The Republic of Georgia and Sweden are currently using the Bitcoin blockchain to register public land titles and make them publicly verifiable. There is a very high level of trust in the Bitcoin network which is why these countries are able to do this and why this use case isn't found being actively pursued on other blockchains. We'll begin to see more and more use cases like this as time goes as due to the fact that the Bitcoin network itself has established itself as an extremely trustworthy network that is very anti-fragile. Add in the fact that second layers are actively being developed and deployed on the network and you'll see some real innovation begin to take place.

This is something that traditional centralized institution simply can't compete against and it is the focal point for the benefit that the Bitcoin blockchain will provide society; an immutable and publicly verifiable ledger that can extend to many use cases. Time is on Bitcoin's side. The longer it exists and continues to function securely, the more the public's trust in it grows. Any new crypto-currency that is invented from here on out will need to compete against a growing public trust in a network that has long stood against time and all its obstacles. This is why an open decentralized internet won out against centrally controlled corporate intranets. So no, I don't think Bitcoin is trying to solve problems that don't exist. I think there is a void in our society that can be filled with decentralized solutions that Bitcoin is prepared to fill.
« Last Edit: January 12, 2018, 05:55:36 PM by lifeanon269 »

brooklynguy

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Re: Is it too late [bitcoin]?
« Reply #723 on: January 13, 2018, 06:03:39 AM »
i agree with Cycling Stache.  the difference between the stock market and say the bitcoin market is just the long history of the stock market.  that's it.

So you disagree with the distinction that stocks, unlike bitcoins, have an intrinsic value apart from the price that others are willing to pay for them?  Apparently not, based on the next paragraph of your post (which seems to concede that stocks do have a fundamental value apart from their market price, but questions whether, in practice, their market price generally reflects that fundamental value):

Quote
the stock market has apparently not run out of "greater fools".  the average stock is priced 3x its book value, meaning 2/3 of the market price of your stocks is pure speculation.  you are absolutely hoping a "greater fool" comes along to buy your shares of stock/VTSAX/whatever some day.  the stock market is not converging on the book value of your stocks.

For most publicly traded companies book value is a poor yardstick for measuring fundamental value, because balance-sheet-based book value does not necessarily reflect ability to generate profits (or even the actual value that would be realized in an immediate liquidation of the company, given that asset value on the balance sheet is generally locked in at cost (as adjusted for paper depreciation and the like) without being marked-to-market to reflect real-world appreciation).

But thatís all beside the real point, which is simply that stocks do have fundamental/intrinsic value, while bitcoin does not.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #724 on: January 13, 2018, 09:08:45 AM »
In the case of assets that do have intrinsic value (and that are traded in efficient markets) (like stocks), in the long-run, the market runs out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the market in the long-term corrects the overvaluation created by the "voting machine" that is the market in the short-term.  In the case of assets that do not have any intrinsic value (like bitcoins, or MMM's fingernail clippings), there is no fundamental value that the market can converge towards in the long-run, and purchasing those assets in the hope that their market value will rise in the future is not investment but speculation.

In the case of cryptocurrencies, I would argue that the value the market will converge upon for a given cryptocurrency once the speculation runs its course is likely dictated by the money supply equation M*V = T where M is the size of the money supply, V is the velocity of money and T is the number of real economic transactions conducted using the currency per unit time (using the same time units for T and V so they cancel out). 

We can expand the equation since M = (U * P) where U is the number of units of the currency, and P is the price per unit of currency and get U * P * V = T, and then solve for P: P = T/(U*V).

For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.

The problem, of course, is that different people have very different ideas about that the distribution of potential outcomes for T is, and that no one really knows what an appropriate assumption is for a cryptocurrency's velocity of money.

FWIW, the best estimates I've seen today using the variables in this equation put the price of bitcoin justified by the amount of activity conducted using the currency in the dozens to hundreds of dollars per bitcoin (and that was before transaction fees spiked and major merchants started either dropping bitcoin support or switching to other cryptocurrencies), implying the vast majority of the USD price of bitcoin at the moment is driven by either informed speculation that there is a small chance T will increase by a fair number of orders of magnitude in the future or uninformed speculation that things which have gone up in price will continue to go up in price.

phil22

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Re: Is it too late [bitcoin]?
« Reply #725 on: January 13, 2018, 11:00:02 AM »
i agree with Cycling Stache.  the difference between the stock market and say the bitcoin market is just the long history of the stock market.  that's it.

So you disagree with the distinction that stocks, unlike bitcoins, have an intrinsic value apart from the price that others are willing to pay for them?  Apparently not, based on the next paragraph of your post (which seems to concede that stocks do have a fundamental value apart from their market price, but questions whether, in practice, their market price generally reflects that fundamental value):

Quote
the stock market has apparently not run out of "greater fools".  the average stock is priced 3x its book value, meaning 2/3 of the market price of your stocks is pure speculation.  you are absolutely hoping a "greater fool" comes along to buy your shares of stock/VTSAX/whatever some day.  the stock market is not converging on the book value of your stocks.

For most publicly traded companies book value is a poor yardstick for measuring fundamental value, because balance-sheet-based book value does not necessarily reflect ability to generate profits (or even the actual value that would be realized in an immediate liquidation of the company, given that asset value on the balance sheet is generally locked in at cost (as adjusted for paper depreciation and the like) without being marked-to-market to reflect real-world appreciation).

But thatís all beside the real point, which is simply that stocks do have fundamental/intrinsic value, while bitcoin does not.

i agree that stocks do have a fundamental value and bitcoins do not.

the "intrinsic value" of your stocks is, the book value, is on average 1/3 the price of a share.  it's a slice of the company's net value (assets-debt).  the "ability to generate future profits" is speculation -- an educated guess.

my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.

sol

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Re: Is it too late [bitcoin]?
« Reply #726 on: January 13, 2018, 11:11:29 AM »
my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.

You've misunderstood how stocks are priced.  You're not buying the book value, you're buying a share of future earnings.  You're buying passive income from ongoing corporate profits, not a share of the company's assets. 

If the future earnings are expected go up, the stock price goes up regardless of book value.  The book value is merely the backstop, the absolutely minimum future value you can expect if the company is never profitable again and just has to liquidate all of its holdings.  If the price ever falls all the way down to the book value, that means the company is having a fire sale and is doomed to immediate failure.  So the difference between market cap and book value is not due to speculation that a greater fool will come along to buy your share, it's due to how much you are willing to pay today in order to get paid back quarterly in the future.

PDXTabs

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Re: Is it too late [bitcoin]?
« Reply #727 on: January 13, 2018, 11:48:44 AM »
sol and phil22,

I think that you are both right, and both wrong. A stock's value is primary speculative, in that you are betting that the company is going to do better in the future than it is today. If you buy BP the day before the deepwater horizon disaster, you were speculating that the deepwater horizon disaster would not occur. Similarly, if you buy a broad based US mutual fund you are speculating that tomorrow the US won't hamstring itself while some other country such as Japan or Germany does really well. Likewise, there is speculation built into all stock values that the world economy is going to keep growing (which actually, with worst case global warming may not be the case 80 yeas from now).

However, while you are speculating on future returns, business decisions, and the global economy, you are not betting that a greater fool will come around and save you from your purchase.

aspiringnomad

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Re: Is it too late [bitcoin]?
« Reply #728 on: January 13, 2018, 03:16:59 PM »
sol and phil22,

A stock's value is primary speculative, in that you are betting that the company is going to do better in the future than it is today.

Not necessarily true. If you're long, you're just betting that your more bullish (or less bearish) analysis of the company is more correct than the broader market's less bullish (or more bearish) analysis. But the broader market is also forward looking, so you taking a long position may or may not be a bet that the company is going to do better in the future than it is today - that's almost irrelevant.

Sol mostly has it right, except that lots of companies have traded below book without being doomed to immediate failure. Some of the largest banks, even those that had already clearly stabilized post-crisis, for example. The market valued these banks below their book value because it didn't believe that their reported book value was accurate (i.e., assets were not properly marked to market). BAC, for example, just crossed a P/BV ratio of 1.00 last August after spending most of the previous decade below that.

simonkkkkk

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Re: Is it too late [bitcoin]?
« Reply #729 on: January 14, 2018, 04:50:04 AM »
No it not to late

Indexer

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Re: Is it too late [bitcoin]?
« Reply #730 on: January 14, 2018, 07:15:45 AM »
Bitcoin is trying to solve problems that don't exist. Let me rephrase... people are trying to justify Bitcoin's existence by making up problems that it could hypothetically solve if those problems existed. You can transfer money electronically really easily. That isn't a problem that needs to be solved. Bitcoin let's you do it with a numbered account which is great for illegal transactions, but other crypto currencies are doing that better now.

bitcoin stands on its own.  it's a self-contained secure system.  no one needs to justify its existence, it just exists.  no one needs to justify the market price of bitcoin either.  if you personally think the market price is too high, don't buy any.

Oh, I won't by buying any. For it to have a value it has to actually do something, preferably something legal. The post I replied to was someone stating several uses for bitcoin. I merely pointed out that our current means of transferring money electronically worked better in every case.


On the topic of intrinsic value and stocks. Yes, part of a stock's price is speculative(what you think will happen in the future), and part is intrinsic(what is it worth based on information today). There are a few means of calculating this, the oldest probably being the dividend discount model. Intrinsic value really comes up with stock options. Their intrinsic value is known. On the day the option expires the value of the option = it's intrinsic value. If the market value is different from the intrinsic value leading up to the expiration date we call that difference the time value(the speculative piece). High quality bonds also have an easy to measure intrinsic value.

Whether most of a stock's value is speculative is debatable. If you look at stable stocks paying high dividends, utilities will be a good example, they are likely primarily intrinsic value. On the other end of the spectrum, stocks for tech companies who don't pay dividends are likely primarily speculative.

What we can agree on is that stocks have an intrinsic value. The market price doesn't equal the intrinsic value, but they are related.

A consequence of bubbles is that the market value becomes unhinged from the intrinsic value. Tech stocks were not worth their market prices back in 1999. Most of those companies had an intrinsic value near zero. Bitcoin, from what I can see, has an intrinsic value of $0. The market value of bitcoin is therefore 100% speculation.

waltworks

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Re: Is it too late [bitcoin]?
« Reply #731 on: January 14, 2018, 08:45:14 AM »
FWIW, the best estimates I've seen today using the variables in this equation put the price of bitcoin justified by the amount of activity conducted using the currency in the dozens to hundreds of dollars per bitcoin (and that was before transaction fees spiked and major merchants started either dropping bitcoin support or switching to other cryptocurrencies), implying the vast majority of the USD price of bitcoin at the moment is driven by either informed speculation that there is a small chance T will increase by a fair number of orders of magnitude in the future or uninformed speculation that things which have gone up in price will continue to go up in price.

It's too bad nobody was interested in this post, Maizeman, because it's really the same way I've been thinking about it - if the currency has to handle the needs of being used as such, how much do you need, and how much does it need to be worth?

The problem, as you pointed out, is that some of the inputs are pretty much hand-waving guesses at this point.

-W

brooklynguy

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Re: Is it too late [bitcoin]?
« Reply #732 on: January 14, 2018, 08:57:08 AM »
It's too bad nobody was interested in this post, Maizeman

I wouldnít interpret the lack of response as a lack of interest.  I, for one, was very interested in that post because I found it, like almost all of maizemanís content, very interesting, but I didnít respond to it because I had nothing relevant to add.

shadow

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Re: Is it too late [bitcoin]?
« Reply #733 on: January 14, 2018, 11:16:51 AM »
It's too bad nobody was interested in this post, Maizeman

I wouldnít interpret the lack of response as a lack of interest.  I, for one, was very interested in that post because I found it, like almost all of maizemanís content, very interesting, but I didnít respond to it because I had nothing relevant to add.

Same.

aspiringnomad

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Re: Is it too late [bitcoin]?
« Reply #734 on: January 14, 2018, 12:16:22 PM »
It's too bad nobody was interested in this post, Maizeman

I wouldnít interpret the lack of response as a lack of interest.  I, for one, was very interested in that post because I found it, like almost all of maizemanís content, very interesting, but I didnít respond to it because I had nothing relevant to add.

Same.

I'll third that - most interesting post in this thread, IMO.

waltworks

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Re: Is it too late [bitcoin]?
« Reply #735 on: January 14, 2018, 12:54:31 PM »
Well, I thought *someone* would respond to the "bitcoin's value less speculation is in the dozens of dollars" bit!

-W

sol

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Re: Is it too late [bitcoin]?
« Reply #736 on: January 14, 2018, 01:39:13 PM »
Well, I thought *someone* would respond to the "bitcoin's value less speculation is in the dozens of dollars" bit!

-W

What's to say?  It's as reasonable of a valuation as any other, at this point.  At least it was predicated on some attempt to find a real answer, unlike most of the promo media pieces that are pushing for BTC 100k by the end of the year.  Those folks don't even pretend to have reasons.

If crypto currencies are ever going to be a viable mechanism for exchanging money between countries without banks (which seems to be the primary if not the only use case people are talking about), then the actual cost of one unit of currency won't really matter.  You trade dollars in the US into dogecoins into dollars in Thailand, and all that matters is that you get the same number of dollars out that you put in.  The individual bitcoins could be worth a penny each, and all it would mean is that there was a theoretical maximum dollar amount that could be transferred at once this way.  The value of one bitcoin seems irrelevant in this case.  Liquidity matters way more than price, if it's going to get used in this way.

Maizeman's attempt to value one bitcoin based on the number of transactions and the money supply suggests that bitcoins are stupidly overpriced atm.  Does this really surprise anyone?  With all of the media hype, the youtube fanboys, the celebrity promoters, and the lure of get-rich-quick schemes in an unregulated modern day penny stock market?  Of COURSE it's overvalued.  That's the whole point of scooping up ignorant retail investors to buy buy buy.



sol

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Re: Is it too late [bitcoin]?
« Reply #737 on: January 14, 2018, 02:24:21 PM »
This is the funniest thing I've read all day:  https://www.nytimes.com/2018/01/13/style/bitcoin-millionaires.html

Headline:  Everyone Is Getting Hilariously Rich and Youíre Not

I'm laughing my ass off, but my wife is furious.  There are apparently a few hundred 20-something bro-chatchos out there, mostly with modest trust funds from their parents and addictions to 4chan, who have invested tens or hundreds of thousands of dollars in various cryptocurrencies and are now "worth" hundreds of millions of dollars each.  They think they're changing the world order.  They are obsessively paranoid.  Some of them recognize they are running criminal enterprises, but most of them just seem blissfully naive to me. 

I am SO looking forward to watching this all play out.

Padonak

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Re: Is it too late [bitcoin]?
« Reply #738 on: January 14, 2018, 03:51:22 PM »
This is the funniest thing I've read all day:  https://www.nytimes.com/2018/01/13/style/bitcoin-millionaires.html

Headline:  Everyone Is Getting Hilariously Rich and Youíre Not

I'm laughing my ass off, but my wife is furious.  There are apparently a few hundred 20-something bro-chatchos out there, mostly with modest trust funds from their parents and addictions to 4chan, who have invested tens or hundreds of thousands of dollars in various cryptocurrencies and are now "worth" hundreds of millions of dollars each.  They think they're changing the world order.  They are obsessively paranoid.  Some of them recognize they are running criminal enterprises, but most of them just seem blissfully naive to me. 

I am SO looking forward to watching this all play out.

"Data suggests that 94% of bitcoin wealth is held by men".

SJWs have been too busy bashing Trump and trying to censor social networks and completely missed this horrible example of cis white (actually mostly Asian) man privilege. Get to work, people! This can't continue.

GuitarStv

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Re: Is it too late [bitcoin]?
« Reply #739 on: January 15, 2018, 08:08:21 AM »
This is the funniest thing I've read all day:  https://www.nytimes.com/2018/01/13/style/bitcoin-millionaires.html

Headline:  Everyone Is Getting Hilariously Rich and Youíre Not

I'm laughing my ass off, but my wife is furious.  There are apparently a few hundred 20-something bro-chatchos out there, mostly with modest trust funds from their parents and addictions to 4chan, who have invested tens or hundreds of thousands of dollars in various cryptocurrencies and are now "worth" hundreds of millions of dollars each.  They think they're changing the world order.  They are obsessively paranoid.  Some of them recognize they are running criminal enterprises, but most of them just seem blissfully naive to me. 

I am SO looking forward to watching this all play out.

"Data suggests that 94% of bitcoin wealth is held by men".

SJWs have been too busy bashing Trump and trying to censor social networks and completely missed this horrible example of cis white (actually mostly Asian) man privilege. Get to work, people! This can't continue.

I don't think you're right.

It doesn't take much work at all to bash Trump, he does most of the job for you.  You can just repeat things that he says, does, or posts on twitter and . . . bashing complete.

phil22

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Re: Is it too late [bitcoin]?
« Reply #740 on: January 15, 2018, 05:20:46 PM »
For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.

would you count bitcoins in cold storage as part of the "number of units" or not?  i would think not, since if they're locked away in cold storage for years at a time (for speculating or whatever) then those bitcoins are not available for creating transactions with.  as of a few years ago the percentage of bitcoin not touched for months/years is very high -- something like 70%:

http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/

i believe based on your equation if you for example halve the value of U then you'd double the value of P.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #741 on: January 15, 2018, 05:36:28 PM »
For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.

would you count bitcoins in cold storage as part of the "number of units" or not?  i would think not, since if they're locked away in cold storage for years at a time (for speculating or whatever) then those bitcoins are not available for creating transactions with.  as of a few years ago the percentage of bitcoin not touched for months/years is very high -- something like 70%:

http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/

i believe based on your equation if you for example halve the value of U then you'd double the value of P.

This is a good question. It turns out the answer doesn't matter as long as you use the same answer consistently for estimating all the variables in the equation, but if you don't realize you need to pick one answer and stick with it, you can certainly get yourself into trouble.

Consider a currency with 10 units, 5 in "cold storage" and 5 which are used for 1 transaction each week. If in one week $100,000 of business needs to be conducted, I can either consider all the coins together, which doubles the size of U, but also halves the size of V (velocity of money) since I'm averaging five active coins with five coins which weren't spent at all during the period in question, or I can subtract out the cold storage coins, which cuts U in half, but makes V twice as fast. In both cases the value for P remains the same.

Now that said, you're right that for most major cryptocurrencies, including bitcoin, there is certainly the potential for units of currency to be irretrievably lost, either when someone loses a private key, or when the coins are sent to an address with no known private key in the first place. In fact, we know many coins have been lost in both ways already. Which answer you pick to the question above just determines whether the growing amount of no longer spendable currency units shows up in your equation as a decrease in the average velocity of money (V), or a decrease in the number of currency units (U). Either way this means that the price per unit would have to increase over time, if we assume the value of actual commercial transactions conducted in the currency remains constant.

It's too bad nobody was interested in this post, Maizeman

I wouldnít interpret the lack of response as a lack of interest.  I, for one, was very interested in that post because I found it, like almost all of maizemanís content, very interesting, but I didnít respond to it because I had nothing relevant to add.

Same.

I'll third that - most interesting post in this thread, IMO.

Thanks, all! Particularly for longer posts it's really nice to hear whether they are being read with interest by someone, or being skipped over in the discussion as dreaded walls-of-text that are just inconveniencing the people trying to debate back and forth.

phil22

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Re: Is it too late [bitcoin]?
« Reply #742 on: January 15, 2018, 05:46:56 PM »
my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.

You've misunderstood how stocks are priced.  You're not buying the book value, you're buying a share of future earnings.  You're buying passive income from ongoing corporate profits, not a share of the company's assets.

unless you're a time traveler or have a functioning crystal ball, future earnings are unknown.  therefore you're speculating.

If the future earnings are expected go up, the stock price goes up regardless of book value.  The book value is merely the backstop, the absolutely minimum future value you can expect if the company is never profitable again and just has to liquidate all of its holdings.  If the price ever falls all the way down to the book value, that means the company is having a fire sale and is doomed to immediate failure.  So the difference between market cap and book value is not due to speculation that a greater fool will come along to buy your share, it's due to how much you are willing to pay today in order to get paid back quarterly in the future.

the dividend yield for a share of VTSAX for example is 1.75% annualized.  are we really putting 60% or 75% or 85% of our retirement assets into something with an expected 1.75% return?  no.  that wouldn't even beat inflation.  we are banking on the fact that someone else will come along to buy our shares at a higher price, at something more like 7% annual returns.

not only are we expecting the market price to outstrip the actual profits/dividends paid to shareholders, but the price/book ratio has been climbing since 2009.  if things continue like this it means we will be expecting someone else to come along and buy our shares at an even higher price/book ratio than we paid.  this is speculation -- the "intrinsic value" is becoming less and less important over time and "profits" are barely above the inflation rate.

https://www.quandl.com/data/MULTPL/SP500_PBV_RATIO_QUARTER-S-P-500-Price-to-Book-Value-by-Quarter
https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths

phil22

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Re: Is it too late [bitcoin]?
« Reply #743 on: January 15, 2018, 05:57:11 PM »
For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.

would you count bitcoins in cold storage as part of the "number of units" or not?  i would think not, since if they're locked away in cold storage for years at a time (for speculating or whatever) then those bitcoins are not available for creating transactions with.  as of a few years ago the percentage of bitcoin not touched for months/years is very high -- something like 70%:

http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/

i believe based on your equation if you for example halve the value of U then you'd double the value of P.

This is a good question. It turns out the answer doesn't matter as long as you use the same answer consistently for estimating all the variables in the equation, but if you don't realize you need to pick one answer and stick with it, you can certainly get yourself into trouble.

Consider a currency with 10 units, 5 in "cold storage" and 5 which are used for 1 transaction each week. If in one week $100,000 of business needs to be conducted, I can either consider all the coins together, which doubles the size of U, but also halves the size of V (velocity of money) since I'm averaging five active coins with five coins which weren't spent at all during the period in question, or I can subtract out the cold storage coins, which cuts U in half, but makes V twice as fast. In both cases the value for P remains the same.

i don't agree that if you're considering a smaller value of U then the value of V would be adjusted to counteract that.  the value of V is related to the popularity of the currency (number of users/merchants) and is independent of U.

if you're saying V is "$100k / week" then that is the final value for that.  halving U doesn't then mean V must become "$200k / week".  users would be using half the units of the currency to make the same total dollar amount of transactions, which means the price must be doubled.

Now that said, you're right that for most major cryptocurrencies, including bitcoin, there is certainly the potential for units of currency to be irretrievably lost, either when someone loses a private key, or when the coins are sent to an address with no known private key in the first place. In fact, we know many coins have been lost in both ways already. Which answer you pick to the question above just determines whether the growing amount of no longer spendable currency units shows up in your equation as a decrease in the average velocity of money (V), or a decrease in the number of currency units (U). Either way this means that the price per unit would have to increase over time, if we assume the value of actual commercial transactions conducted in the currency remains constant.

yes i'd expect in "eventually deflationary" currencies like bitcoin the price would be expected to increase over time, all things being equal.
« Last Edit: January 15, 2018, 06:03:38 PM by phil22 »

maizeman

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Re: Is it too late [bitcoin]?
« Reply #744 on: January 15, 2018, 06:07:13 PM »
i don't agree that if you're considering a smaller value of U then the value of V would be adjusted to counteract that.  the value of V is related to the popularity of the currency (number of users/merchants) and independent of U.

if you're saying V is "$100k / week" then that is the final value for that.  halving U doesn't then mean V must become "$200k / week".

$100k/week is the amount of economic activity being conducted. Velocity of money is measured in the number of times the average unit of money changes hands in a given amount of time of time. So, for example, $100k of economic activity in a week could be satisfied with 5 units on currency changing hands an average 10 times a week, at an exchange rate of $2,000/unit. Or it could be satisfied by 10 units on currency changing hands an average 5 times a week (5 at 10 times a week and 5 at 0 times a week), at an exchange rate of $2,000/unit.

phil22

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Re: Is it too late [bitcoin]?
« Reply #745 on: January 15, 2018, 06:13:01 PM »
i don't agree that if you're considering a smaller value of U then the value of V would be adjusted to counteract that.  the value of V is related to the popularity of the currency (number of users/merchants) and independent of U.

if you're saying V is "$100k / week" then that is the final value for that.  halving U doesn't then mean V must become "$200k / week".

$100k/week is the amount of economic activity being conducted. Velocity of money is measured in the number of times the average unit of money changes hands in a given amount of time of time. So, for example, $100k of economic activity in a week could be satisfied with 5 units on currency changing hands an average 10 times a week, at an exchange rate of $2,000/unit. Or it could be satisfied by 10 units on currency changing hands an average 5 times a week (5 at 10 times a week and 5 at 0 times a week), at an exchange rate of $2,000/unit.

that's my point.  the value of V, the dollar value of the economic activity in a unit of time, is related to the popularity of the currency, not how many units of the currency are being used.  why would the number of times the currency changes hands change (10 becomes 5)?

you may have missed my edit above:  if you're saying V is "$100k / week" then that is the final value for that.  halving U doesn't then mean V must become "$200k / week".  users would be using half the units of the currency to make the same total dollar amount of transactions, which means the price must be doubled.

unless you're saying the number of units of a currency affects the velocity, which makes no sense to me.

sol

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Re: Is it too late [bitcoin]?
« Reply #746 on: January 15, 2018, 06:34:03 PM »
are we really putting 60% or 75% or 85% of our retirement assets into something with an expected 1.75% return?  no.

Yes, we really are.  That's the point.  Have you read a single book about investing?  I recommend "The Four Pillars of Investing" as a good primer.  It will explain to you how the price of a share representing future profits is bid down by open market competition until nobody is left to bid it down any further.  If you can do better than the current dividend yield somewhere else, then you should go somewhere else.  That's how markets work, willing buyers meet willing sellers and everyone goes home happy.  Prices are determined by the ratio of those two groups.  Yields are determined by prices. 

Quote
the price/book ratio has been climbing since 2009.  if things continue like this it means we will be expecting someone else to come along and buy our shares at an even higher price/book ratio than we paid.

Sounds like bitcoin.

But no, I'm not expecting anyone to come along and pay a higher price/book than today's.  And this is the key part so read slowly:  I expect book value to increase, and thus for prices to increase, and the ratio to stay the same or even to decrease.  Value in the stock market is created when companies become more profitable, not when speculators bid up the stock price.  See the difference yet?


phil22

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Re: Is it too late [bitcoin]?
« Reply #748 on: January 15, 2018, 07:37:46 PM »
are we really putting 60% or 75% or 85% of our retirement assets into something with an expected 1.75% return?  no.

Yes, we really are.  That's the point.  Have you read a single book about investing?  I recommend "The Four Pillars of Investing" as a good primer.  It will explain to you how the price of a share representing future profits is bid down by open market competition until nobody is left to bid it down any further.  If you can do better than the current dividend yield somewhere else, then you should go somewhere else.  That's how markets work, willing buyers meet willing sellers and everyone goes home happy.  Prices are determined by the ratio of those two groups.  Yields are determined by prices. 

have you read the MMM blog?  perhaps you don't understand index investing and what this board preaches.  index investing is pure speculation.  we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.

i would guess 99%+ of people on this board do not take ANY fundamentals into account when investing in stocks.  we literally pick an asset allocation out of thin air (say 75% stocks) and go with that.  period.  that's pure speculation.  we don't care about future profits or market price or book value or anything about what any company we "invest" in actually does.

Quote
the price/book ratio has been climbing since 2009.  if things continue like this it means we will be expecting someone else to come along and buy our shares at an even higher price/book ratio than we paid.

Sounds like bitcoin.

But no, I'm not expecting anyone to come along and pay a higher price/book than today's.  And this is the key part so read slowly:  I expect book value to increase, and thus for prices to increase, and the ratio to stay the same or even to decrease.  Value in the stock market is created when companies become more profitable, not when speculators bid up the stock price.  See the difference yet?

no i don't see the difference.  i don't get it.  do you divide your stock holdings by 3 when determining your net worth?

the price/book ratio IS going up.  when do you expect it to decrease?

sol

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Re: Is it too late [bitcoin]?
« Reply #749 on: January 15, 2018, 07:48:52 PM »
index investing is pure speculation.  we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.

You didn't read slowly enough so I'll repeat myself.

Price is what you pay, value is what you get.  The stock price is a dollar figure paid by the most recent buyer.  The value is the share of corporate earnings you get in return.  VALUE is not created when the market spikes.  VALUE has nothing to do with stock prices.  VALUE is created when corporations become more profitable, by expanding their markets, developing new technologies, reducing their overhead costs, or otherwise generating more profits that they then pass on to shareholders.

Price is what you pay in order to get value.  The price fluctuates minute by minute, in response to speculators, while the value only changes slowly, as corporations evolve over time.  Wealthy people have valuable assets.  Bitcoin millionaires have expensive assets.  There is a difference.