Author Topic: What do you think of adding a low% of crypto allocation  (Read 73363 times)

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #350 on: October 28, 2021, 05:26:44 AM »
I'm not pressing him for any details. I've heard enough of this crap over the past 5 years. It's not possible for him to realize that these are scams because he is so invested in conspiracy theories. Unfortunately, his group is a pretty easy target on the internet for scams. People make a living taking money from these people. 

People are just going to have to wise up or get wiped out. Hundreds of thousands of Americans have just lost their lives to COVID, after vaccines became available, because they believed social media influencers over doctors, scientists, and public health experts. Millions more will suffer long COVID or disability. People are sitting in jail right now because they believed online nonsense and committed some act of violence or fraud. Now you have people putting everything into this hybrid ponzi / MLM coin scam because it keeps attracting marks and all the influencers are making (monetized) videos about it. If you wouldn't take stock-picking advice from Wall Street Bets, and you wouldn't take healthcare advice from Dr. Fucking Oz, and you're not doing the latest TikTok challenge that involves huffing WD-40 and trying to run down the street or whatever, then WTF would you let social media / media influence you to buy something that is both worthless and useless??? It's. All. The. Same. Gullibility.

Literal death and the loss of one's fortune is the price of believing disinformation on the internet. Wise up or die. Only the skeptical will survive in the 21st century.

https://www.rationaloptimist.com/ ;)

It looks like the discussion is derailing a bit into an argument about a new invention called the bicycle that is supposedly a great boat by it's proponents which is vehemently denied by it's opponents saying it will sink like a rock. We'll have some really smart and creative people explain how a contraption with the bicycle on top could potentially power the boat and therefore justify the utility of the bicycle, which naturally will be 'too complicated' to understand by intelligent opponents who really try to understand it all but cannot see how this would possibly be better than a paddle. In the meanwhile there is a small group of people seeing the bicycle for what it is, a great tool for transport on land.

Digital tokens, blockchain technology, smart contracts, they all have great potential to make our lives easier, but they do not all mean BTC and the only use case is not limited to 'digital currency'. Firstly, if you're not aware what each part is, and it's potential utility, read up on those separately (preferably outside of the context of BTC ).

Secondly, if we do want to have an argument what drives the price of a cryptocurrency, let's dive in systematically: just like any other financial asset it's driven by buyers and sellers who make trading decisions. As predominantly index investors we probably all know this to be emotional in the short term, enter your favorite Warren Buffet or Benjamin Graham quote. Luckily for an asset class such as equity this gets dampened over time as there is some real undeniable activity (or lack thereof) represented by the token (stock) you buy or sell. With a cryptocurrency, it's true that a lot of it's owners do not fully grasp the utility thereof, proving a lot of the opponents in this thread right that it tends to be a pump and dump scheme. Look at the volatility of BTC and read twitter, and the pump and dump is so transparent you wonder who would possibly fall for this.
Which brings us to the next point, aside from just popularity keeping the price from going to 0 frequently, what is the reason behind BTC and ETH, and other more accepted cryptocurrencies having an increasingly higher bottom? That is some form of utility. Whether in the case of BTC that utility is the decentralized nature of transferring value, or it's volatility by itself, or any other of a myriad of reasons, is all very debatable; but one thing that is increasingly clear is that the concept and underlying technology are persistent.
So lastly, why invest in BTC or ETH or other cryptocurrencies?
1. The volatility, if properly risk managed by e.g. assigning only a low allocation, can increase portfolio performance
2. The correlation to other asset classes can contribute in terms of diversification
3. The project that will see widespread adoption in the real world will likely see the value of it's associated tokens increase by a many-fold

And why not invest? The same reasons, it's volatile, you can find diversification in lower risk products, and you don't necessarily want to follow a Taleb style portfolio of 90% security and 10% high risk high return. Fair enough.

its not just volatility that matters here its that there is no underlying value to BTC other than it was the first one and people are buying it today.  if BTC had a patent on blockchain they'd probably have something but they don't.

it doesn't have a long enough history of anything to even begin to discuss correlation and diversification.  Its best comparison still is a lottery ticket or a beanie baby or some tulip bulbs.

Malcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #351 on: October 28, 2021, 06:47:30 AM »
I'm not pressing him for any details. I've heard enough of this crap over the past 5 years. It's not possible for him to realize that these are scams because he is so invested in conspiracy theories. Unfortunately, his group is a pretty easy target on the internet for scams. People make a living taking money from these people. 

People are just going to have to wise up or get wiped out. Hundreds of thousands of Americans have just lost their lives to COVID, after vaccines became available, because they believed social media influencers over doctors, scientists, and public health experts. Millions more will suffer long COVID or disability. People are sitting in jail right now because they believed online nonsense and committed some act of violence or fraud. Now you have people putting everything into this hybrid ponzi / MLM coin scam because it keeps attracting marks and all the influencers are making (monetized) videos about it. If you wouldn't take stock-picking advice from Wall Street Bets, and you wouldn't take healthcare advice from Dr. Fucking Oz, and you're not doing the latest TikTok challenge that involves huffing WD-40 and trying to run down the street or whatever, then WTF would you let social media / media influence you to buy something that is both worthless and useless??? It's. All. The. Same. Gullibility.

Literal death and the loss of one's fortune is the price of believing disinformation on the internet. Wise up or die. Only the skeptical will survive in the 21st century.

It's actually the skeptical who are the most subject to scams these days. It's people who have a lack of faith in "the system," but not enough ability to assess information, who end up the most susceptible.

FrugalFukuoka

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Re: What do you think of adding a low% of crypto allocation
« Reply #352 on: October 28, 2021, 06:48:24 AM »

its not just volatility that matters here its that there is no underlying value to BTC other than it was the first one and people are buying it today.  if BTC had a patent on blockchain they'd probably have something but they don't.

it doesn't have a long enough history of anything to even begin to discuss correlation and diversification.  Its best comparison still is a lottery ticket or a beanie baby or some tulip bulbs.

It's not BTC, it's cryptocurrency. Again, BTC = cryptocurrency is an assumption too many people mistakenly make.
As for BTC, it's undeniable underlying value is that it's just that. Well known. Is Tom Cruise a better actor than your average Netflix flick line-up? I doubt it. Does he bring in more money? Surely. Not saying that just because it's well known, it's a wise investment, but it's not entirely without underlying value either.

And denying that correlation and diversification have nothing to do with it because it's not around for long enough sounds like missing the point behind why correlation and diversification matter in investing in the first place. Past performance is no guarantee for future returns is literally something every investor is told; so why does it need to have enough past performance before you start considering it's role in it all? If bonds and equity have a correlation of 0 for the past 10 years, but historically they had a positive correlation of 0.9, would you still make the decision based on the historical correlation rather than the last 10 years?

Also, a lottery ticket loses all of it value the moment it expires out of the money. A beanie baby still retains some value. And unless you can get your tulip bulbs for free every winter,  they still retain their value quite nicely as well hundreds of years later. Surely, 1 bulb won't buy you a house anymore,  but they're not for free either.

And lastly, let's not think for even one second that everything VTI invests in is pure undeniable value. It's not. Yet we all understand it's role in our portfolio. Cryptocurrency can serve a role if you're looking for something that's highly volatile and not moving in step with the markets. Should everyone therefore invest in it? No, it's high risk and completely uncertain where it will end up in the end. It's not guaranteed to succeed nor is it guaranteed to fail. No way of knowing. That's all I am trying to say.




ChpBstrd

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Re: What do you think of adding a low% of crypto allocation
« Reply #353 on: October 28, 2021, 07:42:34 AM »
I'm not pressing him for any details. I've heard enough of this crap over the past 5 years. It's not possible for him to realize that these are scams because he is so invested in conspiracy theories. Unfortunately, his group is a pretty easy target on the internet for scams. People make a living taking money from these people. 

People are just going to have to wise up or get wiped out. Hundreds of thousands of Americans have just lost their lives to COVID, after vaccines became available, because they believed social media influencers over doctors, scientists, and public health experts. Millions more will suffer long COVID or disability. People are sitting in jail right now because they believed online nonsense and committed some act of violence or fraud. Now you have people putting everything into this hybrid ponzi / MLM coin scam because it keeps attracting marks and all the influencers are making (monetized) videos about it. If you wouldn't take stock-picking advice from Wall Street Bets, and you wouldn't take healthcare advice from Dr. Fucking Oz, and you're not doing the latest TikTok challenge that involves huffing WD-40 and trying to run down the street or whatever, then WTF would you let social media / media influence you to buy something that is both worthless and useless??? It's. All. The. Same. Gullibility.

Literal death and the loss of one's fortune is the price of believing disinformation on the internet. Wise up or die. Only the skeptical will survive in the 21st century.

https://www.rationaloptimist.com/ ;)

It looks like the discussion is derailing a bit into an argument about a new invention called the bicycle that is supposedly a great boat by it's proponents which is vehemently denied by it's opponents saying it will sink like a rock. We'll have some really smart and creative people explain how a contraption with the bicycle on top could potentially power the boat and therefore justify the utility of the bicycle, which naturally will be 'too complicated' to understand by intelligent opponents who really try to understand it all but cannot see how this would possibly be better than a paddle. In the meanwhile there is a small group of people seeing the bicycle for what it is, a great tool for transport on land.

Digital tokens, blockchain technology, smart contracts, they all have great potential to make our lives easier, but they do not all mean BTC and the only use case is not limited to 'digital currency'. Firstly, if you're not aware what each part is, and it's potential utility, read up on those separately (preferably outside of the context of BTC ).

Secondly, if we do want to have an argument what drives the price of a cryptocurrency, let's dive in systematically: just like any other financial asset it's driven by buyers and sellers who make trading decisions. As predominantly index investors we probably all know this to be emotional in the short term, enter your favorite Warren Buffet or Benjamin Graham quote. Luckily for an asset class such as equity this gets dampened over time as there is some real undeniable activity (or lack thereof) represented by the token (stock) you buy or sell. With a cryptocurrency, it's true that a lot of it's owners do not fully grasp the utility thereof, proving a lot of the opponents in this thread right that it tends to be a pump and dump scheme. Look at the volatility of BTC and read twitter, and the pump and dump is so transparent you wonder who would possibly fall for this.
Which brings us to the next point, aside from just popularity keeping the price from going to 0 frequently, what is the reason behind BTC and ETH, and other more accepted cryptocurrencies having an increasingly higher bottom? That is some form of utility. Whether in the case of BTC that utility is the decentralized nature of transferring value, or it's volatility by itself, or any other of a myriad of reasons, is all very debatable; but one thing that is increasingly clear is that the concept and underlying technology are persistent.
So lastly, why invest in BTC or ETH or other cryptocurrencies?
1. The volatility, if properly risk managed by e.g. assigning only a low allocation, can increase portfolio performance
2. The correlation to other asset classes can contribute in terms of diversification
3. The project that will see widespread adoption in the real world will likely see the value of it's associated tokens increase by a many-fold

And why not invest? The same reasons, it's volatile, you can find diversification in lower risk products, and you don't necessarily want to follow a Taleb style portfolio of 90% security and 10% high risk high return. Fair enough.

Imagine if Bernie Madoff's Ponzi scheme was discovered by the markets, but for some obscure legal reason he could not be prosecuted or shut down. While some of today's investors would seek immediate exit, others would see value. They would see how his fund's stated performance has a low correlation to other assets. They would note the volatility but also note how Madoff's fund tends to go up and see in that "some form of utility" which will continue to attract future buyers due to FOMO. Certainly, they'd say, there is some risk associated with investing in a known Ponzi scheme, but that risk "can increase portfolio performance" as a diversifier "if properly risk managed" with a modest allocation. Madoff juices things by noting that his fund is buying back a few shares here and there, making the fund inherently deflationary - like a currency during a depression!

Now suppose Bernie Madoff declared "it is necessary for me to collect all of your money because we are investing in a new cold fusion powered quantum computing chip infrastructure that will completely change the world. It's all very hard for most people to understand." Now the flow of funds into his scheme increases. But wait, there's more! Madoff continues, "the chips with cold fusion reactors installed on them don't actually work very well right now, and can only complete a couple of clock cycles, so until the tech matures we will be using these 'lightning' chips which are surplus Intel chromebook processors." Now investors' mouths are watering. Madoff's fund represents both the tech of the future and a proof-of-concept today!

Shares in Madoff's known ponzi scheme go to the moon. Traders are doing technical analysis on YouTube, while others take a HODL approach. Kids on WallStreetBets start posting seven-figure gain porn and doing CNBC interviews from their parents' basements. Long-term thinkers discuss the implications of quantum-fusion-chips regarding radiation and the eventual plutonium contamination of the entire planet, but these thoughts are drowned out by debates over whether the 18 year old who bought a house with proceeds from Madoff's fund sold too soon and is going to regret it.

Occasionally, random investors in the fund see their assets go to zero. Madoff simply explains to them that "hackers" stole their shares and there's nothing he can do. Everyone accepts this.

talltexan

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Re: What do you think of adding a low% of crypto allocation
« Reply #354 on: October 28, 2021, 07:45:51 AM »
I'm not pressing him for any details. I've heard enough of this crap over the past 5 years. It's not possible for him to realize that these are scams because he is so invested in conspiracy theories. Unfortunately, his group is a pretty easy target on the internet for scams. People make a living taking money from these people. 

People are just going to have to wise up or get wiped out. Hundreds of thousands of Americans have just lost their lives to COVID, after vaccines became available, because they believed social media influencers over doctors, scientists, and public health experts. Millions more will suffer long COVID or disability. People are sitting in jail right now because they believed online nonsense and committed some act of violence or fraud. Now you have people putting everything into this hybrid ponzi / MLM coin scam because it keeps attracting marks and all the influencers are making (monetized) videos about it. If you wouldn't take stock-picking advice from Wall Street Bets, and you wouldn't take healthcare advice from Dr. Fucking Oz, and you're not doing the latest TikTok challenge that involves huffing WD-40 and trying to run down the street or whatever, then WTF would you let social media / media influence you to buy something that is both worthless and useless??? It's. All. The. Same. Gullibility.

Literal death and the loss of one's fortune is the price of believing disinformation on the internet. Wise up or die. Only the skeptical will survive in the 21st century.

https://www.rationaloptimist.com/ ;)

It looks like the discussion is derailing a bit into an argument about a new invention called the bicycle that is supposedly a great boat by it's proponents which is vehemently denied by it's opponents saying it will sink like a rock. We'll have some really smart and creative people explain how a contraption with the bicycle on top could potentially power the boat and therefore justify the utility of the bicycle, which naturally will be 'too complicated' to understand by intelligent opponents who really try to understand it all but cannot see how this would possibly be better than a paddle. In the meanwhile there is a small group of people seeing the bicycle for what it is, a great tool for transport on land.

Digital tokens, blockchain technology, smart contracts, they all have great potential to make our lives easier, but they do not all mean BTC and the only use case is not limited to 'digital currency'. Firstly, if you're not aware what each part is, and it's potential utility, read up on those separately (preferably outside of the context of BTC ).

Secondly, if we do want to have an argument what drives the price of a cryptocurrency, let's dive in systematically: just like any other financial asset it's driven by buyers and sellers who make trading decisions. As predominantly index investors we probably all know this to be emotional in the short term, enter your favorite Warren Buffet or Benjamin Graham quote. Luckily for an asset class such as equity this gets dampened over time as there is some real undeniable activity (or lack thereof) represented by the token (stock) you buy or sell. With a cryptocurrency, it's true that a lot of it's owners do not fully grasp the utility thereof, proving a lot of the opponents in this thread right that it tends to be a pump and dump scheme. Look at the volatility of BTC and read twitter, and the pump and dump is so transparent you wonder who would possibly fall for this.
Which brings us to the next point, aside from just popularity keeping the price from going to 0 frequently, what is the reason behind BTC and ETH, and other more accepted cryptocurrencies having an increasingly higher bottom? That is some form of utility. Whether in the case of BTC that utility is the decentralized nature of transferring value, or it's volatility by itself, or any other of a myriad of reasons, is all very debatable; but one thing that is increasingly clear is that the concept and underlying technology are persistent.
So lastly, why invest in BTC or ETH or other cryptocurrencies?
1. The volatility, if properly risk managed by e.g. assigning only a low allocation, can increase portfolio performance
2. The correlation to other asset classes can contribute in terms of diversification
3. The project that will see widespread adoption in the real world will likely see the value of it's associated tokens increase by a many-fold

And why not invest? The same reasons, it's volatile, you can find diversification in lower risk products, and you don't necessarily want to follow a Taleb style portfolio of 90% security and 10% high risk high return. Fair enough.

its not just volatility that matters here its that there is no underlying value to BTC other than it was the first one and people are buying it today.  if BTC had a patent on blockchain they'd probably have something but they don't.

it doesn't have a long enough history of anything to even begin to discuss correlation and diversification.  Its best comparison still is a lottery ticket or a beanie baby or some tulip bulbs.

These comparisons are what are awkward for me. Even if I miss a genuine opportunity for value with Bitcoin, I enable behavior within myself that could well lose all those gains when the next rapidly surging asset is created.

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #355 on: October 28, 2021, 09:35:26 AM »
Lost a decade long friendship because I tried to smile and nod, but just couldn't for too long and told a guy exactly what I thought of his day-trading Dogecoin scheme - that coin is pretty stupid, but not nearly the most stupid coin out there.

I'm sorry to hear this Dandarc.  Losing friendships over how another person chooses to allocate their retirement savings seems super sad to me. 

And super important to make a good case right now because you really need those greater fools if you want to exchange your crypto for anything useful. So far, the arguments are just not very convincing, particularly to those of us who got to hear all of them back in 2018 or whenever that last big BTC runup happened, and the time before that.

I don't need greater fools to make money in this space.  Take, for example, a small investment I've made in VeChain (about 3k).  The purpose of this crypto is to use a blockchain as a validator/authenticator.  If you are a maker of name brand sunglasses, you may choose to use VeChain to allow consumers to quickly and with confidence know that you are buying the legit product instead of a knockoff.  It can be used in supply chain management to track/verify where goods are, that they have been stored at the correct temperature along the way, etc. 

Here's a brief quote that I think does a good job of summing up the plans for VeChain:  VeChain is a blockchain-enabled platform that is designed to enhance supply chain management processes. By utilizing tamper-proof and distributed ledger technology, VeChain provides retailers and consumers with the ability to determine the quality and authenticity of products that are bought. From product source materials, to servicing history, and spare part replacements, every single piece of information about the supply chain movement of a product can be recorded and verified to bring about a supply chain management ecosystem that is secure for all participants. VeChain plans to achieve this secure supply chain management ecosystem via the method of asset digitization. VeChain enables manufactures to assign products with unique identities to the platform. This will allow manufacturers, supply chain partners, and even consumers, to track the movement of products through their supply chain.


Although the work I've put into studying VeChain suggests to me that they are doing this better than other companies at the moment, it's possible that another crypto or technology could overtake VeChain, in the same way that any business venture can get beat by a stronger company over time.  But to say that my success in this cypto depends on someone even more foolish to buy my stake in VeChain is false. 

If you want to criticize me for investing in a single company rather than an index, I can see merit for that.  Personally, I have been nothing but 100% VTSAX since I started my FIRE journey 6 years ago.  We are, after all, on Mr. Money Mustache's forum, where face punches for buying individual ventures is part of the fun.  But to hold a position that crypto is just fools looking for even greater fools only hurting yourself in the long run. 

Finally, I want to say that this sentiment is WHY I'm venturing out of purely VTSAX.  I find that 95% plus of people I talk to and read on the internet seem to share your view that crypto is fools looking for bigger fools.  Because of this, my thesis is that groups trying to solve real-world problems using crypto are vastly underpriced in the market.  The total market cap of all things crypto is about 2.5 trillion dollars.  It will be MANY times that when the world realizes that it's actually pretty straightforward to tell which cryptos are composed of legit teams who are finding ways to solve problems that businesses and individuals currently face.  So, while this space is still massively misunderstood and under funded, I will be deviating from my all Index Fund strategy and finding a variety of projects that are solving real problems. 

Cheers. 
« Last Edit: October 28, 2021, 09:43:38 AM by aceyou »

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #356 on: October 28, 2021, 10:03:26 AM »
Lost a decade long friendship because I tried to smile and nod, but just couldn't for too long and told a guy exactly what I thought of his day-trading Dogecoin scheme - that coin is pretty stupid, but not nearly the most stupid coin out there.

I'm sorry to hear this Dandarc.  Losing friendships over how another person chooses to allocate their retirement savings seems super sad to me. 

And super important to make a good case right now because you really need those greater fools if you want to exchange your crypto for anything useful. So far, the arguments are just not very convincing, particularly to those of us who got to hear all of them back in 2018 or whenever that last big BTC runup happened, and the time before that.

I don't need greater fools to make money in this space.  Take, for example, a small investment I've made in VeChain (about 3k).  The purpose of this crypto is to use a blockchain as a validator/authenticator.  If you are a maker of name brand sunglasses, you may choose to use VeChain to allow consumers to quickly and with confidence know that you are buying the legit product instead of a knockoff.  It can be used in supply chain management to track/verify where goods are, that they have been stored at the correct temperature along the way, etc. 

Here's a brief quote that I think does a good job of summing up the plans for VeChain:  VeChain is a blockchain-enabled platform that is designed to enhance supply chain management processes. By utilizing tamper-proof and distributed ledger technology, VeChain provides retailers and consumers with the ability to determine the quality and authenticity of products that are bought. From product source materials, to servicing history, and spare part replacements, every single piece of information about the supply chain movement of a product can be recorded and verified to bring about a supply chain management ecosystem that is secure for all participants. VeChain plans to achieve this secure supply chain management ecosystem via the method of asset digitization. VeChain enables manufactures to assign products with unique identities to the platform. This will allow manufacturers, supply chain partners, and even consumers, to track the movement of products through their supply chain.


Although the work I've put into studying VeChain suggests to me that they are doing this better than other companies at the moment, it's possible that another crypto or technology could overtake VeChain, in the same way that any business venture can get beat by a stronger company over time.  But to say that my success in this cypto depends on someone even more foolish to buy my stake in VeChain is false. 

If you want to criticize me for investing in a single company rather than an index, I can see merit for that.  Personally, I have been nothing but 100% VTSAX since I started my FIRE journey 6 years ago.  We are, after all, on Mr. Money Mustache's forum, where face punches for buying individual ventures is part of the fun.  But to hold a position that crypto is just fools looking for even greater fools only hurting yourself in the long run. 

Finally, I want to say that this sentiment is WHY I'm venturing out of purely VTSAX.  I find that 95% plus of people I talk to and read on the internet seem to share your view that crypto is fools looking for bigger fools.  Because of this, my thesis is that groups trying to solve real-world problems using crypto are vastly underpriced in the market.  The total market cap of all things crypto is about 2.5 trillion dollars.  It will be MANY times that when the world realizes that it's actually pretty straightforward to tell which cryptos are composed of legit teams who are finding ways to solve problems that businesses and individuals currently face.  So, while this space is still massively misunderstood and under funded, I will be deviating from my all Index Fund strategy and finding a variety of projects that are solving real problems. 

Cheers.

This seems to be almost a space where you can be a venture capitalist as a small guy.  I can kinda get behind this explanation and could see allocating money to this with a group of people that are all researching and studying similar trends in the blockchain application industry.  Why haven't you stated your stake in something like this before.  For the most part people here are talking about BTC i know there are other things out there and a few others have been mentioned but very few things here have been mentioned like what you just did about vechain which IMO greatly changes the entire discussion about investing in blockchain technologies.

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #357 on: October 28, 2021, 11:32:04 AM »
@aceyou - the friend thing, at least from my perspective, was just another of this friend's MLM-adjacent activities, and probably ultimately good he got super pissed off that I wasn't impressed by his new-found financially responsibility demonstrated by DAY TRADING DOGECOIN. FFS - you had a kid and want to be more financially responsible, so your big solution is ramping up your gambling.
 
My point about needing to find the greater fool was if your investment is in the form of crypto currency, then you do need someone to sell it to if you want to exchange that for something other than other crypto currency - as clarkfan pointed out, you can't buy a house with crypto. I don't think VeChain is an exception to this. You don't own anything other than the VET. It doesn't pay dividends - actually it is a non-profit, so paying a dividend would be illegal, at least in the US (assuming they want to be a real non-profit and have the benefits that come with that and not just a company that doesn't make money).

So please, explain to me how this coin is making you money without selling it - your post just claims you're making money with VeChain without explaining how you're making money from owning it.

Or maybe we're just crossing wires because I used what I thought was a common idiom - when you have a purely speculative investment, for the investment to work out, you need someone to sell it to. This is why we don't tax unrealized capital gains - until you sell you actually haven't gained anything. "The greater fool" I'm referring to is whoever buys the thing from the person currently holding it. If your investment is crypto or gold or baseball cards or old silver coins or a house that you're not renting out, you haven't made a profit until you sell (or borrow against, although to borrow against something there generally needs to be a reasonable belief the lender could sell the thing if they have to).
« Last Edit: October 28, 2021, 11:45:55 AM by dandarc »

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #358 on: October 28, 2021, 11:42:56 AM »
Is the fake crypto he bought on this list of 6800+ crypto currencies?
https://coinmarketcap.com/
For the sake of pointing it out: Just because it's on CoinMarketCap doesn't mean it's not a scam.  There's a bunch of garbage that's listed on there that's basically a bunch of dudes saying "let's make a coin from some open source code, hype it on reddit/social media to sucker people in, get the price to go up, and then we can cash out".  I'd go so far as to say that *most* of these coins will eventually be worthless (and a non-trivial number are outright scams), but there will be a handful of genuine ones that survive to become important/impactful beyond an investment tool.
That's an important point: worthless or scam coins can appear there, especially near the bottom of those 6800 coins.  I had a suspicion the scammer mentioned earlier didn't even go to that much effort.

A more detailed approach would find the coin in that list, view the 24h trade volume and markets.  Are top exchanges providing a market?  If not, I'd stay away.  For example, "SushiSwap" ranked #81 is listed on top exchanges.  But "Greenpower" ranked #6000 is listed on two exchanges - one with $0 volume, and the other with $28 daily volume.  It's weird that the #191 exchange picked this specific token as one of it's 8 markets - I suspect something odd is going on, and would stay away.
https://coinmarketcap.com/currencies/sushiswap/markets/
https://coinmarketcap.com/currencies/greenpower/markets/

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Re: What do you think of adding a low% of crypto allocation
« Reply #359 on: October 28, 2021, 12:24:54 PM »
I don't need greater fools to make money in this space.  Take, for example, a small investment I've made in VeChain (about 3k).

Oh, neat! How do you make money? Where's it come from?

The purpose of this crypto is to use a blockchain as a validator/authenticator.  If you are a maker of name brand sunglasses, you may choose to use VeChain to allow consumers to quickly and with confidence know that you are buying the legit product instead of a knockoff.  It can be used in supply chain management to track/verify where goods are, that they have been stored at the correct temperature along the way, etc. 

How's that work? What prevents someone from, say, writing false temperature values or false location data? Or a false "these are totally legit D&G sunglasses!" data? Is there an authority needed to verify these things?

Although the work I've put into studying VeChain suggests to me that they are doing this better than other companies at the moment, it's possible that another crypto or technology could overtake VeChain, in the same way that any business venture can get beat by a stronger company over time.  But to say that my success in this cypto depends on someone even more foolish to buy my stake in VeChain is false. 

Oh? Then how do you "succeed" here? Or is your point that the next buyer isn't foolish?

If you want to criticize me for investing in a single company rather than an index, I can see merit for that.  Personally, I have been nothing but 100% VTSAX since I started my FIRE journey 6 years ago.  We are, after all, on Mr. Money Mustache's forum, where face punches for buying individual ventures is part of the fun.  But to hold a position that crypto is just fools looking for even greater fools only hurting yourself in the long run. 
Wait... did you invest in a business (buy stock in this company?) or did you buy some cryptocurrency on this VeChain blockchain?

Finally, I want to say that this sentiment is WHY I'm venturing out of purely VTSAX.  I find that 95% plus of people I talk to and read on the internet seem to share your view that crypto is fools looking for bigger fools.  Because of this, my thesis is that groups trying to solve real-world problems using crypto are vastly underpriced in the market.  The total market cap of all things crypto is about 2.5 trillion dollars.  It will be MANY times that when the world realizes that it's actually pretty straightforward to tell which cryptos are composed of legit teams who are finding ways to solve problems that businesses and individuals currently face.  So, while this space is still massively misunderstood and under funded, I will be deviating from my all Index Fund strategy and finding a variety of projects that are solving real problems. 

Couple things:
1. I have yet to see a single real-world problem solved by blockchain (this VeChain example included). What you've described does not at all make sense to me as a use-case for a blockchain. There are necessarily trusted authorities (e.g., who verifies a pair of Oakley sunglasses are Oakley sunglasses? How do you verify the location data of the shipping containers? The temperature? What is verifiable from the physical product to the digital blockchain? Is there a encrypted message printed on the products? How do you guarantee that isn't simply copied? etc.) A hot tip for analyzing future ventures like this: if someone is claiming to use the blockchain to do anything in the real world, it's guaranteed malarkey. You've been swindled, as have any investors who've given this company money.
2. A market cap of a speculative asset is a hilarious concept. It makes no sense whatsoever. If I sell you 1 of 1,000,000,000,000 gastro-tokens I've just created out-of-thin-air (it's on the blockchain, and will definitely solve world hunger by tracking and producing lots of healthy food on the blockchain—you want to invest?) for $1, I'm not suddenly the world's richest man, and worth further investment because of my freshly-minted $1T market cap. That's obviously ridiculous. That Shiba Inu Coin—a blatant copy of another joke-coin, DogeCoin—has a larger market cap than General Mills, Delta Airlines, Best Buy, etc. should probably give you a hint that this is a silly measurement.
« Last Edit: October 28, 2021, 12:35:43 PM by the_gastropod »

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #360 on: October 28, 2021, 12:50:30 PM »
Lost a decade long friendship because I tried to smile and nod, but just couldn't for too long and told a guy exactly what I thought of his day-trading Dogecoin scheme - that coin is pretty stupid, but not nearly the most stupid coin out there.

I'm sorry to hear this Dandarc.  Losing friendships over how another person chooses to allocate their retirement savings seems super sad to me. 

And super important to make a good case right now because you really need those greater fools if you want to exchange your crypto for anything useful. So far, the arguments are just not very convincing, particularly to those of us who got to hear all of them back in 2018 or whenever that last big BTC runup happened, and the time before that.

I don't need greater fools to make money in this space.  Take, for example, a small investment I've made in VeChain (about 3k).  The purpose of this crypto is to use a blockchain as a validator/authenticator.  If you are a maker of name brand sunglasses, you may choose to use VeChain to allow consumers to quickly and with confidence know that you are buying the legit product instead of a knockoff.  It can be used in supply chain management to track/verify where goods are, that they have been stored at the correct temperature along the way, etc. 

Here's a brief quote that I think does a good job of summing up the plans for VeChain:  VeChain is a blockchain-enabled platform that is designed to enhance supply chain management processes. By utilizing tamper-proof and distributed ledger technology, VeChain provides retailers and consumers with the ability to determine the quality and authenticity of products that are bought. From product source materials, to servicing history, and spare part replacements, every single piece of information about the supply chain movement of a product can be recorded and verified to bring about a supply chain management ecosystem that is secure for all participants. VeChain plans to achieve this secure supply chain management ecosystem via the method of asset digitization. VeChain enables manufactures to assign products with unique identities to the platform. This will allow manufacturers, supply chain partners, and even consumers, to track the movement of products through their supply chain.


Although the work I've put into studying VeChain suggests to me that they are doing this better than other companies at the moment, it's possible that another crypto or technology could overtake VeChain, in the same way that any business venture can get beat by a stronger company over time.  But to say that my success in this cypto depends on someone even more foolish to buy my stake in VeChain is false. 

If you want to criticize me for investing in a single company rather than an index, I can see merit for that.  Personally, I have been nothing but 100% VTSAX since I started my FIRE journey 6 years ago.  We are, after all, on Mr. Money Mustache's forum, where face punches for buying individual ventures is part of the fun.  But to hold a position that crypto is just fools looking for even greater fools only hurting yourself in the long run. 

Finally, I want to say that this sentiment is WHY I'm venturing out of purely VTSAX.  I find that 95% plus of people I talk to and read on the internet seem to share your view that crypto is fools looking for bigger fools.  Because of this, my thesis is that groups trying to solve real-world problems using crypto are vastly underpriced in the market.  The total market cap of all things crypto is about 2.5 trillion dollars.  It will be MANY times that when the world realizes that it's actually pretty straightforward to tell which cryptos are composed of legit teams who are finding ways to solve problems that businesses and individuals currently face.  So, while this space is still massively misunderstood and under funded, I will be deviating from my all Index Fund strategy and finding a variety of projects that are solving real problems. 

Cheers.

This seems to be almost a space where you can be a venture capitalist as a small guy.  I can kinda get behind this explanation and could see allocating money to this with a group of people that are all researching and studying similar trends in the blockchain application industry.  Why haven't you stated your stake in something like this before.  For the most part people here are talking about BTC i know there are other things out there and a few others have been mentioned but very few things here have been mentioned like what you just did about vechain which IMO greatly changes the entire discussion about investing in blockchain technologies.

Hey Boarder, I haven't stated my stake in this before, because it's all super new to me and I'm learning as fast as I can.  Here's the best I can describe a timeline of my growing understanding/mindset since June...

1.  At the start of this summer - "This crypto thing doesn't seem to be going away as I thought it would.  I think I'm going to dig in a bit and see if I can make sense of what the hell it's even about."
 
2.  Middle of Summer - "Wow, there's a ton of legitimately cool and important stuff happening in the space.  There's tons of viable projects, but I don't know enough to tell a viable project from shit project that won't go anywhere."

3.  August - "Alright I understand Bitcoin and Ethereum.  These things aren't going away any time soon.  Bitcoin at worst is an amazing store of value, and at best, can become a currency if the Lightning Network pans out(which appears to be happening).  Ethereum, however, has TONS of use cases, particularly in the realm of Decentralized Finance, Non-Fungible Tokens, the gaming community, and the list goes on.  I'm ready to stake an amount of money that matters to me on those chains." 

4.  September/Early October - "I could just ride out Ethereum/Bitcoin, but you know what, studying all the different groups of coders around the world who are trying to use blockchains to solve real-world problems is absolutely fascinating to me.  At this point, I'm daily reading the white papers where the founders of projects state their intentions with their coins, watching an hour or two of youtube channels where people smarter than me explain in detail what various blockchains are, what problems they solve, the strength of the team of developers behind them, the established corporations they have contracts with for their services, and so forth". 

5.  Mid-October - "Ok, my 700k stache back in August is now up to 800k, mostly due to crypto gains.  I now have incredible confidence from my growing understanding of the space that Ethereum and Bitcoin have so much more upside than downside.  People have no idea how undervalued it is, and until they do, I can buy things at a MASSIVE discount. I feel comfortable putting 400k of my 800k stache into cyrpto. My wife and I are 10 years from a pension that will pay out a combined 100k per year and have a 400k house that is 75% paid off.  This 400k will make absolutely no difference in my ability to FIRE in 10 years, but if my thesis is correct, I may be able to justify retiring far before the pensions vest.  I have high upside if I'm right, and low downside if I'm wrong".

6.  Past Week - It's now time for me to stop just reading about all these cool projects and create a portfolio that gives me some exposure to them.  I am still working out a few kinks and executing trades, but here is where I expect my positions to be when the dust settles in the coming days:

VTSAX: 400k
Ethereum: 235k
Bitcoin: 127k
Altcoins (Currently: VeChain, Enjin, Polkadot, Chainlink, Avalanche, Aave, Cardano, Solana, Uniswap): 40k

7.  Moving forward: My son is 9 and is very into playing Pokemon Go.  Now that I have a portfolio of cryptos that I feel comfortable holding for a year or two, I want to explore the space as a user and not just as an investor.  There are videogames on blockchains where you can buy characters (as Non-Fungible Tokens) and use those characters to play video games where you get paid to play.  I'm looking to buy some of these characters as a way to help my son learn about the space in a way that will motivate him.  I see coding as a possible career option for him, and I want him to feel like a digital native in the cypto space.  I expect to make a low hourly rate in doing this, but see it as high value if it provides a way to get my children learning about a growing field.  Plus it's something fun we can do together. 

So yeah, I don't always post tons of specifics on this message board because there's a lag time between when you understand something, and when you can competently explain it to other really smart people.  I'm trying to stay in my lane, and only delve into details when I am confident I can competently explain what the hell I'm talking about. 

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #361 on: October 28, 2021, 01:04:08 PM »
@aceyou - the friend thing, at least from my perspective, was just another of this friend's MLM-adjacent activities, and probably ultimately good he got super pissed off that I wasn't impressed by his new-found financially responsibility demonstrated by DAY TRADING DOGECOIN. FFS - you had a kid and want to be more financially responsible, so your big solution is ramping up your gambling.
 
My point about needing to find the greater fool was if your investment is in the form of crypto currency, then you do need someone to sell it to if you want to exchange that for something other than other crypto currency - as clarkfan pointed out, you can't buy a house with crypto. I don't think VeChain is an exception to this. You don't own anything other than the VET. It doesn't pay dividends - actually it is a non-profit, so paying a dividend would be illegal, at least in the US (assuming they want to be a real non-profit and have the benefits that come with that and not just a company that doesn't make money).

So please, explain to me how this coin is making you money without selling it - your post just claims you're making money with VeChain without explaining how you're making money from owning it.

Or maybe we're just crossing wires because I used what I thought was a common idiom - when you have a purely speculative investment, for the investment to work out, you need someone to sell it to. This is why we don't tax unrealized capital gains - until you sell you actually haven't gained anything. "The greater fool" I'm referring to is whoever buys the thing from the person currently holding it. If your investment is crypto or gold or baseball cards or old silver coins or a house that you're not renting out, you haven't made a profit until you sell (or borrow against, although to borrow against something there generally needs to be a reasonable belief the lender could sell the thing if they have to).

When people say they are investing in VTSAX, do you bring up the "greater fool" argument?  I mean, in the way you are describing it, isn't investing in VTSAX is equally a greater fool situation.  I can't go to the store and buy milk with VTSAX in retirement.  Rather, I find a "greater fool" to give me dollars for my VTSAX, then I use that fool's money to buy milk. 

Actually, I could argue that VTSAX more of a greater fool situation than my crypto.   With VTSAX I gotta find a fool to buy my shares before I can buy anything.  But with my bitcoin, I could technically fly to El Salvador, and directly buy milk with the Bitcoin through the Lightning Network.  So I guess cyrpto isn't AS MUCH of a greater fool situation as VTSAX, but we would never use that kind of verbiage around here for someone buying their index fund. 

Oh, and I much better understand your fallout with your friend, thanks for the explanation.  When people are putting their family's security at stake repeatedly by taking risks that they don't understand and can't afford to take, that's tough to be around.  At some point, it's best for your own happiness to not be around that anymore. 


dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #362 on: October 28, 2021, 01:14:42 PM »
Right - you don't actually know what you're holding in VTSAX, nor do you know how your VET is making you money as you claimed. So, congratulations @aceyou, you're on the ignore list as someone who really, truly should be ignored.

FFS - 3 months where you got lucky (and haven't yet cashed out, so haven't actually made any real gains yet with this) and you're lecturing others?

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Re: What do you think of adding a low% of crypto allocation
« Reply #363 on: October 28, 2021, 01:20:27 PM »
1. I have yet to see a single real-world problem solved by blockchain (this VeChain example included). What you've described does not at all make sense to me as a use-case for a blockchain.
Criminals robbing people with ransom ware?  That's the largest category of criminal activity with Bitcoin, according to an analysis I read.  Gone are years past when Bitcoin solved the problem of buying illegal drugs!  The FBI got rather good at catching illegal websites that way (as an aside, I believe the FBI now holds the largest Bitcoin wallet in the world, from all the BTC they seized from criminals).


Actually, I could argue that VTSAX more of a greater fool situation than my crypto.   With VTSAX I gotta find a fool to buy my shares before I can buy anything.  But with my bitcoin, I could technically fly to El Salvador, and directly buy milk with the Bitcoin through the Lightning Network.
VTSAX issues dividends in cash.  If they keep dividends that should be paid to shareholders, that violates security laws.  It's not really fair to claim ownership rights over U.S. companies have no resale value, since the underlying company has value.  None of those laws and rights apply to Bitcoin.

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Re: What do you think of adding a low% of crypto allocation
« Reply #364 on: October 28, 2021, 01:35:05 PM »
When people say they are investing in VTSAX, do you bring up the "greater fool" argument?  I mean, in the way you are describing it, isn't investing in VTSAX is equally a greater fool situation.  I can't go to the store and buy milk with VTSAX in retirement.  Rather, I find a "greater fool" to give me dollars for my VTSAX, then I use that fool's money to buy milk. 

Crypto enthusiasts paint in whataboutism like DaVinci used paints. It's impressive to watch—truly.

But no. VTSAX pays a dividend, currently right around $1.50/share, with a long track record of increasing because... y'know, the actual businesses that you own as part of holding VTSAX tend to turn a profit, and since the economy tends to grow, profits do too, so dividends tend to grow.

Now, a posession that produces $1.50 every year on its own has some value, don't you think? If it cost $1.00, for example, you'd be an absolute buffoon to not to put every dollar you owned into that. So there's a floor—VTSAX absolutely cannot—assuming dividends continue to flow as they have—go below some "reasonably good deal" threshold, because VTSAX shares are little money printers.

Cryptocurrencies are not shares in businesses. They're numbers in a database on the internet. The floor is 0. There's no reason anyone should want to hold a crypto coin, unless there's an expectation someone will give you more money for it later. That is the only way to make money in this system.

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #365 on: October 28, 2021, 01:41:28 PM »
Criminals robbing people with ransom ware?  That's the largest category of criminal activity with Bitcoin, according to an analysis I read.  Gone are years past when Bitcoin solved the problem of buying illegal drugs!  The FBI got rather good at catching illegal websites that way (as an aside, I believe the FBI now holds the largest Bitcoin wallet in the world, from all the BTC they seized from criminals).

Hah! Touché. And I guess to be fully fair, I have heard one other arguably valid use-case: gambling. I could create, for example, a smart contract "game" of a coin flip. Players would put up a bet, the coin flip happens, and money is transferred accordingly. It'd have to be a fairly trivial game like this, because everyone would need to be able to read the "contract" (code), making any sufficiently complex game unlikely doable. But... I guess that's something?

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Re: What do you think of adding a low% of crypto allocation
« Reply #366 on: October 28, 2021, 01:48:50 PM »
1. I have yet to see a single real-world problem solved by blockchain (this VeChain example included). What you've described does not at all make sense to me as a use-case for a blockchain.
Criminals robbing people with ransom ware?  That's the largest category of criminal activity with Bitcoin, according to an analysis I read.  Gone are years past when Bitcoin solved the problem of buying illegal drugs!  The FBI got rather good at catching illegal websites that way (as an aside, I believe the FBI now holds the largest Bitcoin wallet in the world, from all the BTC they seized from criminals).


Actually, I could argue that VTSAX more of a greater fool situation than my crypto.   With VTSAX I gotta find a fool to buy my shares before I can buy anything.  But with my bitcoin, I could technically fly to El Salvador, and directly buy milk with the Bitcoin through the Lightning Network.
VTSAX issues dividends in cash.  If they keep dividends that should be paid to shareholders, that violates security laws.  It's not really fair to claim ownership rights over U.S. companies have no resale value, since the underlying company has value.  None of those laws and rights apply to Bitcoin.

the FBI needs to be cashing those in to pay down the national debt.

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #367 on: October 28, 2021, 01:49:06 PM »
Criminals robbing people with ransom ware?  That's the largest category of criminal activity with Bitcoin, according to an analysis I read.  Gone are years past when Bitcoin solved the problem of buying illegal drugs!  The FBI got rather good at catching illegal websites that way (as an aside, I believe the FBI now holds the largest Bitcoin wallet in the world, from all the BTC they seized from criminals).

Hah! Touché. And I guess to be fully fair, I have heard one other arguably valid use-case: gambling. I could create, for example, a smart contract "game" of a coin flip. Players would put up a bet, the coin flip happens, and money is transferred accordingly. It'd have to be a fairly trivial game like this, because everyone would need to be able to read the "contract" (code), making any sufficiently complex game unlikely doable. But... I guess that's something?
I know a guy who charges something like $500 / hour to validate that the lottery's random-number generator is indeed sufficiently random. Let me find out how much BTC it would take for him to give your game legitimacy. Then you just code it so the coin you're flipping lands on-edge once every 100 or 1000 times and both players lose to the developers. Assuming your coin can be exchanged for real money somewhere you've got yourself a nice little business if you can find people to play it. Until the gambling regulators come calling anyway.

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #368 on: October 28, 2021, 02:20:18 PM »
I'd argue the floor for value with any given coin is less than zero. At least until there are widespread and tested laws along with some actual court rulings establishing that liability for activity involving that coin cannot be passed on to the coin holders & traders just for holding and transacting with the coin. Is what you or whatever is happening with the coins you're supporting by holding them legal? What are the consequences if it is found to be illegal? Aside from obvious illegal activity, the answer is "I don't know", and even then - might BTC holders one day be found liable for supporting those ransomware attacks? Has a court even been asked that question yet?

Publicly traded companies on the other hand have long-standing and battle-tested laws shielding small individual shareholders from the company's liabilities. And that comes with some massive tradeoffs for the company - regulatory requirements and fundamentally unfavorable tax treatment. There is big upside to having easily accessible investments to individuals, but it absolutely must come with these big trade offs because the opportunity is so great to take unfair advantage of people and society at large. Is it perfect? Obviously not, but there is at least an attempt at making this whole situation workable so all of us retail investors don't get too screwed over when we stick to regulated investments.

Crypto as an investment has the potential big upside for people, and the massive opportunity to exploit people is obviously there too. What is lacking are the necessary laws and regulations to make this all a reasonable thing for society at large - it hasn't gotten big enough for regulators to really do anything until quite recently (someone made this point upthread). So buyer beware.

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Re: What do you think of adding a low% of crypto allocation
« Reply #369 on: October 28, 2021, 05:40:06 PM »

I don't need greater fools to make money in this space.  Take, for example, a small investment I've made in VeChain (about 3k).  The purpose of this crypto is to use a blockchain as a validator/authenticator.  If you are a maker of name brand sunglasses, you may choose to use VeChain to allow consumers to quickly and with confidence know that you are buying the legit product instead of a knockoff.  It can be used in supply chain management to track/verify where goods are, that they have been stored at the correct temperature along the way, etc. 

Here's a brief quote that I think does a good job of summing up the plans for VeChain:  VeChain is a blockchain-enabled platform that is designed to enhance supply chain management processes. By utilizing tamper-proof and distributed ledger technology, VeChain provides retailers and consumers with the ability to determine the quality and authenticity of products that are bought. From product source materials, to servicing history, and spare part replacements, every single piece of information about the supply chain movement of a product can be recorded and verified to bring about a supply chain management ecosystem that is secure for all participants. VeChain plans to achieve this secure supply chain management ecosystem via the method of asset digitization. VeChain enables manufactures to assign products with unique identities to the platform. This will allow manufacturers, supply chain partners, and even consumers, to track the movement of products through their supply chain.


Although the work I've put into studying VeChain suggests to me that they are doing this better than other companies at the moment, it's possible that another crypto or technology could overtake VeChain, in the same way that any business venture can get beat by a stronger company over time.  But to say that my success in this cypto depends on someone even more foolish to buy my stake in VeChain is false. 
.

This seems to be almost a space where you can be a venture capitalist as a small guy.  I can kinda get behind this explanation and could see allocating money to this with a group of people that are all researching and studying similar trends in the blockchain application industry.  Why haven't you stated your stake in something like this before.  For the most part people here are talking about BTC i know there are other things out there and a few others have been mentioned but very few things here have been mentioned like what you just did about vechain which IMO greatly changes the entire discussion about investing in blockchain technologies.

Hey Boarder, I haven't stated my stake in this before, because it's all super new to me and I'm learning as fast as I can.  Here's the best I can describe a timeline of my growing understanding/mindset since June...

1.  At the start of this summer - "This crypto thing doesn't seem to be going away as I thought it would.  I think I'm going to dig in a bit and see if I can make sense of what the hell it's even about."
 
2.  Middle of Summer - "Wow, there's a ton of legitimately cool and important stuff happening in the space.  There's tons of viable projects, but I don't know enough to tell a viable project from shit project that won't go anywhere."

3.  August - "Alright I understand Bitcoin and Ethereum.  These things aren't going away any time soon.  Bitcoin at worst is an amazing store of value, and at best, can become a currency if the Lightning Network pans out(which appears to be happening).  Ethereum, however, has TONS of use cases, particularly in the realm of Decentralized Finance, Non-Fungible Tokens, the gaming community, and the list goes on.  I'm ready to stake an amount of money that matters to me on those chains." 

4.  September/Early October - "I could just ride out Ethereum/Bitcoin, but you know what, studying all the different groups of coders around the world who are trying to use blockchains to solve real-world problems is absolutely fascinating to me.  At this point, I'm daily reading the white papers where the founders of projects state their intentions with their coins, watching an hour or two of youtube channels where people smarter than me explain in detail what various blockchains are, what problems they solve, the strength of the team of developers behind them, the established corporations they have contracts with for their services, and so forth". 

5.  Mid-October - "Ok, my 700k stache back in August is now up to 800k, mostly due to crypto gains.  I now have incredible confidence from my growing understanding of the space that Ethereum and Bitcoin have so much more upside than downside.  People have no idea how undervalued it is, and until they do, I can buy things at a MASSIVE discount. I feel comfortable putting 400k of my 800k stache into cyrpto. My wife and I are 10 years from a pension that will pay out a combined 100k per year and have a 400k house that is 75% paid off.  This 400k will make absolutely no difference in my ability to FIRE in 10 years, but if my thesis is correct, I may be able to justify retiring far before the pensions vest.  I have high upside if I'm right, and low downside if I'm wrong".

6.  Past Week - It's now time for me to stop just reading about all these cool projects and create a portfolio that gives me some exposure to them.  I am still working out a few kinks and executing trades, but here is where I expect my positions to be when the dust settles in the coming days:

VTSAX: 400k
Ethereum: 235k
Bitcoin: 127k
Altcoins (Currently: VeChain, Enjin, Polkadot, Chainlink, Avalanche, Aave, Cardano, Solana, Uniswap): 40k

7.  Moving forward: My son is 9 and is very into playing Pokemon Go.  Now that I have a portfolio of cryptos that I feel comfortable holding for a year or two, I want to explore the space as a user and not just as an investor.  There are videogames on blockchains where you can buy characters (as Non-Fungible Tokens) and use those characters to play video games where you get paid to play.  I'm looking to buy some of these characters as a way to help my son learn about the space in a way that will motivate him.  I see coding as a possible career option for him, and I want him to feel like a digital native in the cypto space.  I expect to make a low hourly rate in doing this, but see it as high value if it provides a way to get my children learning about a growing field.  Plus it's something fun we can do together. 

So yeah, I don't always post tons of specifics on this message board because there's a lag time between when you understand something, and when you can competently explain it to other really smart people.  I'm trying to stay in my lane, and only delve into details when I am confident I can competently explain what the hell I'm talking about. 

Interesting explanation! Good luck, @aceyou.

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #370 on: October 29, 2021, 09:22:19 AM »
Thanks BicycleB!

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #371 on: October 29, 2021, 09:35:24 AM »
When people say they are investing in VTSAX, do you bring up the "greater fool" argument?  I mean, in the way you are describing it, isn't investing in VTSAX is equally a greater fool situation.  I can't go to the store and buy milk with VTSAX in retirement.  Rather, I find a "greater fool" to give me dollars for my VTSAX, then I use that fool's money to buy milk. 

Crypto enthusiasts paint in whataboutism like DaVinci used paints. It's impressive to watch—truly.

But no. VTSAX pays a dividend, currently right around $1.50/share, with a long track record of increasing because... y'know, the actual businesses that you own as part of holding VTSAX tend to turn a profit, and since the economy tends to grow, profits do too, so dividends tend to grow.

Now, a posession that produces $1.50 every year on its own has some value, don't you think? If it cost $1.00, for example, you'd be an absolute buffoon to not to put every dollar you owned into that. So there's a floor—VTSAX absolutely cannot—assuming dividends continue to flow as they have—go below some "reasonably good deal" threshold, because VTSAX shares are little money printers.

Cryptocurrencies are not shares in businesses. They're numbers in a database on the internet. The floor is 0. There's no reason anyone should want to hold a crypto coin, unless there's an expectation someone will give you more money for it later. That is the only way to make money in this system.

In the stock market, some stocks pay dividends, and others do not.  Some cryptos, in their own way, behaves in this manner as well. 

An example is Ethereum.  They are currently shifting from a "proof of work" to a "proof of stake" method to secure their network.  This means that people have to be willing to "stake" their eth, which means they agree to lock up their Eth for a set time period before they have access to it again.  Staking requires like 100 times less energy to secure the network compared to a proof of work system like Bitcoin, so most coins are now going in that type of a direction.  Don't quote me, but I think you get 5% interest for Eth that you choose to stake. 

I don't stake Eth, because I prefer to retain the ability to buy/sell when I want at this time as I continue to gain familiarity with the space.  But if I DID choose to stake, then my investment returns would come in two ways: 1) appreciation/depreciation of Eth compared to the US Dollar (just like the growth/decay of a stock price), and 2) the 5% interest, which effectively acts like a dividend, except it's way higher than the 1.5% I'm currently receiving from VTSAX. 

So, if I wanted, I could stake lots of my cyrpto investments, and live off the interest, which I could use to buy goods and services, without ever needing to sell my initial Eth.  Not exactly the same as a dividend, but the end result is about the same IMO. 

talltexan

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Re: What do you think of adding a low% of crypto allocation
« Reply #372 on: October 29, 2021, 11:34:13 AM »
@aceyou , I appreciate your candor and specifics.

I don't have access to key details, like Aceyou's retirement horizon, or ability to generate income today, but that is a massive allocation to Bitcoin and Ether, far in excess of the "low%" that is advertised in the title of this thread. If you're a new reader considering crypto, please consider carefully whether making crypto 40% of a seven digit net worth will work within your risk tolerance. Emotionally, I'd find it difficult to experience 10% of my NW evaporating in twelve hours several times a year.


the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #373 on: October 29, 2021, 11:42:14 AM »
In the stock market, some stocks pay dividends, and others do not.  Some cryptos, in their own way, behaves in this manner as well. 

An example is Ethereum.  They are currently shifting from a "proof of work" to a "proof of stake" method to secure their network.  This means that people have to be willing to "stake" their eth, which means they agree to lock up their Eth for a set time period before they have access to it again.  Staking requires like 100 times less energy to secure the network compared to a proof of work system like Bitcoin, so most coins are now going in that type of a direction.  Don't quote me, but I think you get 5% interest for Eth that you choose to stake. 

I don't stake Eth, because I prefer to retain the ability to buy/sell when I want at this time as I continue to gain familiarity with the space.  But if I DID choose to stake, then my investment returns would come in two ways: 1) appreciation/depreciation of Eth compared to the US Dollar (just like the growth/decay of a stock price), and 2) the 5% interest, which effectively acts like a dividend, except it's way higher than the 1.5% I'm currently receiving from VTSAX. 

So, if I wanted, I could stake lots of my cyrpto investments, and live off the interest, which I could use to buy goods and services, without ever needing to sell my initial Eth.  Not exactly the same as a dividend, but the end result is about the same IMO.

Ultimately, what is the source of the money one receives from staking? A 5% interest rate in a low-interest environment raises my "too good to be true" suspicions. Where is this money coming from?

For example, when a stock pays dividends, that money ultimately comes from customers paying the businesses money for the goods/services they produce. The business passes some of that money onto you, as an owner. From where do staking payouts come?

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #374 on: October 29, 2021, 12:28:13 PM »
(as an aside, I believe the FBI now holds the largest Bitcoin wallet in the world, from all the BTC they seized from criminals).
the FBI needs to be cashing those in to pay down the national debt.
Actually that might be old news - the FBI has hundreds of thousands of wallets now.  Even if the FBI still held 1.5% of Bitcoin, it wouldn't be enough to pay off 0.1% of the current $29 trillion U.S. debt.  I'm guessing the FBI auctions it off over time.
https://www.cnbc.com/2021/08/04/irs-has-seized-1point2-billion-worth-of-cryptocurrency-this-year-.html

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #375 on: October 29, 2021, 12:31:47 PM »
An example is Ethereum.  They are currently shifting from a "proof of work" to a "proof of stake" method to secure their network.
...
I don't stake Eth, because I prefer to retain the ability to buy/sell when I want at this time as I continue to gain familiarity with the space.
Thanks for the reminder - I just signed up for Coinbase's waitlist to stake ETH.  I don't plan on selling for years, so why not try it out.

I wonder if "proof of stake", being much more environmentally friendly, is a risk to BTC?  Bitcoin still uses "proof of work", which is many datacenters worth of computers all working to win the next block reward.

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #376 on: October 29, 2021, 12:51:13 PM »
In the stock market, some stocks pay dividends, and others do not.  Some cryptos, in their own way, behaves in this manner as well. 

An example is Ethereum.  They are currently shifting from a "proof of work" to a "proof of stake" method to secure their network.  This means that people have to be willing to "stake" their eth, which means they agree to lock up their Eth for a set time period before they have access to it again.  Staking requires like 100 times less energy to secure the network compared to a proof of work system like Bitcoin, so most coins are now going in that type of a direction.  Don't quote me, but I think you get 5% interest for Eth that you choose to stake. 

I don't stake Eth, because I prefer to retain the ability to buy/sell when I want at this time as I continue to gain familiarity with the space.  But if I DID choose to stake, then my investment returns would come in two ways: 1) appreciation/depreciation of Eth compared to the US Dollar (just like the growth/decay of a stock price), and 2) the 5% interest, which effectively acts like a dividend, except it's way higher than the 1.5% I'm currently receiving from VTSAX. 

So, if I wanted, I could stake lots of my cyrpto investments, and live off the interest, which I could use to buy goods and services, without ever needing to sell my initial Eth.  Not exactly the same as a dividend, but the end result is about the same IMO.

Ultimately, what is the source of the money one receives from staking? A 5% interest rate in a low-interest environment raises my "too good to be true" suspicions. Where is this money coming from?

For example, when a stock pays dividends, that money ultimately comes from customers paying the businesses money for the goods/services they produce. The business passes some of that money onto you, as an owner. From where do staking payouts come?

There are two common ways to add blocks to the chain.  Proof of Work and Proof of Stake (POW & POS respectively).  You should already know what POW is since its been discussed here in the context of Bitcoin.  POS does the same thing but without mining and arguably less security than POW.  You set up a node that verifies transactions.  If your node is chosen to verify then you, or if you are in a pool - the pool, get the block reward (which goes to miners in the POW method).  POS is faster than POW and makes it easier to scale on chain, but again, its got a lot of critics in the industry because POW is the gold standard for security.

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Re: What do you think of adding a low% of crypto allocation
« Reply #377 on: October 29, 2021, 12:58:10 PM »
I think it is worth pointing out proof of stake is also like a performance bond. You make the deposit, promising to do whatever the amount of work is to get the reward. Your do the work, you get your deposit back with the additional reward. Fail to perform as agreed and you lose your deposit.

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #378 on: October 29, 2021, 01:09:23 PM »
There are two common ways to add blocks to the chain.  Proof of Work and Proof of Stake (POW & POS respectively).  You should already know what POW is since its been discussed here in the context of Bitcoin.  POS does the same thing but without mining and arguably less security than POW.  You set up a node that verifies transactions.  If your node is chosen to verify then you, or if you are in a pool - the pool, get the block reward (which goes to miners in the POW method).  POS is faster than POW and makes it easier to scale on chain, but again, its got a lot of critics in the industry because POW is the gold standard for security.

I'm less interested in talking about the technicals here— I'm curious if you can explain where the money actually comes from?

I'll give a few examples for things I understand:
1. Bank interest. I earn (a tiny amount) of interest in my checking account. The bank uses the money it holds to give loans with interest. It shares some of the interest it earns with its customers.
2. Stock dividends. Businesses sell goods and services for money. Businesses tend to earn more from selling goods than they spend on expenses. Those are profits. Some of those profits are shared with shareholders (owners) of the business.
3. Real Estate. A landlord can lease land (or a space in a building) to a tenant in exchange for money.

Can anyone give a simple "ELI5" example of the source of interest payments from staking?

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #379 on: October 29, 2021, 01:10:04 PM »
I think it is worth pointing out proof of stake is also like a performance bond. You make the deposit, promising to do whatever the amount of work is to get the reward. Your do the work, you get your deposit back with the additional reward. Fail to perform as agreed and you lose your deposit.

Thanks, you are right, that does need to be pointed out. 

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #380 on: October 29, 2021, 01:14:07 PM »
I think it is worth pointing out proof of stake is also like a performance bond. You make the deposit, promising to do whatever the amount of work is to get the reward. Your do the work, you get your deposit back with the additional reward. Fail to perform as agreed and you lose your deposit.

It can be.  There are a thousand different way to do POS and there are a lot of people smarter than me determining which is the best way of writing the code.  Cardano for instance, uses a delegated proof of stake model inwhich you can stop staking anytime you want without penalty.  Meanwhile, Polkadot, also a delegated POS model, requires you to bond your stake for a period of 30-days and moreover, if your pool does anything to compromise the network, can punish you by striking you bonded amount - potentially to zero (but strikes are very rare and I don't think any pool has qualified for a severe strike yet).  Not going to pretend to be an expert on POS models but the takeaway is that there is a lot of different models and there is no widespread agreement on which is the best model - its definitely being figured out though.

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #381 on: October 29, 2021, 01:18:31 PM »
There are two common ways to add blocks to the chain.  Proof of Work and Proof of Stake (POW & POS respectively).  You should already know what POW is since its been discussed here in the context of Bitcoin.  POS does the same thing but without mining and arguably less security than POW.  You set up a node that verifies transactions.  If your node is chosen to verify then you, or if you are in a pool - the pool, get the block reward (which goes to miners in the POW method).  POS is faster than POW and makes it easier to scale on chain, but again, its got a lot of critics in the industry because POW is the gold standard for security.

I'm less interested in talking about the technicals here— I'm curious if you can explain where the money actually comes from?

I'll give a few examples for things I understand:
1. Bank interest. I earn (a tiny amount) of interest in my checking account. The bank uses the money it holds to give loans with interest. It shares some of the interest it earns with its customers.
2. Stock dividends. Businesses sell goods and services for money. Businesses tend to earn more from selling goods than they spend on expenses. Those are profits. Some of those profits are shared with shareholders (owners) of the business.
3. Real Estate. A landlord can lease land (or a space in a building) to a tenant in exchange for money.

Can anyone give a simple "ELI5" example of the source of interest payments from staking?

It's a block reward.  It rewards you for your effort in securing the network.  Its written in the code of the whatever project we are talking about. 

I am definitely less troubled by where the block rewards come from than where US Dollars come from and its not even close.  That is not a debate you want to get into, lol.

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #382 on: October 29, 2021, 01:19:08 PM »
@aceyou , I appreciate your candor and specifics.

I don't have access to key details, like Aceyou's retirement horizon, or ability to generate income today, but that is a massive allocation to Bitcoin and Ether, far in excess of the "low%" that is advertised in the title of this thread. If you're a new reader considering crypto, please consider carefully whether making crypto 40% of a seven digit net worth will work within your risk tolerance. Emotionally, I'd find it difficult to experience 10% of my NW evaporating in twelve hours several times a year.

Yeah, I do consider it to be a massive allocation, I did not start thread, just a contributor to the discussion.  A few details of why I am comfortable doing it:

Age: 38 (DW is 37)
NW: 1.1 Million
Stache: 800k
Other: Pension that kicks in in 10 years.  Between my wife and myself, that will be about 100k total per year, starting in 2031. 

Worst case scenario: I lose the entire 400k, and we still have over a million stache at age 48, plus paid off house, plus 100k pension for the rest of our life (goes up to account for inflation).  And I still am retired at age 48. (I'd give this a less than 10% chance of happening)

Best case scenario: The 400k does something like a 5x in the next couple years, and at age 40 I have a net worth of about 3 million, and my wife and I just retire, which drastically reduces pension, but who cares, we have enough for a fat fire at 40.  (I'd give this a 40-50% chance of happening)

So basically, my thesis is that the best case scenario is more likely than the worst case scenario.  The worst case scenario doesn't markedly hurt my life in any significant way, but the best case scenario makes a big improvement in happiness.  Oh, and my wife and I have sat down and talked about it, and she is in agreement that this is a worthwhile risk to take. 

So even though it's a massive allocation, it doesn't seem to be a massive risk, if that makes sense?
« Last Edit: October 29, 2021, 01:47:13 PM by aceyou »

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #383 on: October 29, 2021, 01:19:59 PM »
There are two common ways to add blocks to the chain.  Proof of Work and Proof of Stake (POW & POS respectively).  You should already know what POW is since its been discussed here in the context of Bitcoin.  POS does the same thing but without mining and arguably less security than POW.  You set up a node that verifies transactions.  If your node is chosen to verify then you, or if you are in a pool - the pool, get the block reward (which goes to miners in the POW method).  POS is faster than POW and makes it easier to scale on chain, but again, its got a lot of critics in the industry because POW is the gold standard for security.

I'm less interested in talking about the technicals here— I'm curious if you can explain where the money actually comes from?

I'll give a few examples for things I understand:
1. Bank interest. I earn (a tiny amount) of interest in my checking account. The bank uses the money it holds to give loans with interest. It shares some of the interest it earns with its customers.
2. Stock dividends. Businesses sell goods and services for money. Businesses tend to earn more from selling goods than they spend on expenses. Those are profits. Some of those profits are shared with shareholders (owners) of the business.
3. Real Estate. A landlord can lease land (or a space in a building) to a tenant in exchange for money.

Can anyone give a simple "ELI5" example of the source of interest payments from staking?

It's a block reward.  It rewards you for your effort in securing the network.  Its written in the code of the whatever project we are talking about. 

I am definitely less troubled by where the block rewards come from than where US Dollars come from and its not even close.  That is not a debate you want to get into, lol.

I should clarify, its generally a block reward + transaction fees of whatever transactions are verified. 

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #384 on: October 29, 2021, 01:20:49 PM »
It's a block reward.  It rewards you for your effort in securing the network.  Its written in the code of the whatever project we are talking about. 

Ok, so it's effectively spawned from thin air, yes? And the value that that freshly-spawned-from-thin-air token holds comes from where?

I am definitely less troubled by where the block rewards come from than where US Dollars come from and its not even close.  That is not a debate you want to get into, lol.

Like I said...
Quote
Crypto enthusiasts paint in whataboutism like DaVinci used paints.


Paint, DaVinci, paint! Nobody here is talking about currencies. We're talking about revenue-generating assets.
« Last Edit: October 29, 2021, 01:25:27 PM by the_gastropod »

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #385 on: October 29, 2021, 01:25:15 PM »
Can anyone give a simple "ELI5" example of the source of interest payments from staking?

Sure thing. It comes from two sources:

1) The block reward. These are new units of currency which are created by the built in rules of the currency and controlled by whoever produced that particular block (in bitcoin the amount of new currency declines over time towards and ultimately reaching zero). This is the same way the fed creates new units of dollars when it buys governments bonds or other securities.

2) Transaction fees. These are existing units of currency that people who want to transfer currency from one wallet to another pay to have their transactions processed. In principle transaction fees can be zero, but if there are more transactions that people want to make queued up than room to make them in a current block, the transactions with the highest fees cut to the front of the line. This is like the percentage of each transaction that goes to mastercard/visa/paypal when you make a payment using one of those avanue to move dollars around.

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #386 on: October 29, 2021, 01:27:02 PM »
Can anyone give a simple "ELI5" example of the source of interest payments from staking?

Sure thing. It comes from two sources:

1) The block reward. These are new units of currency which are created by the built in rules of the currency and controlled by whoever produced that particular block (in bitcoin the amount of new currency declines over time towards and ultimately reaching zero). This is the same way the fed creates new units of dollars when it buys governments bonds or other securities.

2) Transaction fees. These are existing units of currency that people who want to transfer currency from one wallet to another pay to have their transactions processed. In principle transaction fees can be zero, but if there are more transactions that people want to make queued up than room to make them in a current block, the transactions with the highest fees cut to the front of the line. This is like the percentage of each transaction that goes to mastercard/visa/paypal when you make a payment using one of those avanue to move dollars around.

Cool. I appreciate the straightforwardness :)

For item 1, do you see any trouble with that? Is there value in this block reward that's summoned from nothing? Where's the value come from?

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #387 on: October 29, 2021, 01:28:55 PM »
@aceyou , I appreciate your candor and specifics.

I don't have access to key details, like Aceyou's retirement horizon, or ability to generate income today, but that is a massive allocation to Bitcoin and Ether, far in excess of the "low%" that is advertised in the title of this thread. If you're a new reader considering crypto, please consider carefully whether making crypto 40% of a seven digit net worth will work within your risk tolerance. Emotionally, I'd find it difficult to experience 10% of my NW evaporating in twelve hours several times a year.

Yeah, I do consider it to be a massive allocation, I did not start thread, just a contributor to the discussion.  A few details of why I am comfortable doing it:

Age: 38 (DW is 37)
NW: 1.1 Million
Stache: 800k
Other: Pension that kicks in in 10 years.  Between my wife and myself, that will be about 100k total per year, starting in 2031. 

Worst case scenario: I lose the entire 400k, and we still have over a million stache, plus paid off house, plus 100k pension for the rest of our life (goes up to account for inflation).  And I still am retired at age 48. (I'd give this a less than 10% chance of happening)

Best case scenario: The 400k does something like a 5x in the next couple years, and at age 40 I have a net worth of about 3 million, and my wife and I just retire, which drastically reduces pension, but who cares, we have enough for a fat fire at 40.  (I'd give this a 40-50% chance of happening)

So basically, my thesis is that the best case scenario is more likely than the worst case scenario.  The worst case scenario doesn't markedly hurt my life in any significant way, but the best case scenario makes a big improvement in happiness. 

So even though it's a massive allocation, it doesn't seem to be a massive risk, if that makes sense?

I can almost guarantee you that at some point your crypto portfolio will see a 50% drop in value.  IDK if it will be tomorrow, or in June 2022, but people will lose interest and it will enter a decline.  Atleast that is what the trend has been and, due to the volatility we are still experiencing I do not suspect it will change anytime soon.  I am also, fairly confident that it will reach newer highs sometime after that.  However, as bullish as i am on crypto, I wouldn't bet the farm on it because government regulation can hamper that.

Personally, I could care less what anyone does with their money.  Buy Bitcoin, sell Bitcoin, curse Bitcoin - I just don't care.  But, as someone has spent considerable time doing my own research, I think the prudent thing to do is to invest a small amount into crypto (less than 3% of your network) and take profits when it surges (like right now) and to buy periodically as well (DCA maybe 1-2% of your disposable income or just wait for a real crash in price).

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #388 on: October 29, 2021, 01:36:26 PM »
It's a block reward.  It rewards you for your effort in securing the network.  Its written in the code of the whatever project we are talking about. 

Ok, so it's effectively spawned from thin air, yes? And the value that that freshly-spawned-from-thin-air token holds comes from where?

I am definitely less troubled by where the block rewards come from than where US Dollars come from and its not even close.  That is not a debate you want to get into, lol.

Like I said...
Quote
Crypto enthusiasts paint in whataboutism like DaVinci used paints.


Paint, DaVinci, paint! Nobody here is talking about currencies. We're talking about revenue-generating assets.

Its not from the air - its from the code that that the participants consent to.  Its a piece of the pie for securing the blockchain.  If you don't understand the difference between pulling something from the air (ironically, like how the US Dollar is minted) and code then I cannot help you.

Its not a whataboutism.  You criticize crypto in favor of fiat currency so naturally you have faith in the system of those fiat currencies.  I am simply pointing out, on topic, why crypto is better on this concise issue.


MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #389 on: October 29, 2021, 01:48:57 PM »
Let me try an ELI5 on it.

People hold Bitcoin in an account.  To spend it, they need to move it to someone else's account.  There are millions and millions (you're 5, right?) of computers helping with this need.

Someone decides how much of a "fee" they will pay to move Bitcoin into someone else's account.  Computers check that the person isn't cheating - that they really own that Bitcoin.  Then they try to take that fee, and build a "block" in the block chain.  Like a row of (a) and (b) blocks, where they are adding the (c).

Computers pick up the movement of Bitcoin because they want the fee each person contributes.  Computers then guess at the answer to a really hard math problem.  One of them wins, and collects all the fees in their "block".  But all the computers also agree that a new account is created to reward the computer with the right guess.  They made the next block, so they get a reward - a "block reward".

If someone tries to cheat, other computers will use math and discover they are cheating.  The cheaters are ignored, and don't get rewards.  The cheaters play in a corner by themselves with fake Bitcoin.  Everyone else uses the blocks made by millions and millions of computers.

The end.

(Is this the part where I teach kids "Just say no to crypto?")
« Last Edit: October 29, 2021, 01:54:23 PM by MustacheAndaHalf »

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #390 on: October 29, 2021, 01:57:04 PM »
Each computer uses an account it controls, and creates a block where all the transaction fees move into it's account.  And the block reward - that moves into it's account as well.  But nobody cares, unless that computer wins the competition, and decides the next block.

The blockchain is essentially driven by greed.  Computers want to win the block reward, but they also want more money from fees.  If someone modifies their software to cheat, they will generate results that don't match all of the other computers running the original software.  The cheat will be ignored, since their block will fail to verify.

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #391 on: October 29, 2021, 01:59:11 PM »
Its not from the air - its from the code that that the participants consent to.  Its a piece of the pie for securing the blockchain.  If you don't understand the difference between pulling something from the air (ironically, like how the US Dollar is minted) and code then I cannot help you.

It's an expression ;-) What I'm struggling to get you to point to is: ok, so this coin—which no money exchanged hands to create—has value, where does the value come from? And the answer is: *tada* people buying the token.

In other words, if *no new buyers* came into the market, these block rewards would dilute everybody else's holdings, and everybody would be losing money.

Let's review some of the Ponzi scheme red flags from Wikipedia [1]:
1. High investment returns with little or no risk. Does staking fit this bill? It certainly sounds like it...
2. Overly consistent returns. Sounds like it promises these, too...
3. Unregistered investments. Check...
4. Secretive or complex strategies... I'd sure say so

So once again, it may not technically fit every aspect of a Ponzi, but this staking scheme is certainly Ponzi-like.

[1] https://en.wikipedia.org/wiki/Ponzi_scheme

Its not a whataboutism.  You criticize crypto in favor of fiat currency so naturally you have faith in the system of those fiat currencies.  I am simply pointing out, on topic, why crypto is better on this concise issue.

It absolutely is. Nobody "invests" in the USD. It's a terrible investment, as any currency should be. Only you crypto maxis play this constant goal-post shifting game where, when pinned down about how a cryptocurrency is a terrible asset, revert to "WELL, USD IS WORSE!". When it's pointed out that a cryptocurrency is a terrible currency, the excuse that it's an asset, and should be thought of more like digital gold or a world computer! This is whataboutism.

This is very common behavior, for whatever reason, in crypto circles. I, frankly, find it a bit troubling. Not only because it's kinda cult-like, and makes you make really bad arguments. But because cryptocurrency is inherently very political. At its core is—in my opinion—a rather gross extreme form of anti-state libertarianism. I don't think it's a stretch to draw a direct line between that particular philosophy and some of our more... embarrassing recent political situations. I think "investing" in cryptocurrency and parroting its (bad) talking points is actively helping to spread this dangerous ideology, and is therefore harmful. I find it upsetting that it's gotten such a grip on people, because, hey, you can maybe earn a few bucks while helping to destroy democracy!
« Last Edit: October 29, 2021, 02:07:00 PM by the_gastropod »

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #392 on: October 29, 2021, 02:21:24 PM »
Let me try an ELI5 on it.

People hold Bitcoin in an account.  To spend it, they need to move it to someone else's account.  There are millions and millions (you're 5, right?) of computers helping with this need.

Someone decides how much of a "fee" they will pay to move Bitcoin into someone else's account.  Computers check that the person isn't cheating - that they really own that Bitcoin.  Then they try to take that fee, and build a "block" in the block chain.  Like a row of (a) and (b) blocks, where they are adding the (c).

Computers pick up the movement of Bitcoin because they want the fee each person contributes.  Computers then guess at the answer to a really hard math problem.  One of them wins, and collects all the fees in their "block".  But all the computers also agree that a new account is created to reward the computer with the right guess.  They made the next block, so they get a reward - a "block reward".

If someone tries to cheat, other computers will use math and discover they are cheating.  The cheaters are ignored, and don't get rewards.  The cheaters play in a corner by themselves with fake Bitcoin.  Everyone else uses the blocks made by millions and millions of computers.

The end.

(Is this the part where I teach kids "Just say no to crypto?")

If this were it, just transaction fees, there wouldn't be an issue (and the interest rates would be *significantly* lower).

The problem is the Ponzi aspect, where the bulk of the reward is in the freshly minted tokens, which have value because of the newcomers to the network. I haven't even yet brought up *this* aspect, but there is no transparency about: 1. how much leverage is in this system, 2. many of these purchases are with tether coins, loaned to companies (e.g., Bitfinex) with the very tokens purchased with the tethers used as collateral. This system is basically constructed of red flags. 

I know I keep making the MLM analogy, but that fits here, too. LuLaRoe members make some money selling pants. There's nothing inherently wrong with that. But those making any real money make the vast majority of their earnings by bringing on new LuLaRoe members. That is deeply problematic and unsustainable.
« Last Edit: October 29, 2021, 02:24:07 PM by the_gastropod »

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #393 on: October 29, 2021, 02:25:03 PM »
Its not from the air - its from the code that that the participants consent to.  Its a piece of the pie for securing the blockchain.  If you don't understand the difference between pulling something from the air (ironically, like how the US Dollar is minted) and code then I cannot help you.

It's an expression ;-) What I'm struggling to get you to point to is: ok, so this coin—which no money exchanged hands to create—has value, where does the value come from? And the answer is: *tada* people buying the token.

In other words, if *no new buyers* came into the market, these block rewards would dilute everybody else's holdings, and everybody would be losing money.

Let's review some of the Ponzi scheme red flags from Wikipedia [1]:
1. High investment returns with little or no risk. Does staking fit this bill? It certainly sounds like it...
2. Overly consistent returns. Sounds like it promises these, too...
3. Unregistered investments. Check...
4. Secretive or complex strategies... I'd sure say so

So once again, it may not technically fit every aspect of a Ponzi, but this staking scheme is certainly Ponzi-like.

[1] https://en.wikipedia.org/wiki/Ponzi_scheme

Its not a whataboutism.  You criticize crypto in favor of fiat currency so naturally you have faith in the system of those fiat currencies.  I am simply pointing out, on topic, why crypto is better on this concise issue.

It absolutely is. Nobody "invests" in the USD. It's a terrible investment, as any currency should be. Only you crypto maxis play this constant goal-post shifting game where, when pinned down about how a cryptocurrency is a terrible asset, revert to "WELL, USD IS WORSE!". When it's pointed out that a cryptocurrency is a terrible currency, the excuse that it's an asset, and should be thought of more like digital gold or a world computer! This is whataboutism.

This is very common behavior, for whatever reason, in crypto circles. I, frankly, find it a bit troubling. Not only because it's kinda cult-like, and makes you make really bad arguments. But because cryptocurrency is inherently very political. At its core is—in my opinion—a rather gross extreme form of anti-state libertarianism. I don't think it's a stretch to draw a direct line between that particular philosophy and some of our more... embarrassing recent political situations. I think "investing" in cryptocurrency and parroting its (bad) talking points is actively helping to spread this dangerous ideology, and is therefore harmful. I find it upsetting that it's gotten such a grip on people, because, hey, you can maybe earn a few bucks while helping to destroy democracy!

Have you been reading anything here about risk of staking?  For one, we are just talking about how its not risk free because you can lose your bonded amount.  Also, most of the project have 5-10% rewards and its not taken from others as a return on investment - its earned for securing the network.  You secure the network, which would not exist without stakers in a POS model, in return for getting a set block reward that is set in stone and visible to everyone.  This doesn't even remotely come close to your wikipedia argument.

Next, talk about whataboutism.  Half your post is rant out of left-field about how cryptocurrency is backed by Trump supporters that want to destroy democracy or something.  Look man, you believe what you believe, and I don't want to detract from talking about POS, but for what its worth - I am a liberal.

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #394 on: October 29, 2021, 02:43:01 PM »
Have you been reading anything here about risk of staking?  For one, we are just talking about how its not risk free because you can lose your bonded amount.

Cool. These you?

Quote from: onecoolcat
Cardano for instance, uses a delegated proof of stake model inwhich you can stop staking anytime you want without penalty

Quote from: onecoolcat
but strikes are very rare and I don't think any pool has qualified for a severe strike yet

  Also, most of the project have 5-10% rewards and its not taken from others as a return on investment - its earned for securing the network.  You secure the network, which would not exist without stakers in a POS model, in return for getting a set block reward that is set in stone and visible to everyone.  This doesn't even remotely come close to your wikipedia argument.

I must really be bad at asking questions, because you still seem to be missing the point. The value of that generated reward comes from somewhere. You don't seem to grok the source of that value.

Next, talk about whataboutism.  Half your post is rant out of left-field about how cryptocurrency is backed by Trump supporters that want to destroy democracy or something.  Look man, you believe what you believe, and I don't want to detract from talking about POS, but for what its worth - I am a liberal.

I did, indeed, rant. And it was, in part, because I kind of thought you (and seemingly most?) crypto enthusiasts deep down are not people with ANCAP beliefs. But you 100% are helping to perpetuate ANCAP ideology here. I find that most people who really get into crypto never took an economics course in university or read an economics textbook. Their interest in economics began as they began to learn about cryptocurrency. And things like inflation seemed bad and weird and maybe even evil. And a fixed money supply sounded like a really good idea, and what do you know, Bitcoin has that.

These are very extreme ideologies with some pretty sinister histories.

This isn't some fringe belief. Bitcoin was designed this way on purpose.
- https://www.theatlantic.com/technology/archive/2017/05/blockchain-of-command/528543/
- https://www.washingtonpost.com/news/wonk/wp/2018/01/08/bitcoin-is-the-new-middle-ages/
« Last Edit: October 29, 2021, 02:56:24 PM by the_gastropod »

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #395 on: October 29, 2021, 03:08:15 PM »
Have you been reading anything here about risk of staking?  For one, we are just talking about how its not risk free because you can lose your bonded amount.

Cool. These you?

Quote from: onecoolcat
Cardano for instance, uses a delegated proof of stake model inwhich you can stop staking anytime you want without penalty

Quote from: onecoolcat
but strikes are very rare and I don't think any pool has qualified for a severe strike yet

  Also, most of the project have 5-10% rewards and its not taken from others as a return on investment - its earned for securing the network.  You secure the network, which would not exist without stakers in a POS model, in return for getting a set block reward that is set in stone and visible to everyone.  This doesn't even remotely come close to your wikipedia argument.

I must really be bad at asking questions, because you still seem to be missing the point. The value of that generated reward comes from somewhere. You don't seem to grok the source of that value.

Next, talk about whataboutism.  Half your post is rant out of left-field about how cryptocurrency is backed by Trump supporters that want to destroy democracy or something.  Look man, you believe what you believe, and I don't want to detract from talking about POS, but for what its worth - I am a liberal.

I did, indeed, rant. And it was, in part, because I kind of thought you (and seemingly most?) crypto enthusiasts deep down are not people with ANCAP beliefs. But you 100% are helping to perpetuate ANCAP ideology here. I find that most people who really get into crypto never took an economics course in university or read an economics textbook. Their interest in economics began as they began to learn about cryptocurrency. And things like inflation seemed bad and weird and maybe even evil. And a fixed money supply sounded like a really good idea, and what do you know, Bitcoin has that.

These are very extreme ideologies with some pretty sinister histories.

This isn't some fringe belief. Bitcoin was designed this way on purpose.
- https://www.theatlantic.com/technology/archive/2017/05/blockchain-of-command/528543/
- https://www.washingtonpost.com/news/wonk/wp/2018/01/08/bitcoin-is-the-new-middle-ages/

Yeah, those are me and they are entirely consistent with everything else I said.  I feel like i am talking to a wall here but at least now we know your criticisms come from a place of irrational hatred of cryptocurrencies based upon assumptions about those who own it.  You know what they say about assumptions?

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #396 on: October 29, 2021, 03:13:22 PM »
So, onecoolcat, since you are so rational actually answer the question - where does your investment return come from? As Jerry McGuire's client said - show me the money!

onecoolcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #397 on: October 29, 2021, 03:16:20 PM »
So, onecoolcat, since you are so rational actually answer the question - where does your investment return come from? As Jerry McGuire's client said - show me the money!

Mostly from people buying my VTSMX at a higher price than I paid for it.  You?

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #398 on: October 29, 2021, 03:19:06 PM »
Yeah, those are me and they are entirely consistent with everything else I said.  I feel like i am talking to a wall here but at least now we know your criticisms come from a place of irrational hatred of cryptocurrencies based upon assumptions about those who own it.  You know what they say about assumptions?

Agreed. This shall be my final response to you:

I do not hate the people who hold cryptocurrency. As I stated, the system was designed around a set of ideas. I do not like those ideas, and believe them to be dangerous. I believe most crypto enthusiasts lack understanding of these systems and the effects they were designed to produce.

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #399 on: October 29, 2021, 03:20:47 PM »
Can anyone give a simple "ELI5" example of the source of interest payments from staking?

Sure thing. It comes from two sources:

1) The block reward. These are new units of currency which are created by the built in rules of the currency and controlled by whoever produced that particular block (in bitcoin the amount of new currency declines over time towards and ultimately reaching zero). This is the same way the fed creates new units of dollars when it buys governments bonds or other securities.

2) Transaction fees. These are existing units of currency that people who want to transfer currency from one wallet to another pay to have their transactions processed. In principle transaction fees can be zero, but if there are more transactions that people want to make queued up than room to make them in a current block, the transactions with the highest fees cut to the front of the line. This is like the percentage of each transaction that goes to mastercard/visa/paypal when you make a payment using one of those avanue to move dollars around.

Cool. I appreciate the straightforwardness :)

For item 1, do you see any trouble with that? Is there value in this block reward that's summoned from nothing? Where's the value come from?

Define trouble?

The value of the new units of whatever cryptocurrency are created as part of a block reward come from the same place the value of new USD comes from when the fed decides the economy needs quantitative easing*: People are placing value on the existing units (for whatever reason) and these new units are fungible with the old units so they also have value. In both cases if you create a lot of new units, people will value individual units less so issuing more units doesn't really create NEW value, it's moving a tiny fraction of the existing value from all the existing units into the new ones.

In normal currencies we'd call that inflation. In cryptocurrencies, the amount of value people place on them jumps around so much for other reasons at the moment that the small amount of value being shifted to existing units to newly created units is hard or impossible to measure.

*Or when the fed pays out whatever interest rate they've set each quarter on bank reserves I think. Although I'm less sure about that one as it's not a topic I know much about.