
Citadel's Ken Griffin Says Bitcoin ‘Bubble’ May End in Tears - openmosix
https://www.bloomberg.com/news/articles/2017-11-27/citadel-s-ken-griffin-says-bitcoin-bubble-may-end-in-tears
======
alehul
I'd agree with this sentiment.

Stocks have tangible assets that generate earnings to justify their
investment. Bitcoin, however, generates no real returns beyond its exploding
popularity resulting in a higher price. While that doesn't automatically doom
its fate (see: traditional currency pairs), Bitcoin is different in that its
only real use so far is as an alternative bank account. It will likely remain
this way until people can live their lives on Bitcoin in the way people live
their lives on a traditional, centralized currency. Many people who simply use
it as a bank account may deposit their money for a long period of time,
resulting in a sustainable price; for simplicity's sake, we can give the
benefit of the doubt and assume that 100% of those looking for an alternative
bank rather than an investment will hold it indefinitely.

The question is: Of those pushing the price from ~$750 to ~$10,000 in one
year, after several years of stability in the ~$500 area, how many are looking
to hold it as a bank account alternative, and how many are looking at it as an
investment to eventually sell for a profit? Given the trajectory, it's hard to
believe individuals are adopting it this rapidly for purposes other than
investment; it seems like this 'mainstream adoption' is really just primarily
mainstream investment. Is it sustainable when the majority of people are just
buying in expectation of others buying? With companies like TSLA it can be
sustainable, as investors believe that future earnings will justify the
valuation. Here, there's nothing but a hope that others will buy because the
price keeps going up.

The only way this bubble doesn't pop is if the money being pumped into Bitcoin
results in commercial adoption as a viable currency, however that seems
unlikely in the meantime.

~~~
guardiangod
Disclaimer: Most of my cypto money are in bitcoins.

My biggest problem with Bitcoin these days is the developers pushing Bitcoin
to become 'store of value'.

Originally Bitcoin became popular because it simply let people transact over
the internet quickly with low cost. This was what gave Bitcoin its utility,
and thus value.

Now that the Core team has decided that ease-of-use is not important, they are
literally trying to hype Bitcoin as something intrinsically worthless except
for people's perception of it. Bitcoin is now coasting on its reputation it
accumulated in its first 5 years of life. So what makes Bitcoin _not_ a
pyramid scheme?

Other cyptocurrencies have their own uses-

Litecoin - Buy stuff over internet cheaply and quickly

Ethereum - ICO and contracts

Ripple/Steem - Pseudo-decentralization allows for huge number of transactions.

Monero/ZCash - Privacy

Gold - People have liked shiny and non-degradable stuff since the stone age

Stocks/Bonds - Dividend/Interests

Tulips bulbs - Grow tulip flowers

Bitcoin in 2017 - ??? Store of value

The first 4 example cryptos actually have real world usage that could
potentially justify their prices. What use does Bitcoin have right now? Every
transaction costs >$1 and takes hours to process. What could Bitcoin do that
other cryptocurrencies couldn't do better?

~~~
CameronBanga
I think the biggest benefit though, is name recognition. When people think of
crypto, they think Bitcoin. That's the biggest issues Litecoin and Ethereum
have now.

~~~
matwood
Yeah, most of my crypto is in ETH because I think it has value beyond the
hype. BTC has the name recognition and thus has the 'dumb' money buying in
like crazy. My thesis though is that long term crypto is useful and will be
worth something. How much is hard to quantify right now.

------
mc42
Several years ago during the MTGox collapse, /r/bitcoin over on reddit had a
suicide hotline pinned to the top as multiple evangelicals had sunken their
life savings into BTC. It's going to be a very difficult situation if / when
BTC crashes again, and it won't end well for just about anyone.

Edit: changed "has" to "as", as it was a typo.

~~~
schnevets
Given the recent uptick in posts about people investing their life savings
into bitcoin and bragging to friends and relatives about their wealth, it
seems like the community hasn't learned anything from past turbulent times.

~~~
koonsolo
I guess such people are not able to hold on to their money for long anyway.

------
Tenobrus
Literally the same line about tulips has been repeated for the last 4 years.
It's probably true, but at this point I'm curious why anyone is interested in
yet another article saying exactly the same thing with no new information,
content, evidence, anything.

~~~
nxsynonym
Ironically, the news works in the same way as BTC prices. There doesn't have
to be any intrinsic value as long as people are talking about it.

The tulip mania comparison is lazy. It's just a way for pass of FUD as a
"scholars approach", when in reality nobody knows if it is a bubble or not
since it hasn't yet crashed.

When the price sinks down to <1k/btc and stays there, we can look back and
laugh over the tulip mania. Until then its all speculation, on both sides.

~~~
chucksmash
> It's just a way for pass of FUD as a "scholars approach", when in reality
> nobody knows if it is a bubble or not since it hasn't yet crashed.

No horses in the race (except a sense of regret I didn't buy more sooner), but
isn't this exactly what the majority opinion is about every contemporaneous
bubble? I was a Finance major back before the crash when my professors used to
say homes were the only asset that always increased in value.

------
hbosch
At some point, bitcoin is going to have to be worth more than just _n_ USD...
right? Other than buying in and cashing out, what is bitcoin useful for right
now? What makes BTC today better than my cash?

I am aware of the _potential_ for cryptocurrency and I am aware of it's
increasing value. But if all my money is tomorrow BTC instead of USD, for
instance, how will I survive without converting it back into USD every time I
needed to use it?

Not trying to be facetious, just curious as to what the bitcoin crowd is using
BTC for. If not to pay for goods and services, then isn't it a misnomer at
this point to keep calling it a currency?

~~~
Klathmon
The major benefits (at least to me) are:

1\. As a buyer, sending money via Bitcoin means whoever I'm buying
goods/services from won't be able to bill me monthly, they won't be able to
lose my credit card info, and they can't overcharge me.

2\. Also as a buyer, there are also no "restrictions" on who I can send money
to, and how much. Nobody can close my account because they don't approve of
what I bought, or can restrict where i'm able to send money to (ignoring
custodial wallets, which can do all of those things to some extent).

3\. As a "merchant", receiving payment in Bitcoin means that I don't need to
worry about "chargebacks", "reversals" or any other way that the money could
be taken back after it's been sent.

4\. As a developer, Bitcoin is a fantastic way to receive tips and donations.
I don't need to maintain an account with some service that might go under or
get hacked. I can create an address for donations securely once, and can put
it everywhere knowing that it will work indefinitely.

Yeah, I agree that at this point people trying to live on Bitcoin are a little
crazy, but if more and more places start accepting it it's a fantastic way to
buy and sell things that is a lot more "safe" feeling for all involved.

~~~
matwood
> 3\. As a "merchant", receiving payment in Bitcoin means that I don't need to
> worry about "chargebacks", "reversals" or any other way that the money could
> be taken back after it's been sent.

This is why I wouldn't use BTC to buy anything. Banking and consumer
protection regulations did not just come out of thin air. They came out pain
that occurred at some point. BTC will never replace the bulk of traditional
transactions until remediation can happen.

~~~
Klathmon
Just because it's in bitcoin doesn't mean that consumer protection doesn't
apply. It just means that the process to get your money back isn't "call my
bank and tell them to take it back".

The pain that they mostly solve for people (at least from what i've seen) is
due to the fact that most payment systems work on a "pull" method. You give
your information to the merchant, and the merchant tells your bank to give
them $X. With that kind of setup, it's obvious that things like "chargebacks"
and friends are absolutely necessary.

But since bitcoin is "push based", the only person that can send money is you.
So generally the only time you would need to "charge back" is due to fraud.
And escrow services can add that "protection" back into the mix if it's needed
or wanted by the people transacting. And the legal system can take care of
larger or systematic abusers.

Escrow services can give you the exact same protection you are looking for,
but with the difference that it's opt in, and you can freely choose your
escrow service independently of where you keep your money.

------
baxtr
My thinking is this: bitcoin and other digital currencies are becoming more
and more “popular” (literally). More and more “ordinary” people start
investing, the barriers of participation are coming down. As long as there is
a large enough pool of people willing to join the party, prices will continue
to rise. The question is when to pull out. I always get nervous when cab
drivers start giving me free stock advice. Hasn’t happened yet with coins. So:
way to go!

~~~
wslh
Just Coinbase added 100k accounts last week:
[https://www.cnbc.com/2017/11/25/bitcoin-tops-8700-to-
record-...](https://www.cnbc.com/2017/11/25/bitcoin-tops-8700-to-record-high-
as-coinbase-adds-100000-users.html) I have been talking with a lot of this
"ordinary" people who started investing in cryptocurrencies and I am scared.

~~~
lowbloodsugar
Came up at family gathering over Thanksgiving. The masses know about it
because of its massive increase in value and are all afraid that they are
missing out.

~~~
empath75
Yeah. It’s a sign that the bubble is going to pop soon. Honestly the stock
market is getting to be the same way. People should start moving money into
safe investments and be prepared to ride out a storm.

~~~
learc83
>Honestly the stock market is getting to be the same way. People should start
moving money into safe investments and be prepared to ride out a storm.

If you have a way of accurately predicting when that storm will happen and
when it will be over, you should look for ways to cash in on that.

Otherwise pulling money out of the stock market because you think there might
be a bubble is a terrible idea. People have been warning of a bubble for the
last 5+ years--there will definitely be a downturn, but it could be next year
it could be 10 years from now.

The average person should adjust their portfolio based on how much time they
have to keep investing, not based on reading the market entrails.

------
bg4
Be scared when everyone is greedy, be greedy when everyone is scared.

~~~
1001101
This time is different.

~~~
tfmatt
sarcasm?

------
colemannugent
What really underlies this issue is whether you think Bitcoin is over or
undervalued. Griffin leads off saying this is a bubble understanding that the
people at Blomberg already believe this.

Without a real justification for why Griffin values Bitcoin at less than the
current market price this article is nothing but fluff.

Of course if it is a bubble, this is a bad thing for those invested in
Bitcoin. That is not up for debate. If it does burst, there will be plenty of
tears, but the value of the entire Bitcoin ecosystem is still tiny compared to
classic commodities like gold or real estate.

I have seen several articles here on HN recently that have seem to all confirm
that Bitcoin is a bubble, but I haven't read anything that dives into the real
substance behind the claim that Bitcoin is overvalued.

I understand the scaling issues, but I am confident that something like the
lightning network can solve those. I don't believe that all transactions can
be on-chain as this would make running a full-node and verification of the
entire chain very difficult over time.

~~~
akvadrako
Well it's obvious Bitcoin is a bubble. It's basically unusable as a currency
or payment processor and the only markets that use it are very small. It's not
even a good choice for those use cases.

------
frgtpsswrdlame
Alright guys, let's plot. How can we crash Bitcoin?

Bitcoin is obviously a bit of a new bird when it comes to what sort of
financial instrument it is. _To me_ it seems to be half gold, a hedge against
currency and other economic troubles and half ponzi scheme, a lot of the
valuation is driven by the belief that there are more people in line behind
you than there are in front of you.

So if we take it that there is a bubbley aspect to bitcoin built upon ponzi
scheme psychology but also the new aspect which is that many participants are
aware it's a ponzi scheme and still believe in it anyway - is there anyway to
pop it? It seems all the normal methods of popping a bubble like this have
been eliminated by the completely decentralized nature of it. Is it even a
bubble anymore if that's true?

~~~
AnimalMuppet
The normal way this goes is: Asset X has good fundamental utility/value.
Investors see that, and put money in X. X goes up. That's not a bubble.

Other investors see X going up, and put money in X _because it 's going up_.
That's the start of a bubble - when people buy, not because they think the
fundamentals are good, but because it's going up and they don't want to miss
out. So of course X goes up _more_ because of all the new money coming in.

The next stage comes when, because X is reliably going up, people _borrow_
money to put in X. Now X really shoots up, because there's so much money going
in. This keeps going while new money keeps coming in, but the investors are
more nervous, because it's borrowed money. They're in trouble if they can't
pay it back. And the more recently they invested, the more nervous they are,
because they've got less room for it to fall before they owe the bank money.

This falls apart in panic selling when the price of X drops. The price drops
either when nobody can believe the current price of X any more, or else when
banks won't lend any more money for buying X.

So, if my understanding of bubbles is correct, and if Bitcoin is going to be a
typical bubble, the relevant question is, how much of the money invested in
Bitcoin is borrowed?

~~~
elliotec
>>> Other investors see X going up, and put money in X because it's going up.
That's the start of a bubble - when people buy, not because they think the
fundamentals are good, but because it's going up and they don't want to miss
out. So of course X goes up more because of all the new money coming in.

That isn't just the start of the bubble, that's pretty much the definition -
asset trading at the price that exceeds the asset's intrinsic value. If people
are buying on speculation and not for it's utility, it's a bubble.

>>> So, if my understanding of bubbles is correct, and if Bitcoin is going to
be a typical bubble, the relevant question is, how much of the money invested
in Bitcoin is borrowed?

The amount of borrowed money used to purchase Bitcoin is certainly a lot
greater than zero, which while not strictly a characteristic of a bubble,
probably is a sign of nearing critical levels.

------
Tossrock
Since I see a lot of people posting that there is no legitimate use case for
Bitcoin, let me point out that the global remittance market is over $500
billion per year. Being able to cheaply and easily move money between
countries is a huge need, and bitcoin is good at that. This isn't even
touching grey-area financial services like evading capital controls, routing
around artificially pegged currencies (ie what's happening Argentina), etc.
This isn't to say that there isn't a big ugly correction coming, but it's not
accurate to say that Bitcoin has no value/purpose.

~~~
papabrown
I used to believe that as well. I have business and family in other countries
and the traditional approaches were way too expensive ($50 for a bank wire, $X
fee plus horrible exchange rates via Moneygram, etc). I used Bitcoin a few
times to move money from my US accounts to my overseas accounts where I could
then transfer it in local currency through the local banking systems.

But then it started taking longer and longer for bitcoin transactions to
clear. And the price was often moving during this window between when I bought
in one currency and I could sell in another currency.

Now I just use TransferWise. Less hassle. Costs are much more reasonable (a
few bucks for small amounts) and I don't have to have do multiple transactions
to get money from Point A to Point B.

~~~
Tossrock
Very interesting, thanks for sharing. I also experienced the long confirmation
time issue, but it seems to have settled down after the segwit fork, which
allowed more transactions per block.

------
free_everybody
Why are bitcoin prices going up? Because there's no reason why they should go
down.

People who buy bitcoin are largely trying to buy in "early". This raises the
price, which makes other people want to be in "early". This raises the price,
etc etc etc.

Bitcoin has legitimate uses, but most people who buy crypto don't plan to use
it. They plan to sell it. And they rely on the newcomers to inflate the price.
Very much a pyramid type model. I think the most real threat is legislation
restricting its handling.

Until then, bitcoin price is not going to stop rising.

------
skydv
If I was given 1 satoshi every time I hear some old fart is preaching Bitcoin
doomsday I would be a trillionaire. I can summarize it without even reading
into

 _I don 't get Bitcoin, why don't they all use banks instead, banks are cool
because I use them and I am def cool. Bitcoin is not supported by anything,
look at that nice cool bank where we used to fuck whores, USD is backed by all
that coolness, Bitcoin is backed only by math and I don't get math_.

But tbh fees are now ridiculous, I think Bitcoin will crash soon

------
sireat
There is no question this is yet another bubble due for a pullback because
there are no fundamentals supporting it.

Bonus points if one can point to a well researched article on positive
catalysts for BTC in 2018.

Only thing is no one knows when and how deep the pullback will be.

It could go up to 12-15k and then drop to 3-5k. Or it could go up to 20k and
drop to 1k. No one knows.

Disclaimer: I've only mined and sold my BTC since 2011 no speculation.

~~~
strong_silent_t
I think there are two main drivers of price increase in 2018:

\- me-too buyers drawn by the huge 2017 increases

\- investors that have a mandate to seek out high-risk investments for a
certain %age of their portfolio, and are gradually overcoming technical and
regulatory barriers (
[https://www.bloomberg.com/news/articles/2017-11-16/bitcoin-e...](https://www.bloomberg.com/news/articles/2017-11-16/bitcoin-
exchange-wants-to-be-digital-safe-house-for-hedge-funds) )

For a decrease

\- MtGox style failure of a company holding a lot of coins

\- crypto-diversification as other projects get stronger

~~~
moosey
Another possibility for a decrease:

A major holder of bitcoins tries to pull more than can be converted into a
national currency. This basically topples what I equate to a ponzi scheme when
people find out that it doesn't convert so easily back and forth at current
evaluation, and reduces the value enough that others fearful of loss start to
try to convert as well.

I think that this is probably the most likely scenario where people discover
that bitcoin, as a currency, is a bad idea: deflationary currencies cannot
succeed (the rate of creation goes down while population goes up, so it must
be deflationary). Further, it shows that bitcoin as a commodity/investment
doesn't work, because to be honest there is nothing backing it up. What
recourse do you have when the bitcoins you bought at 10k are now worth 1k?
What real gain/loss has occurred that the rest of the GDP need concern itself
with?

Philosophically, I believe that bitcoin has presented an interesting
technological breakthrough, but the implementation of production is off. I do
believe that in the future that we'll see national currencies using blockchain
technology.

In the meantime, I'm not going to worry about it, and I'm not getting
involved. If some of my friends become wealthy for it, then great for them,
but I'm not particularly keen on 'get rich quick' or market timing schemes.

~~~
strong_silent_t
So for me, the most realistic price drop scenario is something that creates a
big increase in supply and decrease in demand at the same time. For MtGox you
have a crisis that lowers trust in brokers, decreasing demand, and huge hoard
of stolen coins going to a criminal that wants to profit, increasing supply.
Holders who bought bitcoin for a reason will sell for a reason, and they're
heavily incentivized not to do a panic selloff, unless they think bitcoin is
dying.

I agree bitcoin is inadequate as a currency. (I think ETH is better as a
currency, since it sort of has the "tax base" of executing contracts and
enshrining the results on the blockchain.) I view it as a store of value. If
your wealth is mostly represented as various numbers in various databases
(mine is,) then bitcoin is a robust form of integer storage, or at least
vulnerable in ways that are uncorrelated with my other wealth storage
providers.

------
alkonaut
If a viable cryptocurrency that doesn’t use massive amounts of energy for its
transactions would come along, wouldn’t that pose a huge risk to btc? At that
point, shouldn’t btc just be “outlawed” (to the extent it can be, e.g target
exchanges, banning payment in physical stores and similar). It should go the
way of incandescent light bulbs.

~~~
jerkstate
it doesn't look like it right now, there are dozens of cryptocurrencies with
better technology than bitcoin (including proof-of-stake), but lower public
awareness and therefore lower market size.

------
sergiotapia
Bitcoin is going mainstream just now, at $9800/btc it's STILL early stage. At
this point it will just continue growing because of finite amount and
mainstream adoption.

I wouldn't be surprised to see BTC reach $50,000 by December next year.

------
root_axis
Bitcoin let's you send peer to peer payments online without going through a
financial institution; that's what the whitepaper says it was designed to do,
and that is what it does. We can all agree on that. I think everyone can also
agree that there is some utility in that capability.

The question now becomes, what is the relationship between that utility and
the quantity of bitcoin owned? I think the answer is clear: there is none, and
based on that, I think it's safe to conclude that this gigantic rally based on
a desire to own bitcoin is very likely a bubble.

------
Matt_Mickiewicz
"May" = pointing out a possibility vs. making a prediction.

Ken Griffin "may" find a $10 bill on the street today. He "may" see his stock
portfolio flash crash 30% this week.

Why is this even news?

~~~
elsewhen
The mainstream audience is trying to get their heads around this new asset
class and when reputable and respected members of the financial industry say
anything about cryptocurrency, it is likely to get a lot of pageviews.

------
whataretensors
Banker says banking alternatives are not good. Color me surprised.

------
wslh
I found very interesting the community discourse change from having a currency
to use for sending transactions anywhere and with tiny fees to Bitcoin is a
value reserve like Gold. The last assertion existed before but companies like
BitPay, Coinbase and others were oriented to the former use case.

------
wol_
sure, sure. i've been hearing it for years, the same bubble talk and questions
about it's utility. the same nobodies yelling about tulips and and pyramid
schemes. i expect this low effort discourse but it is pathetic to see this
unsubstantiated bullshit discussed in any seriousness. unfortunately i expect
more stories like his as wall street comes to grips with this technology. i'm
sure there will be efforts to undermine and manipulate the market but as long
as bitcoin continues to be censorship resistant and decentralized there is not
a damn thing anybody can do to stop its spread. every simpleton thinks they
have some unique insight on why it will not work while the smart people have
been working on improvements to the protocol.

------
bertomartin
Headlines like these give me confidence that it will keep going. It may crash,
however, most people would be caught off-guard...these things aren't
telegraphed, plus, what's the motive? To save me money? or to make more money
for himself?

------
lostmsu
I may end today in tears.

------
bfrog
Honestly at this point if it collapses, it could be the trigger for a market
pull back

------
desireco42
Financial movers and shakers are trying to spook people and delay inevitable
until they can grasp what is happening.

There will definitely be a lot of corrections, but I see stable future for
bitcoin as an asset.

~~~
wglb
And people who are genuinely concerned:
[https://prestonbyrne.com/2017/11/26/the-bear-case-for-
crypto...](https://prestonbyrne.com/2017/11/26/the-bear-case-for-crypto-part-
ii-fractional-reserve-marmot/)

How can this possibly scale of the net value of created bitcoins grows at the
rate of $10 billion dollars _per day_?

~~~
desireco42
"As a final note: this is not a Bitcoin obituary; Bitcoin will be fine.
However, its price may change a bit. "

So he is saying the same thing. Only he thinks there will be single event, I
see this as a series of corrections and bitcoin will become more of an asset
then a currency.

------
rubbingalcohol
It may just as well end in tears for the nay-sayers who were too chicken shit
to buy in while teenagers got rich off decentralized currency.

~~~
the_cat_kittles
since there really arent that many fundamentals to bitcoin's value, at least
obvious ones to me, i think its mostly a gamble. not that that is bad or good.
just that i dont think its worth attributing to much credit or blame to
winning and losing parties. ive followed it since it was a dollar in 2011... i
still dont know what makes it go up and down except hype, china banning or
unbanning it, and exchange thefts. someone got rich off beanie babies, are the
people who didn't "too chicken shit" too?

~~~
flignats
There are many obvious fundamentals to cryptocurrencies. This is a revolution,
this is huge.

~~~
mattchristen
And what might the obvious ones be?

~~~
flignats
storage of value, information integrity, speed - If you don't see obvious
utility with cryptocurrency then you haven't done enough/very little research.

Why would ycombinator backed REQ try to replace Paypal with crypto technology
if there wasn't fundamental value in the tech?

~~~
icebraining
YC's whole model is making many investments which are likely to fail, assuming
a lucky few will pay for the rest. It only works because they diversify,
rather than going all-in on a single one.

~~~
flignats
the statement why REQ would try this, not ycomb's investment strategy..

They don't just invest in anyone, they do due diligence, why would they
conclude this is even a viable risk taking opportunity if it was easy to see
there is no utility in the technology?

