
Vanguard Founder Jack Bogle Says ‘Avoid Bitcoin Like the Plague’ - dionmanu
https://www.bloomberg.com/news/articles/2017-11-28/vanguard-founder-jack-bogle-says-avoid-bitcoin-like-the-plague
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non_sequitur
“Bitcoin has no underlying rate of return,” said Bogle, 88, who started the
first index fund in 1976. “You know bonds have an interest coupon, stocks have
earnings and dividends, gold has nothing. There is nothing to support bitcoin
except the hope that you will sell it to someone for more than you paid for
it.”

Didnt quite understand this quote - is he down on gold too?

~~~
nerdponx
_There is nothing to support bitcoin_

That's what I've been realizing latey: there _is_ something to support
Bitcoin, and that something is the blockchain. The reason banks and big
financial companies are interested in it is _not_ for its speculative value.
They are interested in the fact that it is both decentralized and immutable.
As long as financial corporations are willing to exchange Bitcoin for USD,
then Bitcoin is a reasonable store of value.

There's also value in Bitcoin because it's a good entry point into other
cryptocurrencies that could turn out to be better general-purpose exchange
media, like Litecoin.

It's a bit like US Treasury Bonds. Nobody buys them for the tiny rate of
return they offer, but they have genuine, valid use as a financial instrument.
Normal people, however don't typically buy them, and normal people probably
shouldn't be buying Bitcoin either unless they have some spare cash to gamble
on it.

~~~
chiaro
Nah. Banks and big financial companies interested in the blockchain will spin
up their own version without tying it to the unstable mess of bitcoin. e.g.
[https://ripple.com/](https://ripple.com/)

And people do by treasury bonds for their rate of return, when the investment
must be as riskless as possible.

~~~
AndrewBissell
There's no point to a decentralized database like a blockchain when you run it
from a handful of centralized chokepoints which are easily censored or
pressured by political actors. You may as well just use a SQL database that
everyone syncs up periodically. Bankcoins like Ripple are pointless.

People buy treasury bills when they care more about return OF capital than
return ON capital. Bitcoin and gold are also solid assets in this regard,
particularly because they are bearer assets that don't represent a liability
or promise-to-pay by some third party.

~~~
chiaro
And yet, banks and financial institutions are vastly preferring blockchains
that have been uniquely developed for their needs. There's very little appeal
in simply accepting the transaction costs and times in bitcoin when you can
spin up a version with whatever spec and interoperability you desire.

If by 'return of capital' you mean a propensity for an asset to retain its
value, bitcoin is utterly inappropriate. Even gold is far too volatile and is
only rationalised on those grounds against (very) long tail risk.

~~~
vzcx
Their "preference" for "blockchain" is borne out of political necessity. I say
this not to trivialize it, but to explain.

Banks are massive, massive institutions, and it is hard enough to coordinate
people and resources within them, much less across them.

Back-office operations are indeed cumbersome and a major cost-center, and
there is much value to be captured in simplifying all of it. If "blockchain"
can serve a Schelling point to help get right people in these institutions to
talk with one another so as to get on the same page, then there's a chance
that some progress can be made towards solving these problems.

It's "blockchain" because "blockchain" is the new hotness, that's all. Any
real world, inter-dealer distributed ledger will, in all practicality, be more
like a cluster of SQL databases backing some kind of state-machine replication
protocol than a cryptocurrency.

Happy BTC10k, by the way.

------
jozzas
Bitcoin is becoming a value store. With slow transaction confirmation and high
fees, what are the real-world applications for Bitcoin supposed to be now? And
for those applications, are there not other cryptocurrencies more specifically
targeted at being better at that application?

~~~
rhino369
Nobody keeps bitcoin to store value. They keep it because they think it will
appreciate in value. Why? Because of has went up in the past.

If people lose faith that it will keep going up, then it stops holding value.

It’s pure speculation based on the greater fool theory.

~~~
pas
A lot of people do use it to store value, its deflatory nature makes it ideal
for that.

~~~
rhino369
Price is based on supply and demand. It's only deflationary if demand stays
the same. But if people stop believing bitcoin is going to MOON, then demand
can/will fall.

There are a limited number of beanie babies too.

------
jorblumesea
The biggest red flag is it's clear the exchanges don't have the liquidity for
everyone to cash out. Since there are no banks to provide credit lines it's
entirely dependent on people getting into the market to provide the fiat
currency to cash out.

A run on these exchanges will destroy the value of bitcoins and cause a panic.

~~~
lostsock
How is it clear that the exchanges don't have liquidity?

~~~
jorblumesea
The way the system works provides little in any sense of a line of liquidity.
Unlike normal banking the exchanges operate ledgers where the fiat currency
they have on hand is directly tied to how many people have put fiat currency
into the exchange network. Given the extremely rapid rise of the price of BTC,
it's extremely unlikely they have anywhere close to the amount of fiat
currency if large numbers of people cash out.

~~~
pas
Exchanges are not market makers. They don't have to be able to allow everyone
to "cash out", they are not banks.

Exchanges provide a venue for buy-sell to meet. If someone wants to "cash
out", someone has to want to "cash in". Lately every time the price dropped
folks saw it as the time to buy more, or just "finally buy bitcoin, because
it'll go up soon".

A big crash happens when the equilibrium shifts drastically, when more people
wants to get out than get in, it'll crush the price (because more people
wanting to get out will lead to even more people wanting to get out).

------
thoughtexprmnt
Isn't the "value" of a currency in it's relative stability over time? That is,
the confidence by those who use it that it will be exchangeable for roughly
the same amount of goods and services today, tomorrow, six months or a year
from now (accounting for nominal inflation, of course).

If you accept that premise of what a viable currency should be, then it seems
like the volatility of Bitcoin and other cryptocurrencies have thus far made
them failures. I mean, if a national currency had similarly rapid changes in
value, wouldn't we see financial chaos, riots, and revolution?

------
cs702
> There is nothing to support bitcoin except the hope that you will sell it to
> someone for more than you paid for it.

Not everyone agrees with that statement. For example, see:

[https://news.ycombinator.com/item?id=15797380](https://news.ycombinator.com/item?id=15797380)

[https://news.ycombinator.com/item?id=15796880](https://news.ycombinator.com/item?id=15796880)

~~~
totalZero
The second link does nothing to refute the idea that bitcoin, as an investment
instrument, is purely speculative. The author simply argues that bitcoin is
unique among money-like assets.

The first link describes the hypothetical utility of bitcoin, but does nothing
to explain a natural reason that bitcoin should have returns or appreciation.
In fact, since the author describes bitcoin as a "medium to store wealth," the
assumption should be that every buying transaction has an opposite selling
transaction, which means there would be little to no overall price impact from
any of the described activities.

I wouldn't scramble to dismiss what Jack Bogle says. He may be 88, but he has
earned a reputation as a clever, knowledgeable, and decent fellow.

------
bazizbaziz
"There is nothing to support bitcoin except the hope that you will sell it to
someone for more than you paid for it.”

Genuinely asking, isn't this the plan for many people? How is bitcoin
different than other commodities or property in this regard? Would Bogle say
the same thing about those investments?

~~~
CPLX
There is a big difference. If you buy wheat futures and nobody wants to buy
them, you can take delivery of a bunch of wheat. If you buy investment real
estate and nobody wants it, you can live in it, or build things on it. If you
buy stock in a random Fortune 500 company and nobody wants it, you can take
possession of a bunch of desks or factories or inventory or whatever their
deal is. And if you take possession of a bunch of US currency you can be
assured that you'll be able to use it to settle debts or pay your taxes as
long as the US government is around and has better guns than everyone else.

Bitcoin is different from all those things.

~~~
jozzas
> If you buy stock in a random Fortune 500 company and nobody wants it, you
> can take possession of a bunch of desks or factories or inventory or
> whatever their deal is

Not really, the value of the stock approaches zero, and when the company
closes up shop I doubt you get anything at all as an investor. Assets would
typically be sold to pay off outstanding debts.

~~~
tptacek
More fundamentally, the value of a share of stock is tied to earnings. When
companies accumulate capital beyond their horizon of their operational needs,
they issue dividends.

Yes, companies can go out of business, but that's not the point Bogle is
making. He's not saying stocks are riskless. He's saying that their valuations
are tied to notional future earnings and the dividends they will generate.

------
kevin_thibedeau
Forcing people into 401Ks was the greatest financial hack of the century. The
bankers don't want competition for "their" money pile.

~~~
sjg007
That is an interesting argument. These guys are selling financial products
that are explicitly not pro bitcoin (yet). If they see value in bitcoin then
they would probably pump them. That is most likely too soon. In a few years
you will probably hear that bitcoin is a hedge against global instability. It
might be rational for oil to trade in bitcoin. It's also a big way for the
Chinese to get money out as well as the Russians. North Korea has nothing to
lose with bitcoin unless it pisses off the Chinese and Russians.

------
xtracto
> It’s “crazy” to invest in the digital asset, he added. “Bitcoin may well go
> to $20,000 but that won’t prove I’m wrong. When it gets back to $100, we’ll
> talk.”

One more in the many death's of bitcoin...

[https://99bitcoins.com/bitcoinobituaries/page/10/](https://99bitcoins.com/bitcoinobituaries/page/10/)

------
westurner
Over the past 7 years, Bitcoin has outperformed every security and portfolio
that Jack Bogle has recommended.

~~~
pdog
This is pretty disrespectful to Jack Bogle.

Vanguard is almost singlehandedly responsible for returning trillions of
dollars of costs, in the form of fees and underperformance by active managers,
back to investors. Millions of investors have benefited.

~~~
westurner
Bitcoin has been a bubble since $1 and $100 to these people.

~~~
lern_too_spel
What evidence is there that it isn't a bubble? People buy Bitcoin only because
they think they can sell it higher. Eventually, you will run out of greater
fools.

------
jakenberg
He has a point since I could always go down to the reserve and trade my
dollars in for cold hard gold. Oh wait...

------
csomar
The common sense for the wealthy investor should have been to invest 1% of his
portfolio into bitcoin and other digital currencies. If he did that two years
ago he'd get x15-30 returns, making Digital currencies over 10% of his
portfolio. That would be the time to "cash out" or "scale out" the original
investment back into traditional channels.

Is it late now? I think wait a bit and then start DCA that portion of your
portfolio.

~~~
UncleMeat
Why? Why was this common sense? What other things should people have invested
1% of their portfolio in? Is every thing that has the possibility of
increasing in value dramatically worth investing 1% of my portfolio?

~~~
csomar
Diversification. Preferably your portfolio will have a tech allocation and
crypto could be part of it. Certainly there are many things that will
appreciate ten folds in a year; and most things that don't.

Had I opted for diversification in my investment, I'd have seen my wealth even
triple that now. And this is not in crypto only.

~~~
monktastic1
I think the question is: given that you can find at least 100 long shots out
there, how could you know this was among the <= 100 that you should put 1%+
into?

