
Is Buying Crypto Assets “Investing” - ca98am79
https://avc.com/2018/05/is-buying-crypto-assets-investing/
======
drcode
Any discussion of whether "X is Y" like this is kind of pointless. More than
that, it just devolves into sub-arguments. In this case, it will devolve into
arguing whether an "investment" requires purchasing things with "intrinsic
value", and furthermore whether the term "intrinsic value" has any sort of
objective meaning at all, anyway.

At the end of the day, if people prefer to call me a "gambler" or "speculator"
or "investor" for owning Bitcoin, any of those terms are fine.

~~~
asfasgasg
Most of the time, I agree with you. Especially with a lot of the pointless
pedantry that people argue about on here.

However, the question of whether X should be termed an investment or
speculation can be quite important in people's lives. Marketing in general is
really important, especially marketing around which many people base serious
financial decisions. If the label you put on the box leads people to expect
one thing, and what's in the box is something else, that's problematic. This
is part of why the SEC cares so much about who various securities are
_marketed_ to. And since, so far, the SEC has not stopped in to stop BTC et al
from being marketed to The Average Jane, it's important to unofficially call
out unrealistic claims and misleading terminology.

~~~
Jommi
I initially agreed with the parent comment, but you drive a good bargain as
well with yours. Still, I think the actual problem is not that it needs to be
defined, but that we are trying to define it in the scope of singular current
definition, while we actually need to implement a new definition, possibly
with the help of mixing current definitions.

~~~
asfasgasg
The whole reason I made my comment was going through a back and forth with
myself about whether there was a case to be made here. I'm still not positive,
so I hope I'm not driving that bargain harder than it deserves to be driven. I
do 100% agree that the default stance on debating definitions should be that
one ought not, and one ought instead be more specific. Maybe the real thing to
take care of is that most investors are really innocent and we have to be very
careful about what kinds of expectations we give them (if we care about
ethics, at any rate).

------
vertexFarm
I always hear people saying that blockchain is being used for all kinds of
interesting things that gives them intrinsic value, but that's not why
bitcoin's price has gotten so high (and recently dropped so dramatically, but
still very high).

Bitcoin and most other cryptocurrency is almost exclusively used for
speculation. People generally buy bitcoin for one reason and one reason only:
to get rich from selling it later.

A currency driven in this great a percentage by speculation is a dangerous
bubble. Until it lives up to the hype and this blockchain ecosystem actually
exists in a density large enough to realistically support the currency's
valuation, I would listen to Warren Buffet's advice.

There's a lot of adherents who are reaching fanatical levels of devotion to
blockchain, and those types will explain away any unbeliever's lack of faith.
The fact remains--cryptocurrency is almost entirely driven by speculation. A
sustainable currency doesn't do that. A Ponzi scheme does that.

A lot of the blockchain applications seem really kind of flimsy and hollow, as
if they are really there to prop up a crypto fortune in the hopes that some
kind of ecosystem develops and prevents the inevitable crash. Those probably
aren't going to work. Once again, it points to fact that the primary purpose
of the currency is currently just a get rich quick scheme.

~~~
21
Speculation is a critical part of the process. It's called "signaling".

If price of Aluminium goes up a lot, people will be "signaled" to build more
Aluminium mines, Aluminium smelters and so on. All of these people are driven
by profit. Yet their profit-seeking provides a service, at least until
Aluminium will not be needed anymore.

The same for bitcoin. The ever-increasing price signals all kind of people to
do all kind of things. This is critical for adoption.

~~~
vertexFarm
Thing is, that aluminum industry in your example existed before the investment
and independent from the investment. People need aluminum and are going to buy
it.

If you have a signal to purchase more currency, and that currency's value only
goes up if more people show up to buy it at a higher price, and those people
can only get a payout if another tier of people show up and pay a higher
price... See the shape of that structure? Vaguely... triangular?

Legitimate investment takes advantages of inefficiencies in pricing. It's not
possible to always sell a commodity at the absolute ideal and correct price at
the correct time, especially for an industry just getting its start. So people
with a lot of assets can take some commodity, hold it for a period of time,
then sell it wisely to take advantage of an existing industry. Or nurture it
and reap the rewards when it is successful. See how cryptocurrency is
potentially different? Most of the price of crypto is not supported by any
industry. It's people buying more in hopes of getting rich quick. It's
absolutely a bubble in its current incarnation, although hopefully it develops
a more diverse underpinning as time goes on.

If it develops that foundation then it will be like investing in a fledgeling
industry, nurturing it until it can become self-sustaining and profitable. If
those applications don't come through, it's just another scheme.

~~~
Jommi
You seem to be slowly turning to the side of it being an investment in the
end.

You start out with lambasting bitcoin and crypto as nothing but a ponzi
scheme, yet by the end of this paragraph you admit that

>If it develops that foundation then it will be like investing in a fledgeling
industry, nurturing it until it can become self-sustaining and profitable. If
those applications don't come through, it's just another scheme.

Which is exactly what it is!

I think lots of crypto debates should more accurately define their context.

Are we debating if the current price of bitcoin represents its intrinsic
value?

Are we debating if bitcoin even has any value?

~~~
vertexFarm
I don't see this drift you're speaking of. I actually really want to see
cryptocurrency become a real thing, it has this amazing promise of computers
maintaining a sense of absolute truth that resists all falsification. We
desperately need to build a new decentralized system as the internet is
brought under the control of fewer people each day.

But it's not looking good so far. People need to be more mindful of how
bubbles have played out in history. Realistic valuation is more healthy for a
fledgeling industry than enormous, uncontrolled, and ultimately false
sensationalist growth.

I think anything has value so long as there's a group consensus of value. I'm
not debating that. You say a fledgeling industry is exactly what bitcoin is,
but I don't think we have strong enough evidence of that. I'm hopeful but
skeptical. I'm allowed to be both. And if somebody calls me a concern troll
I'm going to lose my mind. I hate that term. Eliminates any sort of realistic
self-evaluation within a group. Sometimes it pays to examine yourself in a
negative light.

People gotta understand the possibility of it being a false promise as well as
the possibility of it playing out well, but right now there seems to be two
distinct and fanatical camps with no middle ground.

------
beefsack
The shifting semantics of "crypto" is incredibly frustrating; it makes it very
hard to talk about in the technical sense.

I know that language is in a constant state of flux (my background happens to
be linguistics) but it seems the mainstream media has a real penchant for
butchering technical terms.

~~~
vertexFarm
It's also starting to get really weasel-wordy. There's a billion crypto scams
going on these days. It's not the only thing going on, but there's a hell of a
lot of old-school cons and then there's a hell of a lot of softer, less
malicious scamming that is just based on over-confidence in a very buzzy
trend.

------
anonu
Assuming a crypto asset is a currency, then no. You cannot invest in a
currency. You can only speculate.

Investing confers ownership in an income producing asset of which you have a
percentage ownership stake in.

~~~
lopatin
Bitcoin is not a currency (it's a commodity) meaning other coins are also not
currencies because Bitcoin is the most currency-like of the bunch.

~~~
MatthewDPX
So if it's a commodity, it's just speculation. Nobody invests in "corn" or
"oil" for retirement.

~~~
MR4D
I disagree - especially with you second sentence.

I think you’d have a bunch of owners of XOM and CVX, etc stock that would beg
to differ with you.

And if you don’t like those, take a plane out to Midland, Texas and drive
around a bit - you’ll find quite a large number of people who do invest in
oil. They may be further out on the risk spectrum than you are, but if they
aren’t investing, then you can’t call buying FB or GOOG an investment either.

~~~
MatthewDPX
There is a big difference between investing in companies that produce
commodities and commodities themselves. XOM, CVX, BP and the like are
companies that are in the business of producing oil to generate profit for
their shareholders. Owning XOM/CVX/BP stock is investing, because there's a
reasonable expectation that the companies will make money and return that
profit to their shareholders in the form of a buyback or a dividend. Owning an
actual commodity is like buying art or trading cards speculating your purchase
will go up in value based on some inside knowledge you perceive to have. That
is the definition of speculation.

~~~
MR4D
What if I buy crude oil in Texas, where it’s cheap, with the idea of selling
it where it’s expensive (say, Europe) ?

I’m still investing.

In fact, I could build a company around it. And if I did, and then sold stock
in that company to you and you used that as investment for retirement, then
you would have just validated that buying a commodity is indeed investing.

Maybe not all the time, but certainly some of the time.

By the way, you can buy some of these companies today, under tickers such as
TNP, NAT, DHT, among others.

~~~
brokensegue
investing implies a long term horizon. if you are just taking advantage of an
arbitrage opportunity then you are a commodity distributor/shipper or
commodity trader. you aren't investing in the underlying asset you want to
hold the asset for as short a period as possible to avoid the arbitrage
disappearing beneath you.

~~~
MR4D
Investing implies no such time horizon.

Investing is spending money with an expectation of a return.

For contrast, expenses have no expected return.

Neither have a time horizon. And further, what would “long term” be anyway?
Not sure how you could ever define it.

------
Cypher
Its speculating, same as penny stops isn't investing.

------
Ologn
> Bitcoin and Zcash are stores of value that allow users to participate in
> this decentralized application space without the need for fiat currencies.

How is Bitcoin a store of value? An ounce of gold is a store of value -
someone had to do the work of finding and mining it, and it can be used to
fill teeth and conduct electricity. Gold is portable, uniform, durable and
divisible, so it is a commodity that has good currency qualities. But almost
every commodity that can be sold is a store of value - what value does Bitcoin
have?

Bitcoin boosters scout around the world for some commodity to compare it to
and fail, as it is inherently valueless and ultimately worthless, i.e.
ultimately worth nothing. So they come across the US dollar, an item whose
value has a question mark over it. So they say "this is like a dollar". Of
course, one can then just say a joke cryptocoin like Dogecoin should have a
market cap that is over half a billion dollars. And it does (
[https://coinmarketcap.com/currencies/dogecoin/](https://coinmarketcap.com/currencies/dogecoin/)
). Even Dogecoin's creator says the half billion dollar market cap is all just
a big joke.

Bitcoin doesn't even have the portable quality of a good currency. Bitcoin
transactions have hit large transaction latency issues (or had them when I
last looked into it when I did a transaction a few months ago). So the
"currency" isn't even good as a currency any more.

US fiat currency was indirectly backed by gold until 47 years ago, and with
the window then shut, it is now doubly-indirectly backed by that gold (the US
did not get rid of its 8000 tons of gold at Fort Knox and other locations in
1971 when, apparently, a magic wand was waved over Treasury department
printing presses, giving them the power to create value). I won't go into why
the dollar and Bitcoin are not equivalent here (but if someone makes a
coherent explanation why the US did not get rid of its 8000 tons of gold, I
will).

At least Pets.com, subprime new housing development real estate and so forth
had value at some level. These cryptocurrencies have no value. They are all
going to crash. I wondered for a while when and how that will happen, but now
I know - things like Dogecoin and its clones will bring it down.

Another thing - anyone who bought Bitcoin, Ethereum or Lumen in January is
currently under water. All three currencies dipped at that time, and in fact
all cryptocurrencies dipped simultaneously. So when the (total) crash comes, I
predict all cryptocurrencies will go to zero.

As Keynes said, markets can remain irrational longer than you or I can remain
solvent.

~~~
Jommi
>How is Bitcoin a store of value? An ounce of gold is a store of value -
someone had to do the work of finding and mining it, and it can be used to
fill teeth and conduct electricity. Gold is portable, uniform, durable and
divisible, so it is a commodity that has good currency qualities. But almost
every commodity that can be sold is a store of value - what value does Bitcoin
have?

Why do we keep going over this? There are tons of material online to help you
to the other side of this argument, not to mention the article itself.

One value of Bitcoin is in its decentralization.

How can you say that is worthless? Is it worthless to have an alternative
means of payment that is available to nearly anyone around the world and is
not controlled by a single authority?

I would very much like to see your thoughts on this topic, but please, before
responding take a moment to think. Your current comment is so full of vitriol
that I think it might blind your rationality.

~~~
hudon
> One value of Bitcoin is in its decentralization.

There is surmounting evidence that this is not true and that Bitcoin is
actually quite centralized and would benefit from being more centralized
[0][1][2][3][4].

[0] [https://arxiv.org/abs/1801.03998](https://arxiv.org/abs/1801.03998)

[1] [https://freedom-to-tinker.com/2015/07/28/analyzing-
the-2013-...](https://freedom-to-tinker.com/2015/07/28/analyzing-
the-2013-bitcoin-fork-centralized-decision-making-saved-the-day/)

[2] [https://arewedecentralizedyet.com/](https://arewedecentralizedyet.com/)

[3]
[https://fc18.ifca.ai/bitcoin/papers/bitcoin18-final13.pdf](https://fc18.ifca.ai/bitcoin/papers/bitcoin18-final13.pdf)

[4] [https://www.tse-
fr.eu/sites/default/files/TSE/documents/doc/...](https://www.tse-
fr.eu/sites/default/files/TSE/documents/doc/wp/2017/wp_tse_817.pdf)

> Why do we keep going over this?

Because blockchainers are not listening to the science... why would they? It
invalidates their whole investment thesis.

~~~
Jommi
Thanks for these links, usually when talking about it not being decentralized
the source is either Forbes or Business Insider. Let's see what your sources
have in store.

EDIT:

[0] [https://arxiv.org/abs/1801.03998](https://arxiv.org/abs/1801.03998)

Good paper, lots of good research. Identifies that top pools do not change
position too often. Shows also that system profits prefer higher pool sizes.

However, fails to notice that pools are made of individual miners/groups and
do not represenet single huge datacenters. Groups/individuals can often change
pools, and this is not an uncommon practive.

[1] [https://freedom-to-tinker.com/2015/07/28/analyzing-
the-2013-...](https://freedom-to-tinker.com/2015/07/28/analyzing-the-2013-..).

First thing to note is that this is 2013, when the bitcoin world was a lot
more centralized (Only one major exchange, MT.Gox, much less visbiiltiy and
credibility. I argue that more coverage results in a more decentralized
system)

Also, this is not really a decision of centralization, but feels akin to an UN
meeting, where multiple actors discuss rationally the best course of action
for their community, and then move in regards to that course. No one forced
the community to follow their moves, but when they did, the results were
better for the whole community.

Of course, if they had not given advice from an authoritarian position, nobody
might have listened. Yet, still Bitcoin would have survived, as explained by
Buterin: [https://bitcoinmagazine.com/articles/bitcoin-network-
shaken-...](https://bitcoinmagazine.com/articles/bitcoin-network-shaken-by-
blockchain-fork-1363144448/)

[2] [https://arewedecentralizedyet.com/](https://arewedecentralizedyet.com/)

See: Pools are not huge data centers

>% of money supply held by top 100 accounts = 19%

Not an accurate measure of centralization. Addresses do not mean single
people, or even single organizations. Most of these addresses belong to
either:

>Zombie addresses of huge amounts of bitcoin gathered in the early days

>Exchange cold and hot wallets

>Huge organizations

[3]
[https://fc18.ifca.ai/bitcoin/papers/bitcoin18-final13.pdf](https://fc18.ifca.ai/bitcoin/papers/bitcoin18-final13.pdf)

Commentary on the developer activity of bitcoin compared to other open source
code projects. Shows some centralization, but still not even close to a
central authority. Not to mention that anyone can join the project at any
time. If we say Linux development is decentralized, then we can say bitcoin
development is decentralized.

This is not evne taking into account the interaction that needs to be done
between the developers and the miners.

[4] [https://www.tse-
fr.eu/sites/default/files/TSE/documents/doc/...](https://www.tse-
fr.eu/sites/default/files/TSE/documents/doc/..).

Mostly about ineffieciencies in mining and decentralization. The core
conclusion from the text is this:

"This points to a major dilemma for distributed ledgers: On the one hand, the
anonymity and decentralisation of public blockchains expose them to
coordination failures and externalities. On the other hand, private
blockchains can restore coordination and internalise externalities, but only
to the extent that they involve the intervention of a centralised authority,
which goes against the fundamental motivation for blockchain."

Which I absolutely agree. Decentralized does not mean efficient, I dont argue
that.

\---- \---- \----

So all in all, the sources show that the decentralization of Bitcoin could be
better. Yet, in all cases decentralization exists, and is not in imminent
threat.

To all Bitcoin "centralized" is not only erroneus, but disingenious.

~~~
hudon
> However, fails to notice that pools are made of individual miners/groups and
> do not represenet single huge datacenters. Groups/individuals can often
> change pools, and this is not an uncommon practice.

citation needed. The trend in proof-of-work mining is consolidation of costs
into large data centers[0], hence why it is no longer profitable for you to
run an ASIC in your garage. Furthermore, there are very few profitable pools
to choose from [0]. Large miners risk losing a lot of money by changing pools
partly because not all pools provide as much revenue as the others.

> where multiple actors discuss rationally the best course of action for their
> community, and then move in regards to that course. No one forced the
> community to follow their moves, but when they did, the results were better
> for the whole community.

3 individuals decided Bitcoin would orphan the longest chain [1]. The
community had no say in the matter. How is that not centralized consensus
making?

> Which I absolutely agree. Decentralized does not mean efficient, I dont
> argue that.

It is not only efficiency, it is also robustness. The more centralized the
consensus-making mechanism of a blockchain is, the least likely consensus
failures are [2]. If no one would have took control in 2013, there would have
been 2 chains for an undetermined amount of time, leading to massive levels of
fraud and money loss [1]. Do you think society would benefit more from a
Bitcoin that has massive consensus failures like that or would you rather a
Bitcoin that has a central authority (the handful of GitHub commiters + mining
pool operators) that can quickly fix consensus failures and prevent large
institutions from losing a ton of money?

[0] [https://arxiv.org/abs/1801.03998](https://arxiv.org/abs/1801.03998)

[1] [https://freedom-to-tinker.com/2015/07/28/analyzing-
the-2013-...](https://freedom-to-tinker.com/2015/07/28/analyzing-
the-2013-bitcoin-fork-centralized-decision-making-saved-the-day/)

[2] [https://www.tse-
fr.eu/sites/default/files/TSE/documents/doc/...](https://www.tse-
fr.eu/sites/default/files/TSE/documents/doc/wp/2017/wp_tse_817.pdf)

