
There they go again, again [pdf] - cm2187
https://www.oaktreecapital.com/docs/default-source/memos/there-they-go-again-again.pdf
======
bognition
Why do articles like this keep showing up on HN? So the guy called the burst
of a previous bubble, guess what lots of people did but that is bound to
happen when thousands of people are crying bubble every day for years.
Inevitably when the market crashes there will be a lucky few who think they
predicted it.

Next, even if he is some savant that can see bubbles coming how does that
qualify him to make blanket statements about Bitcoin?

~~~
watty
Well if he's an expert on investments then it qualifies him to make a
statement on bitcoin as an investment. You don't have to agree, or believe
him, but it's pretty easy to see that many people are throwing money at it in
hopes that more people continue to throw money at it.

~~~
amingilani
Sure but that can be said of any speculative trader going long on an asset. It
doesn't make it a bubble.

~~~
cm2187
Yeah but an equity investment has intrinsic value. Either through future
earning to which as a shareholder you are entitled or to the residual value of
the company if you shut it down now. You can trade it in a speculative way,
and if it starts to trade at a level that cannot be justified by its intrinsic
value, then we are in bubble territory too.

------
apk-d
>"Serious investing consists of buying things because the price is attractive
relative to intrinsic value," he wrote. "Speculation, on the other hand,
occurs when people buy something without any consideration of its underlying
value or the appropriateness of its price."

So basically, _every_ currency is a pyramid scheme.

~~~
eterm
No, not really. Most currencies have a value which can be tied to real-world
value at the most reductionist via which governments accept it for tax and the
stability of those governments.

Bitcoin is different, not just because of the lack of government backing but
also because the way it is structured meant the earlier people got into it the
more bitcoins they got. (Fundamentally because mining rewards reduce over
time).

But that's irrelevant to fact you've missed the point of his quote, that most
people buying other currencies are doing it with purpose (such as hedging) and
considering their value, whereas people buying bitcoins are doing it for
speculative reasons and aren't making a judgement on where they think the
price of bitcoin ought to be.

~~~
StavrosK
I think the price of bitcoin is hugely, immensely overvalued (because you can
buy things with it at even fewer stores now than a few years ago). That
doesn't mean I don't think it will be twice as overvalued in the future.

~~~
eterm
I'm not sure it is overvalued, at least in the medium term.

Ransomware forces people to buy bitcoin while at the same time making the
bitcoins spent unspendable (because spending them will get you caught).

If you controlled all bitcoin, the way to make money with ransomware is
selling your legitimate coins to people who need to buy them to fulfil their
ransoms.

Each ransom paid decreases the bitcoin in circulation which further puts
pressure on the price. Eventually the pool of legitimate bitcoin will be tiny,
but ransoms will still get paid, so the ransom demands will be smaller and
smaller in bitcoin denomination. If we assume the ransoms that people are
willing to pay is steady in dollar value then that will push the price of
bitcoin up.

There is tremendous inflationary pressure on a fragile bitcoin eco-system. It
can withstand high inflation because no-one has their salaries or bills in
bitcoin.

Where does deflationary pressure come from? It will have bubble cycles that
will bubble and pop but overall even as it gets less popular by users, the
actual price can rise and rise if the currency circulates slower and slower.
The last few bag-holders might have huge paper wealth before they realise
there's no one left to actually buy their coins.

I don't think it's a legitimate investment though, it's still a pyramid scheme
by it's nature (Satoshi still owns a large proportion of all coins) and even
without that investing in bitcoin is investing in cyber-terrorism and funding
criminals. (Unlike the "if you download MP3s you're funding terror" bullshit
this one is actually closer to the truth).

~~~
TeMPOraL
I don't understand one thing in your argument:

> _Ransomware forces people to buy bitcoin while at the same time making the
> bitcoins spent unspendable (because spending them will get you caught)._

There must be a way to "launder" those bitcoins, because otherwise, as a
criminal, why would I want to get ransom in coins that I can't later spend on
anything?

------
mtgx
Someone is looking to buy low.

Joking aside, I think what's happening in the cryptocurrency world is what has
happened in the financial world before, just on a much more accelerated and
aggressive pace. Cryptocurrencies have value as commodities or even a
securities through ICOs just like many things in the real world, too. I don't
think they are that fundamentally different.

People just tend to think of them as being different because they are digital
assets and not something you can touch, even though people "buy gold" all the
time that they also never get to touch. And don't get me started on fractional
reserve banking's "virtual money"...

Pretty much everything in this world doesn't have _inherit value_. It's the
value we assign to it in a marketplace that makes things valuable. I remember
an older discussion on HN about this, with Bitcoin being more like tulips and
gold not being like that because it has "inherit value." No it doesn't. Gold
is like tulips, too, except it lasts longer, so it's a _better_ (key word)
"store of value" because of it.

Think about how things were in let's say the 1600's. Why did kings store their
wealth in gold? Because they thought other kings regarded gold (and not some
random rock or mineral) as valuable. Bitcoin is the same. It's valuable
because people who hold it believe others think it's valuable, too.

Same for the USD, or the Venezuelan bolivar. People _still_ believe the USD
has value right now, but in 50 years it could be another bolivar if everyone
starts believing that the US will never repay its $100 trillion debt (or
whatever it will be then). Then nobody will think the USD has any value. FIAT
has no more inherit value than anything else. It only has value as long as
everyone agrees it has value (and even that changes on a micro-time frame, as
people compare it to other currencies or gold on any given day).

------
thinkcontext
I made this point to someone a while back on Reddit, and added that it
couldn't work as a currency because it is inherently deflationary. This was
back when the aggregate value of Bitcoin was $100M.

Meanwhile I have a relative that was an underemployed anarchist who now has
his own plane purchased w/ Bitcoin proceeds.

~~~
notzorbo3
> Meanwhile I have a relative that was an underemployed anarchist who now has
> his own plane purchased w/ Bitcoin proceeds.

That's basically just survivorship bias. I know someone¹ that won the lottery
and is now a milionair. That doesn't make lotteries a sound investment.

This is why I also believe Bitcoin is an unintentional pyramid scheme. Its
real value is way too low. It's too difficult and dangerous to actually use it
for payments. So its only use now is speculation, and that only works as long
as other people are willing to buy bitcoin for more money than it was worth in
the past. Typical pyramid scheme.

¹) not really, but it illustrates the point.

------
dumbfounder
Most people understand that crypto is in a bubble, but that doesn't mean that
extreme value won't be attained. There was a dotcom bubble because of
speculation, but it was merely a timing issue. It took another 5-6 years
before companies started extracting the value to match the speculation and the
bubble just couldn't stay in tact long enough. If you could invest in "The
Internet" as a concept back in 1999 you would be rich today because the value
has skyrocketed way past that bubble. If you think Bitcoin is going to last 20
years then it doesn't matter if we are in a bubble, you should buy some. Maybe
it goes down for a while, but if it's around in 20 years it is almost
certainly going to be worth way more than it is today.

~~~
badloginagain
There may have been a dotcom bubble, but internet companies didn't go away
after it popped.

The bubble was fueled by an understanding that the internet was a fundamental
shift in the future of the global economy, without it being around long enough
to actually do so.

I can see parallels in crypto-currencies, and I think even if there is a
bubble, it won't spell the death of crypto.

------
mrleiter
Meta-comment:

I really dislike judging a person's argument based on correct predictions said
person made before. It's turning the "argumentum ad hominem" inside out,
giving credibility to an argument because someone specific said it.

~~~
oelmekki
In philosophy, it's called an "aristoteles dixit" (Aristotle said), based on
the fact that it was often considered proof enough in middle age if an
argument was defended by Aristotle.

As a meta-meta-comment, this is one of the things I like the most about HN :
we don't see any avatar and nicknames are not obvious, so we consider
arguments before considering who made them.

------
empath75
I think crypto is in a massive speculative bubble right now, especially
ethereum, but as long as criminals can use bitcoin to make transactions, it's
going to have some value.

------
mamon
Bitcoin is first and foremost a money-laundering method, especially from
ransomware hackers.

EDIT: some recent news on that ($4B money laundered):
[https://arstechnica.com/tech-policy/2017/07/officials-
arrest...](https://arstechnica.com/tech-policy/2017/07/officials-arrest-
suspect-in-4-billion-bitcoin-money-laundering-scheme/)

~~~
sddfd
Why is this getting downvoted?

~~~
csomar
Unproven statement. I could have written it also and replaced bitcoin with
cash.

Bitcoin probably handles much less than 1% of the world-wide money laundering
business at its current market cap.

~~~
mamon
You got it backwards: it is not about what percent of money laundering is done
with Bitcoin, it is about what percent of Bitcoin is used for money
laundering. I've just posted link (few comments above) about $4B laundering
scheme discovered, that's 9% of global Bitcoin market cap (currently $46B).

And you can assume that this Russian arrested wasn't the only one doing it, so
actual proportion is probably bigger.

~~~
csomar
You'll probably need to research backed-up numbers to confirm that. Yes, I do
believe the same too (most bitcoin activity is used for illicit activity) but
we don't really have the numbers yet and I am not sure if it is possible to do
it.

------
daxaxelrod
Crazy how this comment section fixates on bitcoin which was the subject of
maybe 2 pages out of a 23 page report.

His points on flagrant debt purchases (Argentina's), levered tech funds
(Softbank's) and passive etf investing were quite good. ETFs, while a macro
good, has underlying securities being purchased regardless of price.

------
joelthelion
It's not a binary thing. I would say perhaps 90% of bitcoin's current market
value is speculation. But bitcoin does have some use cases, and as such it
does have intrinsic value. The question is, how much?

------
deweller
Here's an entertaining list of bitcoin "deaths":

[https://99bitcoins.com/obituary-stats/](https://99bitcoins.com/obituary-
stats/)

------
free_everybody
IMHO his thoughts on bitcoin apply more fully to all the other alt-coins,
including (especially?) ethereum. Bitcoin has value because of its popularity
and has been used successfully for years on dark web markets and legitimate
markets like the Microsoft store. Its value may fluctuate, but it is surely
valuable to many people in the world.

On the other hand, most alt-coins (Monero is an exception) are the products of
people who want to get rich via scamming.

~~~
frgtpsswrdlame
Why the exceptions? Ethereum is a scam but Monero isn't? They're all the same.

~~~
free_everybody
The most important metric when comparing cryptocurrency is "real world"
usefulness. Bitcoin is obviously useful because it's popular and widely
accepted.

Monero is useful because it the most traded highly secretive coin. The
development team only wants to provide untraceable currency, no more and no
less. They even have actively tried([https://bitsonline.com/fluffypony-speaks-
troll-monero-market...](https://bitsonline.com/fluffypony-speaks-troll-monero-
market/)) to keep Monero's price low while other alt-coins were spiking
because they hate the direction that the Ethereum ecosystem is taking and
spreading to all of cryptocurrency. (i.e. the get-rich-quick mentality)

I don't think Ethereum is a complete scam. Vitalek is very smart and wants to
change the world. The problem is, he created a nest for scammers with his
smart contracts. Theoretically, smart contracts create trustless transactions.
In reality, this becomes a wild west for anyone with an ounce of swindling
talent to con people out of money, or just lose it because of poor coding
practices. I would link some articles but there are SO MANY that its common
knowledge by now.

Check out Monero community member Riccardo Spagni's
comments([https://www.youtube.com/watch?v=zJbxaFHGk2M](https://www.youtube.com/watch?v=zJbxaFHGk2M))
about Consensus 2017, a crypto conference during which he was bombarded by
talks of ethereum ICO's that had no actual products to show for.

------
nonsince
Desktop link here [https://www.cnbc.com/2017/07/26/billionaire-investor-
marks-w...](https://www.cnbc.com/2017/07/26/billionaire-investor-marks-who-
called-the-dotcom-bubble-says-bitcoin-is-a-pyramid-scheme.html)

------
Eleopteryx
OK, we get it. People have been calling Bitcoin a pyramid scheme for years
now. Not exactly breaking new ground with that assertion, and he's not making
any new arguments to back up that assertion.

~~~
bhouston
Pyramid schemes can be long running and successful, like Herbalife. Seriously,
that is a pyramid scheme but it has gone on for quite some time and is
successful. Others are Amway and other multi-level marketing products.

~~~
oelmekki
So, do you imply that people buying bitcoins then try to sell them to their
friends and family? People keep buying, then selling, then buying again, then
selling again bitcoins. This hardly qualifies as a pyramid scheme, this is
speculation.

~~~
bhouston
It is a speculative bubble:
[http://www.investopedia.com/terms/s/speculativebubble.asp](http://www.investopedia.com/terms/s/speculativebubble.asp)

Pyramid scheme is implied because people try to get others to adopt bitcoin,
may not friends and family but it is promoted to others as a way to get rich.
Have you seen the various cryptocurrency sub-reddits? They often read like
mass delusions or pump-and-dump schemes.

The only real value of Bitcoin that I have seen is the highly illegal darknet
marketplaces, but outside of that I haven't seen much.

~~~
oelmekki
I see your point, but then most financial investments could be considered
pyramid schemes as people always are vocals about how their investment is
great, partly for the feeling of being convinced to be a good investor, partly
because value raises if other people are buying. The definition of "pyramid
scheme" has to be stricter than that if it has to have any meaning :)

Regarding intrinsic value, there's one thing I hope from bitcoin (or any other
crypto that could achieve that) : replacing my bank account. Banking services
have got so bad with years, it's really time to disrupt them. Granted, we're
far from there yet, and it may never happen. That's why it's a risky
investment, with possible high reward (or high loses) and why ... it can't be
used as a bank account (because of the volatility). Still going in the right
direction, IMO.

~~~
bhouston
I think that Bitcoin is an investment and not a currency. I think it is
misnamed.

Currencies are actually designed to slightly depreciate over time in order to
get people to spend them on buying things or buying investments. That is done
completely on purpose. Not too fast depreciation but not too slow either.

Bitcoin isn't depreciating, rather appreciating because of its design -- a
limited supply.

~~~
oelmekki
Yeah, indeed, I often made this remark myself. This doesn't mean it won't
change (core developers could decide to change the rules about limited
supply), but this is unlikely. What is more likely is that something like the
USDTether crypto, or an other crypto tethered to a fiat, will take the lead.

What I often say, too, is that it's probably the only way it could have work.
When bitcoin was very young and it was considered a currency, people didn't
care. It's only when exchanges appeared and bitcoin started to get very
volatile that it gained traction. Maybe having speculators getting rich and
broke with bitcoin was the only way to bring cryptocurrencies to mainstream
focus : during those frenetic times, everybody has heard about cryptos, and
there's not a single day now without a news about a big actor (either
administrations or corporate) trying something around cryptos or blockchains.
Maybe we needed all of that to get the yet to be born crypto that can be used
by everyone. Should bitcoin have stayed that weird internet currency nobody
used, it would have died long time ago.

------
jayvdb1
I would also be twisted and bitter if I didn't get in early

------
vasilipupkin
the report is kinda bulshitty. Look, why don't you just make a prediction such
as "investors should do xyz". Otherwise, what's the point? Move forward but
with caution? what does that even mean? What do I do with cash I have ?

------
auggierose
Totally agree, digital currencies are not real. Of course that doesn't mean
they cannot have an effect on reality, just as a psychopath can run around and
shoot people because of his unreal delusions.

------
synaesthesisx
It's not BTC but rather the absurd ICO bubble - the majority of these
companies are selling worthless tokens in exchange for Ethereum. It's like
penny stocks but even _less_ regulated!

------
csomar
Instead of reading this value-empty article, here is the report:
[https://www.oaktreecapital.com/docs/default-
source/memos/the...](https://www.oaktreecapital.com/docs/default-
source/memos/there-they-go-again-again.pdf)

In my opinion, the report shows a lack of understanding of the fundamentals
and inner-working of both bitcoin and other digital currencies. It is hard for
me to take a report so seriously when the author shows incompetency in the
underlined topic.

The report main argument against crypto-currencies is: "But they are not
real!" repeated multiple times through the report.

Well, define "real". What does it mean to be real? Is the dollar real because
you can hold a 1 dollar bill in your hand? If so, is the value of the dollar
equal to value of paper; or the amount written on it?

The author main argument is very weak; and in my opinion shows a lack of
understanding of how markets work.

In the very long run, everyone will die, the Sun will run out of fuel, and the
universe might crunch. We could also be in a simulation.

What matters is the normal distribution of volatility of such assets; for day
to day usage. And their trend, for longer term investment. People assume the
US dollar is a stable currency because we have yet to experience a black swan
event that disrupt that.

~~~
andosa
One thing that makes the dollar more "real" is that you are required to pay
taxes in it. This creates an automatic demand for dollars. Even if you make
your money in bitcoin in US, you need some dollars to pay your taxes or risk
being thrown in jail. There is no such "intrinsic" value for bitcoin.

~~~
csomar
That's not a definition for real. Requiring to pay taxes by US dollar makes it
more in demand. So it creates some demand for the dollar. It is the same way
by which bitcoin or any other asset gain value.

~~~
andosa
That's why I put it in quotes. However, calling it "some demand" severly
understates the significance of this fact. It's not just some demand, it means
it's absolutely vital for vast majority of people and businesses in US. Which
won't be the case for bc unless it becomes legal tender

~~~
csomar
So? Does that mean investors should unload their Apple stock because iphones
are not vital?

------
sideshowb
I bet the other Howard Marks would be more supportive of bitcoin if he were
still with us...

~~~
ocodia
Heh. I was thinking exactly that same thing. RIP Mr Nice!

------
43224gg252
I think it's a pump-and-dump that's gotten out of hand.

------
pdog
If you actually read the latest memo from Howard Marks, he tried to understand
Bitcoin but couldn't make sense of it:

[https://www.oaktreecapital.com/insights/howard-marks-
memos](https://www.oaktreecapital.com/insights/howard-marks-memos)

Then he makes the perplexing argument, "But they're not real." And he calls it
a fad and possibly a pyramid scheme.

But obviously if you don't understand something, you shouldn't invest in it.

