Hacker News new | past | comments | ask | show | jobs | submit login

Instead of reading this value-empty article, here is the report: https://www.oaktreecapital.com/docs/default-source/memos/the...

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.

Why does someone need a deeper understanding of intrinsic value if the shallow understanding does reflect a Ponzi-like scheme? Not having a deep understand doesn't negate what exists at a shallow understanding; "it's the colour red," "actually, it's rose coloured."

Edit: And if the Ponzi-like scheme is what the problem is, why isn't then the community solving for that? The easy answer is that then adoption is difficult, because if you have a Ponzi-like scheme it is much easier to attract VC money, likely the money of bad actors more easily, etc. Yes, that hyper-incentive of the Ponzi-like scheme does get people working together, more quickly, whereas having a normal or no incentive (the incentive being the value of a public ledger) then it will grow at an intrinsic pace.

My understanding of a ponzi-scheme is that you subscribe with an initial capital with a regular currency; and then you expect regular payouts in that same currency. The regular payouts pay a lot comparing to what the market pays for no-risk assets.

I don't think bitcoin fits that definition.

Hence why I generally try to say Ponzi-like scheme. It doesn't fit exactly. The bad actor in a Ponzi scheme, the single issuer would be the stock broker, however in the case of a crypto-asset would be the crypto-asset itself, e.g. Bitcoin, Ethereum's Ether. And then there are the owners of those assets who are doing the promoting to get people to adopt it and hoping people will pay X amount more for it than they paid. This is too shallow of an explanation anyhow. I believe I have left longer comments relating to it on HN, though they may not fully describe all of the problems with it.

For skeptics like this, I've had success bringing up the history of paper money and point out how it took ~250yrs for the idea that money was the medium of exchange to take over (1705 with John Law to Nixon taking the US off the gold standard). Initially, paper money wasn't seen as "real" and we didn't even have an idea of what a reserve requirement was let alone how FDIC-like insurance would be REALLY useful for stability. I'm skeptical myself of if cryptocurrencies are really the "next version" of what is money, but a proper historical context lends credibility to taking them seriously.

Paper money initially was -- like cryptocurrencies are today -- inefficient, had interop problems and highly volatile. The main difference is the rate of experimentation/iteration today is so much faster and we have a complex understanding of economics already which we can use as a guide. Also, back then some of the experimentation was being run at national economy scales. Cryptocurrencies are great in that we can experiment with the idea without reaching/requiring a potentially economy-collapsing scale during the early iterations.

I doubt I'll live to see the if they turn out to be the "next version" vs an interesting experiment -- I can't imagine a wholly new definition of what is money taking root in under 2 generation.

I thought, in this century, economists no longer differentiate between money, bonds, gold and stocks. They are all "assets". What they look for, instead, is the distribution of return of these assets. (that is volatility)

So basically he says "In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme)". Perhaps means he wasn't sure unlike the clickbaity article title which sounded like he was sure.

I can't speak for what he means but my interpretation of what real means to him is this - When you buy a stock for a software company you believe in the software, the target segment they are targeting and maybe yourself a customer. So two things define the real-ness of the business - working software and a dedicated user base.

Let's look at crypto currencies from the same lens. Sure the software is great and holds potential for the future. And sure one might say output is as good as the dollar. But, currently there is no sustainable market. There is no urgent need for people to acquire bitcoin other than say speculation purposes.

One might argue they will catch on in the Average Joe with time. But the biggest hurdle is Average Joe likes to see and feel the money. How will one explain them what really a bitcoin is without getting too technical? The problem here is one from the Silicon Valley show. Richard builds a better platform for data management. It doesn't sell because it doesn't make sense to average people at all. So better product doesn't equal to superior returns. It just means superior product. So the biggest problem in front of bitcoin or other crypto currencies is to take it mainstream.

And certainly fights like the BTC Cash vs Bitcoin Core doesn't help. I mean sure many people weren't happy with the unlimited printing of dollars by Feds in 2008 but at least it dint threaten to break down the economy completely because one side dint want to give in to the other and float their own currency. Stability is important and unfortunately crypto currencies are not there yet.

I'm a regular reader of Howard's memos, which are usually pretty on point and thought provoking (the rest of this memo generally fits that description, thought mostly just says things are expensive.) In this case, however, I'm pretty disappointed in the lack of nuance in his argument about cryptocurrency. This is the guy who advocates "second-level thinking" to beat the market and/or peers, and is usually very focused on the details of a situation.

Beyond the weak backup of his main arguments, I felt the most striking issue was his contrast between cryptocurrency and gold:

   What will happen to Bitcoin's price and liquidity in a crisis if people decide they'd rather hold dollars (or gold)?
The irony is that many aspects of Bitcoin were inspired by the limited quantity of gold (there is only so much gold, with increasing cost to produce it as you reach that limit). Gold has been around a lot longer, but cryptocurrencies could gain similar acceptance if their security, usability and everyday utility increase.

Gold and dollars are not immune to the concerns he raises about liquidity and price. When you're starving, a bar of gold doesn't help very much.

I think his arguments about a bubble in cryptocurrency have some validity, but not without caveat and nuance - they are more of truisms as written. Of course emerging asset classes and technologies will overshoot. But that doesn't take away from the fundamental realization that, at least for now, cryptocurrencies provide value to those who use them. This might be for money laundering/black market activity as people below have pointed out, but its still valuable for them. The value might also be for easy cross-border money transfer and risk mitigation when dealing with government manipulation of currencies (see Venezuela and Argentina.)

Either way, I'm not sure cryptocurrency is really that useful of a place for a firm like Oaktree to be investing in, because they are credit guys, not macro guys. That said, former credit guy Mike Novogratz invested heavily in cryptocurrency and seems to have done well thus far: https://www.coindesk.com/hedge-fund-founder-invests-10-net-w...

There is another point about the utility of the currency or token. If some of my customers pay me in Bitcoin and that is more convenient than paying me in USD we have something. This is the case when you have overseas customers and you are not based in US: if the customers do a wire transfer the bank exchanges the USD to my local currency in a less favorably way than if they send the payment in Bitcoin abd I exchange it locally.

Read that report earlier this week. The one section that stood out to me was the excerpt from the 1997 shareholder letter. The list of technology's elite companies is no-more. Yahoo!, AltaVista, America Online, Excite, Netscape, GeoCities, @Home and Prodigy. They're all gone, or have been absorbed into other companies.

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.

There is utility in Bitcoins ability to transfer value worldwide, without middlemen, only requiring a cheap smartphone.

Strictly speaking nothing has "intrinsic" value, but Bitcoin can be valued because it has many qualities of "good" money like being transportable and durable, doing some of them theorically better than current monies.

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.

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

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

Except the demand for one is created by gun point

Applications are open for YC Summer 2021

Guidelines | FAQ | Lists | API | Security | Legal | Apply to YC | Contact