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Buffett Says Stock Ownership Became More Attractive With Tax Cut (bloomberg.com)
176 points by rayuela on Jan 10, 2018 | hide | past | web | favorite | 300 comments

I have a lot of friends investing in crypto-currencies recently, and here's the fun thing: most of them are well aware this is a speculative bubble, but it didn't stop them investing. Quite the opposite actually, they believe this is the beginning of the bubble, and they can make a several hundred percent investment in a short timespan. And they are quite right, in every speculative bubble, no value is ever destroyed, it's merely a transfered from some speculators to others, all they need to do is sell at the right time.

> in every speculative bubble, no value is ever destroyed

Public trust is destroyed by bubbles. That takes time to rebuild. In the meantime, it leaks into the political system.

I was in an Uber the day Bitcoin hit $19,000. My driver was proud he'd just taken out a second line on his house to buy. There is a non-negligible chance he, and people like him, will end up on the public balance sheet as a result of these wealth transfers.

That's right, problems occur when people bet more that what they can lose. I'm convinced that's why the regulators don't like crypto-currencies. Not because they will lose their power, like some people seams to believe, but because they don't want a huge number of ruined people when the bubble collapses.

> in every speculative bubble, no value is ever destroyed

2008 was a speculative bubble in real estate. When it burst, it came frighteningly close to taking down the entire US financial system. "No value destroyed" doesn't begin to describe what nearly happened.

The Great Depression did far more than wipe out the gains made in the stock market.

housing today has already recovered. In fact, many homes today are worth more than they were in the peak of the bubble

A lot of my friends lost money when Tron fell from 20+ cents to 10 cents. Beware of speculation. There will always be winners and losers and reading the bots on Reddit is not helping this bubble either.

> no value is ever destroyed

Well, a metric shit-ton of nonrenewable fuel took a one-time conversion into global-warming causing greenhouse gas. But let's all just paper over that little fact, eh?

What I don't get is this: what makes them think that they're early? When it's on TV day and night and Paul Krugman's barber asks him about it, is that the right time to build up a long position?

You just described how every intelligent person gets scammed everywhere--"I'm too smart to fall for their tricks, I'll know when to sell just at the right time!"

No, you won't. Because you don't know the scam, you just think you know. It's not a coincidence that hundreds of Wall Street con men jumped into the crypto space in the past couple of years. You aren't going to outwit them. They know exactly how to operate their scams in a completely unregulated environment.

The best part of the article was where Buffett said he'd buy put options on cryptocurrencies if he could, but wouldn't short them. I bet most investors in cryptocurrencies don't understand his reasoning there, and that's frightening.

Note: I'm not saying they have to agree with it, but if you don't understand his point and are invested in cryptocurrencies you should really be asking yourself how much you really know.

I hate asking for spoilers but could you explain what the reasoning is?

If you short 1BTC, you get the current value of 1BTC and pay the future value of 1BTC. If you buy a 1BTC put option, you pay a premium for the option to get the current value of 1 BTC (the usual "strike price") and pay the future value.

So for a short: Max loss: Unlimited. if BTC rises to $x, you have to pay $x Max Gain: The current value of 1BTC. If BTC drops to zero. you pay nothing but were given the start value.

For a put option: Max loss: The premium, as you don't have to exercise the option Max Gain: strike price minus the premium.

Shorts have a fixed period and put options expire, so if the drop you predict doesn't happen in the time you predict, you can get wiped out even if the drop does happen later.

So In effect buffet is saying he believes it's going down, but either isn't confident about when or admits there is a chance he's wrong.

His reasoning is that by definition speculative excess is irrational, therefore who is to say irrational markets can't get more irrational, particularly in the short term.

In the short term markets are voting machines, in the long term they are weighing machines. Therefore shorting bitcoin is fairly stupid, as you can easily get run over and margin called or financially ruined if speculative excess continues and increases even if irrational.

By going long, long term put options, unlike shorting a stock, on 5 year puts you a) cant get margin called and lose your shirt and b) They are long term enough that the whole speculative mania is likely to die down over time. And if it doesn't he would only lose the option premium, not an undefined amount of money.

Finally, he considers assets that produce cash flows to be investments, while assets that don't (like gold, fine art, or bitcoin) to be speculation. And while there is nothing inherently wrong with speculation, he doesn't believe it is particularly enrichening either, and that purchasing productive assets is a far better use of his money.

As a student of history, he has read about and witnessed many speculative manias that have ramped speculative assets (as well as investment assets far beyong anby rational value of their cash flows), and presumably think this one is likely to go the same way.

Short = Is "naked" operation, the maximum loss is unlimited. If the bitcoin goes to U$ 1 million then $0 next week you probably will be eaten alive by margin calls in the process. This is a very dangerous way to bet by nature.

Put option = The maximum loss is the paid premium.

[*] https://en.wikipedia.org/wiki/Put_option

He is pretty sure that it'll collapse, but he doesn't know how high it'll go before then.

>If I could buy a five-year put on every one of the cryptocurrencies, I’d be glad to do it but I would never short a dime’s worth.”

Hmm, in that way you could see it as the market around cryptocurrencies lacking the financial complexity that could bring their volatility back down to more normal levels.

During the 2008 crisis Buffett bought a $5 billion stake in Goldman Sachs. He didn't buy shares on any exchange, he dealt directly with Goldman.

Buffett doesn't need complex financial markets because he does custom transactions directly with companies.

A Winklevoss could easily sell him a billion-dollar five-year put, but he wouldn't like the price.

> he wouldn't like the price

For fun, let's try pricing a Bitcoin put option using the Black-Scholes-Merton model [1]. This model is a simplified version of real-life options models, but our parameter uncertainty will dominate the model's anyway.

I'll use the $14,400 Coinbase price [2] for both our S and K inputs, i.e. we're pricing a European put struck at spot. Term is 5 years. This site [3] says Bitcoin's historic 252-day volatility is 5.21%. Sure. We want the 5-year 365-day volatility, i.e. 14.0% [4].

The real shit show in this example is the rates component. If we use this 57% number [5], the put is worthless. We're using a Bitcoin-dollar price for the stock and strike, so let's assume U.S. dollar funding (since Bitcoin does not natively support rates in the way modern currencies do). The 5-year Treasury yields 2.25% [6].

BSM says...$1,037.01.

(Rho dominates tau, or in English, the rates component is about 2.5x more meaningful than the volatility component.)

Raising our rate to the call money rate [7] we get $792.84 with rates continuing to dominate volatility.

[1] https://en.wikipedia.org/wiki/Black–Scholes_model

[2] https://www.coinbase.com/charts

[3] https://bitvol.info

[4] sqrt([5 x 365] / 252) x 5.21

[5] https://www.bloomberg.com/news/articles/2017-11-09/keynes-wo...

[6] https://www.treasury.gov/resource-center/data-chart-center/i...

[7] https://www.bankrate.com/rates/interest-rates/call-money.asp...

I'll buy a 5yr ATM put at 1038 USD!

1. There's no way rates dominate vol for BTC.

2. Bitcoin vol is way higher than that. It's obviously higher than most stocks, and stocks are in the 20% range.

My quick calculation gives me an annualised vol of about 90% over the last year, and 140% over the last month.

That gives a put value between USD 8000 and 12000, in other words approaching the "infinite vol" limit (present value of strike).

EDIT to add: BSM takes annualised vol (or, to put it differently, vol enters only in the term sigma^2*T, and that product must be dimensionless, thus the unit of vol is 1/sqrt(year), or whatever unit you use for T). To compute it, take the average of squared log returns over a period (ie, take average of LN(P(t)/P(t-1))^2), annualise by multiplying with 365 if you have daily prices (or 252 if you have business daily prices), and take the square root of that.

You didn't finish pricing out the put option. I calculate $475 for a put. But think about this a second. That's a crazy low price for this kind of investment. You're only paying a 3.3% premium to hold a put I can exercise at any point in the next 5 years. At any point in the next 5 years, if BTC goes down by rougly 7% I'm in the money. That's a daily swing for BTC in a normal week.

I think the volatility input in this equation is way off.

And anyone who thinks this is a fair price for a PUT on BTC, please contact me as I will buy unlimited amounts of puts if you're willing to put up 50% as collateral.

Me too! Depending on your credit, that is. Finally a get-rich-quick-scheme I can get behind.

> I think the volatility input in this equation is way off

I agree. One's ability to price a put on Bitcoin is probably anti-correlated with one's willingness to sell one.

2008 was an exception - most of Buffett's investments have been in the open market where he was simply the highest bidder at the time.

The problem with a Winklevoss put is likely the credit risk, not the price

I think he would worry more about counterparty risk.

The difference between a put and a short is a short has unlimited downside (the price you are shorting can go up far more than it can go down).

This must mean Buffett thinks crypto has a good chance of exploding in value! Buy Kodak! /s

I'm pretty sure you can construct that instrument for the right amount. I'm afraid will be exorbitantly high that he'll have to "re-consider" it.

I thought there are exchanges which allow crypto options trading?

Why would you trust, in the event of a Bitcoin meltdown, which is the case where your put pays off, that those exchanges would be in a position to honor their contracts?

I'm not sure what you mean. Unless I am completely ignorant of the way financial markets work, the exchange is exchanging between two parties, and skimming off the top. They do not care what the price of Bitcoin is, as long as there is trading volume. They do not lose money in the event of a meltdown. The people selling the put options do.

> the exchange is exchanging between two parties, and skimming off the top

Nobody wants to run a credit check every time they buy an option. That just turns the premium into a fancy loan.

If you buy an option on an American options exchange, it is cleared by the OCC [1]. They are everyone's counterparty. There is a long chain of people who have to default for you not to get your money. (Basically, the financial system has to melt down in a nation-state ending way.)

I have no idea how Bitcoin options are being handled, but suffice it to say, counterparty risk dominates any other component.

[1] https://en.wikipedia.org/wiki/Options_Clearing_Corporation

Thanks for the info, that makes a lot more sense. I suppose I was under the impression that bitcoin exchanges would be under the same regulations as regular exchanges, considering they are operated by the same large american companies (e.g. CME)

Whoops, that couldn't be further from the truth. A lot of what these exchanges do would be super illegal in the real world!

Try this, then:

Prior to the housing crash, multiple people figured out that CDOs were full of shit and bankers were committing massive fraud with mortgage bonds. Traders could purchase credit default swaps (CDSes) to capitalize on this risk and pay the premiums until the correction hit, at which point they'd cash in huge.

But uh, here's the problem: The same bankers that were investing in mortgage fraud (all of them) were the ones that would sell you the CDSes and cash your premiums. If the housing market was truly built on fraud and corruption - and it was - and banks could collapse - and they did, requiring a bailout that the banks knew was coming - maybe the bank wouldn't be solvent enough to pay you on your bet that you so rightfully won. Your largest upside win is capped, and thus the entire trade could be easily net negative.

Not in the volumes Buffett is interested in. And they are quite sketchy compare to regulated US financial markets.

Futures are certainly available. I haven't heard of options yet, but that may just be my ignorance.

Bitfinex, Bitmex

I think the counterparty risk involved in buying a long-dated (and expensive) put from one of those exchanges overwhelms any possible profitability. If Bitcoin really did crash, who's going to pay up for it? Right now there's not a very good answer.


He's right about the shorting: to short it using futures is, in a way, to side yourself with potential ruin. Only through put options can you safely do this.

Can you elaborate? Why shorting wouldn't work?

Short: borrow the asset, immediately resell, after price lowers, you rebuy the asset and keep the delta. You're hosed if it 10x, 100x, 1000x

Option:. Purchase the right to sell the asset at a certain price & time. If the price is higher, then politely decline the option. The value of the option is zero, but you've already paid that upfront.

Future:. Purchase a promise to sell an asset at a certain price & time. If the price is higher, you are still committed to make the sale. Safe if you hold the underlying asset in escrow until the strike date.

A short has an unlimited downside. A put contract has a fixed downside, the price of the contract, which is paid regardless of whether you exercise the option or not.

Can you explain this further? Is a put contract essentially saying that this stock is not worth it and will lose its value in the next few months?

A put allows you to sell an asset at a certain price in the future. So, say I bought a put option with a strike price of 10k USD for bitcoin 5 years from now. If in 5 years the price of BTC is less than (10k - the price I paid for the put option) I can buy a BTC for whatever it currently costs, sell it at 10k to whoever took the other side of the option and make a profit.

The risk is that if the price of BTC is above 10k, then I'm out the money the put option cost me.

Interesting. Thanks for the example. Looks like Put option limits the risk so if bitcoin becomes 15K then I have to shell out 5K from my pocket.

Actually, if bitcoin becomes 15k then you don't have to pay anything. The put option gives you the "option" to sell a bitcoin for 10k (in this example), but you're not required to do so. In practice you only sell it if you'll make a profit. So in the case where bitcoin is 15k after 5 years your put option is worthless and you've just lost whatever the put option cost when you bought it.

Is there any good literature that makes it easy to learn this aspect? How much does a put option cost typically?

However a put must have an underwriter who must take the risk that it goes to zero

True, yet the downside is still limited. The worst case for the option seller (or writer) is that she has to buy an asset valued at zero for the pre-agreed strike price. That puts a cap on her loss.

The maximum liability a short exposes you to is infinite, whereas a put it is limited to the cost of the contract (Which in this case would probably be pretty high). Shorting technically would work, you’d just be placing a loaded, randomly firing gun against the roof of your mouth.

Because with borrowing or buying futures, your loss is potentially unlimited. So in practice you would rely on stop losses to avoid this. But in a crazy market like this, the stop losses could get triggered repeatedly and you'd get worn out.

With buying puts or similar construction that involves optionality, if you can buy them at a nice price, you're not as dependent on the intermediate path taken by the price.

It's always good to see the same hot takes rehashed over and over on HN. I'm sure Bloomberg appreciates the ad revenue.

Buffett (with all due respect, and I have a lot of respect for him) doesn't understand Bitcoin, and doesn't add anything of value to the discussion. He's never been much of a technology investor, so this should surprise no one.

Understanding how Bitcoin and cryptocurrencies work in general doesn't make them suddenly have more value. I really wish supporters would stop parroting the "if you only understood you would see how good of an investment this is" argument.

Just because you read the white paper and spend 20 hours a day refreshing news alerts for bitcoin doesn't make your investment a good one.

I agree this article doesn't add anything to the discussion. If anything, Bloomberg is making out by selling the proverbial shovels around here by fueling the hype machine.

Something I think is forgotten is that people who understand blockchain and Bitcoin don't necessarily understand investing.

Bitcoin seems to be the first investment for a lot of people. Supply-and-demand, cash flow and market psychology is probably something you are not that used to thinking about.

(hmm, seems like I said about the same thing as you did, read your comment too quickly)

Good point. There's a lot of emphasis in tech around "disrupting". While in general that leads to a ton of innovation and technological progress, I don't think disrupting fiat/the economy as we know it is as easy as a tech-driven payment alternative.

And just to be clear - I support the development and experimenting around Bitcoin/Cryptocurrency. I really believe there are yet-to-be-seen uses for the blockchain technology that could have severe, lasting impacts (hopefully for good!).

What I have a major problem with is the money-grubbers pushing the technology as a get-rich-quick scheme. It overshadows any discussion around progress or development and is just another way for the rich to get richer.

Not understanding Bitcoin and cryptocurrency doesn't make you right just because you're one of the world's best value investors, either.

(This coming from someone who holds quite a bit of Vanguard index funds and a small number of cryptocurrency in his portfolio.)

There is a difference between people understanding why Bitcoin is like gold and people that say it can't have value because it's "made out of thin air." Not saying Buffet is one of those but such people pop up every now and then.

I honestly don't think people understand why Bitcoin is like gold because Bitcoin shares almost no characteristics with gold.

It's more like gold than money because Gold is finite and it takes effort to mine it but anyone can do it, both things are not true for money.

It's less like gold than money because it isn't associated with a history of sustained value and cannot be easily exchanged for currency on any grand scale.

It's also unlike gold in virtually every other way - it has infinite and infinitely available substitutes, it doesn't have physical characteristics and it's very easy to steal.

There is quite some recent history of sustained value and perhaps the gold price also fluctuated wildly in the beginning until it settled. I can convert BTC to Euros from my lazy chair, try doing that with gold. Gold also has substitutes, almost any element of chemical substance has value but they differ in their practical use. Gold is shiny and chemically stable and not to abundant but Iridium can just as well function in the same way. As can oil, etc. I'll argue that gold you keep at home is easier to steal than my BTC, which are also at home but you need to break in and get my computer or you have to be a pretty good hacker.

Exactly, cool tech doesn't make something valuable. Solving real world, widespread meatspace problems makes something valuable. I have yet to see any real-world, widespread problem in meatspace that Bitcoin or the blockchain solves.

This 100 times. Crypto currencies can be both successful (read widely-adopted) and have a sane, stable valuation. It is harder and harder to argue around bitcoin since a lot of people have taken sides already and have “skin-in-the-game”.

Every time one says crypto is overvalued the reply looks like: “you don’t understand”, many times coming from somebody who barely understands what distributed and consensus mean. No pun intended.

Crypto currency is an asset. He has bought and sold a lot of assets over time and has done pretty well. Google Tulip mania. The whole point of bitcoin was a form a digital currency. However due to the high transaction fees and volatility you can't really use it for that. I have no idea where it is going, but to dismiss a guy who has experience buying and selling things for a long time seems foolish.

Why does every discussion about cryptocurrency instantly devolve into a boring repetition of the same old stale arguments?

Do you really think this community has never heard of the Dutch tulip mania?

Everybody already knows cryptocurrencies are volatile and risky, what does this add to the conversation?

Yes, let's talk again about how it's a Ponzi scheme, has no intrinsic value, can't buy coffee with it, it's only good for drugs and crime.

Then supporters will say you can't trust banks, fiat is going to zero, and spew conspiracy theories about the Federal Reserve.

Then someone will hype a random token, then a banker will call it all a fraud.

Every. Single. Person. on this thread knows all of this already. Is there nothing new to talk about?

> Then supporters will say you can't trust banks, fiat is going to zero, and spew conspiracy theories about the Federal Reserve. Then someone will hype a random token, then a banker will call it all a fraud.


> Do you really think this community has never heard of the Dutch tulip mania?

Likely. Also likely that most believe it was something that it wasn’t (a wide-spread market bubble): https://en.wikipedia.org/wiki/Tulip_mania#Modern_views

Tech stocks are assets, but Buffett has always said he purposely avoids most of them because he doesn't understand them well enough. Taking him at his own word, we shouldn't put all that much weight on his cryptocurrency opinions.

Cryptocurrency is comparable to a tech stock because computers? That's about the extent of what they have in common.

I was always curious about his stance with tech, why "he doesn't understand them well enough." ? What about them that he doesn't understand that he can with non-tech stocks.

His game is identifying undervalued assets. If you're not confident you know how to value the asset you can't identify undervalued ones. I guess the point I was getting at was valuing a tech stock and valuing a crypto have little to do with one another. One is a business (which might be used as a speculative vehicle) while the other is a speculative vehicle.

EDIT: More specifically anything with as much hype as crypto (and tech to a lesser extent) is not really in the value investing camp in which Buffet is trading. Avoiding them entirely is a very useful heuristic for him.

Compare it to something else then.

Houses in 2008 where valuation was driven more by hype than some intrinsic value. Tech stocks in 2000 when the same thing happened. Or everyone's favorite tulips.

I know people hate to hear this but unless you have a target price and a rational explanation as to why it's worth that much you're just gambling.

If you don't understand technology you're not going to understand crypto-currency, that's the point.

This is wrong. You don't need to understand hashing and network algorithms to understand supply and demand. There's a fixed supply of bitcoins and a rising demand due to speculation. Anyone can see that that this is what is driving the growth, but blind speculation is how bubbles form, and bubbles always pop.

Here[1] are the signs of asset bubbles. I've posted the signs I feel are most relevant to Bitcoin below.

> Rationalizing borrowing, lending and purchase decisions based on expected future price increases rather than the ability of the borrower to repay.

> Rationalizing asset prices by increasingly weaker arguments, such as "this time it's different" or "housing prices only go up."

> A high presence of marketing or media coverage related to the asset.

[1] https://en.wikipedia.org/wiki/Economic_bubble#Identifying_as...

He has since capitulated -- Buffett now regrets [0] not buying Google for cheap when he had the chance.

[0] http://fortune.com/2017/05/06/warren-buffett-berkshire-hatha...

Buffet also doesn't say that "Google/Facebook/Amazon stocks are certain to come at a bad end." Buffet isn't the kind of person to make that sort of statement lightly, so I'd give it fair weight.

He has no opinion on tech stocks (neither long nor short) because he doesn't understand them well enough, and he is aware of the limits of his knowledge (and considers tech stocks outside of it). However, he does have an opinion on cryptocurrencies (so obviously considers them inside his area of expertise). That should give bulls pause.

Where's the logic in this?

- I don't understand thing ABC, therefore I won't form an opinion on it (true fact, by his own admission... conservative and reasonable).

- Thing XYZ is generally acknowledged to be more complex and harder to understand than ABC (debatable, but I'd love to see someone show me how crypto is easier to understand than Google/Facebook/Amazon/Uber/etc.).

- Even though I don't understand ABC and won't form an opinion on it, I will form an opinion on XYZ which I understand even less (... wut? Why would anyone put stock in this statement, given the prior two statements?).

Buffet knows enough about bubbles to recognize a bubble. Even if Bitcoin miraculously becomes the only currency used 50 years from now, it's inevitably going crash because its value is purely propped up by speculation.

> He has no opinion on tech stocks (neither long nor short)

He is a major investor in Apple and was a relatively-early backer of BYD, the Chinese battery technology company.

[1] https://www.cnbc.com/2017/02/27/billionaire-warren-buffett-m...

[2] http://money.cnn.com/2017/10/11/investing/byd-warren-buffett...

True, I wasn't precise enough. I was referring to the earlier comment "Buffett has always said he purposely avoids most of them because he doesn't understand them well enough.", so I mean the has no opinion on most of them, and avoids them (neither buying them nor shorting them).

That goes to show that he's aware of the limits of his expertise, and clearly he has an opinion on bitcoin, so presumably he considers them within his range of expertise.

Buffet has a lot of expertise investing in businesses where cashflows can be analyzed. Not every investment is like that. Where it's not like that, his expertise is less valuable

Yes, every investment is like that. The sine qua non of an investment is purchasing a productive asset. If you purchase a non-productive asset--that could be hedging, or speculation, or just consumption, but it isn't investing.

well, what I mean is, imagine a company that will have no cashflows for 100 years and then with probability 0.01% will have cashflows of 100 trillion gazillion. Buffet doesn't invest in those types of companies normally, that's not his edge.

Yet at the end of the day, Bitcoin is simply a store of value, just like any currency. And Buffet has plenty of experience with handling stores of value.

Bitcoin's recent exponential growth screams "bubble" for anyone who knows what to watch for.

I don't get this whole store of value concept. Nothing is a store of value, all there is is investments with varying levels of risk.

Bitcoin is just a store of value because ownership itself does not produce any profits or dividends, profits require higher demand in the future. No wealth is generated, merely transferred. This is similar to gold, and very different from, say, ownership in a farm, where goods can be consistently generated and sold every year.

gold is an investment, not a store of value. Between 1979 and 2001, it lost 70% of its value. What kind of store of value does that?

Every store of value that has ever existed has fluctuated - often significantly - over long periods of time.

Gold 'lost' 70% of its value when priced in dollars, as the dollar regained immense value thanks to Volcker's policies breaking the inflation wave. That's a critical point you're leaving off (when priced in dollars).

The point being, you have to be a lot more precise about what gold gained or lost value vs. It performed differently when priced in different currencies vs the dollar. Most currencies did not see the kind of value gain the dollar did over that window.

This is one of the properties that makes it a store of value. If you buy gold in 1980, it will lock you in at the 1980 dollar value. It's the currency that is gaining or losing value, gold is storing your 1980 dollar value (which you used to buy the gold in 1980). You then try to get back out of your gold in 1999, you're attempting to swap a 1980 dollar that has been locked-in at that 1980 value for a 1999 dollar, when the two are not worth the same thing.

Gold also then went up several hundred percent as the Bush dollar dropped from ~2002 onward.

Lots do. The dollar has greatly depreciated due to inflation. A dollar in 1950 would be the equivilant of $10.16 today[1].

[1] http://www.in2013dollars.com/1950-dollars-in-2017?amount=1

that's my point. "Store of value" implies storing value, not losing value. Which is why I am saying there is no such thing - all you have is various types of investments which can make or lose money over time

Gold did not lose value. It locked you in at the price you paid in that time's dollar. If you then try to swap that locked in value for a dollar at a later date that has a higher value, you will suffer the imbalance.

It stored your value. It's the dollar that gained (or lost) value. You're attempting to move back into the dollar afterward, when the dollar's value has shifted.

What you're describing is that, as an example, a mistake was made by locking in your value by buying gold at a weak 1980 dollar price, then the dollar gained significant value in subsequent years, and then you're again trying to move back out of gold and into the dollar later (ie exchanging gold for dollars) after the dollar has climbed (while your value in the gold was set at that weak 1980 dollar). Your loss is the difference between the two different values of the dollar at two points in time separated by decades.

if this was true, the same would have happened to other dollar denominated assets - but it didn't. So, no, it's specifically gold that lost its value 70% during that period, not dollar gaining value.

Bitcoin does not represent all digital currency.

Bitcoin will die, crypto currency will survive.

The mature and stable crypto-currency market will doubtlessly shrug off the demise of its founding coin. All the newbies who've never even opened a savings account before won't rush for the exits, and the market movers, given their decades of experience along with their secured and diversified assets, will doubtlessly take losses rather than slosh the deck.

At least the terrible transaction speeds will mitigate a substantial amount of damage.

None of that has anything to do with the failure of cryptocurrency in general.

"Bitcoin will die, crypto currency will survive." is the exact scenario where investing in cryptocurrencies is stupid - if cryptocurrencies as a concept win, but the particular cryptocurrencies you bought fail, then you lose.

Just as in the dotcom boom - the concept of dotcom businesses won (and absurdly so), but pretty much everyone who invested in dotcom businesses lost.

Who said to invest in them? Cryptocurrency is currency. Investing in forex is for nerds, quants, and banks. Cryptocurrency ought to be treated the same.

What about a crypto with no transactions fees (e.g. Raiblocks)? Obviously volatility is still an issue.

Do you think that once bitcoin collapses under its own weight and investors lose a ton of money the general public is going to trust another cryptocurrency?

Just like all internet based companies went out of business after the dot com bubble crashed.

I agree that crypto is in a bubble right now, but that doesn't mean it has zero value as a technology.

It worked for the Internet bubble, just give it 10 more years . The bubble crash will slow down everything for a while but the technology is here to stay.


Could you please not take HN threads into same-old flamewar territory? We've all seen this a big bunch of times. Repetition is the enemy of curiosity.

I realize the GP's tulip mention hit you as a provocation but provocations are what commenters here need to build the strength to resist.


Also, you broke the HN rule against calling names in arguments. Please don't do that either.

Why are you complaining to me instead of the GP who, as we both seem to agree, has made a comment we’ve seen a million times before?

I don't know why this is getting down-voted. Tulips die, Blockchains don't.

It’s getting downvotes because crypto enthusiasts have strawman’ed their way out of the argument. The tulip bubble was above all a cautionary tale about the behavioral dynamics of speculative assets.

Except bitcoin isn't speculative, bitcoin has real value. It makes a great hedge against inflation and the global demand for it is a testimony to that.

While it's true that we could be seeing over-inflated prices now or in the future, I FULLY believe that the value of bitcoin will always increase over the long term.

It's a principal of the technology it's deflationary.

That's not a bubble my friend.

The problem is it's increasing faster than inflation right now. That also means at some point it has to go down again to match the inflation rate.

> Except bitcoin isn't speculative, bitcoin has real value

because zealots say so.

Because people vote with their dollars

You realize things can change and adapt right? Just because bitcoin was conceptualized as a currency doesn't mean that it always has to be one. Bitcoin may prove to be a better store of value and a hedge against inflation, like a next generation savings account. Don't be so narrow minded. Look at how the web has evolved, I highly doubt Tim Berners Lee could conceptualize Facebook, Youtube or Google when he put together the fist world wide web page.

You can say that it can change to be something other than a currency, but unless you actually have something interesting to say about how it actually will become something else then you're really not saying much. It could become a hedge against inflation. Do you have any evidence that it acts as a hedge against inflation at all? Do you have any logic why it could? You may as well say that stones act as a good hedge against inflation. You need reasons to actually argue it.

The evidence is in the market, I don't see many people buying and selling rocks. What I do see is people buying and holding an asset that has gained hundreds of thousands of percentage points since its inception and could very well continue that trend.

The real revelation came when someone decided to purchase bitcoin from someone else, from that point on bitcoin had value and it always will.

But you go ahead and try to sell some rocks you picked up off of the ground to someone and then report back here and let me know you did.

"people buying and holding an asset that has gained hundreds of thousands of percentage points since its inception and could very well continue that trend" applied to all kinds of stuff like the beanie baby craze as well. Seeing this behavior is not an evidence of something being long term value store.

If the bitcoin doesn't gain a widespread practical use, it may well be that the long term value it has is, say, $100 / BTC, wiping out 99% of the value, and failing in any purpose as an inflation hedge or censorship-resistant store of value.

Saying that it has value because it's being bought for ever increasing price is the "greater fool" value foundation, i.e. saying that it has value because someone else will value it even more later, which actually works really well (and can earn you a lot of money) until suddenly it doesn't.

Other than that, any long-term valuation will have to be based on actual, practical, specific uses of Bitcoin (for example, but not limited to, as a transactional currency). It's easy to imagine realistic uses of Bitcoin that will justify some value, e.g. $10 or maybe $100 per BTC. However, the scenarios where the use is so massively valuable to justify a long-term market cap that matches a price of $10k or $100k per BTC require BTC to have a massive, very very widespread use - so either it will gain this massive use as a transactional currency (or something else), or the price won't be sustained nearly as high.

Buffett said he didn't want to invest in IT because he didn't understand it enough, but it also lead him to never say it was going to fail. Here it's different, he specifically points out that he thinks it will fail.

You may disagree with his point of view, but to dismiss his input as absolutely irrelevant is out of touch, so is claiming he "doesn't add anything of value to the discussion": his opinion, by value of who he is and his experience, is value to the discussion in a field that is still about speculation and high risk investment.

I find it interesting how many people on here like to eat up the words of most mogul and take it as semi gospel, then balks when one of them goes against one of their pet love thing. This is not specific of cryptocurrencies, although due to their "get rich quick" attributes these tend to make it even stronger. Just goes to show how people are the same everywhere, even (hell, especially) the "more informed".

I don't personally believe in his point of view, I think while all current cryptocurrencies are going to fail or at least become a small sideshow especially the big names ones, the next wave will be smarter in what they try to be. Still, I value his input as much if not more as those of "self proclaimed cryptocurrency experts" who merely happened to have made one good bet. He made a ton more of those.

The post is remarkably devoid of any content and just a series of assertions. So, as you said, its the same take rehashed.

But apart from that, bitcoin and the concept of cryptocurrency are conceptually not that difficult. And even if they were, their value is not due to their technical novelty but due to their fundamental nature as financial instruments.

If Warren Buffet is warning against them, we do need to look at them and try to understand what is the problem he sees. As he knows more than most here about financial instruments.

The risks need not be technical in nature at all. For example, governments could fail to recognize cryptocurrencies as valid contracts thus voiding the benfit of legal systems. So, you own tokens of a house? Good luck enforcing that.

> For example, governments could fail to recognize cryptocurrencies as valid contracts thus voiding the benefit of legal systems.

Another one is that courts could treat coins as chattels rather than legal tender / negotiable instruments. In that case cryptocoins that were stolen would thereafter be tainted and subsequent holders would be a risk for liability for trading stolen goods (even if they are other otherwise innocent third parties).

Investing in Bitcoin, the currency, is just that: currency investing/speculation. Buffett knows and understands that. Investing in the blockchain technology is no different than investing in any other technology: invest in companies you think will use the technology effectively to create profitable businesses. It is actually the technology people that conflate the two and are getting confused by it.

> Buffett doesn't understand Bitcoin

And Buffett has repeatedly said that it's a bad idea to invest in things you don't understand. He's also known for preferring longer-term investing to short-term speculation.

As for cryptocurrency values, of course they're all quite volatile. Anybody who reads HN is probably aware of this by now. Using them as a long-term store of value without actively managing a portfolio right now would be unwise.

Long-term, however, I expect distributed cryptocurrency will replace centralized fiat currency for most purposes. All it would take is an existing cryptocurrency that actually works well as a currency (not Bitcoin) combined with a financial crisis.

My problem with it all is right now, there are numerous ICOs happening by new companies, old companies, and small groups of people. Instead of adapting ones created already, such as ethereum, they claim theirs takes it to the next step. When does it all stabilize and people actually use the currency instead of invest? Who knows.

On the other hand, I believe Buffett does understand currencies.

And personally, I don't really see what the "technology" brings to the party other than a specific bag of features. Kind of like Uber.

I’d also add that buffet hates the concept of gold. Aside from a socially acceptable form of modern middle class gambling in my opinion the primary use case of crypto currency is a store of value.

Aside from the amount of time it’s been in existence what is the difference between gold and something like bitcoin? Only ~4 of gold is used for industrial purposes the remainder is used for jewelery and stuff like bullion. Basically stores of value. It trades at a premium above its cost to extract, store and transport.

But he does seem to have an uncanny ability to think rationally, to recognize when the broad market doesn't, and to capitalize on this difference.

To deny this is simply delusional.

And McAffee is a good subject-matter-expert according to you, right? Obviously he has done way better than Buffet? Is more reliable?

Though Thiel's de factor endorsement goes a long way...assuming his fund hasn't sold yet.

There are two types of investors. Those that don't understand cryptocurrencies and just ride the hype train; and those that do.

To those that do, some rich guy's opinion doesn't mean a lot. It's just another opinion floating in the infinite opinion space. Authority means nothing to them.

To all others: Sell!

I was an early adopter and proponent of BTC, and have made a nice sum of it. But today I have some serious doubts:

1) What I initially found the best feature of BTC (the finite pool) has turned it into a digital gold, and unusable for real day to day transactions imo.

2) The blockchain is too slow, and too expensive.

Now maybe BTC does have a future as digital gold, but not as a medium for transactions in the legal space (imo)

Technical Understanding of cryptocurrencies has nothing to do with financial understanding.

It feels to me a fallacy to think because you understand the tech, you are magically a good investor in it.

Buffet is historically one of the most successful investors in assets, and that usually didn't require him to "technically" understand every detail of the inner working of the offered product.

I know it can be read as "technical understanding" but I mean both technical and financial understanding.

It helps your investment

- if you are able to distinguish good code from bad (technical skill)

- if you understand whether a blockchain (or tangle or whatever) is appropriate for the coin's use case (technical skill)

- if you understand how fiat money works (financial skill)

- how hyped and bubbly markets work (financial skill)

- ...

So it's good to know both and if you do, you arrive at your own opinion / take, regardless of what Dimon, Thiel or Buffet say.

I'd love to see the results of the following survey given to a representative sample of cryptocurrency investors.

1) If you want to invest in cryptocurrencies, you should understand them. (true/false)

2) Most cryptocurrency investors don't understand cryptocurrencies. (true/false)

3) I understand cryptocurrencies. (true/false)

I would guess each question would have 80%+ true responses.

I would consider one of the most successful investors of all time to be a bit more than "some rich guy" hawking an opinion. He got rich by making smart long-term investments and watching market trends.

Crypto is a foolish long-term investment. Even in the short-term it's akin to gambling.

I don't think that was intended as a description of Buffet but rather describing how people will dismiss his experience. It's almost exactly how people trying to say that insolvient.com was a good buy because The World Has Changed™️ and only old people cared about profitability or, a decade later, that there was no way the real estate market could go down.

Buffet, someone that says they don't invest in technology because they lazily "don't understand it" then advises clients not to invest in it. Also misses big run ups. Techs are on the top billionaires list for a reason.

I've seen plenty of people calling this a FOMO craze and that may well be the case, and demand may eventually fizzle out. But I think it's far more likely investors get spooked.

Compared to market investors, relatively few of the people investing in cryptocurrencies understand the technical underpinnings. All it's going to take is a spate of high value hacks, another central service provider going down (MtGox v2) and thefts, or even an act of terrorism funded by Dogecoin... and you'll see a run. It may not be sustained, but I think this is an important difference from standard investment theory.

The way this looks this bubble just started to gain access to way more people: There's kodakcoin and the long blockchain company (formerly long island icetea): http://www.wired.co.uk/article/kodak-coin-ico-cryptocurrency...

Poor souls that invested/going to invest and don't manage to jump of the ship before the bubble bursts.

Something to consider is that people like Buffett stand to lose the most from a completely egalitarian financial system, as is professed by Bitcoin idealists (such as myself). Another perspective here is that Buffett does understand Bitcoin, and wants to protect his own interests by maintaining the status quo.

I think except for Bitcoin, most altcoins have no infrastructure or developers working on it and hence doomed to fail. There is definitely a bubble and individual investors not knowing how to time the market will fail and lose lots of their hard earned money.

>If I could buy a five-year put on every one of the cryptocurrencies, I’d be glad to do it but I would never short a dime’s worth.”

Interesting to think what five year puts on a cryptocurrency would cost. Probably more than Buffett or anyone would want to pay.

All i could focus on was the statement increase of 20% and how ambiguous that statement is whether you are referring to the original percentage or a percentage of that percentage (which is what he meant here).

Cryptocurrency is currently in the silly phase of bubble. It looks exactly like the peak of dot.com mania. A crash is coming fairly soon. My top end estimate for time remaining would be a year, but I'd warn anyone contemplating a shorting strategy that bubbles have a way of going far higher than anyone can predict. Many people lost serious money trying to short dot.com and housing. Still we are definitely in the fragile tail end and the crash could come literally any second now.

I lived through dot.com and housing mania and I'm having serious deja moo right now. Deja moo is when you've seen this bull before. On a recent flight I saw a long format in-flight advertising video for DASH, an altcoin. I repeat: airline advertisements! If you still have doubts that we are in gibbering flapdoodle land, head over to YouTube:


We have celebrity endorsements and music videos. Run away.

I think the crash is going to look a lot like a bank run. There will be some piece of news that triggers it (exchange collapse, policy change, who knows) and then everyone will scramble to cash out. It will quickly become obvious that there is insufficient USD/EUR/etc. on hand to actually back the current market cap of the top ten coins. At that point exchanges will halt trading. Lawsuits will be filed. Exchanges will go into receivership. More lawsuits will be filed. Criminal charges may start getting filed. You get the picture.

Most of the crime and financial fraud that will happen in this bubble is happening now or will happen during the crash itself. Most financial fraud is driven by frantic attempts to cover one's ass. My guess is that top people at all the exchanges know they are in serious trouble and there are many frantic meetings going on debating what can possibly be done. Since a bubble is basically a naturally occurring emergent Ponzi scheme, the only way "out" is to get more dumb money in so smart money can exit... hence the airline advertisements and Facebook ads to buy coins. I am currently seeing a lot of the latter.

Sadly a lot of naive people will lose tons of money. People have been dumping their life savings and mortgaging their houses to get into this. It could have follow-on effects on the economy. Some of the big Bitcoin exchanges are privately insured, so I wonder if it could drag down a few insurance companies. The rest of the economy is fragile so it's not impossible that this could trigger a recession.

Cryptocurrency will not go away post-crash any more than the Internet went away post dot.com crash. We're just approaching the irrational exuberance peak of the new technology adoption hype cycle.

After the crash it will go back to being a semi-underground niche thing for a while. Valuations will return to sanity. Those exchanges and other businesses that do survive will gain a lot of experience and a reputation for stability. Ironically sometimes the best technical work gets done post-crash, so I wonder if after the crash we will finally see useful applications built on this tech beyond its core currency use case.

If you really believe in the long term promise of this technology, after the crash would be the time to buy in.


I really wish high schools would teach a class on finance, and if they did it should include a lesson on bubbles and a study of a few recent ones like dot.com and housing. People should be educated about what a bubble looks like and how to avoid getting ruined by one.

It wouldn't stop everyone. The allure of herd behavior and gambling is strong. But it would save a few folks from losing their life's savings.

Why does seeing an ad for an established cryptocurrency signal a crash? Do you think the same thing about tech stocks when you see an ad for a new tech company?

Have you lived through a bubble before?

One ad in isolation doesn't mean much. It's the whole picture. Bubbles have a certain look and feel.

I am 39 which is like 80 in programmer years. I've seen a lot of fads and bubbles in my lifetime. The downside of being older is that you're not quite able (for many reasons including lifestyle and family) to work like a 20 year old, but the upside is that you've had a chance to develop a ton of meta-meta pattern recognition. Your neural net has accumulated a lot of training data.

Like I said I've lived through two mega-bubbles: dot.com and housing. This looks exactly like the tail end of those.

Deja moo, man. Deja moo.

If I held a lot of Bitcoin I would start dollar cost averaging out, like yesterday. It's better to miss out on some of the last waves in a bubble than to get caught in the monster riptide when the crash comes.

Edit: if you do get caught in the crash, do this:

If you can't convert to USD/EUR/etc., take your Bitcoin or whatevercoin and transfer it out of an exchange and into a private wallet that you control. If the transaction fees are high just eat it. Better to get it out of an exchange that could collapse at any second. Then just sit on it. Be prepared to sit on it for years. It may eventually regain at least some of its former value. In the meantime buy popcorn and watch the show.

I agree with many of your points. There is certainly a bubble feel around this. But I don't think that shrugging away all cryptocurrencies/tokens as a dangerous mistake is the answer. Nor is waiting for the big crash (time in the market > timing the market).

There will be many losing cryptocurrencies after the bubble bursts, but some will survive and thrive.

This is sensible advice except for the sit on it part. I would rather convert it like yesterday into anything that is useful for storing value like gold, silver, jewelery, collector's items etc. Worth more than hashes on a digital wallet on some bit rotting flash drive. Of course, to do that you must first take it out of the exchange.

You know you have many, many 20-something year old people agreeing with you right?

I didn't intend to be reverse-age-ist. Was just pointing out that bubbles are more obvious if you've seen a few, and I must admit that I assumed the parent to have not seen many since this one is so damn obvious.

> I didn't intend to be reverse-age-ist.

No one ever does.

also it's not reverse-ageism, it's just ageism.

If you're seeing an ad for the stock of a tech company, then yes, that's generally an indicator of something like a penny stock pump-and-dump action.

If you invest money to advertise speculative instruments, then that pretty much means that you intend to sell those instruments after the ad-caused short-term rise in demand and thus price.

The cryptocurrency is their product actually.

When's the last time you saw an ad for USD? That's the difference.

You can't really compare these two.

Then what do you compare it to?

It's part currency, part forex, part stock, part game money (like Wow gold or whatnot) and a couple of other things. It's also a vehicle for people from less than stable countries to store their money. This market is fundamentally underserved. They can't trade the US/EU stock markets easily. Crypto is volatile but very possibly better than the local currency.

Sounds like they're boiling the ocean, but I do agree that it would be better to have a decentralized worldwide currency. Not sure if that will ever be allowed to happen if people can't control it.

“Now when it happens, or how or anything else, I don’t know”. Oh, ok then.

Determining that something is overvalued is vastly easier than determining when the overvaluation ends.

I was one of those who saw the housing bubble for what it was in 2003. Among people who saw it, the causes of the bubble and the bubble psychology among buyers was well-understood. I had zero clue as to when or how the housing bubble would end. It lasted far longer than I anticipated.

In other words, a smart investor can see when something is priced wrong. But only a foolish investor will tell you when or how the price will correct.

Like everything is, including life?

Paradoxically, reading Buffett's essays on investing was one of the major inspirations for me to invest in crypto in the first place. Buffett typically only invests in things he understands well, that produce a solid return, and that are undervalued. These are good principles for anyone to follow.

But when he buys, he either buys all of a company, or enough of it to have some level of control over it, and that's only possible these days if you're wealthy as he is. The rest of us are pretty much just betting on horses.

I think I would agree with him about crypto if I was an older person who already had enough wealth to purchase a significant stake in a real business. For investors like that, the world is their oyster. For people who are young, familiar with technology and largely without any wealth, Bitcoin is much more attractive. It's risky, sure, but to many of us, the entire economy looks just as risky, and with lower growth potential. This statement would sound insane to someone like Buffett, but it's the reason why Bitcoin exists in the first place.

Edit: I'm not advising people make any investments in Bitcoin. Just providing a counterpoint. Invest in what you know.

> For people who are young, familiar with technology and largely without any wealth, Bitcoin is much more attractive.

This is a crazy way for young people to think though and the opposite of how they should be thinking. If they don't have much wealth, they certainly shouldn't put it in something so incredibly risky as Bitcoin. They would be really hurt if/when BTC tanks. Someone who's rich wouldn't really notice 10% of their net worth gone.

> It's risky, sure, but to many of us, the entire economy looks just as risky, and with lower growth potential.

The entire economy is definitely not as risky as BTC. The economy doens't see 50% swings in value week-to-week.

I have a friend who's been investing loads of cash into BTC and doing well. My advice to him (and others) is to take a certain % out every time it spikes and transfer it to a more stable currency, while leaving enough in that it can continue to snowball. This is doable.

For instance, he took $2k and turned it into $12k in a few months. I told him, "Take 4k out and put it into an index fund." That way, he comes out ahead no matter how you slice it, even if he loses the rest of what he has in BTC. If what he has remaining in BTC goes up to $18K, I'd take another $4K out and move it into an index fund. Rinse and repeat.

It's not as risky if you run it that way.

"...who's been investing loads of cash into BTC and doing well."

I have a problem with the terms "investing" and "doing well" here.

Buying bitcoin is not investing. You are not funding any productive enterprises---not even indirectly as in buying stocks on the secondary market. You are giving someone money in return for a ledger entry. You expect someone to give you more money for that ledger entry at some time in the future, which is the problem with...

An "investment" in bitcoin isn't doing well, or doing poorly, or doing anything. A stock can do well, if the enterprise it represents is producing economic value and thus the stock represents an increasing value (and assuming the market recognizes the increase, which is another discussion). If you BTC is worth more today than it was yesterday, the only thing that has changed is the price (and the conversion of some more coal into heat and carbon dioxide) and prices don't have anything resembling inertia. The "doing well" can turn to "doing poorly" tomorrow with nothing more than a change of market opinion.

Except you are assuming it will just magically go up. If you are the unlucky person to do that at the peak, then you will lose most if not all of your money.

Which is why you put $2k in, and don't bet your house on it. Or if you do bet the house, be aware you could lose it all (or be set up for life, of course)

The overwhelming majority of Americans do not have $2k lying around for a risky investment, nor do they understand the risks associated with crypto (especially the speculative coins).

In order for someone to invest in crypto as diversification, on the order of 5-10%, they'd need to have $20-40k lying around.

Needless to say, outside of the tech bubble that situation is quite rare.

This idea that young people should be more circumspect ignores basic tenants of the time-value of money, and how life and responsibility work. When you are young you have the most amount of time to make up for losses and mistakes. You are also far less likely to have mouths to feed, a mortgage, and college tuition to think about.

Things can get really bad if you are nearing retirement and lose even 15% of your portfolio in a downturn. On the other hand you can lose 100% and even have to declare bankruptcy at 25, and still have plenty of time to get your life back on track.

I am not saying that Bitcoin or anything like it is a good investment. I'm saying that it gets harder to take risks as you age, unless you've been very successful and/or lucky. But being either of those things probably required some risk taking in the first place.

Savings accounts used to pay 10% interest. Now all investments that beat inflation are "risky" including s&p indexes, simply because they are at their all time high and there is so much uncertainty in the world. So by that calculus the risky investment that's been showing 5000% annual return is more attractive than the risky investment that's showing 15% return.

Nope. Wrong. Just because they're at their all-time high doesn't mean they won't continue to go up. Doesn't mean they won't tank tomorrow. And it's naive to think there's more uncertainty in the world today than there was 20, 30, 50 years ago.

Your "more attractive" investment has shown 5000% annual return for 1 year...the "risky" investment has shown 8-10% return ON AVERAGE for over 100 years.

The S&P saw extended significant bear markets in 2007, 2000, 1987, 1980, 1973, 1968. It's naive to think that it won't happen again.

What you are saying is that if I put my money into S&P 500 10 years before I was born, it would match the gains on the same investment in cryptocurrency from 1 year ago.

Salty nocoiners.

Nocoiners? If you’re that confident in the future of BTC, please take me up on my offer to sell me some puts (see my other comment)

I'm not interested in your put options on BTC (nobody in their right mind would sell you that), but I would make a wager that the percent increase of total "market cap" of all "cryptocurrencies" (loosely defined as cryptographically secured tokens redeemable for fiat currency, e.g. coins listed on CoinMarketCap) at least 2 out of 3 of 5, 10, and 15 years from now exceeds the total "market cap" increase of the S&P 500 in the same period. I believe my bet more closely models the prediction I am making - that cryptocurrency gains will continue to outstrip S&P 500 gains.

I would take that bet, since I think 98% of the crypto's on this CoinMarketCap will be non-existent in 5 years.

I think you misunderstood me - I don't think that buying and holding any of the current tokens on CMC is a particularly good idea. You have a very very low chance of picking the ones that will be around in a few years. However, staying aware of what new development are coming around and trading into the new promising ones as they become successful may be a good growth strategy. I agree with you that 98%+ of the current coins will be dead in less than 5 years - but there will absolutely be new ones with an increasing amount of value.

There may well be a point in the coming months or years that the market cap of current crypto deflates - maybe by 90% or more - but new cryptocurrency applications and tokens will certainly exist in 5, 10, 15, and 100 years.

> And it's naive to think there's more uncertainty in the world today than there was 20, 30, 50 years ago.

There's more uncertainty in bitcoin today than there was in almost all available investments 20, 30, or 50 years ago.

> Savings accounts used to pay 10% interest. Now all investments that beat inflation are "risky"...

Note that when savings accounts paid 10% interest, inflation was (I think) at 14%.

> Someone who's rich wouldn't really notice 10% of their net worth gone.

It depends more on how leveraged your wealth is than on how much you have.

> The entire economy is definitely not as risky as BTC. The economy doesn't see 50% swings in value week-to-week.

Price volatility != risk. A number of people lost everything they owned in 2008. Everything. In fact, I've heard it said that half of the world's wealth disappeared.

I think its just the opposite - young people generally have a higher risk tolerance and would only be at an advantage against older investors when it comes to the most innovative and new investments that they may have insight into.

> This is a crazy way for young people to think though and the opposite of how they should be thinking

I dunno, seems like this sort of risk is the only way to get anywhere now.

Using that logic, you should “diversify” into lottery tickets too

Not really, crypto is high risk but it's a far cry from a lottery. The point is that safe investments over a couple decades do nothing for people who are trying to actually move their life forward now.

Check out Bill Miller's investor letter where he discusses the "certainty" of storied investors that Bitcoin will fail. Miller is the most successful mutual fund manager in history.


Also a good read is Miller's letter on Bitcoin from 2015. He put 1% of his fund into Bitcoin (now 50% of his fund due to the meteoric rise in price): https://millervalue.com/a-value-investors-case-for-bitcoin/

Check out Bill Miller's track record to see what a wild ride he takes his investors on: https://www.cnbc.com/2017/05/10/legendary-investor-bill-mill...

"One of Bitcoin’s biggest advantages over other payment networks like Visa (V) and MasterCard (MA) is minimal transactions fees. While other payments networks typically charge the greater of ~3% and $0.15, Bitcoin’s transaction fee tends to be a negligible fraction of the transaction, if any at all."

Could you please explain succinctly why do you think that Bitcoin is undervalued, why should it produce solid future returns and why do you think it is a good investment for someone with (comparatively) little investable cash?

1. I came to see it as undervalued in early 2017 (when I started buying it) because I saw the price curve, read the whitepaper, observed the community governance at work, tried it out, and reasoned that it has the potential to take a significant, long-lasting role in the global economic system. So I bought a small amount that I can afford to lose.

2. I didn't say Bitcoin produces returns, and don't believe it will. It's a currency, not a business. Like I said, I don't have the wealth to get a significant share in anything that produces a return. It's a class of assets I just don't have access to yet (in my mind, and for many other reasons I haven't mentioned).

3. I would advise anyone to only invest in what they know. I wasn't recommending anyone invest in Bitcoin specifically, and in fact, I myself haven't bought any in 2018. I was only explaining why I did consider it a good investment in 2017, and why many people might have felt that way and still feel that way.

> it has the potential to take a significant, long-lasting role in the global economic system.

What role, and why is it uniquely well suited for that role?

Speaking for myself, back in 2013, I was excited by what I saw as its potential for micropayments on the internet. That is (and was) clearly wrong - it can't do the transaction volume, is too hard to safely acquire and use for most people, and is too volatile.

Its current role is "hype-y speculative security". I don't see a significant and long-lasting need for such a thing, or how bitcoin is uniquely qualified to be that thing.

> I would advise anyone to only invest in what they know.

What is it to "know" a thing? Put another way, what exactly makes it such that you "know" bitcoin? Put another way, what useful information is there to know about it? I understand the details of the whitepaper and the block-chain concept at a technical level, because I find them innovative and fascinating, but I think any translation of that technical with knowledge of its value as a security is illusory.

I'm honestly curious about this: I've gone from very bullish to very bearish over the last 5 years or so, while I've watched the population at large take an opposite course from indifferent and unaware to very bullish, and I'd really like to understand what I'm missing.

I know enough about Bitcoin to know that its value is nonzero. In tech, nothing this unprecedented just goes away. Either it complements or supplants something else, but it finds a use case, even if that use case changes over time. My opinion is that the most important use case for Bitcoin is related to economic sovereignty. It gives people an escape hatch from the global financial system. The price is affected by speculation, sure, but it mostly depends on how many people use the escape hatch, and to what extent. Just a theory, I guess. Only the future will show who's right.

>>Speaking for myself, back in 2013, I was excited by what I saw as its potential for micropayments on the internet. That is (and was) clearly wrong - it can't do the transaction volume, is too hard to safely acquire and use for most people, and is too volatile.

This is strictly speaking not true. Yes, the current implementation is not good for taking micropayments, but it never was designed for this. If you thought this, you misunderstood the scaling architecture of the paper. It was always likely an off-chain derivative was going to be necessary for that to be a thing (Lightning Network), even before the rise of and prediction of ASIC miners and explosion in general computing power making the original algorithm chosen look... not ideal. We just got here much faster than people originally predicted, which is about what you get when you try to predict computing power curves as a linear function rather than a step function.

Whether it's undervalued at $14k isn't for me to say and I don't think anyone can truly tell you in either direction. But BTC has scaled as promised, just not as people would have liked. Then again, that's not BTC's problem, that's people not understanding BTC from the beginning.

It has a very prominent role in pseudonymously exchanging large sums of money near-instantaneously, securely, recorded in a global and publicly-auditable distributed ledger forever. There's a great number of use cases for this particular method of funds transfer, ones that I use today and many do and find a lot of value in it, even over other cryptocurrencies (for now). Would I prefer everyone take LTC and cut my fees down? Sure. 75% of BTCs problems go away if everyone would just activate Segwit too, but that hasn't happened either for whatever reason, so, it is what it is.

>I'm honestly curious about this: I've gone from very bullish to very bearish over the last 5 years or so, while I've watched the population at large take an opposite course from indifferent and unaware to very bullish, and I'd really like to understand what I'm missing.

The number is going up and there's a fun tech-beats-banks narrative. I'm as bearish as you.

What is it that Bitcoin has that any other cryptocurrency doesn't, or is unlikely to have in the future?

>I don't have the wealth to get a significant share in anything that produces a return.

I don't understand your reasoning as to why this matters to the degree you think it does. Or why a minority share in an unproductive asset somehow becomes de facto better option over minority share in a productive asset.

I hold a small percentage of my net worth in cryptocurrency so I'll answer it from the non-speculative side.

>>why do you think that Bitcoin is undervalued

There's no way to know this. Or really, know that about any asset.

>>why should it produce solid future returns

No evidence it will.

>>why do you think it is a good investment for someone with (comparatively) little investable cash?

Ah, that's a different argument.

The total market cap of cryptocurrency is $726 billion with a 24h vol (as of 9:08 AM PT 1/10/2018) of $52 billion, with 33.8% dominance by BTC. Let's just go with the top two currencies, BTC and ETH, with $245b and $129b in market cap, respectively.

Can you find assets with similar volumes and market caps that are legal and easy to invest in that you would ignore in a balanced index fund approach to retirement? Probably not. Neither would a responsible financial adviser. Yet because it's BITCOIN, we're supposed to think it's stupid, dumb, valueless, etc (not saying you feel this way, just saying that's the stuff I hear) without just looking at the market signal that's being sent: A hell of a lot of money.

IMO, the real speculators are the ones blithely ignoring the three-quarters of a trillion US dollars being traded on cryptocurrencies and thinking it's a bunch of crap. They might be right. But that runs counter to sound investment strategy, which is to own the market and to cover all potential areas of growth, because as history shows, a vanishingly small number of equities/assets is responsible for a huge part of the return on investment of capital.

Even for a conservative investor, a 1% portfolio investment could produce 30 to 50% of your total gains for the entire year. I don't see how you can not at least own some cryptocurrencies.

Since it's entirely global, the space could very well grow to $5-10tn before crashing down to $1-3tn. We're at $730bn now. The dot-com bubble, which was US focused, went up to $6.7tn before coming back down to $1.7tn.

For me, 5% of my future retirement contributions are in cryptocurrency. Rebalancing is obviously tricky since it's so volatile but that's the general target I hit, and the remainder of my portfolio has shifted to be more bond-heavy as a result of the additional risk. This suits my current lot in life but may not be for everyone.

> why do you think Bitcoin is undervalued

I see it as a variation of a tontine. But instead of people increasing in value when a member dies, it does such when a member loses access to a coin. Once that coin is lost, it can never be sold, thus cannot drive down the price.

But the interesting thing about this is, AFAIK, there's no way to accurately determine if a coin has been lost permanently or not, so the the true value of all accessible coins will be completely disconnected from the market cap. So people using market cap as a valuation metric will always be considering at a wildly optimistic one.

For example:

Coin A purchased at $100.

Coin B purchased at $120.

Coin C purchased at $130.

Current bid price $150.

If access to Coin B is permanently lost, then one of two things happen, A) the market cap falls from $450 to $300 to reflect the reduced number of coins, or B) the market cap is maintained at $450, and the "real value" of each coin is $225. Because it's impossible to know which coins are lost, the valuation metric will always be B.

Essentially, the owner of Coin B lost 100% of their investment, and the paper value of his asset was invisibly transferred to the owners of the remaining coins.

My opinion is that cryptos will be undervalued until one of two things happens, A) coin management becomes more robust and they stop being lost permanently, B) people realize that investors realize that there's a very real risk of their investment going to $0 (without the market crashing) and begin to price in that risk (much like unsecured v. secured credit pricing).

> But when he buys, he either buys all of a company, or enough of it to have some level of control over it, and that's only possible these days if you're wealthy as he is.

A lot of that is simply that he now has too much money to be able to efficiently buy bits of companies. His early career was still based on value investing, but mainly consisted of regular stock purchases. Berkshire Hathaway still has decent-sized chunks of Coca Cola and various other companies on its books.

Correct. His mindset or sugguestion is to only buy shares in a company you would wish to own entirely, and forever. Buffett stresses the ownership of the underlying business, rather than securities speculation.

And he employs a couple of people to make those sorts of investments for him.They're quite good at at it too. I can't remember their names, but it should be easy to look them up. I think they're mentioned in all the recent annual reports.

Buffet is first and foremost a reader and an investor second. He reads A LOT! If he does't like bitcoin it's because techies have failed to explain it or he truly thinks it's not valuable (perhaps he has knowledge of money/currency/banking that most of us dont?).

Not only does he invest in things that are undervalued but they also must provide value. Crypto currencies themselves do not provide value. The companies that make the hardware for mining provide value. Power generation companies that make the electricity for mining provide value. But a crypto currency provides no value by itself, it's just bits and bytes on a harddrive.

I'm not saying he's wrong, but he's notoriously bad at investing in technology. He just does not get it, for the most part.

He would probably have never invested in Netflix, or Facebook, or Google. Yet any investor who did made a killing.

Now, I'm pretty sure everyone is aware at some point the music has to stop (at least I hope they do). A major correction will happen at some point. But no one knows when. It could be tomorrow, or it could be 3 years from now.

> He would probably have never invested in Netflix, or Facebook, or Google. Yet any investor who did made a killing.

Buffett's strategy is to avoid losses -- not to worry about missing out on possible gains. He believes you avoid losses by investing in companies with a long, successful track record of doing the same thing for many years and that are likely to continue doing that same thing for many years into the future.

So, it's not that Buffett doesn't "get" technology, he just can't make intelligent guesses about what tech companies will be earning 10 years from now. He sticks to his circle of competence and it works.

Which is fine. He's a great investor on his own terms. But the complete counterexample to Buffet is George Soros -- a different way of thinking and operating.

Both lines of thinking clearly work for some people.. your investment style is tied pretty closely to your personality. There is no perfect solution, and everyone has to find their own way.

I would never put money in a railroad or an oil company, because I can't properly assess what drives the stock price and which unexpected issues might pop up. I can more easily do that with tech.

More importantly, tech investors have definitively netted lots of profit even if the music stops.

For example, if you are making x50-100 gains on tech investments, you are not rolling the dice full again but netting out some of that profit. Which is still a plenty and more profitable than traditional investment channels.

Sure it can't work for everyone and the market is very heated right now but we should not incorrectly assume that the tech industry didn't create enormous amounts of wealth.

"This is all I could afford" is not a valid reason to make a bad investment

spot on.

I believe that 98% of the roughly 1400 coins listed on coinmarketcap will come to a bad ending, because the vast majority cannot has no good enough reason to exist. That includes all bitcoin clones with a few parameters tweaked and a different hash flavor of the hashcash PoW.

Bitcoin continues to evolve, and will find more use cases with 2nd layer scaling solutions like Lightning. Ethereum continues to experiment with proof of stake and sharding solutions. Both will explore ways to increase privacy, hopefully in ways that do not impair scaleability.

Those two are the only ones I am reasonably sure will still list near the top, 10 years from now.

You're betting around 30 will survive? What would be the reason for survival of so many?

If I'm an american and want to buy something in china, I need to pay renminbi. Typically this happens via some proxy financial institution, who will process the transaction through the various distributed global currency markets.

The same could be true in the future of crypto, although national borders may not be the defining trait, but rather the relative properties of a currency and preferences of the sender or recipient. There are enough nuances between crytpocurrencies that there is room for more than a handful.

There's a lot of truly revolutionary ideas with some of them, the currency aspect is only the absolute top of the iceberg. I could clearly see 20 to 30 ones which are not just cheap copies of other ones.

Many coin founders profit handsomely from their creation, often holding an obscene fraction of coins, or in some cases, gaining ever more through certain gimmicks. They can afford to heavily market their coin and fund further development, even if of technically questionable nature.

> That includes all bitcoin clones with a few parameters tweaked and a different hash flavor of the hashcash PoW.

Different coins' hash algos are a good hedge against weaknesses in SHA256. I would think that we'd have found the weakness by now, but who knows?

> I am reasonably sure will still list near the top, 10 years from now.

There's no reason involved here, you're just guessing.

> cannot has no good enough

SyntaxError. What are you saying here?

That sounds like a non-native English speaker. But I think the meaning of the sentence is plain enough to figure out if you make even a tiny attempt to do so.

It sound like you are mocking someone's bad English rather than really confused. That's not cool. Please don't do that here.

If you really are confused, re-read (expecting somewhat mangled English from a non-native), and it should become clear.

Not at all! The rest of it is fine and I thought it was the writing of a native English speaker. I think you're being a bit uncharitbale, I was confused about that part, it made my brain bork out.

I've heard smart people say bitcoin will plummet because it has no intrinsic value. Well of course it doesn't! It's a currency. Currencies are an abstraction for value.

Sure, right now bitcoin is not a good day-to-day currency because of high transaction fees and slow verification speeds. But there are new altcoins that have solved both of these, that exist right now!

The real win for cryptocurrencies, in my opinion, is that it's public-key internet money, while debit cards are private-key internet money. With debit cards, you have to give someone your private key (16 digit combo+exp date+security code) in order to transact. Giving away your private key is prone to fraud, and the fraud-protection mechanism is to give a centralized authority access to everything you've ever purchased, and they look for anything "suspicious". On the other hand, with public-key money, when you give someone funds, there's no risk of them exposing you to fraud or unwanted transactions afterwards. Even though I understood the public-key mechanism for bitcoin early on, I didn't realize the full implications for the financial system until recently.

In the old days, government issued currencies had value because you could trade them in for gold or silver. In contemporary times, they have some value because everyone that lives in a particular country is legally required to pay taxes and those taxes can only be paid in the relevant government issued currency.

Gold is just about the only thing around that acts somewhat like money but isn't premised on much of anything except social constructed value. Though even there, there are jewelry and electronic uses.

I could believe that we could could get something else like gold that would be bootstrapped into having a relatively stable purely social constructed value. But as you point out, there isn't just one altcoin that has solved (some of) the problems of bitcoins, there are lots.

There are huge incentives to issue new altcoins and for speculators to buy new altcoins in hopes of being the winner. And those speculators and creators are all hoping for this huge volatility (albeit in one direction) while what's strongly preferred for a medium of exchange is value stability.

I don't see how we get there from here. What process or trends out there look convergent and stabilizing to you?

> In contemporary times, they have some value because everyone that lives in a particular country is legally required to pay taxes and those taxes can only be paid in the relevant government issued currency.

You've got it half right. In most countries, private individuals and organizations are also required to accept the state currency for at least some purposes. In the USA, for example, creditors are required to accept US banknotes in payment of debts. This places US dollars firmly at the core of the US financial system. This doesn't create any legal obligation for US businesses to accept dollars, but it does create a very strong incentive for them to accept dollars in some form. That's the currency in which their finances will almost certainly need to be conducted if they want to have access to things like banking.

That creates a situation where the US dollar isn't just valuable insofar as you can use it to pay your taxes. It is, de facto but also very nearly de jure, backed by virtually the entire United States economy.

Bitcoin, on the other hand, really is backed by nothing but its own popularity. And the problem there is, it's really not that popular. It does have a lot of users worldwide, and those users can communicate over the Internet, but the same is true of Esperanto.

You can't duplicate physical gold, but it takes 30 seconds to launch a copy of Bitcoin (Bitcoin Cash, Bitcoin Gold and so) or to launch a new altcoin as well. So no, Bitcoin is not a store of value like Gold. This "Bitcoin is digital gold" excuse is what greedy people tell themselves (and others), because Bitcoin didn't work as money (to buy and sell stuff, yeah the original vision of Satoshi).

Exactly! The "limited supply" argument for the value cryptocurrency totally ignores the fact that anyone can fork or create a brand new token every day of the week. Nothing like gold or any assets tied to the physical world.

Gold is the only metal that doesn't rust, even if it's buried in the ground for thousands of years. Gold is rare. And gold has the color of the sun. It's crazy if we think about that, it's like money made by the gods for us.

Platinum doesn't rust, neither does silver.

Silver corrodes quite readily. That's why you've got to keep polishing it if you want it to be shiny.

Gold's value comes from being a natural Schelling point, not it's intrinsic value. There are copies (silver, platinum) but they don't have the same value as they aren't serving as the main Schelling point. So the copies aren't a problem. The market will "pick" one over time, and then everyone will mostly use that because that's what everyone uses. Any of the crypto's could make a superior store of value vs. gold.


Gold, and silver, was nice metals for making durable tokens off back in the day. What made said tokens currency was not the metal, but the stamp.

That said, daily, local, transactions were likely done either using simpler copper tokens or basically a verbal or written IOU.

> What made said tokens currency was not the metal, but the stamp.

No, at least not always.

IIRC, in Ancient Greece the money was the precious metal itself and its value of a coin was reckoned based on its weight and purity. The stamp was just an indicator of purity. The very largest amounts of money were measured using weight units (e.g. talents).

It would have been impossible for it to be otherwise, since there were so many competing coin standards (e.g. a drachma in one city could be made to a very different standard to another, with standard weights possibly varying by as much as 50% or something).

Right. If it was all about the stamp, the Gresham's law wouldn't exist.

This is incorrect. The gold itself was valuable, and specifically gold because there were ways to tell in ancient times that it _was_ gold, and how pure it was. It helps that it's easily malleable for coinage too.

I believe there was an episode of Connections that I saw as a kid where he explains why gold was used as currency. I'm searching for it and will link if I find it.

While the public key concept is indeed useful, you don't need a blockchain or cryptocurrency to have this. My country's banking system already works with public key crypto. I can pay local merchants with my bank account by signing the transaction with my private key, which is stored on a smartcard protected by a PIN. The private key doesn't leave the smartcard. When I take my smartcard out of the reader, nobody can fraudulently authorize payments from my bank account even if they had a trojan on the PC I used.

We are talking about the credit/debit cards with chips. right? https://en.wikipedia.org/wiki/Smart_card

This is becoming standard in the USA. I am glad to know that this is how they work.

He lives in Estonia, that is a very "strange" place when it comes to the use of public key encryption.

Most places using chips for payment is a continuation of the magnetic strip and pin, only that now the chip can attempt to verify that the payment terminal and bank connection is functioning correctly before accepting the pin and approving the transaction details the terminal is sending to the bank.

In the end the transactions are basically ledger entries, be them manual or digital.

So the ones used in the USA are susceptible to a man in the middle attack? i.e. Somebody stealing the CC, pin or other secret while using a merchants terminal.

Yes and no.

A chip can't be copied like a mag strip can, so it is safe from the classic skimmers. Also a pin is worthless on its own.

I have however read about a kind of mitm attack that was demoed in the UK. It involved a device sitting between the card and the terminal, and it made the chip think the terminal was doing a signature payment, while the terminal thought the chip had validated the pin.

In my case the smart card is a mandatory government issued ID. [1] I use it to sign more than just banking transactions. Indeed I use it pretty much everywhere where classically a pen signature was used.

However the concept is more generic than that. Banks could easily supply customers with their own smart cards to do this. Indeed chipped credit cards could be used for this. Although as others have noted, these chipped credit cards still have the classic card numbers printed on them which act as the private key. My local banks also supply chipped credit cards, however you can disable transactions with just the numbers via a checkbox on the bank's website. Surprisingly some banks already disable it by default, so you have to go out of your way to enable transactions with just the numbers.


[1] https://en.wikipedia.org/wiki/Estonian_ID_card

With normal fiat currencies a government is behind both the supply of that currency (central bank) and the demand for that currency (taxes). With bitcoin, supply is controlled by mathematics and technology, and demand is entirely unpredictable. I would not venture to predict the future value of any cryptocurrency until a government or some other powerful entity adopts it.

I don't think it will be possible to predict the future value of a cryptocurrency either, but gold seems to be the proxy for the direction, if not magnitude. Gold isn't significantly controlled by governments, but due to hoarding, the intrinsic value of gold (by actual consumers of gold) has been outpaced by the trade value of it for decades, if not centuries. As long as inflationary currencies inflate, deflationary currencies will be around. And I would assume that a mathematical guarantee of fixed supply would be more valuable to those people than monetary policy by gold miners.

Not that I think bitcoin and others are truly deflationary, as the presence of derivatives and fractional reserve deposits means that overall they could still be inflationary, in the same way that M0 could experience deflation while M2 experiences inflation.

in terms of metal we have gold, silver, platinum. In cryptocurrencies we have 1000. If cryptocurrencies persist over this current hype, then its still open which of the +1000 ones will be the "gold" and which ones will go to 0.

The analogy between an ICO and a stock is pretty apt: they're both tradable contracts. One is enforced via math (as well as luck/naivety), while one is enforced via governments and financial institutions. And a huge portion of those 1000+ cryptocurrencies are really just ICO tokens.

I think crypto is in a huge bubble, and I think ICOs are dumb and will eventually die off or be killed off, but saying that there are 1000+ cryptocurrencies is pretty misleading. It would be like saying that due to the various stock exchanges we have millions of fiat currencies. It's only true given a particular definition of cryptocurrency.

Outside of ICOs, there are probably only a couple dozen cryptocurrencies that are not piggybacking off of some other cryptocurrency's smart contract infrastructure.

Even if its much lower, because there is the potential for a new entrant that has better "features" so that demand for the previous coins drops, there will always be risk in holding specific coins.

Think disagreement between miners, changes to algorithms, forks of blockchains. Gold does not have the same risk.

One nitpick: I think the SEC ruled ICOs to be comparable to certificates from what I understood. This is quite different to stocks. I could be wrong.

> But there are new altcoins that have solved both of these, that exist right now!

Any of them solve the fact that you have a eternal database fully replicated across hundreds of thousands of machines which could, by design, grow to infinite size? How about the fact that every one of those machines have to verify the integrity of every transaction ever made? Any of those could scale to handle even hundreds of transactions per second?

How about any that solve the absolute piss-awful amount of energy wasted by PoW? Any of those not pre-mined scams designed to enrich the people who "invented" the coin? Any of those useful for anything outside of paying for murder, fentanyl, or unlocking cryptoransomware?

What real-world problem, exactly, does any of this solve anyway? All of the problems we have in the financial world are political and social problems. You gotta solve those before you can start throwing tech at it...

This is exactly my problem with Bitcoin. The process for securing Bitcoin was fascinating to me because I thought mining was a clever way of staggering the growth of the currency. Unfortunately, you quickly realize that there's nothing to back the value of the currency and anything that could is disproportionately devalued when China builds farms for nothing but mining and the exploitation of the currency.

Blockchain, on the other hand, is awesome and will continue to be a key piece of tech for things like voting and records where trust can be shared amongst all the users.

>>How about any that solve the absolute piss-awful amount of energy wasted by PoW? Any of those not pre-mined scams designed to enrich the people who "invented" the coin? Any of those useful for anything outside of paying for murder, fentanyl, or unlocking cryptoransomware?

These inflammatory questions have legitimate answers, and the fact you ask them in this forum mean you haven't done any honest work to find them and would rather just post it on Hacker News and look intelligent.

So, respectively:

Yes, Yes, Yes. I hope this is a helpful answer.

When a coin becomes unusable, fork it or switch to a better one. The market is extremely liquid.

Or maybe Buffett is just trying to protect his long term $1B assets in VISA

>I've heard smart people say bitcoin will plummet because it has no intrinsic value. Well of course it doesn't! It's a currency. Currencies are an abstraction for value.

Currencies have certain values as currency. This includes factors like limited supply, having some level of enforcement of its use as a currency, ease of use, and also factors such as if it has other applications.

Take a gold coin. Low ease of use, but high limited supply and gold has numerous other uses. Depending upon the actual coin, and the ability to authenticate, it could be worth only its weight as gold, or it could be worth more because of rarity.

Take a dollar. High ease of use, mostly limit supply, has the US government backing it, has almost no other use.

Crypto has value as well. Harder to use in many situations, but easier in some. It has greater ability to remove the identity of the user and their funds, which is something most other electronic payment systems don't have. It doesn't have much backing it except the crypto algorithms (which most don't understand), but it does appear to have a limited supply.

I think crypto currencies do have intrinsic value.

But there is a problem. Years ago this intrinsic value wasn't known. As we slowly worked out what value crypto provides, its price has gone up. This has attracted some people who place value in it not as a currency, but as an asset that rises in price. As more people see it as an asset to invest in instead of a currency, it further drives up the price. At the same time, the intrinsic value of crypto is still being discovered.

So the question becomes, for any given crypto-currency, is the discovered intrinsic value + increase in value from being used as an investment greater than, less than, or roughly equal to the future intrinsic value.

If the intrinsic value that will be discovered ends up being far less than the current price inflation driven by using it as an investment asset, we will eventually see a correct/crash. When, and how far it goes before then, is something I'm not at all comfortable predicting, even if that was the case.

But I will say, when people with no tech interests are coming to me asking about bitcoin and investing in it, it makes me think it is over-hyped.

There is also the possibility of value in just possessing it, but I personally think this is near 0 for crypto (unlike foreign currency where some people pay a little just to have a framed collection of bills on our wall even if those bills have no value).

> Well of course it doesn't! It's a currency. Currencies are an abstraction for value.

This is true. However, most traditional currencies started out as something that was an abstraction for value, but was backed by something of tangible value (e.g. gold standard). This isn't true anymore, we aren't on the gold standard, but if nothing else that lack of transition from tangible to "imaginary" value never happening with bitcoin is part of what fuels the uncertainty and skepticism.

Bitcoin will likely continue to succeed even with its lack of "intrinsic" value and no backing by a traditional organization/govt simply because it was first. I don't think any of the alt-coins that don't also bring something else to the table are going to succeed long term though.

Chip-based cards do use public key cryptography. The actual problem here is that for internet purchasing it is possible to just use the card number without necessarily having physical access to the card chip. This is an intentional security vs convenience tradeoff :/

What are the new, non-deflationary, non-energy-black-hole, high-transaction-volume cryptocurrencies you reference?

I don't disagree that there are a variety of wins for crypto systems, I'm just a moderate skeptic of most of the specific systems I know anything about (obviously, being software systems, many of the things I view as problems can be coded away).

> With debit cards, you have to give someone your private key (16 digit combo+exp date+security code)

Just because that's how it works now doesn't mean it has to always work that way. There's no reason why the "private key" couldn't be different for each transaction.

The easy way to express this is: cryptocurrencies are true, digital cash

> cryptocurrencies are true, digital cash

I just wired money from my brokerage account to my checking account at a different institution. It happened in thirty minutes and I was charged no fees. Digital cash has been the bulk of cash for many, many years.

That meets the /digital/ criteria but not the /cash/ criteria. consider that there are banks and accounts that you can't wire to, or that an account can be frozen. cash & bitcoin don't suffer this. there are a number of desirable properties that bitcoins have, and some downsides as well - digital is only half the equation.

Yeah I remember reading that around 80% of the world's currency is now digital. Although I think the key word in the original comment was "true". As in, it is the first currency that is entirely digital, which before bitcoin wasn't possible. Regardless of how valuable you think that notion is, it's still a very interesting technological development.

> [Bitcoin] is the first currency that is entirely digital, which before bitcoin wasn't possible

It is absolutely possible. Sweden is close to achieving it [1]. The hurdle isn't technological. People like physical cash. Consider the shitstorm that would erupt in America if the Treasury announced it would stop printing and minting physical currency.

> it's still a very interesting technological development

I agree.

[1] https://www.theguardian.com/business/2016/jun/04/sweden-cash...

Fair enough, although "entirely digital" has broader implications than whether the currency itself is physical. It's more that the backing of the currency is digital. In Sweden's case, the backing is still the government. And there are physical representations of crypto in the form of QR codes and such.

What you did there was use digital credit. It is very useful but it is different than digital cash.

Out of curiosity, where do you live? I do wire transfers regularly and have never not paid fees (often, both on the sending and receiving ends.)

Also, I've never had a wire settle in under 24 hours. It's typically 2 - 7 days depending on destination and currency.

Not OP, but I live in the US and don't pay fees on transfers between my brokerage account and checking account. They take a few days to clear though.

> I live in the US and don't pay fees on transfers between my brokerage account and checking account. They take a few days to clear though

They're probably doing an ACH [1] transfer, which is net settled [2]. They take longer but are cheaper than wires. Fedwires, once transmitted from the sending institution, take seconds to be received [3]. They're real-time gross settled [4], i.e. faster but costlier [5]; many institutions waive (i.e. eat) these fees for clients with more than ~$50,000.

[1] https://en.wikipedia.org/wiki/Automated_Clearing_House

[2] https://en.wikipedia.org/wiki/Net_settlement

[3] https://www.federalreserve.gov/paymentsystems/fedfunds_about...

[4] https://en.wikipedia.org/wiki/Real-time_gross_settlement

[5] Why? Because they're immediate and irrevocable. The first part means the bank has to use actual funds on hand, versus hoping a countervailing transfer cancels out the work or letting a profitable (relatively speaking) investment pay out. The second part means mistakes are more resource-consuming.

I can give an example, at Chase bank in the United States, if your account balance is over $65k in your combined checking + savings accounts, or you have an investment portfolio through them via Chase Private Client of at least $250k, all wires are free.

Typically if the sending institution or receiving institution maintains a nostro account at the other end of the transaction, they'll process the transfer immediately.

not GP but in both India and Signapore, instant settlement with little or no fees is the norm for nomimal amounts like rent etc.

Similar from Norway, and why it increasingly hurts to think that USA is considered the leader in technological development.

It may be the leader in consumer hype of technological development, but dear deity so much of the actual daily operations seems almost third world.

Had you wired that money from Coinbase, you'd still be waiting for it months later.

Maybe they're just trying to avoid being faster than Bitcoin.

> Had you wired that money from Coinbase, you'd still be waiting for it months later.

While this may be the case in some wire transfers into Coinbase/GDAX, this is certainly not the case in all cases. I've made three wire transfers of differing amount within the past three months and in each case the funds were deposited into my Coinbase account within 36 hours. Two close associates of mine have had similar experiences depositing via wire transfer in the mid- and late-December, 2017 time frame.

Granted, I have not deeply investigated all of the "my wire transfer has been pending for multiple [days/weeks/months] and still hasn't been deposited" complaints I've read on Reddit or the Coinbase forums, so it could be that I'm an unusual case vs. the norm.

No, they are a digital ledger.

A true digital cash transaction would only need communication between the two parties involved, rather than a working connection to a third entity.

> But there are new altcoins that have solved both of these, that exist right now!

What cryptos do you believe have solved these problems?

I'm sure you'll get multiple answers, but Bitshares solved these problems in 2014 with Proof-of-Authority (aka Delegated Proof-of-Stake). Seconds between blocks produced, and the transaction fees are like $0.005 or something ridiculous.

The code was forked to create the Steem blogging platform, and now EOS is in development to essentially back Ethereum-like smart contracts with the DPoS model.

Ethereum is trusted, and Vitalik is a great project leader. If they can solve distributed smart contracts with his new plans, that would be huge. For now, it seems like the middle ground is where it's at.

Stellar, NEO, Ark, Ripple, Lisk, IOTA, RaiBlocks -- all using novel variations dPoS/PoW/PoS and making different tradeoffs w.r.t. centralization.

You're just listing names of coins that have been pumped recently. IOTA isn't even real cryptography.

I have no opinion w.r.t. they have been pumped or not. I'm just saying that they all use novel consensus mechanisms that don't rely on huge amounts of work or long finalization windows.

NEO, for example uses dBFT consensus (which is a type of dPoS), and trades off availability for consistency (the opposite of Bitcoin). It has a block time of about 20 seconds and can do thousands of transactions per second.

IOTA, uses a block DAG (which it calls Tangle) instead of a chain, and uses a novel PoW mechanism to validate transactions that allows for parallelism, and it's throughput grows with the size of the network. (I don't know what you mean by "isn't even real cryptography.")

There is a huge amount of research in this area, and some of the ideas coming out are really interesting (from a distributed consensus perspective.)

(/me worked on paxos-based consensus systems for a decade.)

My view of all these cryptocurrencies is that the math and CS they're originally based on is pretty cool, and they do provide a proof of concept of a rather difficult distributed consensus task.

But all the speculation right now cares about none of that. They only care about optimizing how quickly people can be convinced to throw money at the coin. They don't need to do the math right, they just need it to sound right. IOTA is a prime example.

IOTA does cryptography like a literal cargo cult does aviation. They just went through the motions without understanding what they're doing. They rolled their own hash function, in ternary for some dumb reason. It turned out to be vulnerable to attacks known for decades the moment a cryptographer looked at it. The spin they've come up with after that indicates that they don't fundamentally understand why not to roll your own crypto, especially not a hash function.

They are amateurs, screwing around. Any research you've read in distributed consensus, I guarantee you that the IOTA team doesn't understand it.

The fact that you included IOTA in your list undermines the credibility of your entire list, and makes me at least think that you haven't applied your expertise in consensus systems to looking at what these coins actually do.

More information: https://www.media.mit.edu/posts/iota-response/

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