But what's different this time is that there are first time investors in millions who joined in the last 2 months. They didn't read the white paper, they didn't invest in technology, they invested for the monster returns. So I think there will be a more sell off this time before it rebounds back to $13K+ or may be the 1000th time is the charm and the bubble actually gets burst.
It is speculation, however, as you generally don't have the same sort of insight into currency movements as you will into stock movements and commodities in general. Someone watching the Brexit vote in summer 2016 would have made a decent return on ARS had they moved it to the USD before the vote and back after (changed from 1USD:13ARS to 1USD:15ARS practically overnight). But that is speculation and requires watching global and national scale events to predict.
Although it might seem that buying dollars have a return of 20% or more in a year, by the time you sell it everything cost more in ARS because most prices are tied to US dollars. So you end up having the same. If you have saved in ARS, with the same money you could buy a lot less things
I found this thinking about my home land - India..
Investing is what you do when you're not merely speculating on short-term returns, but are instead focused on long-term value creation. It is right to call it currency speculation, because instead of investing capital to create sustainable growth in something, you're just skimming the fluctuations using massive leverage.
Note: Not a finance person, just a personal opinion.
That's a contradiction.
Regardless, what defines speculation is not parasitism, it's uncertainty. And there's uncertainty in any investment as well. That's why there's no clear line between the two.
Go read my original post again. I am advocating against ambiguity in language, as this serves to obscure analysis. You are clearly happy to obliterate distinction, however, and have made no attempt at a positive argument why it is beneficial to discourse.
Language is a constant negotiation about the meaning of words, and I have made my position clear.
We can only communicate to the extent that we agree on the definitions of words, so for you to invent your own definitions, which contradict how other people use the word, as codified in dictionaries, then there's zero hope of reaching shared understanding.
It would be absurd for me to claim that "the sky is brown", the later argue that I was right all along because I'm defining "brown" to be "blue".
By now it's very clear, it can't be medium of exchange.
"A speculator is a person who trades derivatives, commodities, bonds, equities or currencies with a higher than average risk in return for a higher-than-average profit potential" https://www.investopedia.com/terms/s/speculator.asp
You can say what you want about the philosophy of that - the lightning network will add yet another group of people who collectively have an outsized control over the network. But if the scaling issues get addressed I don't see any reason why it couldn't work as a currency. And it looks like they are being (slowly) addressed.
Blockstream struck down a modest increase to 2MB in November. They have devs who want to reduce the blocksize.
I'm not sure where you're finding hope in LN.
Bitcoin Cash forked off to get back to scaling, and it's doing great. Check out how well the mempool stress test went this past week.
Current prevailing theory in BCH land is the block size is an unnecessary hinderance, and will likely be gone in the next 18 months.
What are you smoking? Even 1GB blocks would be 144GB per day of blockchain growth. You can't expect people to tolerate that kind of disk usage, let alone bandwidth.
By the time they're necessary, it'll be a lot less demanding, relatively speaking....
Perhaps it's 'accidental investing with a dose of roulette number thrown in'.
Perhaps it's a new type of investment/gambling hybrid that requires a new category.
If the currency does well but the company does badly, you still win. If the currency does badly but the company does well, you still lose.
You're exposed to the fluctuations of the currency, and completely unexposed to the valuation of the company.
I'm not trying to sugar-coat or rationalize the mania, only trying to explore the idea that this is both and neither gambling and investing.
I think people object to the idea that money used to purchase crypto currency in the first place is capital.
Following Investopedia 'Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.'
crypto is not generally accepted form of money;
not issued by a government;
circulated within economy - somehow yes.
So they don't fulfill all the requirements.
I always thought of it as "otherwise value-less representation of value." All the currency I can think of fits this definition - including gold! Gold is only really valuable recently for circuits and the like.
Thinking the world will flock to a fixed pool of frictionless digital exchange does not seem insane to me. I'm talking about the ones you can transact for less than a penny (BCH), not the old guard (BTC).
Fees are less than a penny.
System works great, like Bitcoin used to.
Block size as much as makes sense, optimizations where possible, if lightning works (it won't) - use it.
Gavin Andresen has published about his latest work 'Graphene' which shrinks block sizes dramatically.
They'll take/use any good ideas so long as it doesn't cripple basic onchain functionality.
Blocksize and fees are a tradeoff.
1 cent fees are a significant advantage over 20$ fees.
But 0.0001 cent fees aren't really that much more useful for your coffee transactions.
Sure, maybe someone will come up with another chain that is used for true micro transactions.
But what we are saying is, that each of these fee levels are good for different use cases.
Bitcoin's high fees and high security are great for a digital gold product that isn't traded much.
Bitcoin Cash made a different tradeoff in the attempt to go after the daily spending market.
Pros and cons.
I think it's a couple of things that Buffett is looking at. First, like gold, Bitcoin is not a business and does not produce earnings. Second, people seem to be buying it for no other reason than that they think it'll keep going up. That's usually a good argument for the asset not being a bargain. Third, Buffett is self admittedly not an expert when it comes to tech.
The trick in your paragraph above is that you introduced “$1 trillion dollar”. Of course, if you say that the sum of all transactions (in BTC) has a certain USD value, then you’ve brought the exchange rate in (through the back door).
Note that I'm not making a price prediction; I'm just saying that if the price is low, and the velocity isn't unrealistically high, then that necessarily means that Bitcoin is playing a minor role in the economy because it trivially implies a low aggregate value of transactions.
Conversely if the price is high, Bitcoin still might be playing a minor role, if the average velocity is very low because lots of people are holding coins for a long time. But for Bitcoin to play a major role in the economy, it would need either a high price or a high velocity, so the aggregate value of transactions is a major portion of GDP.
A really high velocity would require fast and extremely cheap conversions with fiat, so you can hold fiat and convert to/from bitcoin at transaction time.
Probably one of the stupidest comments I've read on here. You display not even a basic understanding of how Bitcoin or economics work.
If I have a successful company with 100 shares. People will want those shares which will drive the price up. To fix the price at $1.00, or to dilute shares to keep the price at $1.00 is just ridiculous.
Bitcoin's exchange rate is a function of supply in demand. It could exist and do its job with low demand (e.g. $1.00 / btc) or high demand (today's price). What is the reason for the high demand? The answer is speculation that the price will continue to rise.
The point I was making is that if people were using it only as a only as a currency, then the price very well could be $1.00 / btc. The reason it's so high is because people in large numbers are buying and holding it as an investment, reducing the supply.
It also depends on banks and states signing up to that vision. We have seen zero adoption on that front. On top of that, it still does not explain the hundreds of alt coins.
It's open source. How many Linux distros are there?
Wealth is created primarily from productivity gains. Bitcoin generates very little in the way of productivity gains. Services built on top of blockchain or similar tech, will be where most of the wealth will be generated, because those services / products will or might spur productivity gains.
And I would say that the proper comparison would be to a company during the .Com bust.
Skyrocketed in value from hundreds of dollars in the mid-late 90's to tens/hundreds of thousands of dollars today?
Not sure that's the point you were trying to make though :)
Businesses are more willing to spend to have "their" domain name, perhaps, but the overall value of a "hot" domain name seems lower.
I remember at one point, I bought out all the remaining 5 number .com names (like 78542.com). Must have been close to 400.
I let them all expire since they were worthless a year later.
Fast forward to 2015 and they're all selling for a minimum of $200+.
It's a form of survivor bias because you never see or think about the technically-complex failures, or "not-successes", like the Tamagatchi, Laser disc, WebTV, Webvan, etc. I mean, how come none of it's proponents compare Bitcoin to the Segway? Sure, you can say we have hoverboards now but those are not Segway, the same way Eth and Monero are not Bitcoin.
In the same way, Eth and Monero are further iterations of Bitcoin.
Bitcoin, Eth, and Monero are all implementations of blockchain. Bitcoin is technically inferior to Eth, Monero, even Dogecoin, but that doesn't stop GP and others from comparing it to the internet's success in saying that Bitcoin is destined for similar success.
Blockchain size and confirmation times are two entirely different things.
The length of the chain can affect processing power and bandwidth, as each block contains all previous blocks.
There's $5B worth.
That's the line I often see on Twitter / Reddit and usually gets a lot of upvotes, despite being irrational, with no proof to back it up.
As bitcoin falls, the demand for Tethers goes up. To keep Tethers pegged to, say, $1 USD, they need issue more to meet the demand, which would be a more rational explanation why more were issued.
Or maybe people want USD, but the exchange forces them to go through Tether to get there. So there'll be a brief demand for Tethers, then a big selloff of Tether for USD.
Tether was kicked out of their HK and Taiwan banks, and now they are banking in Caribbean islands. They are supposedly holding $1.55 Billion USD cash in one of those banks to back USDT issued so far.
My question is, have you seen a Caribbean bank? Most bank HQs over there look like a 7-Eleven, and banks are owned by local politicians or shady characters. Anyone who deposits more than $1 million in those banks is a fool.
Like, once a decade or so. At the cost of great human suffering.
This seems like a fairly frantic attempt to prop up the value on their part.
This is great in theory, because transactions between two types of cryptocurrencies are (relatively) easy and cheap, and with one coin pegged to a real currency, it means the crypto ecosystem is much more liquid.
Now, the downside: you may have heard of the macroeconomic "Impossible Trinity". One outcome of that is that it means Bitfinex has to keep US dollars on hand equal to the total value of Tethers created.
Now, the real downside: over the past couple of months (and even more over the past week), Bitfinex has issued a quantity of Tethers that most people don't actually believed are backed by US dollars, meaning they are vulnerable to a "It's a Wonderful Life"-style run. And worse yet, the liquidity Bitfinex provides has been "baked in" to the price of other cryptocurrencies for a while.
At any rate, the accusation the Tweet is making is that Bitfinex is now significantly overextended, and can no longer promise to convert all the issued Tethers, meaning the Tethers (and thus all the other cryptocurrencies) are not nearly as liquid as "investors" thought they were. As many predicted.
Most irritatingly, this exact thing happened over, and over, and over again when countries were on the gold standard. It's why fiat currency is such a good idea.
Due to wealth inequality, we assume that majority of the crypto investment would be from ultra-rich. It might become quite normal for them to invest 1% of their wealth in crypto for uncorrelated diversification. In a way this is very similar to buying art which probably doesn't have much utility except among other wealthy people as socially agreed upon store of value. These folks have estimated wealth of $10T so that puts market cap contribution from them to $1T. Let's assume same amount comes from non-ultra-rich investors. So we can estimate btc market cap to $2T. This puts reasonable eventual upper bound value of 1 btc to $95,000. This eventual value might never be reached however because all 21M coins never be mined, not all wealthy people might do this, and also other coins will fragment the market. May be 3/4 discount is reasonable at this point to accommodate these factors which might put the value to $25K at this point. This is obviously assuming no black swan events like countries making it illegal or some other virtual currency tech doesn't become popular.
Art may not have "utility", but it does have value, so the analogy here doesn't quite work.
Also, 1% of 10T is 100B, not 1T.
We know the hashrate, we basically know what the hardware is that does the "mining", we know the cost of the hardware and we can estimate some mean electricity cost.
The hardware has no other real use (except for heating) so there is an upfront investment the miners were willing to pay and also how much they are continually willing to invest.
This is a real world in investment that is not easy to withdraw from the Bitcoin system
Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic.
Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
It already is occurring.
No, it's not designed to hide volatility, it's designed to show a quick overview of the long term changes of Bitcoin. Logarithmic scales are incredibly useful when you have very fast rate of change. Look at a linear chart of Bitcoin over the same range, it's not very useful.
You can quickly see from this chart that Bitcoin is still on a massive tear, though the annotations are a bit cheeky.
The same size drop is always the same % drop, a linear graph would be dishonest
If someone misreads the chart as linear the current drop would be terrifying though, with no previous precedence.
I think this thing is like dot-com crash. And obvious ones have fallen. But some should survive. I am glancing through all the sub reddits, and I like the behavior on /r/ethereum the best. Nonplussed (largely) and just focusing on the tech. /r/bitcoin is the worst, but bitcoin has the most solid people (cause early adopters etc).
Just like you go to casino with $5 play all night up to $2 million, then lose all go back home and tell your wife you only lost $5 so it was not that bad.
Bitcoin is, was and always will be a highly manipulated penny stock. It spiked from $1000 to $20k for absolutely no reason, and now it is dropping down to $10k for absolutely no reason. Any price bitcoin spikes or drops to has no reason behind it... what kind of "store-of-value" / "currency" does that?
To the limited extent that Bitcoin helps Chinese citizens out-maneuver the capital controls that the Chinese government has tried to enforce, then it could be analyzed as a shadow of the Chinese currency, but since the action is illegal, the data is dark. Thus Bitcoin, and other crypto currencies, are the world's most opaque investment.
There are many stocks that belong to companies that have no mechanisms in place nor could they be reasonably expected to introduce mechanisms to directly return profits to shareholders. These stocks have the same form of "intrinsic value" as gold or Bitcoin: whatever the hell the next person is willing to pay for it.
Pretending that an underlying asset that doesn't throw off any yield or return of capital is somehow more rationally valuable than another doesn't make sense.
Whether stocks pay dividends or not is not terribly relevant, see Modigliani-Miller.
Thus, share prices are rationally anchored to economic reality. Of course, there's a lot of estimation involved, and people can get it wrong for a while, individually or collectively.
Lets say I have a company with 1 billion dollar worth of assets and a 100 million dollar profit per year.
I have issued 100 million shares during IP. How much is a single share worth? At the very least $10.
Next year I have a 1.1 billion dollar company. How much is a single share worth? At the very least $11.
You have 1000 shares worth $11000.
I can now either pay the profit out as dividend or not. Your shares will be worth less by exactly the amount that was paid out. Your 1000 shares will be worth $10000 and you will have $1000 in cash or alternatively I don't pay out a dividend and you still have 1000 shares worth $11000.
Where did that growth come from? With a company it's easy to answer. They sold more of their existing products. Released a new product. Reduced costs through technology. We have more stuff now.
Investing in a stock helps a company indirectly even if stock buybacks never happen. The company receives better lending conditions from banks.
What about cryptocurrency? A currency shouldn't move in price at all. Where did that growth come from? From other people. Nothing new was created. Existing wealth merely gets redistributed.
From that perspective, taking control of Bitcoin may have a measurable monetary value but as I understand the system the value isn't in the coins, it's in the miners.
Is that bitcoin's problem or a traditional economists problem?
Behavioral economics does have frameworks for thinking about bitcoin price, but then again, behavioral finance is not traditional and highly controversial. For once, it dispenses with the myth of the rational investor (homo economicus)
So, how does behavioral economics supply a price for Bitcoin?
As in "why is the price what it is". Saying "because of supply and demand" is useless, unhelpful pedantry.
In case you don't know, things like https://en.wikipedia.org/wiki/Market_manipulation exists..
I've seen this consistently touted as a structural advantage to (bit)coins, but have yet to see a compelling technical explanation as to how/why this would be the case. The Satoshi paper doesn't discuss middlemen at all.
Very few people (relatively) are actually mining and most are just buying with USD from an exchange which by default is a middleman. Many of the other coins are pre-mined so aren't decentralized at all, which takes that whole point out of possibility.
Where's the proof of this claim?
It's like expecting people to trade goods with gold etc...
The products so far have been a failure.
It irritates banks not, by the way, because they're oh so scared about this fantastic new competitor to "their" money and money related businesses, but because it's often used (when it's used) for illegal transactions.
The only downside to it all is if whoever handles your "account" (or wallet) is breached, or someone steals your "money".
Right now - no one will insure it. It'll come, and when it does - it'll likely be decentralized again, because that's entirely possible - throw 1% of your "account" into "insurance" and suddenly everyone is paying for their own insurance and third-party investigations into claims. That in itself will be heavily regulated by the companies running it, and I think the lower the fee - the more information they'll want from users.
Every single thing in your post makes zero sense.... it is all breathless hype.
Not true. Most of the post makes sense. Trustlessness and decentralization are pretty much the only benefits to bitcoin and others like it. There are obviously real costs for these features, but also real benefits. Do the benefits justify the current valuations - only the market can determine that. I personally am quite bearish on almost all cryptoassets (so I would not be considered a "pumper"), but certainly you must see the threat they pose to the incumbent masters of the monetary system?
Another example I've seen in real world use is the "startup" retail banks popping up throughout Africa that have no offices, and are purely operated over mobile.
The lack of regulation in these countries have lead to massive leaps in innovation in the banking space. Seriously, you can read articles about it - but until you go to countries like Nigeria or Kenya and try it out, it's incredibly impressive.
I'm not a major investor in crypto anything, I think most, if not all, coins created right now are completely pointless - but blockchain as a public, auditible ledger and fiat-backed crypto/tokens I think we'll see some very cool innovation that own't overhaul the banking industry completely. There's too many smart people in banking to get "caught out".
However I do think we'll see some new contenders in the space as the industry begins to break down into smaller units. And that'll be good for everyone.
Your "only downside" is enormous! I'd never consider paying my salary or keeping my savings in an organisation that has no regulation. My money could just disappear overnight.
You add that I could put 1% of the account into insurance, but that is essentially a 1% (yearly?) cost. Why would I do that when I can have a GBP bank account regulated by the FCA for free? In fact, the FSCS guarantees up to £85,000 per banking group (eg. HSBC).
We've seen entire banks collapse and people lose their money in the past decade alone. The early days of banking was rife with fraud and scams.
I don't expect this to change in the short-term, however think about the convenience you'd see on day-to-day banking and how fast new features could be developed compared with our current banking system. Even if you only held a very small amount in a "new bank" and "currency" and kept you significant savings and assets in a traditional bank, I could see this slowly chipping away at existing banking services very quickly once a consensus on currency is reached within a community.
Though if you look at todays charts e.g. in ETH, it's clear someone's probably made good money intraday buying dips.
But as a general rule I'm conservative with how much I put into these things, just a small amount each month. I can afford to be very confident and very wrong about Ripple.
Second, and more important, unlike crypto, BRLUSD paid 10%ish interest rates every year since then, so the total return of a US investor who invested into BRL currency forwards at the start of 2013 is +2.67%, a far cry from an 80% loss.
If however, governments figured out some standard harmonized regulations and consistently enforced them, then afterwards there would no longer be a threat of regulation. In fact, getting regulation applied might actually reduce volatility, because the uncertainty about the threat of regulation would be taken out of people's pricing estimates.
BTC and Gold in one graph: http://static5.businessinsider.com/image/59975b50f1a85079738...
I'd say in this comparison gold is the stable option.
Just happy I sold some around $18-19k
Which basically means gold was dead as an exchange medium after EO 6102. It was illegal to have more than $6500 (today's money) worth of gold / 5-ounces or so, so transactions would have to be way smaller than that!!
In 1930s money, 5-ounces of gold was just $100.