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Bitcoin as an Investment (2018) [pdf] (sec.gov)
29 points by haskellandchill 11 days ago | hide | past | favorite | 34 comments





Can we somehow change the title to reflect that this isn't an official SEC statement and rather a comment from the public? Written by someone with (seemingly) no economic understanding. Particularly, stating the price of Bitcoins is "fictitious". You can make an argument that it is based purely on speculation, but that doesn't make the price a matter of fiction.

Edit: Here is a rebuttal letter to this comment: https://www.sec.gov/comments/sr-batsbzx-2016-30/batsbzx20163...

The person clearly has an axe to grind with Bitcoin.


Their entire rebuttal is "jstolfi makes some good points but he's mean to us on reddit"

I was going to thank you for pointing out the rebuttal except it was utterly devoid of substance. As for the title, your comment is good enough to note this is a comment rather than SEC statement. Hacker News is a little weak with domains that serve multiple purposes and I don't think it is misleading or even matters as this submission won't make the front page or anything.

At the time when I posted my comment, it was on the front page. Substance is in the eye of the beholder, but the posting of the comment served two purposes. 1) To show that anyone can say anything in these comments, 2) the level of commentary is need not be very high.

The main problem with this analysis is that it is purely based on the fiat standard. Bitcoin as a store of value is conceptualised as an alternative to this fiat standard. Over the years many "experts" claimed

- Bitcoin will collapse at x and will never recover

- The institutional adoption will not happen

- It can not be used for day-to-day payments

- It will never become a legal tender

We all know what happened to these predictions over the years.


My main problem with Bitcoin is that the number of times it has been used for advertising prices is still negligible. By contrast, fiat currencies are ubiquitously used to advertise prices. So Bitcoin got its intangible differently from a normal fiat currency and Bitcoin can loose it again. https://bitcoin.isnot.money

[flagged]


Frankly, I see no pint of debating this issue (bitcoin as an investment, not as an environmental issue). People who don't like it don't have to buy it. Those who are confident it could be advantageous will invest some money in it to diversify their portfolio, with the percentage corresponding to the inherent risk and investment period. Since the risk is quite high, I wouldn't put more than 15-20% in it. Yes, the potential net gain will be lower, but if things go bad, I won't lose any sleep over it.

in this case it's a hater that wants to stand in other people's way to have multiple options to invest in bitcoin.

You can cast it that way, or as an expert giving their opinion on a nonsensical investment in an effort to save others from financial ruin.

but he's not an expert, he clearly doesn't understand how any of it works, you can see it by simply reading that document

> 1.2 Bitcoin investing is a negative-sum game

Bitcoin on the day this was published was trading around $7,500. It's now trading at $37,000. I'd say these guys got it wrong. *at least so far*.


This is addressed specifically.

> "Since there is no source of revenue that would repay investments in bitcoin, there is no way to make a rational estimate for its value (above zero). There is no explanation for why the price is now 7300 USD/BTC rather than 0.73 or 73,000,000" (section 1.3)


Actually this is very interesting question about which I'm thinking for some time lately. Why does overwhelming majority of crypto tokens cost approximately in the range between single dollars and thousands of dollars per token, regardless of total number tokens printed or reserved? My first thought would be - because those are "humane" prices, i.e. prices most humans interact daily and have reference points for. Parkinson also wrote about similar effect - when the most discussed price by a group would be the one closest to the daily amount of money, e.g. committee would discuss budget for a nuclear reactor for a few minutes, then argue for an hour about price of coffee supplier for the office coffee maker. But while this hypothesis looks interesting I can't imagine how it may happen in real life, how do the prices converge to the 1-1000$ range and why?

PS: good example was recent HDD token Chia. Before the token become listed on exchanges people hypothesized that it's price would be hundreds or thousands of dollars, and they were right eventually. But why really? Why not 0.0001$ per token or 1 million per token? How did this price fixation happened?


Why is a liter of milk worth 1$?

It doesn't matter why a liter of milk costs $1 - what matters is that it costs $1 now, it'll cost roughly $1 a year from now and in the interim, it'll still also cost $1. Predictability and consistency is a critical aspect of currency.

The actual numerical value is irrelevant.

You can't assign a fundamental value to the purchasing power of a bitcoin when treating it as a currency because there's nowhere in the world that bitcoin is used to denominate the sticker price of goods. If there was you could regress its value based on how much one bitcoin would buy you in terms of goods priced in it.

However, without that, you can only treat it as a purely speculative asset as jstolfi did. If that ever changes, our model will have to change. It has not, and IMO will not, even with El Salvador because its wildly fluctuating notional value determined predominantly by global speculators precludes it from being used to actually price things in a meaningful and consistent way.

[edit] Either way, the title of the write-up was 'Bitcoin as an investment' - currencies aren't an investment, so the analysis models it as an asset.


"what matters is that it costs $1 now, it'll cost roughly $1 a year from now and in the interim, it'll still also cost $1. Predictability and consistency is a critical aspect of currency."

And that is not the case, in general.


Your entire comment is an argument why Bitcoin is more an investment than currency. The opposite of what the paper is trying to accomplish.

All bitcoin gains came from some poor guys who bought into this hysteria later than other and are now hoping to find another poor guy who will buy at current prices. I'm not saying that they will definitely stop, it is possible that this loop will continue for a long time, but people need to remember that these "valuations" is simply a product of a hype to resell at a higher price.

So far I wouldn't talk about "poor" guys

"At any point in time — past, present, or future — the people who have ever bought bitcoins, considered as a whole, have put into the game more money than they have got back."

Are you claiming that this sentence is false?


Let's consider this in the context of another currency, say, the Euro.

"At any point in time - past, present, or future - the people who have ever bought Euros [with real currency, aka every other fiat], considered as a whole, have put into the game more money than they have got back."

Now the Euro is heavily traded in forex markets, and surely the price fluctuates. Is this statement true? I'd suspect yes, though there are many other factors at play. Has the value of Euro increased relative to the other currencies it trades against? If so, this is probably due to large amounts of money pouring into it as a more lucrative asset than the quote currency.

I think this question really only makes sense using another currency as a reference. So let's consider the Zimbabwe dollar during its period of hyperinflation (2007-2009). In this case, citizens of Zimbabwe who bought Euros very likely got back more of whatever currency they eventually converted it to than they would have if they had kept their money in Zimbabwe dollars.

But what does this even mean. There is no 'stable' currency to use as a true reference, the value of each in the global market is constantly fluctuating. 'Getting less or more money back' becomes hard to evaluate.

So let's talk about purchasing power instead. I suspect the people who have ever bought into bitcoins as a whole, have increased their purchasing power (the number of coca-cola's they can theoretically buy on any given day).


> Now the Euro is heavily traded in forex markets, and surely the price fluctuates. Is this statement true?

It is not true, because currencies aren't assets. Currencies are a medium of exchange. Their job is to hold value for only as long as it takes you use them to buy necessities or invest them in assets. That's it. Any longer is a non-goal. Goals include low transaction costs, high transaction speed, fungibility, stability and predictability.

As for the FOREX market, that's a highly leveraged speculative trade on the relative purchasing power of a pair of currencies. That's not an investment and it's certainly not an asset.

With that in mind FOREX is widely regarded as a zero-sum market in the same way options and futures are. Money from the winners goes to pay off the losers.

> In this case, citizens of Zimbabwe who bought Euros very likely got back more of whatever currency they eventually converted it to than they would have if they had kept their money in Zimbabwe dollars.

This would have been a zero sum trade, not negative sum. Zero sum doesn't mean reversible or that there aren't winners and losers, just that considered as a whole, between all participants, no money left the system and no money entered - what was there was simply redistributed.


I think you're missing the point I'm making, which is that bitcoin is also (legally now, at least in El Salvador) a medium of exchange

Ok, it has the title, but its an awful medium of exchange by any objective measures. Giving it the title doesn't suddenly make it fit for purpose. To borrow a turn of phrase, if my Grandmother had wheels she would have been a bike. [1]

Bitcoin being negative sum has nothing to do with its title and everything to do with its intrinsic characteristics. I believe a study showed its PoW model extracts as much welfare from the system as a ~55% rate of inflation.

[1] https://www.youtube.com/watch?v=A-RfHC91Ewc


I agree about all of the above; it's not a great currency, and it's certainly more volatile than most global currencies, but it is a currency. The idea of nations recognizing bitcoin or something like it as national currency (instead of their own or another country's currency) is monumental.

Personally I'm hoping the shift comes soon for proof of stake currencies with low transaction fees.


That’s true. And it’s also true for any stock that doesn’t pay dividends as well. Should people not invest in those stocks? Or should we ban non-dividend stocks for being Ponzi schemes?

At least stocks/companies have a balance sheet with real assets. Even if the whole company shut down (and wasn’t bankrupt) investors would still get at least some of their money back after liquidation.

That's not accurate.

Dividends are just one of the many ways that companies accrue value. Companies use revenues to invest in the business, to repurchase shares and also to issue dividends. This net welfare accretion must be considered in its totality.

Just because a company doesn't issue dividends doesn't make it a Ponzi scheme, and it doesn't make it a zero sum investment (like precious metals) or an negative sum investment (like PoW coins and to a lesser extent, most (all?) other coins).

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine”


I believe that the missing point there is the expectation that those stocks will _eventually_ pay dividends.

I don't think (in my lifetime) I've heard anyone discuss buying or selling a stock in the context of a Dividend Discount Model.

This observation isn't really in support of Bitcoin, it's more of a depressing thought that our stock markets are closer to a Keynesian beauty contest. (GME, AMC, etc).

I don't personally own stocks or real estate for cash flow purposes. I own them with the expectation that I can sell them for more money down the line.


> I've heard anyone discuss buying or selling a stock in the context of a Dividend Discount Model.

Pension funds.


This is compatible with Bitcoin being a store of value. If velocity stays low, the price will continue to go up.

is it not? only tiny fraction of bitcoin's lifetime -- two months out of 12 years -- has it been at higher levels than today.

If only we could predict the future!



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