As an outside observer, who has no crypto holdings at all, but is very deeply invested in the public stock market with a heavy weight on technology stocks... this doesn't look like a crash to me at all. It just looks like some steam being let off and old investors cash out and new investors get more comfortable with how much and where to invest.
I consider crypto currency as it is to be an elaborate Ponzi scheme (personal view), but even with that cynicism nothing about this dip looks unhealthy to me. (I have views on what ultimately happens, but I will hold back on that)
Bitcoin & Ether are both down -40% from a week to a month ago. Both of those are, in theory, large enough that investors "letting off some steam" shouldn't move them that much.
If $SPY dropped 40% we'd all call it a crash. This isn't that different.
Also unlike the stock market, crypto is under the delusion of being a viable currency. If USD or Euro dropped even 20% we'd start questioning if it's a recession, much less 40%.
SPY is up 50% since 2019 (pre covid crash). As someone partially invested in index ETFs, this worries me. Index funds aren't supposed to be nitro, they are supposed to be slow and plodding, and 10% annual is supposed to be huge. I think major indices should be nice, slow, inertial gains from ~6-7% annual, tops. Why? When at any point as an engineer or a scientist have you observed large exponential growth to be sustainable in any context???
EDIT: Ooops It is ~50% (258 in Jan 2019 * 1.50 = 380)
> When at any point as an engineer or a scientist have you observed large exponential growth to be sustainable in any context???
what on _earth_ do you think 6-7% a year is? that's exponential growth.
> SPY is up 50% since 2019 (pre covid crash). [...] Index funds aren't supposed to be nitro, they are supposed to be slow and plodding, and 10% annual is supposed to be huge. I think major indices should be nice, slow, inertial gains from ~6-7% annual, tops.
you've confused long-term averages with short term behavior.
the market gets its 6-10% annual by going up a lot when it does, to make up for the years where it goes down, or just moves sideways.
Human population growths, mosquito populations growths. Sustainable for a certain amount of time. You need to time bound your question. Nothing is sustainability on an endless time scales - the stars burn out and collapse on themselves.
Considering how much the money supply was increased, and the pending inflationary effects, the 50% up creates a "looks good on paper" sentiment the Fed is eyeing for to keep the economy moving: people spending money, taking on debt, etc. But the real increase (adjusted for inflation) will be less impressive. The on-paper increases pop sentiments, though, which is exactly what's needed in a potential economic crisis spawned by a pandemic.
Wait, what? I don't see SPY below 250 for all of 2019. A 100% gain would be 500, but it's 406 now. (Its 2020 nadir was ~228, but it's still not up 100% from that.)
10% annual is not huge at all, it would actually be on the lower end of a year that had positive gains. 10% average is what you should expect for the SP500 - and that tends to be driven by lumps, years with returns >20%.
50% is high from a historical perspective but there are plausible explanations for why it's not absurd.
I remember 7% being the historic average that all the classic investing books said. I think it's after adjusting for inflation and dividends. How are you calculating 10%?
By my understanding, 7% is average for any given year. Average for a year with positive gains would have to be quite a bit more to balance out even the occasional negative year.
There are nitro versions of all the index funds but you usually have to buy them separately, and they come with their own fat stack of disclosures haha.
> Cryptocurrency market is extremely volatile. This isn't that far from normal.
If that's true then cryptocurrency is pretty much worthless to use as currency. A desired property of currency is to not have wild fluctuations in value on a weekly or monthly bases.
I don't think of it as currency but as an asset, like gold. I refer to it as digital gold. Assets are not ideal for currency because overall they inflate in value (deflation), which discourages spend. Currency is designed to deflate in value (inflation), albeit at a controlled rate, to encourage spend. That's why you don't want to keep an excess of money in the bank - you want to move that money which deflates in value to assets which inflate in value - you want to buy gold, stocks, real estate, digital gold (cryptocurrency) and stuff like that.
The confusion of treating an asset such as bitcoin as currency is it's fluidity - which is just a measure of how easy it is to convert currency into an asset and an asset into currency. Stocks, for example, have an extremely high fluidity, which also contributes somewhat to their variability. Real estate on the other hand has a very low fluidity (historically speaking anyway, today's market notwithstanding). No one thinks of purchasing goods and services with stocks, nor should you think of purchasing goods and services with bitcoin.
Viewed in that light bitcoin is actually something that's quite familiar: gold. It's digital gold. Now is it good to invest in such an asset? That's another question we can tackle on another day!
> cryptocurrency is pretty much worthless to use as currency.
I agree. I used to think that this would decrease its value, but that hasn’t happened.
There are crypto pegged to specific currencies, like USD, but the transaction fees are so high that it’s still not useful to use as currency unless I have lots of really high transaction values.
I don’t have crypto holdings but, for example, since Tether is traded on ethereum there’s a $21[0] fee for any transaction.
This may be worse than the fluctuation problem since a $21 fee on any purchases wouldn’t work for me. Comparing the fees on using a check or cash, this sucks.
I suppose this gets competitive with visa/MC, if I assume a 3% fee, around $700.
Currency is a broad term, like service. Like many broad terms, it is often misused and that leads to the broader meaning. Currency can be used for different things. In one meaning, currency is a tradable and stable store of value. This used to mean it was backed by some recognized valuable commodity, such as gold, but that is no longer the case. In another meaning, currency is a thing that is traded and has an expectation of growing value over time. The more proper term for that is an investment property. Bitcoin is not (yet) the first type of currency, it is the second type.
It's an investment. Detractors cite electricity usage, but overall it uses much less electricity than the traditional banking system. Also, the value of the second type of currency is only the value that people believe it has in their transactions, which is no different than the US Dollar. Since we went off the gold standard, the US dollar only has the value we believe it has. Part of that belief is that the US Dollar is rightly a bit more stable because it is artificially manipulated by the FED to control inflation.
> Detractors cite electricity usage, but overall it uses much less electricity than the traditional banking system
The traditional banking handles thousands of transfer per seconds, and many many many more assets and assets types than bitcoin. All things that bitcoin is not able - nor designed to - handle.
It's like saying that F1 engine are consuming less gas than trucks. It's only valid if you only look at it from a very specific angle. Sure, in total trucks are consuming more than F1, but both in consumption per km and in versatility, trucks win. F1 engines are not ready - nor designed to - be a suitable replacement for trucks engines.
Bitcoin and cryptos consume order of magnitude more electricity than the traditional banking system if you put them in equal terms. It's only logical since one is supposed to work in zero-trust environments while the other doesn't.
>Currency is a broad term, like service. Like many broad terms, it is often misused and that leads to the broader meaning. Currency can be used for different things.
No? A currency is a medium of exchange for goods and services.
The secondary meaning that you're attempting to allocate to "currency" is already amply described by the word "asset".
The two are not the same, and assets are not meaningfully regarded as proto-currencies in the way you suggest.
If used as such, yes they are. In other cultures things such as beads, neck rings, shells have all been used as currency. In modern times diamonds are used as currency, and in some illicit circles so are paintings or other artwork.
Paintings aren’t used as currency, they are used as assets or stores of value.
Similarly, diamonds are pretty rarely used to actually transact and are rather just asset stores. It goes cash->diamond->cash; not cash->diamond->something else.
Anything can be traded or bartered that doesn’t make it currency. Some cultures used beads and shells and stuff but don’t any more. That doesn’t make beads currency.
Cryptocurrency is a misnomer. Most cryptos aren't trying to be currencies in the traditional sense. For example, RAI is a stablecoin on Ethereum that's not pegged to any fiat currencies. You can think of RAI as a stable form of ETH.
It means that ETH which is a decentralized cryptocurrency can be used as a collateral for an algorithmic stablecoin called RAI that adjusts its price based on the price of ETH from a Uniswap price feed and a PID controller and arbitrage. To mint RAI you need to deposit ETH. The goal of RAI is to create a stablecoin which dampens the price movements of ETH over long periods of time.
On the contrary, decentralized stablecoins are some of the most exciting things in the space. The MakerDAO system, which issues the DAI stablecoin, is earning 2.5 million every year, distributed to token holders. It has survived multiple market crashes. Algorithmic stablecoins attempt the same thing w/o collateral, and seem to have done well in this drawdown as well.
Why not? Its a new asset, what is wrong with improvement? I mean using that logic does it also disturb you that somebody invented the seat belt? Would you prefer they didnt invent seat belts? Would that have been more reassuring of the relative safety of the vehicle if they never admitted that you could die in a car crash? The point of stable coins is really only apparent if you're trading crypto just like the importance of seat belts might make more sense to somebody that drives daily.
The irony here of course is that the only way that Crypto currencies would meet any standard definition of an asset would be if they were functioning currencies.
Going with Investopedia's straightforward definition "An asset is a resource with economic value", how is a non-currency crypto coin in any way a resource or possess economic value?
Presumably your complaint is that cryptocurrencies don't have "economic value", but what theory of value are you using to decide that?
Exchange theory of value says that a commodity has two values: a use value (what it can do for you outside of the market) and an exchange value (what others will give you for it in the market).
I think it'd be correct to say that cryptocurrency has no use value, but it obviously does have economic value. And it's far from the only asset with these characteristics.
If someone is willing to pay me interest to use my belongings to generate loans, then those belongings have a value. If you think that banking has value, then banks who use the blockchain ecosystem to provide banking services are generating value, correct? The question I would then ask, on the spectrum of risk, value generated, and trust, do these blockchain based financial institutions offer a complementary or competing product vs traditional banking. As of thus year, I would say yeah. I am close to converting a chunk of savings to stable coin abd putting it with a insurance backed blockchain financial institution, and am looking to ear a much higher apy than a traditional bank.
Simple. Gold is an asset that is not used as currency but provides the holder with certain desired benefits and the asset can be liquidated if needed. Crypto is similar in that it prodives a financial vehicle that posesses certain properties. Im not saying they should all be thought of as digital gold but that lile gold, they provide value not only in thier price tag but in some inherent property that provides value to the user (this property varies wildly from crypto to crypto and is what makes each project distinct and unique.
Simple. Bitcoin is an asset that is not used as currency but provides the holder with certain desired benefits and the asset can be liquidated if needed. Skepticoin is similar in that it provides a financial vehicle that possesses certain properties. I'm not saying it should be thought of as digital bitcoin but that it's like bitcoin, it provides value not only in its price tag but in some inherent property that provides value to the user.
Yeah, because websites won't adjust the price in crypto for goods and services if its price relative to dollars drops.
I'm long on crypto myself, but come on. This crash still affects the prices of goods and services, unless all you're buying is other crypto and nothing else. We are nowhere near the point where shops don't assume they have to check the bitcoin/usd cost every few minutes to adjust their pricing.
Buy bitcoin at $1 on Jan 1, sell at $10 on dec 31. I now owe taxes on $9 in gains, so I’ll need USD$3 on April 15. If on Jan 2, I buy more Bitcoin at $10 and it drops to $6 on April 15 that will suck because then I’ll need to sell half my Bitcoin to pay taxes.
In terms of risk-adjusted returns, Bitcoin worse than index funds. You can get smoother returns using 3x ETFs like TQQQ and TECL compared to bitcoin and about the same absolute returns. Nasdaq 100 has much better sharpe ratio compared to bitcoin. Same for FAAMG portfolio
When I google "Bitcoin Sharpe ratio," every article that comes up shows its ratio to be quite high.
Here's a chart comparing various assets' Sharpe ratios over time, always for the previous four years. Bitcoin's is at top of the chart, staying over 2 and sometimes over 3: http://charts.woobull.com/bitcoin-risk-adjusted-return/
In terms of absolute returns, TQQQ has done well but not so well as Bitcoin. Since 2016 TQQQ has done 12X, compared to Bitcoin's 85X. Since April 2013 (as far back as Coingecko goes) TQQQ has gone up 37X, compared to a Bitcoin's 272X.
As a bonus, Bitcoin has a long-term correlation with the S&P500 of only 0.01, according to the Forbes article linked above.
If you're holding as long as most people do index funds (i.e. 5-10+ years), historically you would have been way better off putting that money into bitcoin. Even taking this crash into account, I'm way up on crypto compared to my 401k. Not going to stop putting money into my 401k though, for the sake of diversification.
It doesn't seem like anyone believes cryptos are supposed to be currencies any more. All the talk around them is around them being a new, exciting, and potentially very lucrative investment class. If you go to Coinbase's front page, you see that you can buy and sell them, like you can with Robinhood. It's not trying to be a PayPal. The currency-ness does serve an important purpose. It helps bring in investment for the nebulous future where using them as currencies will have advantages.
Not all crypto assets are crypto currencies. Many DeFi tokens (ex. UNI, SUSHI, AAVE) govern projects with real cash flows and are poised to become more like equities on the blockchain
I use Bitcoin as payment for products and services all the time. I dont talk about it though, why would I? It is boring. I dont talk about how I use paypal or bank accounts to pay for stuff either.
There are certain segments eg. travel where bitcoin/crypto has worked well for years.
When I talk with friends about BTC, it is about price because that is the interesting part. The fact that I used it to pay for something is just not interesting.
Well.. yes and no. A lot of people unfortunately never really understood the real concept of a cryptocurrency as a payment mechanism and instead believe they are for getting rich quick.
That's the business Coinbase is in.
Now, if you are using cryptocurrency for payments you don't need Coinbase.
PayPal, since you mention it, knows that cryptocurrency is going to make it's business model obsolete as soon as it is widely deployed. That is why they pretend to allow you to keep and use Bitcoin on their platform.
It used to be that enthusiasts could claim "currency of the future", but a lot of time has passed and that future simply hasn't come. In fact, Bitcoin's top utility is already far behind us.
Dropping "currency of the future" does come with the challenge of coming up with a new supposed benefit, which is where "store of value" comes in. Problem is: there is no inherent value in bitcoin.
Yeah it's a value store. The only way it's not is if a nation state creates it and ties it to their currency. It's going to continue to go up and down forever.
> USDC, DAI, USDT are all used more than ever, orders of magnitude more
Even these cryptos aren't being used as currencies per se. They're popular, sure, but they're popular because A) they allow traders to move funds between crypto 'investments' without converting to fiat (i.e. without triggering cap gains), and B) They allow investors to "avoid market volatility" (but in a manner far riskier than fiat, given that even DAI or USDT could go to zero tomorrow).
...but they're still not currencies. Nobody is buying a hamburger with DAI.
If the trader is being honest, converting cryptocurrencies to stablecoins is a taxable event triggering capital gains. The IRS considers any exchange of one cryptocurrency for another to be a sale of a capital asset and purchase of another.
Yes. They are assets and you must pay tax every time you swap them or even use them to make a purchase. It's like making a purchase with Apple stock or swapping Apple stock for Google stock. Pay tax.
Typically they use account information from the exchanges and follow that onchain
But they generally rely on individuals to report accurately. Obviously wage-earners arent used to that as their employers withhold money for taxes and report to the IRS so this crowd may find this new found freedom to be foreign and a chance to “get away with” something, but everyone else has lived in a world where they report their taxes voluntarily and accurately
IRS considers cryptocurrency as property, and exchanging one for another is a taxable event.
See "Q16. Will I recognize a gain or loss if I exchange my virtual currency for other property?" [1]:
A16. Yes. If you exchange virtual currency held as a capital asset for other property, including for goods or for another virtual currency, you will recognize a capital gain or loss. For more information on capital gains and capital losses, see Publication 544, Sales and Other Dispositions of Assets.
I think that’s more a function of Puerto Rico not having federal taxes than anything about crypto (ie, no capital gains or income tax on anything, including crypto).
Like-kind exchange doesn't apply to cryptocurrencies. Exchanging BTC for a stablecoin does trigger capital gains as does selling a stablecoin for fiat. In the BTC-USDC scenario it is a little trickier to calculate the basis in USD but capital gains taxes still apply.
Yes, if you record the USD value of both sides at the time of trade. If you only record the execution price of your BTC/USDT trade you will need to later find the price of BTC/USD and USDT/USD at the time of execution.
Trickier in the sense that it requires more attention than simply recording the execution price and fees of a BTC/USD trade.
Most charting and accounting services do this for any time period if you need to look it up, or do it automatically
Only more annoying when you have to use an AMM’s info site and the chart isnt very granular or go back far enough. Pancakeswap’s info site doesnt even work.
So yes best to keep track at that exact time of trade
I’ve paid many people with stablecoins, even make in-kind investments (not like-kind)
You dont have a way of quantify if people are tax cheats (as what you described does not prevent capital gains liability), stores of value, or buying hamburgers
USDT is a concern, because it probably can't survive a big net outflow.
Right now, dumping Bitcoin and buying, say, yuan is something a hedge fund might do. Or may have been doing over the last few weeks.
What happens when some trader cashes out a few billion dollars in USDT to buy yuan? Coinbase has to wire transfer out that cash.
> People dont have to talk about them as currencies because they just work
Well that's not really true, it was headline news when Tesla started accepting crypto payments (and then headline news when they stopped).
Stores accepting crypto still makes the news, it's not common and not something that "just works." But what you can do is at least semi-reliably convert between crypto & things that stores do accept using the various conversions you listed. But you still do have to convert from crypto to a traditional currency to use it as a currency.
There have been debit cards loaded with crypto for almost a decade now
Your fictional higher standard of currency would say that the euro is not a currency because my transferwise debit card converts it to dollars when I spend in the US
The peer to peer payment mechanism works and all crypto assets inherit that
Yep, used USDC just last night to buy a new computer, just before this big crash happened, thankfully (since I converted some crypto to do it). Actually using that for its intended purpose.
That's like saying I payed for my new house with stocks. Which is not the same thing as stocks being a currency. What actually happened is that you liquidated some crypto and used the proceeds to buy your new computer. You even say that directly in your parenthetical. (since I converted some crypto to do it)
I converted from one form of cryptocurrency to another cryptocurrency (USDC is USDCoin, a Stablecoin).
I was paying on NewEgg using their BitPay method, which supports payment with only the following cryptocurrencies: Bitcoin, Bitcoin Cash, Ethereum, Wrapped Bitcoin, Dogecoin, and 5 stablecoins (GUSD, USDC, PAX, DAI, and BUSD).
I have Bitcoin and could have paid directly with that, but I wanted to keep holding it and pay with Litecoin. So I converted that to USDC (for free, but I will have to pay taxes on the gains next year since every conversion or purchase is a taxable event in crypto in the US), and then sent that to Bitpay.
So yes, I still maintain I used USDC for its intended purpose.
I did, however, do what you said and liquidated some Ethereum to fiat several years ago (right at the previous bull run's top, by happenstance, got super lucky then) to pay for the downpayment on my home. I would have paid with it directly if I could but there was just no mechanism for it, at least not back then.
No didn't you read all the other comments, that didn't happen because nobody uses them as currencies, or it didnt happen because either the payment processor, merchant, or their daycare provider eventually converted to the state’s local fiat currency so your experience is invalid /s
> If $SPY dropped 40% we'd all call it a crash. This isn't that different.
Hmm, yes it is different. Cryptocurrencies are very-very volatile. In the last weeks, it wasn't uncommon to have 25% change in either direction within 24 hours for most top currencies. Stocks are less volatile.
With that said, the current nose-dive isn't over yet, so I'm not saying there won't be a crash, I'm just saying that comparing stocks and cryptos sounds to me like comparing apples to oranges.
SPY is highly diversified though. The crypto market is known to move in tandem w/ BTC swings.
A 40% swing may seem large compared to SPY's usual 1-2% swings, but consider that other crypto coins frequently swing by 10-50%. For example, MATIC was up some 47% just yesterday. The reality is that crypto is highly volatile; it doesn't make sense to compare its volatility to ETFs or REITs or other conservative vehicles.
Some analysts were even expecting a correction, saying that a BTC drop to 30k would still be within expectations...
Which effectively make the total amount of live tokens (the rough equivalent of share count or money supply in stocks or currencies) more deflatory than useful for any application outside of pyramid games. All projections of market cap that include the dead tokens are even more worthless than other market cap projections.
Problem is: there's no way to tell the dead from the merely sleeping. The bigger the share of dark addresses, the bigger the impact of some "old god" dark address lighting up again. And the longer a "darkening deflation" goes on, the higher the impact of some old darknes wake-up would be.
PS: makes me wonder if we might eventually see something like "tokens not transferred since ${some generous date horizon} will get blacklisted starting ${some era switch date reasonably far into the near future for living address to create a lifesign transcribe}" merged into mainline. Or even "get reissued to miners". If that ever happened it would be at a time when total supply uncertainty would already noticeably influence price (basically: if you use it as a value store you need to hedge against possible old god address revival), and most buying/selling during the runup would be bets about the amount of dark addresses lighting up in time.
PPS: obviously I have no idea about governance of the code, but I do acknowledge that very few changes have ever been accepted (as evidenced by the high number of long running forks). I wouldn't expect any of this to happen before the known alive amount of tokens has become a tiny fraction of the dark parts.
Undoubtedly. But my guess is that the threshold for blacklisting stale addresses would be noticeably lower than the threshold for any blacklisting based on, well, "governance".
You could even conjure up an argument based on block chain "balance of hashrate" security, which I presume is the best type of argument with that audience: "what if, after mining rewards have run out, everybody is just doing value store? No transaction fees for those selfless miners! (will they still be called miners?) One by one they will close their datacenters, difficulty goes down and suddenly the gates are wide open for 51%. Quick! Introduce mandatory keepalive ping transactions or we are doomed!"
Not that I expect this to happen, but I find these musings far more entertaining than the ups and downs of the market.
But surely most of the coins were lost when they were cheap rather than now? If that's the case most of the deflation stemming from lost coins already happened and isn't going to happen in the future, so it's not really a big issue.
Unless they were only presumed lost. Imagine someone had the power to suddenly activate whatever fraction of the contemporary USD supply their family had in 1800, proportionally scaled to the amount of USD circulating now. And in the deflatory bitcoin world, the amount of tokens in circulation might eventually end up being merely a tiny fraction of what some presumably dead addresses hold. An address like that lightning up would be as if the Fed suddenly announced that they just issued a multitude of the USD previously in circulation. Not to banks, as credit, but to some guy (unnamed). "Nice currency you have there, world economy, I have the other half of it. Let's be friends shall we?"
Of course these are more hypothetical end game states than immediate threats (I think, I have no idea what fraction could currently be considered dark), but we can't just ignore theoreticals like that.
Would they even be able to cash out though? Even a small transfer from a presumed-dead wallet can trigger a massive market crash in your scenario. Now if they just want to watch the world burn, that’s another matter.
It's a substantially-manipulated negative-sum distributed Ponzi scheme. The most blatant example of a naked emperor I've seen in my lifetime. And it consumes the energy of Argentina to achieve as much work as a Raspberry Pi.
OK, but who/what will the top holders of BTC exit to? In what scenario will the price go to zero?
"Bans" are not going to do it. It was designed toward censorship resistance. That moves it to an underground, at best.
The top holders are not going to dump it - they've committed book value assets; mining companies, exchanges - they aren't going to exit.
For their continued existence to make sense they want more things to be traded in crypto, so they invent stuff like "NFT" and "DeFi". Half of it is crap, but I have been around long enough to remember when Wall Street was bullish on "3D Television". Investors always want angles to make their current holdings more valuable, and as of this moment there are far too many crypto projects to be aware of them all. The re-investment rate is huge. Far different from when a penny pumper puts out the "good news" that they have put their logo on a race car and have t-shirts available.
So as I see it, it's either not a Ponzi or everything is.
Would you please not cross into personal attack? The GP comment wasn't good, either, because it's much too generic and repetitive. Discerning readers are weary of this repetition, which is getting shallower and nastier as it continues.
Nonetheless, what you posted was considerably worse. Please don't take threads in degenerate directions.
Classic coiner arguments. "Have fun staying poor!"
For the record I:
(1) Bought during the 2017 run-up, and sold around $17,000 in early 2018, and parlayed that into various other investments that have done quite well. I've posted to that effect here in the past.
(2) Shorted CME futures at $56,000, and a bunch of Coinbase and a bunch of Tesla. That's roughly $100,000 USD per contract in profit - deposited directly into my SIPC insured FINRA regulated account with zero counter-party risk, 60% long term capital gains. Not bad for two weeks work.
You worry about your account, leave mine to me :) I'm talking about crypto on its merits, not its price. The merits of course inform my investment decisions.
There are tons of ways to make money on this planet, HODLing crypto is just one among them. I was addressing the question directly: why do I hate bitcoin? Asked, and answered.
But to supplement: the thing I hate most about crypto are the touts and the community.
This is different to hating tiltok though. Ponzi schemes actually hurt real people when they collapse. I think it’s reason able to think that pointing out the emperor’s lack of clothes is public spirited.
Honestly 'its a Ponzi' has been debated a million times, it isn't, except in a really loose description into which any currency or asset could fall. They all rely on someone else wanting to pay more for an asset that you did. That's it.
It's a negative sum speculative vehicle. For every $1 that goes in exactly $1 can come out - minus miner fees. Any gains in welfare are illusory.
Options, futures and commodities are zero-sum, because gains for one party are distributed directly from the other party's losses.
Stocks are positive sum because companies have earnings, revenues and profits. They use this income to grow the business, pay dividends or re-purpose shares. It's absolutely the case that you can get more than $1 out for each $1 put into share ownership.
making the world a better place = deny billions access to any financial lifeline they may have.
Those silly Zimbabweans, Venezuelans and Turks, why are they losing their life savings?
Can't they just do smart things like you, and login to an SIPC insured account to short Bitcoin right at the top without any counter-party risk, while their financial advisors manage the rest of their portfolios? Duh.
It finally makes sense, you are from the "let them eat cake" camp.
In those countries a single BTC transaction fee can be a month's wage. Venezuelans know this - they moved 66% of domestic transactions to USD, not crypto. [1] And of course they did, it's strictly a better currency. In every meaningful way.
I'm from the "don't tell them it's cake when it's a sawdust to pump your bags" camp.
Pretty much any low volatility/world ETF or streak based ETFs (paying out an increasing dividend). If you trust nobody except yourself then get gold.
>And bonds/cash will soon be completely worthless by the time the gov and feds of the world are done with them
Actually, the worst thing that could happen to the US economy is that the USD goes up in value.
>There’s a desperate need for a store of value, now more than ever (gov of the world are abandoning their obligation of providing a stable fiat)
Why would anyone want to buy a "store of value" that is extremely volatile? You put in $1000 and you aren't unlikely to get $1000 back out, either you make a big loss or big gain. People love shouting that assets going up is inflation but when they go down nobody thinks "hyperdeflation".
>Do you see any better solution than crypto?
Even gold is better at the "store of value" meme than Bitcoin. People buy Bitcoin because it goes up, that's all there is to it.
Personally, volatility aside, I don't invest in non-productive assets (be it gold, or other precious metals).
I have a risk appetite so I keep my IRA in this [1]. Then, for taxed investments, I have a core portfolio of the stock from companies I've worked at, against which I sell covered calls. I sell futures options for passive income (not all the time, I'm sitting this move out, for instance). I carved out a chunk for my financial advisor to manage more conservatively.
Honestly, if SPY returned to 368, a 13% draw-down from the near-term peak, the financial press would lose their damn minds. That's half way between correction and bear market territory.
Regular stock markets have circuit breakers in place and don't even operate 24/7. There are plenty of things that slow down price movement there. If they didn't have circuit breakers and did operate 24/7, I'd imagine we would have seen far greater record price movements over history, maybe even as bad as the absolute worst crypto swings.
Is this a condemnation of crypto markets then? Because you put most of that stuff in place, you probably lose the 'value' of crypto (anonymity, lack of central governance etc).
The comparison to SPY is unfair since it’s so diversified. A comparison to a correlated sector of stocks — like EV stocks, which can dip 10-25% in a week in unison — would be more fair.
While we do call them crypto currencies I don’t think crypto market is really comparable to the currency market. Maybe more like a precious metals etf or something.
Thank you for the disinterested take! It's refreshing to see this as a top comment when so often I see "Crypto makes me sick" which offers zero information and doesn't belong on HN.
A few points to the repetitive comments I keep seeing:
1. Bitcoin is not a Ponzi scheme. Various cryptocurrencies operate in such a manner, but Bitcoin and Ethereum have value propositions: settlement and programmable money respectively. Crucially, these projects are still in a growth phase. More projects are being built on Bitcoin (e.g. Avanti Bank) and Ethereum (e.g. Uniswap) and more institutions like Tesla, MassMutual, and Square have a position in it. Banking institutions are working on supporting Bitcoin.
2. Bitcoin pricing is on a log scale. Dropping to $36k from $50k is not a concern on this scale. If it drops below $10k, there might be some nervousness but Bitcoin's fluctuations have almost never deviated significantly in its 11 year history.
3. Bitcoin is not a currency. How do we know? You can't price the components of a Big Mac in Bitcoin. Again, it is in a growth phase which is what people like Taleb don't understand. When you can price a Big Mac in Bitcoin then maybe it is in some form a currency (not directly, but perhaps indirectly using Lightning or another L2).
4. A lot of smart people are invested in crypto: a16z, USV, Paradigm. These aren't greedy VCs -- it's their job to make returns for institutional investors who are often pension funds or charitable endowments, so if it a "Ponzi" then they are fools. I do not understand how every time cryptocurrency comes up armchair HN users come along and comment when they, very apparently, have almost no understanding of the topic. It's like coming in and starting to discuss how L1 cache works when you aren't a computer engineer or don't have an active day-to-day interest in the matter. Why waste people's time with your vacuous comments? It's like some kind of therapy. "Crypto sucks!" Reinforcing feel-good Circle-upvote is all it is.
> I do not understand how every time cryptocurrency comes up armchair HN users come along and comment when they, very apparently, have almost no understanding of the topic
This in itself is a meme - "All criticism is ignorance!"
Bitcoin is not a ponzi or a pyramid scheme, that's true, but it has aspects of both, with its declining emission and stacked rewards for early adopters.
And Bitcoin is for settlement now is it?
That's interesting, and a massive deviation from its original intent (see the white paper) as well as all the other purposes it's been ascribed over the years.
The truth is that bitcoin is an instrument of speculation. Little else.
> The Nakamoto Scheme is an automated hybrid of a Ponzi scheme and a pyramid scheme which has, from the perspective of operating a criminal enterprise, the strengths of both and (currently) the weaknesses of neither.
I think poker or another form of gambling is a good analogy. In my opinion, the article tries to construct a pretty strained analogy by listing all the myriad ways Bitcoin isn't like a Ponzi scheme or a pyramid scheme - which is what makes it so ingenious as a Ponzi-pyramid-scheme!, apparently.
It clearly does share aspects of Ponzis and pyramids, but, unfortunately, so do plenty of other things, like many companies' stocks. That doesn't necessarily make those companies fraud-schemers, though. That's just what speculation is. You can try to frame all speculation as a pyramid scheme, but I think it's a stretch. I personally dislike gambling and speculation (and finance in general), but there's still a distinction between speculation and scamming.
That said, of course in addition to this, lots of other cryptocurrencies/tokens are full-on fraud schemes. If you count all tokens (which anyone can make and sell in like an hour - many are being created daily), then > 99% of it probably is. In my opinion, all these scam tokens are very similar to malware. (And often are also literal malware, because many scam tokens are implemented as malicious/backdoored smart contracts.)
There are absurd amounts of malware variants created daily. It's easy for a single person to create dozens of malware variants or dozens of scam tokens in a day. If you're going by number of distinct software hashes, it could very well be that > 99% of all software is malware.
I certainly get why people are a tiny bit wary of an ecosystem that's > 99% fraudulent in terms of percentage of distinct assets. > 99% of activity on Tor is also likely illegal or malicious in some way. (There are some studies indicating this.) That doesn't mean I want a government to ban cryptocurrencies or ban Tor, and have police "raid Bitcoin meetups", as this author suggests in the article. Tor, Bitcoin, and especially some other cryptocurrencies have interesting technology to offer. I'd rather there be an attempt to address the externalities in a less crude way than just a blanket ban that makes the technology illegal.
> The truth is that bitcoin is an instrument of speculation. Little else.
I actually agree. Bitcoin has failed. It's useless as a coin. New coins have been created to address its shortcomings. Monero seems to be the closest one to the original cryptocurrency dream of decentralized and private currency. Despite this, bitcoin is still king and there seems to be no way to dethrone it.
Bitcoin “dies” like bubbles do, after a peak it can’t recover from people stop thinking of it as an investment.
Tulip mania didn’t kill off Tulip farming, and even a 99.9% crash won’t kill Bitcoin. It simply returned things to the fundamental value proposition amid significant competition. In theory Bitcoin could win in a direct head to head competition, though it seems unlikely that the first coin got everything correct and was never improved upon.
> This in itself is a meme - "All criticism is ignorance!"
No, as I pointed out to the OP I was appreciative of his reasoned criticism because for years the top comments say things like, "Bitcoin is a ponzi; bitcoin is used only for illegal activity; Bitcoin failed." All wrong, and the only way I learned those were wrong was by understanding it and learning from smart people who are involved in the industry.
> The truth is that bitcoin is an instrument of speculation.
Public companies have no business speculating except for R&D. By claiming it is an "instrument of speculation" you are claiming they are not living up to their fiduciary duties? And what sort of speculation has gone on for 11 years?
> And Bitcoin is for settlement now is it?
Yep. That's where it is currently headed. Could change, never know (edit: what I mean here is Bitcoin devs/miners could change/adopt the software so it works more like a currency). Brian Chesky, CEO of AirBnB, insisted breakfast be served at all AirBnBs. He was wrong. Didn't matter. Some original Bitcoin adopters, particularly Hal Finney, noted early on that Bitcoin could end up being more of a store of value than currency. Even if buying a coffee with Bitcoin directly doesn't make sense, the spirit of the original paper in wake of the 2008 crisis is still alive and well.
There are serious, devastating critiques of Bitcoin. There are no serious rebuttals to those critiques, but plenty of people "involved in the industry" are making a lot of money from BTC, so it's no surprise they've convinced themselves it's fine. I guess they suckered you in too.
This has to be one of the funniest financial things I've heard. "Uhhh, you know when your account dropped 50%? Actually that is only like 10% if you pretend it's a log scale."
Unfortunately for them, USD is not on a log scale and they'll be disappointed to discover that when they try to cash out.
You just decided that "Bitcoin pricing is on a log scale"? Because it sounds cool to talk about logarithms? What does cost averaging have to do with it?
The poster you replied to is confused, I think they’re saying they chart Bitcoin with a logarithmic scale, which as we both know has nothing to do with how Bitcoin is priced, only how the price action is displayed on a chart.
It means people don't care if it is a store of value because they don't care if their savings are locked up until the next bubble, they can afford to wait because they have savings somewhere else.
I suppose another logarithmic scale would work here as well: Richter scale; scaled so these "corrections" are in the middle of the scale. Then we could about a "magnitude 5 on the bitcoin Richter scale" correction, etc.
2. I literally don't know what this means. If it drops below 10, and you bought at 50k, you have an 80% loss. This might indeed induce "some nervousness".
3. Bitcoin is, per the title of the whitepaper,
"A Peer-to-Peer Electronic Cash System". You don't have to read very far into the whitepaper to understand that being a currency is 100% the stated objective. As you pointed out: it has failed miserably at that.
4. No... if this is a "Ponzi", then _on average_ there are more fools than smart people. Smart (or lucky) people are in fact a requirement of a successful Ponzi scheme... where else would the money go?
> A lot of smart people are invested in crypto: a16z, USV, Paradigm. These aren't greedy VCs -- it's their job to make returns for institutional investors who are often pension funds or charitable endowments, so if it a "Ponzi" then they are fools.
(I wanted to say back in 1999) - a lot of smart people are invested in dot-com startups: Kleiner Perkins, Sequoia, Hummer Winblad. These aren't greedy VCs -- it's their job to make returns for institutional investors who are often pension funds or charitable endowments, so if it a "Ponzi" then they are fools. I'm sure Hummer Winblad's investment in Pets.com will work out great.
The vibe is the same: I worked at dotcom pre-crash and the owner used to give noob internet investors (like the "Small Plane Pilots Association" or some such) a tour of the company and say something like "Look at all those people creating value on the internet! The internet is changing the world"
There might well be ponzi schemes on top of the bitcoin infrastructure, but the technology behind bitcoin is not a ponzi scheme.
It might well be that a lot of people are crazed over it and want to buy bitcoin and push up the price, but that's because there is something here with cryptocurrency. It definitely is a new way of accounting, and it could potentially be a hedge against the fiat system.
There's a lot of IFs, but I still think it is revolutionary technology that may well revolutionise things in 5-10 or 50 years, who knows.
At the purely technical level, Bitcoin’s current transactions per minute heavily limit it’s utility. The original goal was solving micro transactions which crypto coins could do, they just need to scale to ~100 Billion transactions a day +/- orders of magnitude.
Unfortunately, miners benefit from the current artificial limitations. Which demonstrates an inherent issue with crypto currency, miners and users have very different goals yet only miners get a vote.
I'm not sure it is possible to be bullish of crypto in general. Surely at most a small number of tokens will win and the rest will drop to zero. Owning the entire ecosystem isn't diversification like investing in many companies.
Oh I absolutely agree. I think cryptos will be top heavy from a market perspective, where the top cryptos will have something like >80% of the total marketcap by the end of the decade.
Ethereum will solve both issues, removing miners and the energy use by moving to Proof of Stake at the end on this year, and increasing the transaction throughput by 100x factors with level 2 solutions.
How does PoS solves anything when people will just stake on exchanges so that it literally replicates the current financial system with central banks and permissioned cartels?
How new PoS coins will be generated and distributed? The stock has to be generated somehow right? How does this not resemble a central bank?
This is an honest question. It looks like PoS is a full circle towards the same centralized system we have today. Please correct me if I'm wrong.
I think the layer approach seems to make the most sense. Much like our current system now. The difference comes from building from a strong sound money base.
base layer tps is low because it is designed for survival in most adversarial of conditions. It is a heavy duty tank, not a sport bike.
Would you take M1 Abrams tank to race at Nurburgring? They have a different function.
Lightninig/Payment channels, backed by the same baselayer security guarantees, can operate at literally unlimited tps. The only ceiling is how fast you can send packets back and forth.
Miners do not vote, they are nothing but security guards paid by the network users. Miners do not get paid if they produce a block with rules not accepted by the rest network.
What's stopping your adversaries from seizing hardware? Nothing? So the system relies folks playing nice in the physical world?
The whole thing is a ridiculous fantasy with an asinine threat model.
If you’re servers are worth X Billion Dollars that’s attractive to the same sorts of criminals that rob banks. Hell governments have a long history of running drugs and state sanctioned piracy etc. An attractive enough target needs serious security.
Well, to be snarky, if that M1 could take out the other cars, then it wouldn't have to be the fastest to win. Only the fastest which is still capable of motion...
> I still think it is revolutionary technology that may well revolutionise things in 5-10 or 50 years, who knows.
If there's one thing I love most about the technology behind bitcoin, it is the permanent, public, unalterable ledger of every purchase I've ever made and every purchase I'll every make, and who I gave the money to. I'm super excited about the complete lack of personal financial privacy that Bitcoin's blockchain enables! /s
It's a bit more nuanced isn't it (or am I mistaken)? All you see in the ledgers is the (hopefully single use) addresses the money is sent to, plus all addresses that come after it. There's not much in the system itself that links people / organisations to addresses, right? You'll have to get that information from outside the system: you know yourself, and maybe the receiver as a person, but where it then ends up requires you to obtain knowledge that's not readily available.
Sure there's a lot stored, which does bring privacy concerns that are quite different from our current financial system, I'm not debating that, but it's not as obvious as you put it, as far as I understood it.
"We've killed people based on metadata" - Former USA CIA director. [1]
It really isn't that nuanced at all for Bitcoin. If I know your wallet I can see all of your transactions. Period. And if you want to trade money with me, you need to give me your wallet. Once I find it, thought, it is game over. [2]
There are "tumblers" that attempt to obfuscate the chain by turning one transaction into millions of little ones, but it is just a matter of tree search to reconstruct.
The problem is that it's global and irrevocable: mistakes and intentional linkages act as a ratchet increasingly deanonymizing the network over time. If it started to have real usage, you'd quickly see the equivalent of the credit card / scoring companies, Google, etc. paying merchants for transaction details and building a web of user information.
Ooof. That is a great second-order observation: agencies profiling you and making lifer harder or easier based on your blockchain history. Not like this is new, as you point out, just even more difficult to expunge: there's no "blockchain" to expunge your blockchain habits! (yet??? I think I have a new startup idea for blockchain ... /bangsheadagainstwall/)
Sadly, these days my threat model for anything new is basically “how will Google/Facebook use this for ad targeting?” — it's good for both a realistic level of risk (most of us are not targeted by the CIA/Mossad/FSB) and a sober assessment of the level of resources available to the attacker.
For blockchains in particular I think we tend underestimate the amount of information which someone with that kind of analytic capacity could derive, especially if they also have other data sources — for example, I would be quite surprised if the various anonymity schemes are less effective when evaluated as part of a full system against someone who has a lot of visibility into web activity (Google Analytics, Facebook beacons), DNS, email, etc.
There are technologies people are working on to solve that. One is called ZK-SNARKS and ethereum is working to integrate the tech. Another is Monero, which is a privacy focused crypto.
Right, I was talking about Bitcoin only. mimblewimble and zcash also both have shielded transactions. I believe they use an ECDH secret for each transaction so that only the two people involved in the transaction can decode it.
But then the argument is: why would I turn it into usable cash if everyone used it. And by the time you reach that point in the discussion, back slowly away...
the only identifiers i can think of are my height, gait, voice and clothing. Though i get your point and it does seem to be getting harder and harder to find local dealers willing to transact without seeing photo ID. I still think it can be much more private than cash-only purchases, depending on how careful you are about it
That’s not an inherent feature of decentralized ledgers; you can have protocols like Zerocash which hide the sender, receiver, amount completely, via the use of zero knowledge proofs
It's unfortunate that the space has attracted "pump & dump" opportunists. But if one is a student of technology and networks and markets, Decentralized Finance (DeFi) is fascinating. Two recent innovations to check out: Uniswap, the decentralized exchange protocol, and Bitclout, a social blockchain that just went open source last nite
If you're not aware of https://tezos.com/ then it is definitely worth to look into it. It's PoS since 2017, has smart contracts since 2018. It's a self amending protocol. A lot of improvements are already injected and a lot in the pipeline. For more information about the recent upgrade: http://doc.tzalpha.net/protocols/009_florence.html
There are undercollaterized / no collateral loans on Ethereum. You can build a credit score using decentralized identities. But yeah, keep dismissing it. You'll eventually use Ethereum or something like it whether you want to or not.
The advantage eventually will be easier ways to get funding for startups or businesses of all kinds. You need highly liquid markets in order to facilitate global finance at scale so that's where it's starting today. Rebuilding all of the financial primitives onchain. Why? Because composability of contracts onchain results in higher velocities of money; higher than whats possible in traditional finance. Imagine a world where you can list ownership of a stock and have that be immediately accessible by millions of people around the world regardless of jurisdiction 24/7 in highly liquid markets, all from a browser app. That's where this is going in my opinion.
None of this makes any sense at all. Composability of contracts leads to higher velocity of money? Where do you get this from? And why do we want higher velocity of money? The only people who care about velocity of money are macroeconomists. Velocity of money has literally zero impact on businesses and individuals.
Velocity of money follows the equation V = P*T/M Where P = price level; T = aggregate value of transactions per delta t and M = total nominal amount of currency in circulation.
With DeFi, you can increase T because the aggregate value of transaction per delta time increases thanks to composability of money. In the traditional system, locking up money means buying an asset where that value then becomes illiquid (like buying shares of a stock, or a bond). However in DeFi, that same asset can be tokenized and used as liquidity as a tokenized collateral. For example, I can tokenize a TSLA share and then use that as collateral in a contract where I can get a yield. I could also pair TSLA with a stablecoin as a liquidity position (1:1 TSLA/USD) and tokenize the liquidity position which can then be used in other contracts.
The total aggerate value per unit time increases thanks to composability of contracts. You should download Metamask and use DeFi, it'll become clear what I'm talking about.
You want higher velocities of money because then that value is being put to work. When you have low velocities of money it means you have hoarding behavior which leads to deflation and a shrinking economy. With DeFi, the same value is more efficient than the traditional system because that value can be allocated more efficiently (i.e. higher yields thanks to tokenized positions and composable contracts), thus you get more bang for your buck so-to-speak.
Also, just having something like Uniswap with pooled liquidity means assets are more liquid, which also increases velocity of money. More liquidity = higher velocities of money. This is how you bank the unbanked, by giving everyone access to financial markets as long as they have an internet connection.
Okay, you're misusing a lot of financial terms, and then making some other terms up, such as "composability of money". Some things are composable but money isn't one of them.
What you describe as "tokenization" exists in traditional finance, and has existed for ages. For example, money market funds invest funds in money market instruments and then fractional ownership of the fund (and therefore of the underlying investments) in the form of shares can be bought and sold in the market. In short, this is not a DeFi innovation.
"Liquidity" refers to the easiness with which an asset can be converted into money. For example, a share is less liquid than money (because money is the most liquid asset, by definition) but more liquid than a house, because shares are sold easier than houses. Shares and bonds tend to be quite liquid. For example, some government bonds are so liquid that are considered a "money equivalent". And "tokenizing" an asset doesn't necessarily makes it more liquid. Finally, shares and bonds are used as collateral all the time. In fact, any financial and non-financial asset can be used as collateral. For example, a mortgage is a loan that is secured by real estate, even though real estate is relatively illiquid. It still used as collateral.
With regards to the velocity of money, you're misinterpreting something called the Quantity Theory of Money. The velocity of money is linked to the level of economic output but it doesn't really make sense to try to influence the velocity of money through economic policy in order to control the level of economic activity, it doesn't work like that. Also the velocity of money isn't being limited by some bottleneck in the financial sector, and specifically isn't being limited by money not being "composable" enough, whatever that means. Your whole argument about the velocity of money just doesn't make any sense.
I think you have good intentions but clearly you don't know much about finance, and if you're interested in DeFi you should definitely learn a little bit about finance, because right now you don't quite seem to grasp even the most elementary of financial concepts. I'm telling you that in good faith, don't take it badly.
Uh no, Aave has credit delegation for no collateral loans and it uses OpenLaw contracts to secure a credit line. And there's also TrueFi https://truefi.io/. And a bunch of others. You can get loans based on credit on Ethereum.
No, what I'm saying is that right now if you have a product on Ethereum with consistent cashflows, you can borrow money on credit from DAOs with large treasuries willing to lend them out using OpenLaw contracts as arbitration. The goal for these protocols is to expand this using decentralized identities and onchain credit scores.
If I can't buy a car on credit with DeFi it means DeFi can't do loans. And if it can't do loans it can't do finance. Maybe it can do a semblance of finance, maybe we can call it crippled finance, but it's not finance. Pretending that DeFi is going to turn everything upside down when it is unable to even make a simple loan is ridiculous. Nobody can take this seriously.
I can take a no collateral loan from DeFi today https://truefi.io/. So you can buy a car on credit using DeFi.
Also, this is early days. A few years ago HN's stance was that smart contracts are completely useless. Oh so now their not useless, but you can't get no collateral loans so it's not real finance. Right....
So what happens when I can get a decentralized identity and mortgage sized loans on DeFi in the next few years? This IS coming as there are at least a dozen projects working on this problem and there are already systems today that work, so it's only a matter of time.
Clearly you and many others in HN have blinders on because you were wrong to say that smart contracts are useless during the last crypto bubble. And over the years, you'll continue to be wrong as long as you bury your head in the sand. I'm absolutely confident about that.
As I suspected, I can't take a DeFi loan from https://truefi.io/. It's only open to a small number of vetted borrowers comprised of OTC desks and exchanges. Interesting to see how it works though. They say "delinquent borrowers will face legal action pursuant to the loan agreement signed", which means they're relying on the "legacy" legal system to enforce the loan agreement. In other words, it's not DeFi (surprise, surprise).
Are DeFi loans coming in the future? I have no idea, but right now it's not clear whether it's even possible to make loans with DeFi. No one has done it, so far. And loans are the most elementary of financial instruments.
Another problem with DeFi has to do with the very concept of decentralisation. For instance, these TruFi loans are approved or rejected by the lenders themselves. Another example, in a Dao, the shareholders assume management roles. Therefore, at least in these instances, decentralisation means replacing highly specialised workers with unpaid, non-specialised, informal labour. I think anyone can see that this is a dumb idea. A decentralised entity that is organised in this way will never be able to compete against a corporation that exploits division of labour and is professionalised.
Technology can be revolutionising without investing in a very specific cryptocurrency like bitcoin.
I'm betting my ass of that cryptocurrency in a different way might be the future of fiat BUT from the countries themselfs.
I'm not sure why anyone in the long run would trust a system which is controlled by some totally unknown and new individuals who invested in some cryptocurrencies.
There is no need at all to assume that the crypto technology is limited to btc and other current cryptocurrencies.
I just don't know how it works in detail on the bacnking side as i havenot worked with it.
My thought was that a crypto based system could replace perhaps a sea of different approaches and alignment efforts across banking systems and if a central bank/banks are just need to approve a block, instead of mining it, the basic idea of a transparent cryptosigned blockchain might be useful.
But yes i don't think they need something like this as the current system seems to be very trustworthy. I have never heard of a bank creating money out of thin air.
I'm so tired of people saying crypto is a ponzi scheme.
Maybe you think it's nonsense, or a bad investment, but it is not a ponzi scheme.
> A Ponzi scheme is an investment fraud in which clients are promised a large profit at little to no risk. Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to make investments. This new income is used to pay original investors their returns, marked as a profit from a legitimate transaction.
Well, it's not a ponzi scheme. It's a MLM/pyramid style scheme. The idea over the long term is that there are more future investors than past investors and therefore there will be more money in the future than in the past. However, returns only last until growth limits have been reached. The problem is that everyone who buys Bitcoin wants those gains but they are exclusionary/rivalrous by definition.
By that definition any stock that doesn't pay a dividend is a pyramid scheme. Of course, if you believe it has no value whatsoever, then anything can be seen as a pyramid scheme.
I was going to make a similar comparison. I casually invest and trade crypto and stocks, I have been burnt when early adopters sell off after a company releases a good announcement. After a good announcement, new investors will buy and early investors sell off at their expense, I've seen this result in a stock losing more than 40-50% of it's price, sometimes it will never recover. I think both markets are affected by similar forces.
If it bounces back within the same day is it still considered a crash? It seems like BTC is now down by around 7 percent and recovering somewhat. When it starts growing again the amnesia will take over with a general euphoria and the cycles continue. I've been following cryptos for a while now and this doesn't seem like something extremely uncommon.
> I consider crypto currency as it is to be an elaborate Ponzi scheme (personal view)
Off topic, but as someone with very little understanding of economics and no stake in cryptocurrency, I don't understand where "legitimate currency" ends and "Ponzi scheme" begins. I get that a Ponzi scheme is one which produces little or no value, and the majority of "earnings" are just wealth redistribution from the bottom of the "pyramid" to the top (and yes, I understand that pyramid schemes and ponzi schemes are different); however, I don't understand what legitimate value ordinary currency produces. Can anyone help me understand?
> I don't understand what legitimate value ordinary currency produces. Can anyone help me understand?
I'm not sure what "legitimate value" means in this context, but the most terse way I can think of to answer what I think is the spirit of your question is that currencies can be used to pay taxes and so there is an inherent demand, if geographically limited, for them; since you have to pay taxes, it makes sense to settle debts denominated in that currency because you have a use case for it going forward. This inherent demand creates stability--and yes, everyone loves to talk about hyperinflation but at the same time hyperinflating currencies are usually those of governments who are not long for this world!
If you want to go further, I would submit that a modern currency is one where the supply of it can be controlled in response to other economic factors, and my personal position is that that control turns crashes and depressions into dips and recessions. But this is an opinion, and reasonable people could disagree. (Though candidly--in my experience, few who do, are.)
Cryptocurrencies instead function more as commodities, and as they have few enough actual uses that are not by and large self-contained ones that require a certain amount of willing participation for them to have value at all (whereas gold is pretty and doesn't corrode, you can eat wheat, etc.) they are functionally inherently speculative vehicles. They lack any sort of external stabilizing factor because nobody needs them and so as a "legitimate currency" I can't see why anyone would ever tack on the phrase "legitimate currency" to that sort of virtual porkbelly.
Ultimately, fiat currency is backed by the fact that the people with guns who expect taxes to be paid to them expect said taxes to be paid in fiat currency.
The goldbugs believe that is insufficient as a basis and we should all go back to gold standard where it was backed by a promise of a government to give you an amount of gold (or further back, was just made out of that gold).
The crypto people believe even that is more basis than needed, and as long as people can agree it has value, and they all agree with each other that bitcoin has value, then it can be a currency.
>I don't understand what legitimate value ordinary currency produces.
You can exchange your local government currency for services and goods. With Bitcoin you first have to convert them into a local government currency and then buy services and goods. This only works because those local government currencies exist in the first place. I'll pull this out of nowhere and say that 95% of the value of Bitcoin is derived from government currencies by that I mean the reason Bitcoin is valuable is that you can exchange it for government currencies.
The other 5% are services and products that you can purchase with Bitcoin directly.
That portion needs to grow if Bitcoin wants to become a "legitimate currency" but if everyone abuses the currency by hoarding it and doing nothing with it then it might as well not exist.
> You can exchange your local government currency for services and goods. With Bitcoin you first have to convert them into a local government currency and then buy services and goods. This only works because those local government currencies exist in the first place. I'll pull this out of nowhere and say that 95% of the value of Bitcoin is derived from government currencies by that I mean the reason Bitcoin is valuable is that you can exchange it for government currencies.
So to be clear, bitcoin becomes "legitimate" when some critical mass of vendors accept it? This seems to imply that once the ponzi scheme becomes big enough it becomes legitimate (provided of course that we accept that btc is a ponzi scheme), which feels counterintuitive?
if crypto is a ponzi scheme, then isn't cash also a ponzi scheme? cash can become just as worthless, when no one believes in it anymore, just ask zimbabwae.
personally, if i'm going to be in a ponzi scheme, at the very least I want something with a limited supply.
Also, what other option do we have for store of value? Equities are way overvalued beyond reason. Fixed income/cash are becoming worthless very quickly. real estate is hard, very hard (just ask anyone that's bought in the last year). What else is there? put everything in gold?(the supply there is manipulated).
yes, crypto has some environmental cost. but, there's huge need for store of value. if you've been working your entire life and have 200K stored up. Losing 10K per year to inflation, year after year is not acceptable.
>if crypto is a ponzi scheme, then isn't cash also a ponzi scheme? cash can become just as worthless, when no one believes in it anymore, just ask zimbabwae.
That's not how it works. You need to destroy the local economy first. For example, repossessing land of productive farmers and shutting farms down causes famines. If the local economy wasn't destroyed people would rush and start exporting their local products to markets that actually value them. You would end up with a lot of inflation but not Zimbabwe levels.
I recently read up on Venezuelan capital controls and honestly the only thing that came to my mind is that the politicians there want to destroy the currency as much as possible as if a functioning currency were the spawn of Satan that must be prevented at all costs. I'm personally surprised it takes that much to destroy a currency. You pretty much have to be actively evil to get to Venezuela levels.
Given enough care currencies can recover from pretty much anything as long as the local economy stays alive and relationships with foreign countries are being maintained. The only thing that cannot be recovered is the lost potential and time of all the individuals that make up the country.
How're you getting to 5% loss YoY due to inflation? Estimates on inflation for the USD rarely top 3% for years during the last few decades [0]. Certainly there might be an uptick this year but extrapolating that to "You'll lose 10k a year if you just hold 200k" doesn't really make sense. And certainly you'd hold that money in index funds which have pretty decent returns or even bonds which don't pay out so much these days but have some returns I believe.
For the last 20 years:
- case shiller shows housing has gone up 4% every year on average
- Big mac index also 4% per year for the last 20 years
- Gas (tax was not inflation adjusted, so gas prices appear to be only 2.5%) but the underlying cost is going up faster than that.
- cars, one of the lowest inflation categories according to the CPI (real actual inflation is 2.7% for the last 20 years)-> pick your favorite car and see for yourself. those quality adjustments aren't worth nearly what the cpi boys say they are.
So, we've already got 3-4% inflation for the last 20 years. Now with the official CPI almost 2% higher than last year, it means real inflation is probably 2% higher as well.
3% + 2% = 5%
Treasuries are at about 1 - 2% and unless you hold the actual treasury, you're taking a pretty big risk if you're going into the TLT right now with very little upside gain.
European bonds are negative.
The highest yielding bonds, aka junk bonds are returning 3-5% but those will dip nearly as hard as stocks when things get ugly (look at the last two crashes 2020, 2018), so you might as well hold stocks.
Stocks are at record high valuations according to the warren buffet indicator.
You can criticize crypto currency’s for a lot but I still have never seen a good argument for it being a ponzi scheme. Can someone further this argument to one that wouldn't cover every investment asset?
If no speculators want to pay you for your stock, you'd have a stake in a stream of future profits or asset sales that company made simply from hanging onto it. If no speculators are interested in your bonds, the issuer is obliged to pay you coupon payments until it matures simply because you hang onto it. If nobody speculated on your property, there's a lot you can do with the land whilst hanging onto it. Even a dubious investment propped up by a lot of marketing hype like gold can make shiny things.
With Bitcoin, you have a cryptographic string. You can't make anything with it, it's not interesting to look at, it doesn't pay dividends or coupons and you almost certainly don't have any debt denominated in it. The only reason to hold it is the hope someone else will buy it from you for a greater price in future, and the only reason to believe they might want to do that is a claim that it's a "store of value" based entirely on the profits earlier holders made selling it to new ones.
It may not literally be a Ponzi scheme, but the dynamics are the same.
This discussion has no value if you were the only one participating. Facebook has no value if there are no "friends" to interact with.
My point is, the same kind of network effects that make social media valuable, are also inherent to cryptocurrencies like BTC. Metcalfe's law applies. Just like fiat currencies, actually.
So yes, new entrants are obviously important to achieve an increase in value (and therefore, price). But does that necessarily make it a Ponzi scheme? I don't think so, because a Ponzi is fraud, a scam, by definition. It needs to be done with the malicious intent of stealing the money of new entrants. That's not the case here. Of course new entrants might be convinced by speculators seeking profit to buy in when BTC is actually highly overvalued, but, the same applies to any other investment really (look at what's happening to TSLA).
It's not the "same kind of network effects" though.
It'd be the same kind of network effects if the only reason people had Facebook (or telecoms) accounts is because they thought someone else might buy their account off them for more money. And if a social network came along with that value proposition - "sure, it doesn't actually do anything but the fact I sold some to this other sucker at a higher price than I bought it proves it's a store of value" - nobody would hesitate to call it a pyramid scheme.
But it does do something and network effects have a tremendous positive impact on that utility: cryptocurrencies provide us platforms for decentralized finance. Make of that what you will; payments, providing liquidity, lending, storing value, whatever ... These trustless systems are what give cryptocurrency some intrinsic value which increases logarithmically with the number of participants in the network. I don't think this will disappear any time soon, on the contrary. Usage will increase as the technology develops and the world becomes ever more interconnected.
So you have the non-existent assets, bag holding, difficulty getting out and the promise of above average returns.
If I put my money into my saving account then I can get out at a clearly stated time, there is no expectation apart from very little interest and I am reasonably sure that the government will bail out the bank if the bank fails.
In between there are a spectrum of investment options, property is a good investment asset and you actually have a property made from things like bricks and glass as the 'store of wealth'. Yes it might be difficult to get out if there is a property crash. But it is not a ponzi scheme even if it has some characteristics of one.
But selling Bitcoin is _exactly_ an older investor being paid out by a newer investor.
IMO it's Bitcoin in combination with Tether that's the actual Ponzi. Unfortunately unlikely to unwind until and unless people start needing to redeem Tether rather than selling it on.
> IMO it's Bitcoin in combination with Tether that's the actual Ponzi.
Bingo.
The problem is, the big players have no interest in unwinding the scheme. As long as exchanges can wash trade USDT:BTC to drive the inflow of retail investment, things keep going.
What'll be interesting is if BTC continues to fall. I think the low $30k is a support level; if it crashes below that, I bet we're going to see more outflow from undercapitalized exchanges and things will adjust hard.
That is pretty much the accusation against tether. Most exchanges use it, so rather than the exchanges being knowingly undercapitalized, they are by virtue of using tether. Which is supposed to be 1=1 backed with the $. Which it isnt, and it is not clear how backed it actually is.
They always claimed it was backed 1:1 with the US dollar. Then they paid a fine to the NY AG because it was not backed 1:1, and as part of that they had to produce quarterly reports about how it was backed.
Dude I think you are kidding yourself. There is something not legit about Tether, or at least it feels that way. And neither Bitfinex or ifinex have done anything to help that through their misleading and sometimes outright lying, about Tether and its reserves.
It's worse than a Ponzi. Crypto lost its marginal USD buyers, which were victims of ransomware extortion schemes. The correlation now is exposed for everyone to see.
- The stock market crash of 1929 was a ~25% crash
- The dot com bubble crash was also roughly a ~25% drop
- The 2008 market crash was a roughly 20-30% drop
Various coins have now lost 10-30% of their value in the course of a couple of days. But it's just steam being let off? No big deal? Business as usual? If the same thing happened to the actual markets it would be another historic event.
Conspiracy theories aside, one thing to keep in mind is that cryptocurrency market is largely unregulated. This means that it can be and does get manipulated by the major players (aka "whales").
The likes of Goldman Sachs, hedge funds, etc. are still able to manipulate the fiat and equity markets despite all the regulation - just imagine what happens on the unregulated cryptocurrency end. An example is that Coinbase was fined a couple of months ago for wash trading: https://www.cftc.gov/PressRoom/PressReleases/8369-21
It looks like prices for Bitcoin and Ethereum have rebounded from the low this morning by 20%+. So this was perhaps a flash crash, though the cryptocurrency market is always highly volatile.
While i agree that this is not really a crash as much as a long overdue correction, i have to respectfully disagree with your point about cryptos being little more than a ponzi scheme. Unfortunately the ones that have been getting most attention (Bitcoin, Doge, Ether) have been a poor representation of what the crypto space has been brewing thse past couple of years. I would highly recommend looking into DeFi projects such as AAVE or maybe a better representation of whats possible with Smart contracta on Cardano or Solana. There are a lot of "shitcoins" but there are also a few innovative gems that are going to make a major difference over the next decade imo.
Honest question: why do you think it's a Ponzi scheme? In the energy sector, when a well doesn't perform well enough to cover its costs, exploration companies try to get more money from their investors to drill another well that will "totally put them back in the black". I don't see this kind of dynamic in BTC.
Full disclosure: I don't own any crypto myself, I'm just "crypto-curious".
It wouldn't disappear, money is just changing hands. Bitcoin doesn't add or destroy any value, it's just a speculative way of zero-sum trade. When you buy bitcoin, someone else gets your money.
Except it's not zero sum. It's turning out to be one of the most leveraged assets out there. If I borrow money (or print tether) to buy BTC at $50k and then the price drops to $35k that money is gone.
tether as absolved of all charges, and is under continuous monitoring and audit by NY AG - who would love to jail to advance their careers. Imagine how impressive "jailed 100 BILLION dollar fraudsters" sounds on the resume.
Nope, not a fraud.
Print, lol. They are just a prime money market fund, setup exactly the same way the funds your parents kept in their 401k.
Surprise, commercial banks that lend to you, like mortgage or car lease are actually creating money out of thin air. Unlike tether which is fully backed.
>Surprise, commercial banks that lend to you, like mortgage or car lease are actually creating money out of thin air. Unlike tether which is fully backed.
In the US commercial banks are required to maintain a certain % of cash reserves relative to all deposits. They are also FDIC insured. Tether is neither insured nor required to maintain any reserves. Their recent filings show that less than 3% of tethers are actually backed by cash, and the bulk of tether is backed by anonymous 'commercial paper,' aka IOUs. Tether also declined to disclose the credit rating of this commercial paper, or who the counter-parties are.
Once the BTC world stops trying to hide, obfuscate or otherwise cover for bad actors it will be possible to create meaningful financial innovations that scale.
Please observe that 3% is actually much higher than 0%.
The rest of bank's book is usually assorted IOUs as well: commercial paper (aka bonds issued by companies) and mortgages. All of these assets that the Fed buys whenever any bank is in trouble, you can look this up in any news source.
Tether is simply just another offshore bank.
None of offshore USD deposits are insured by the FDIC. Yet, offshore banks hold trillions of dollars. They also have higher than zero reserves, just like Tether does.
There is nothing going on, just clickbaity nonsense media churns out for ads.
1. reserve requirements have been 0% in many first world countries for decades.
2. I agree tether runs their operation in a bit of an opaque way.
However, that should be the criticism indeed, not the composition of their portfolio, which is much the same as any other bank, really.
To steelman Tether's position, it seems that their opaqueness is an intentional strategy to make them more resilient. They could easily get a bank charter somewhere, however you lose control, and must share it with the regulator. Regulators will review and approve directors/offices of the bank, you may in fact lose control over your own business. It also comes with all sorts of jurisdictional and political risk. Having been in that industry, I can sympathize with Tether, it's extremely hostile to large fintechs.
They could be targeted simply for political reasons, or because someone connected decides to destroy by leveraging their regulator buddies power.
How do you prevent that, without being opaque and telling those that may target you, exactly where all your assets are so they can just freeze them directly?
I really wonder if they ever disclosed to NY AG whose commercial paper they hold.
Aaand it's gone (the $15k). My point is that the Fed effectively devalued the world's reserve currency in order to stimulate the American economy. But some, perhaps significant, percentage of people instead blew that stimulus on a risky, volatile investment that does nothing to boost our productivity. And now the gains have been erased.
By "destroying" are you saying that the seller is stockpiling the USD as if he is Scrooge McDuck? If so, what motivates the seller to hold onto USD despite 4% inflation?
What I really mean is that we sit down in the same room. You bought the BTC for $1 in 2013. Today I give you $50k in $100 dollar bills, you send me your 1 Bitcoin. I am deliberately ignoring the current exchange rate to prove a point. What happened is that I overpaid by $15k, I immediately lost $15k on this transaction. You got a bargain and gained $15k on top of the $35k you would have gotten from simply holding onto your Bitcoin in this transaction.
jasonlaramburu says "When the price crashes money disappears." but there are still 500 $100 dollar bills in the room. The price "crashed" by $15k the moment I purchased the BTC but the money I gave you didn't disappear, it just changed hands in a very unfair manner.
I suspect this thought experiment is overly simplistic to the point of not being useful. Person A has $50k worth of BTC. Person B has $50k worth of cash (some % of which they got from the stimulus). So now 'the room' has $100k in assets. A and B exchange their assets. A+B still equals $100k. $BTC drops by $15k. A+B=$85k. There is now $85k in assets in the room. $15k was lost.
You can expand the model to include all BTC buyers and sellers. It doesn't change the fact that US currency was devalued to generate an economic stimulus. A meaningful % of that stimulus was spent into 'the room.' The value of certain assets in the room was massively overstated and crashed. The stimulus money cannot be recovered, but Americans must live with the inflation and other impacts for many years.
Yes, we will struggle with the inflation and currency devaluation caused by the stimulus for years to come. If that money actually made its way into the US economy it might not matter, but some nonzero percentage was used to buy crypto at a peak, the value of which is now gone.
Totally agree. The S&P500 is at the lowest it's been ... since one week ago (quite literally: May 12). And before that, April. A 1.5% decline isn't a crash.
BTC was was 10k last fall. It grew 6x till a month ago. That is 6x. Now after the drop it's still 4x from that 10k figure. I didn't claim it doubled in a week, other coins with a smaller cap did and not one or two, a whole lot of them. Lots of people made fortunes of this hype. Sure, a lot of people also lost a lot and that makes volatile markets very dangerous if you don't know what you're doing.
You may find out that the stocks you hold dear will crash just as bitcoin. If you think bitcoin is a ponzy scheme think about the stock market as well. The stocks(most of them) are not traded on roi anymore. Long gone is that period.
It's not a Ponzi scheme because in ponzi scheme you deliberately use late investors money to pay early investors.
What happens in cryptocurrency is fake-exchange scheme. Tether is a fake currency printed in unlimited way by bitfinex which is also an exchange. By pretending tethers are real dollars you create the appearance of a stronger market for cryptocurrency than actually exists. It all rests on increasing the number of tether in circulation. It will fail when there is a run-on-the-bank on tether.
Except that during crashes like this one, what you see is everyone moving their crypto holdings to stablecoins. The intent is to wait things out and then buy back in and profit during the next cycle.
As someone else on here pointed out, the IRS would consider this selling ETH and buying an equivalent value in DAI. Selling the ETH is taxable as capital gains. Whether the IRS catches your friend or not is a different matter.
They move to stable coins because most of those exchanges do not have dollar trading, rather you have to have a stablecoin as a middleman between fiat and crypto.
Stocks are a big Ponzi scheme too. Most people buying stocks aren’t interested in buying cash flow like stocks were meant to provide. People want capital gains. You only get capital gains when there’s a greater fool.
I’m not against owning stocks. I’m just as concentrated as you. But, let’s not confuse luck and genius. We are just hoping to be the one that gets out before the music stops.
Stocks are not a Ponzi scheme because funds from early investors are not flowing to fresh investors. There is the actual value created by a company together with its future prospects and assets that combine to determine a stock price.
Crypto meanwhile has the backing of whom and what assets?
That's strange. I own crypto assets that are also capital assets and I receive fees based on transaction volumes and loans. Seems like there's real value there.
Crypto isn't a Ponzi scheme. A Ponzi scheme is form of fraud where funds from recent investors are used to pay (fictitious) profits to earlier investors. Say the ringleader claims a 10% profit. An early investor had deposited $100 and wants their $100. The ringleader had blown that investor's $100 on coke and hookers and gives him $110 from new investors.
Crypto is more accurately a pyramid scheme. But then so are precious metals and fiat currency.
But at least gold has some inherent value, crypto is just math that is worth whatever the buyers/sellers think it should be. Stock in a company that stays in business will never go to zero as the company always has some value due to having revenue, but crypto has no real world floor (though unlikely to actually get to zero since someone will always buy).
The value of crypto is the access to the underlying network, which lets the users of that network transfer a known supply of tokens in a manner that's not forgeable, repudiable, confiscable, etc. or reliant on the permission of outside authorities. Final settlement takes an hour. It's worth whatever people will pay for that access.
Cryptocurrency is less then that. Cryptocurrency is expended energy. You can't use a cryptohash for anything. Whereas I can melt down gold and make earings with it.
What a bizarre opinion to have on an IT website. “Software is worthless, it’s just expended energy, you can’t use it for anything, whereas I can melt down gold and make earrings with it”
Think of it this way: if you turned off all the Bitcoin nodes tomorrow, and then later on a bunch of people said "hey, cryptocurrency would solve this issue for us!" - is there any reason for them to try and bring back old Bitcoin wallets in order to deploy it? No - none. They just fork the Bitcoin codebase, rename a few things and start a new network.
Bitcoin the software implementation which is already free is valuable. Specific wallets, bitcoins etc? Not at all, and not reusable.
A failure of imagination to do something useful with crystalized math is more a commentary on the failure of imagination vs. the utility of math.
If you compare any esoteric financial instrument against the melted rock utility test that you mention, the laity will err on the side of melted rocks.
"A failure of imagination to do something useful with crystalized math"
I don't think I could possibly describe BitCoin as "crystallized math". It's not like it is somehow convertible into some useful solution to some other math problem. It's a solution to a math problem that is essentially designed to not be useful for anything else on the grounds that said "utility" would be a potential mechanism for cracking the hash algorithm. (e.g., if you built a "hash function" that also provided a solution to some isomorphic bin packing problem, your hash function would have the weakness that the correspondence would reveal a lot a lot of theoretical bits about what was hashed.)
Besides, even if it is "crystallized math" than said math is independent of BitCoin's utility itself. If it were that useful you could go compute hashes until they have large numbers of zeros on the front all by yourself, without having to be involved with BitCoin. Since nobody has any conceivable use for such a thing as evidenced by the complete failure to do so, I have no idea what you think you're saying here. Merely working really hard at some computation does not make that computation useful for any other purpose.
Only in the same sense that nothing has inherent value. Gold is pretty and durable and people like it. That gives it value in the system of exchanging stuff amongst humans.
And that consists of taking gold out of the ground and putting it back under the ground - in vaults and adding an extra dash on paper. That's a lot of energy expenditure with destruction of the environment as well (cyanide is still used in gold mining).
What we need is a more efficient digital currency and stores of value. Gold is not the answer either.
No cyanides, no blown up mountains, and can be powered by clean energy.
Everyone thinks it will boil the oceans, for some reason. If renewables cannot provide power - then we have to either improve renewables, or accept that nuclear is the answer and move on.
Cryptocurrencies do have a couple of extra utilities:
- they can be pumped and dumped without state oversight
- with the use of a tumbler, you can launder money pretty effectively (in fact we should stop calling them tumblers and start calling them money launderers, that's exactly what they are)
It's pretty obvious that this is bad for society. In addition, the transactions are extremely slow and wildly expensive--even without factoring in externalities like carbon burn. The price is extremely volatile. It's highly unavailable (ex: good luck getting your money if Coinbase goes down). The governing structures don't inspire confidence (look at ETH's PoW -> PoS, or BTC's block size debate).
Things don't have value simply because people decide they have value. This is a weird kind of tautology or circular reasoning based on a deep misunderstanding of markets. It's clearer to say that people price things based on a perception of value. Crypto seems like it does--a lot of people go around saying so--but unless you're a comic book villain, it doesn't.
However, things like gold or oil do! You can make electrical contacts out of gold. You can refine oil into fuel. Commodities have physical utility. BTC doesn't.
State-backed currencies also do! You can get pretty much anything for USD. You can get a great pint for GBP. This is because the states and entities producing those goods price them in currencies they can get other goods for, reliably. You can't reliably use BTC to get other goods, and you can't reliably say your BTC will hold the same value even minute to minute. Further, it's very likely your transaction fees will be more than the purchases you make.
Sounds so great, what can I get for my rapidly depreciating Turkish Lira nobody wants to take?
BTC seems a lot more accessible than the great and amazing US or EU banks, who have nearly failed and had to be bailed out barely a decade ago. Doesn't inspire confidence, tbh.
I think it'd be more productive if you engaged with the substance of what I wrote, rather than engaging in whataboutism with USD/Euro/etc. I'll try and do that here with what you wrote.
> What can I get for my rapidly depreciating Turkish Lira nobody wants to take?
A couple of things about this:
- You can get Dollars/Euros/GBP/RMB.
- Crypto cannot solve the "so you're born in an oppressive or poorly-run state" problem. You've gotta trade the currency you have for crypto, and if that currency isn't good, crypto doesn't help you at all.
- There's really no examples of crypto helping people in oppressive or poorly-run states (Venezuela still has horrendous problems, for example).
- The transaction fees are bad enough in USD, but valued in (say) Bolivars they're prohibitive.
- In particular, Bitcoin is super bad for the planet, and people in oppressive or poorly run states are disproportionately susceptible to ecological disasters and climate change.
> BTC seems a lot more accessible than the great and amazing US or EU banks, who have nearly failed and had to be bailed out barely a decade ago. Doesn't inspire confidence, tbh.
I think you don't mean "accessible", but rather you're saying because banks need bailouts that fiat currency is unworkable? My counterpoint here is mostly what I wrote in my previous post; fiat is superior to crypto in every way, unless you're a criminal.
Furthermore, cryptocurrency systems are vulnerable to a whole class of problems central banking isn't, i.e. someone lost the keys, Sybil attacks, developers making changes that destroy your stake/economy.
There is no recourse for this. Are heads of state supposed to join a Discord channel or w/e and lobby crypto devs?
2. USDC stablecoin actually has explicit sanction exemptions from US Govt to help people in Venezuela. They aren't easy to get at all, but I guess according to USDC does absolutely nothing in Venezuela, so it must've been a waste of effort.
3. transaction fees are measured in milli-cents on Lightning Network. They are also instant. Still Bitcoin, with the same security budget.
4. Why is using renewables super bad for the planet? Either renewables can power the planet and our industries - or they just don't work. Make up your mind.
If you think proof of work is waste and you need to lobby devs - you have literally everything upside down. very unfortunately it's a common situation on this board.
a. Proof of Work exists to remove any subjectivity from consensus. Longest valid chain with most work, period. Subjectivity = politics, and everything that comes with it.
b. devs do not have anywhere as much control as you think, and the ecosystem can trivially eject malicious devs. happened a number of times.
The entire point of Bitcoin is that it is objective and transparent.
Especially Turks, Venezuelans and Nigerians seeking to escape their broken systems and banks. Must be some savvy criminals - recording their crimes on a globally replicated open ledger, visible to the entire world.
I can't find where this is true. There are some restrictions about denominating some contracts, etc. in FX, but nothing about investing in foreign currencies. And it looks like many Turks are in fact doing this [1].
On the other hand, after a non-zero level of crypto hype [2], a lot of Turks invested in crypto only to fall prey to some bonkers scams [3]. I know the typical rejoinder is "there are fiat scams too", but particularly in failing/failed states, the regulatory infrastructure is completely incapable of policing this stuff, making it all the more likely. The fact is it's easier to run these scams using crypto than fiat, because of the lack of international banking controls and KYC.
> 2. USDC stablecoin actually has explicit sanction exemptions from US Govt to help people in Venezuela. They aren't easy to get at all, but I guess according to USDC does absolutely nothing in Venezuela, so it must've been a waste of effort.
The argument crypto advocates make is that if you're in an failing/failed state, you can just switch to BTC. This clearly hasn't happened. The US is using a blockchain and VPNs to get aid to Venezuelans. That's (super) cool, but it's not at all what crypto advocates were talking about. It's also worth saying Venezuela is still in dire straits, despite all this. So while it's not a wasted effort, it certainly isn't a cure-all (again, what crypto advocates have argued).
> 3. transaction fees are measured in milli-cents on Lightning Network. They are also instant. Still Bitcoin, with the same security budget.
Lightning has all kinds of problems, and is probably unworkable:
- It currently only holds $70m, despite being available for years.
- It doesn't solve the problem of very small transactions across multiple parties (think gas stations, retail, vending machines, tolls, monthly subscriptions, etc. etc. etc.)
- It's fundamentally a desync from the blockchain, with all the potential for fraud that implies.
- The protocol requires constant internet connectivity; if you disconnect you risk losing your funds in the desynced transaction (again, bad for developing nations)
> 4. Why is using renewables super bad for the planet.
Crypto advocates seem to have a lot of assumptions about the use of renewable energy for mining, but the best study that wasn't conducted by people heavily invested (literally and figuratively) in crypto shows a pretty mixed bag, and indicates that a lot of the reason for the use of renewables is that it can't be used for anything else (e.g. it's too far away and transmission costs are too high) [4]. In the Xinjiang region in China, for example, it's all coal.
There's also a lot of externalities when it comes to mining. Hydropower has a significant environmental impact. ASICs evolve and the old ones become e-waste.
> Either renewables can power the planet and our industries - or they just don't work. Make up your mind.
They can power the planet and our industries, as long as we're wise about their use. Using them for crypto mining is an unwise use, akin to leaving the A/C on and all your windows open.
> Proof of Work exists to remove any subjectivity from consensus. Longest valid chain with most work, period. Subjectivity = politics, and everything that comes with it.
You can't seriously say crypto governance is free of politics. Look at the block size debate, or all the weirdness around ETH2.
> devs do not have anywhere as much control as you think, and the ecosystem can trivially eject malicious devs. happened a number of times.
ETH devs keep pushing ETH2 into the future, putting off the gains of people who bought into PoS and shoring up the positions of people who invested in big PoW mining rigs. That's politics, with devs at the heart of it. I can't think of a bigger issue in ETH, now or ever.
> Everyone is a criminal.
First of all the book that "article" references is pretty cranky. That said, it's true that it's very easy to incidentally commit crimes. However, there's plainly a difference between incidental criminal acts, and trafficking drugs or people. Don't equivocate between these two things.
1. Turkey had all sorts of controls in the past, and they will return. There are soft curbs in place right now. Yes, people subvert them, just like they __criminally__ circumvented controls in the past. [to your point about being a criminal, holding dollars in many countries is a crime, and many are committing that heinous crime as we speak]
Scams: Permissionless systems can be trivially used by anyone, and yes there will be bad actors.
How do you have a permissionless system that only allows good guys? The best I've heard so far is collaborative deanonymization, but it is very much work in progress.
Governance: Proof of Work is an attempt to minimize governance. Proof of Stake is governance by plutocracy, but with emojis. I agree if an alternative to PoW can be found - it should be improved, but PoS is a regression to the status quo, not an improvement.
Ethereum itself is nothing but a quasi-corporation with all the politics that entails, it even has founders, foundation, ,trademarks, conferences, venture arm.
The best thing Satoshi has done is disappearing. It is for this reason I find Ethereum objectionable, the politics. Even a stupid exchanged-sponsored chain like BSC is more legitimate in that context, at least they do not pretend to be decentralized and have no control over the chain. Cringy as it sounds, Binance is more honest than Ethereum sometimes, lol.
I think Bitcoin community remains cognizant of devs being nothing but potentially another failure point and an attack vector, should they become compromised. This is why everyone is so big on running their own nodes, and only making thoughtful consensus changes.
Block size wars (they weren't debates) were really just a battle over who gets to control the protocol, and thankfully status quo prevailed.
I remain optimistic on Bitcoin's future for that reason - it could withstand a coordinated attack driven by quite intelligent people with large budgets. Today, it likely can only be attacked by a nation state, and not just in 51% sense, but also social attacks on miners, devs, and so on.
Lighting network: I'm not sure I understand your criticisms. It is exactly designed for smaller payments, which is why 70 million float isn't that big of a deal. Bitrefill does a good amount of LN volume, and I think it's use will pick up with exchanges coming on board. Bitcoin as a daily transaction currency is simply too nascent, still in the speculative growth stage. LN transactions are not decoupled from Bitcoin, and are in fact un-published properly formatted Bitcoin transactions. The security model is different, but I'd say it's certainly acceptable for payments up to 50-100k USD if not higher. Much work left to be done, but it is working.
Most of actual Lightning currency usage is in the third world. If USDC is cool - you must agree LN is doing good works too.
As for the common saying "fix the money, fix the world", I believe Bitcoin is far too early here, this may take decades or maybe even hundreds of years. I certainly do not expect it in my lifetime, but maybe my grandchildren will have additional freedoms. Just like we today take freedom of speech and association for granted, many of our grandparents did not. In fact, I believe people today gotten so soft and weak that our vigilance is slipping and we are slowly rolling back right into neofeudalism.
The point is to separate state power and money.Just like we separated state and religion, and it was great, I believe separating money will be just as beneficial.After all, money isn't just speech, it is also a religion of sorts.
I don't see this as an innovation in finance, get rich scheme, opportunity to make a quick buck, inflation hedge, good investment, etc.
I see it as a transformational quantum leap humanity can make, something on the scale of the printing press. That is the reason why I support it. It is one of the most important public goods one can be working on today.
It can fail, which would mean we are not yet ready for that stage in development and Bitcoin was before its time.
We must indeed become multi-planetary species if we are to survive and travel to other stars. Do you see interstellar species trade by using money issued by some banking cartel? shiny rocks of the Au79 element?
Money is information. Bitcoin is a very solid attempt at that.
Yeah, so I argue all the time that lumping in places like the US/UK/France/Germany with places like Turkey or Venezuela doesn't make sense because of the differences, and that governments can just use the violence monopoly to coerce people to do whatever. In other words I argue that the "crypto fixes monetary policy mismanagement" argument is pretty ignorant. But on the other hand, my argument is also ignorant because:
- US/UK/France/Germany mismanage monetary policy tremendously: recessions kill people, there's deep income inequality directly linked to monetary policy, etc.
- Crypto does actually insulate against inflation (I mean, kind of anyway), and the scam of the day doesn't make that any less true.
- People do use crypto for useful things--USDC in Venezuela as you point out is useful, and to the people it's useful for, it's definitely not nothing.
--Scams--
I'll admit scams aren't as bad now. But on the other hand I think a lot of that is because Western governance and money got involved and people went to jail.
--Being Permissionless--
The way I think of this is based on social contract theory, i.e. I strongly believe that permissionless systems evolve into systems of coercion, because people will amass power and use it against each other. Maybe that's getting a 51%, mining, controlling exchanges, controlling the use of or purchase of crypto, etc. To kind of skip to the end here, I don't believe the libertarian ideal of individual, free actors can ever exist, because the benefits of teaming up and coercing are so dominating.
So I'm "if you can't beat 'em, join 'em" on this. If we're faced with roving bands of street crypto gangs, we should just make a bigger gang and establish some rules. That's basically a government or a bank, and then like, maybe we'll feel like we wasted a lot of time. Unclear.
--Governance and politics--
The definition of politics is "the process by which more than one person makes decisions". They're pretty inescapable. And so is governance, FWIW. That said, to your point, I think you can do a lot to dilute it. You get into kind of a "choose your tyranny" situation in these cases though like, do you choose:
- Tyranny of the majority vs. the minority (collective action vs. individual rights)
- Tyranny of the state vs. the mob (central vs. diffuse authority)
I don't know exactly where Bitcoin lands on this, tbh. On the one hand you could say it's diffuse authority because of PoW, or because of the consensus algorithm, or the "no middleman" stuff. On the other, you can say that because devs control the protocol, it's super centralized. Suffice it to say it's complicated.
--Other coins--
The refrain I often hear is "Bitcoin is just a protocol, anyone's free to start their own separate network", but that hasn't been successful. It suggests that what's important is not necessarily the protocol, but the network effects of so many people using the network. Like, there are better coins out there (Monero, Zcash, probably ETH) and coins using the exact same protocol you could buy into for way less than Bitcoin. These all test the hypothesis that the protocol matters more than the market cap or user count. But the test came back, and the results are that network effects and market cap pretty much explain everything. More than anything, this makes me pessimistic about cryptocurrencies. I think it's beyond clear Bitcoin is a speculation casino, altcoins are for hipsters, we've built an abominable bubble, and we've burned an insane amount of carbon to do it.
--Lightning--
Well, I guess I'm absolutist about financial transactions. I really can't imagine building a(nother) financial network that has unfixable risks of fraud built in. One of the promises I most hoped blockchain tech delivered on was fixing fraud. But you really can't, Sybil is in tension with latency and availability (either 100% of the nodes agree something happened or there's room to take over enough nodes to commit fraud--sure at 99% it's very very hard, but that's not the same as impossible, but also that might be fine), and you have computational complexity problems besides, i.e. why would anyone volunteer to process transactions for free, which also costs them electricity or w/e.
More concretely, I just can't seem to set a limit in my head of what would be an acceptable amount of money to lose to Lightning fraud. Too low, like $5, and you drastically limit its utility. Too high, like $50, and you essentially can't use it in poor parts of Africa for example, where people aren't gonna risk a month's income on your dodgy protocol. Well, maybe they well as long as you don't tell them it's dodgy.
--Fix the money, fix the world--
I have never heard this, and I absolutely love it. But it actually made me think that maybe what really irks me about cryptocurrency is that it accepts the premise of capitalism. I actually think money is the problem. Like, when you think about the lengths people are going to to mine BTC, which is a system deliberately set up to get people to process transactions, it feels exactly like capitalism run amok. None of this is good, right, like no one thinks the state of BTC mining or the tenuousness of ETH PoS (don't get me started) is really what success looks like.
I just don't see how cryptocurrency fixes our social ills, and at the end of it, I can't help but think of it purely as a distraction from income inequality. I'm not super interested in fixing the banking/currency/investment system. I think people should get food, clothes, child care, shelter, health care, transportation, and education for free. Anything past that is a bonus, and I don't care what currency it's denominated in.
I think the cryptocurrency community named the villain right: investment bankers. But like, now the two communities are inseparable, and some of the most lauded people in the crypto community are essentially investment bankers, just in a handful of crypto commodities. Are average people getting rich from Bitcoin more than the already wealthy? It certainly doesn't seem like it to me.
So I think we need a little bit of a reset. There's clearly a lot of energy around this stuff, whether it's the crypto community, OWS, progressive Democrats, whatever. I think if we got our shit together and worked for big, structural change, we could really do something--in our lifetimes. But from where I sit, crypto ain't it.
And so is our physical money a shared belief that those pieces of plastic are worth something as well. Really though man, this argument has been hashed out in so many places on the internet innumerable times. Stop the downvoting and let's agree to disagree.
You mean ETH and the ability to bypass capital controls? Sure, I'll accept that these things exist but that doesn't mean I can accept needless power consumption. Bitcoin bubbles don't meaningfully contribute to avoiding capital controls.
It's neither. A defining feature of both pyramid schemes and Ponzi schemes is centralized control of the ledger and who is allowed to participate. And a defining feature of cryptocurrencies is, at least theoretically, the lack of such centralized control.
I understand that people feel like there's something fraudulent going on with crypto. Given the sheer density of fraud and scamming surrounding crypto, it's hard to argue with that. But trying to make one's argument seem more concrete by picking the name of some well-known class of fraud and blithely using it to describe crypto in general is counterproductive. It muddies the waters, and makes it more difficult to have an organized discussion by removing clarity from the language we have to discuss these things.
The urge to do so should be resisted for the same reason that we should resist the urge to try and make arguments involving statistics seem more authoritative by just guessing at numbers when we're not sure of them. False precision is, well, false.
Bitcoin is the ultimate, purely financial object. It has no revenues or profits. The supply is fixed -- unlike, say, gold, where high prices mean people will eventually start digging mines, BTC supply is entirely price-inelastic. The only thing that determines BTC price is demand. And over the past 13 years, we've seen reflexivity at work: The price has gone up, so more people want it, so the price goes up further, and on and on.
There's no reason this can't happen in reverse. As in previous crashes, once the price starts going down, more people want to sell.
Really just an interestingly pure experiment in group psychology.
To me, the argument that fixed supply is a good thing has always been worrisome. People just parrot that viewpoint without asking whether some amount of Keynesian economics is useful, because you know, government is evil. It got us out of the Great Recession and it’s been 12 years. Maybe the consequences haven’t fully manifest, but another Great Depression would have been guaranteed hell.
Keynesian economics got us out of the actual Great Depression as well, if you consider FDR's decision to get off the gold standard and start trading dollars as a floating currency on the market.
Fixed monetary supply might be one thing in theory, but fixed credit supply is the death knell to an economy. And the two are usually complimentary. Monetary supply can fill in the potholes of weakening credit supply when the latter contracts - and it inevitably will when the private issuers that generate those debt contracts pull back in a recession. If you have your hands tied to some constrained supply like gold or bitcoin, like what happened to the central banks after World War I and into the Great Depression, you end up backed up against a wall.
That said there is certainly something that's personally appealing about an asset that's guaranteed to maintain the supply side of the equilibrium. As an investor you only have to consider demand. But for any kind of widely used currency that backs an economy it's going to be problematic.
2008 is remembered by most through phrases like “trickle down economics” and “bailouts” to the irresponsible men who built the house of cards, including “golden parachutes”. In other words, whether reasonable or not, a very large number of people don’t feel great about how our flexible monetary supply was made use of. Bitcoin is literally a direct reaction to that (e.g. view the coinbase for the Bitcoin genesis block).
Newer cryptocurrencies have more sophisticated governance structures than Bitcoin (see: Tezos). Some of them could allow for an elastic monetary supply. The downside of these systems is that it takes a lot of work to properly encode the specific set of rules which decide when to increase the supply, and how to distribute the new supply. The upside is that these rules actually exist and are unambiguous.
Please explain how exactly a constrained monetary supply keeps politicians honest? Seems to me that is pretty much entirely dependent on an informed and participatory electorate.
I think a constrained monetary supply just means the politicians we elect have less influence over the economy than the people with the most wealth. In either scenario, there will be untrustworthy politicians who need to be out voted or voted out.
Blessing and a curse. With a flexible monetary supply, politicians can help ease the pains of boom bust cycles. They also can print currency and inflate their debt away. With a static monetary supply, they can't dampen the pain. But they also can't leverage the financial system for their short-term gains.
The last 60 years on a macro level have largely proved the Keynesian model. I think we're right to put faith in politicians in general. The solution might just be holding currency from another nation instead of your own.
Actually, the problem right now is the complete lack of Keynesian style fiscal stimulus. China and USA already did their part and they will do more.
I am mostly talking about Europe. The Eurozone basically makes fiscal stimulus impractical even though keeping it alive absolutely requires it.
Every time I hear people talk about Keynesian economics ruining everything I am thinking "no such thing happened". QE fills bank reserves, interest rates drop on their own, banks never lend out money, stock market goes up without any actual investment, there is unemployment caused by the macroeconomic structure of the economy, investors are flooding governments with their money by buying bonds, inflation remains stubbornly low, trump cuts corporate taxes.
The fact that things are reversing in the US is a good sign for the US economy as a whole. Biden is actually doing the fiscal stimulus that the economy was asking for decades. There may be a short term crash in the future but it's only going to get rid of the unproductive part of the economy to make everything ready for more long term growth.
Meanwhile Europe will be stuck forever if the Eurozone doesn't resolve its structural problems.
>People just parrot that viewpoint without asking whether some amount of Keynesian economics is useful, because you know, government is evil.
This just isn't an accurate portrayal of any of the serious criticisms of Keynesian economics.
>It got us out of the Great Recession and it’s been 12 years. Maybe the consequences haven’t fully manifest, but another Great Depression would have been guaranteed hell.
It feels like an unfair argument you're having because of course the opponents' whole argument is that the consequences haven't manifested AND that they would be far more dire than a continuation of the Great Recession / another Great Depression. As wealth gaps widen, as inflation rises, as our debt grows, it's possible to see a worse future ahead than one where we continued into a depression.
In hindsight, we all know the problems which led to the fall of various empires (Roman, Mughal, etc.) but if you lived at the time, this same argument could be made against you for sounding the alarm: "Yeah, maybe it's better to not constantly expand our Empire and rely on mercenary soldiers who have little loyalty to a place they've never even been to, but can you imagine the hell if we lost the war against the Gauls??" (forgive me if I mangled the history there).
While you have a point regarding fixed supply, I think bitcoin is more than just a KBC. The ability to do uncensorable (or at least uncensorable without truly absurd computing power) global financial transactions is a really amazing thing and I think it definitely has "intrinsic" value, insofar as any value is "intrinsic" and not the result of social interaction.
The energy consumption is definitely bothersome but overall I am glad that bitcoin exists.
Isn't Bitcoin absolutely terrible at transactions, though? It's too slow to ever be used as a cash alternative. Why wouldn't an alternative cryptocurrency fill that void then leave Bitcoin with no actual value at all?
My comment was more referring to cryptocurrency and the blockchain concept in general, I probably should have been more clear.
You are right that BTC isn't that useful as cash. I don't think BTC will be dominant forever, there are already superior cryptocurrencies for use as actual normal currency. If/when another crypto really does fill that void and achieves major adoption, I think BTC will probably retain some value, for speculative reasons and also just because it has the oldest chain.
Can't you say the same for bitcoin? Anyone can make a bitcoin clone, just like anyone can code a ridesharing app in a hackathon, but your clone isn't going to be the one recognized by everyone.
But crypto clones are much easier to create and have adopted than a company with real infra. The phenomenon of “this coin is too expensive let’s buy this new one hoping it’ll moon” is very real in crypto and encourages the creation of clones. Then miners then trivially shift their hash power to whatever clone gets the crowd interested.
This is also why Skepticoin cannot be cloned: the clones (cynicalcoin, sarcastocoin etc) are simililar, but they're not "the skepticoin". In this way, the supply of skepticoin is still limited.
The argument is that crypto has little to no intrinsic value and the price is being moved by speculation. In that case, the value comes from how many other speculators are willing to speculate in your currency - more options means fewer dollars buying bitcoin. The fact that pretty much every crypto of non-trivial float trades in lock step with BTC definitely supports the "no intrinsic value" theory.
Sounds like two separate arguments, I don't really see the through line. The value of BTC comes from the mining security, and you cannot mine multiple chains at once with the same hardware.
> The fact that pretty much every crypto of non-trivial float trades in lock step with BTC definitely supports the "no intrinsic value" theory.
They are highly correlated but certainly not lock step, see the 1 month ETH/BTC chart. Assets on the stock market are also highly correlated to each other, so I don't quite follow.
Sure, I mean you're just describing the opposite position, that the price of cryptocurrencies is reflecting some intrinsic value and that speculators have a negligible impact on the price. In that case market forces should eventually reveal some stable winners and all the deflationary stuff that lead us down this rabbit hole applies again.
No I don't see the relationship. Let's assume no intrinsic value for the sake of argument. How do you get from there to "additional coins steal market cap from existing coins"?
Seems easy to craft some counterexample, like "Doge acts as a marketing campaign for crypto as a whole and will lead to net-inflows to the BTC market".
I'm just describing the plausible argument that the original commenter said didn't exist - to that end, it should be obvious that a bullish investor, who believes crypto is the future of finance, holding a balanced basket of crypto investments, might invest less in any individual coin as more potential successes appear that must be hedged against.
That's fair, but I doubt it would deviate very much from the top 5-10, and that each of them would have significant differences from each other (ie not carbon copy clones). I would argue that most of the value in those top 5-10 was net-new and not a dilution of Bitcoin.
The notion I'm arguing against is that me creating MyCoolCoinX on the fourth page of coinmarketcap is somehow diluting BTC, any more than some new pink sheet penny stock is diluting AMZN.
Doge is an interesting case, in that it is the same tech as BTC with just some parameter tweaks. My guess is that most Doge investors are newer to the market, and wouldn't have otherwise invested but I could be wrong.
> how can you possibly make the claim that BTC was diluted vs the market cap of other coins being net new value?
It makes some sense to me. When BTC was smaller in capitalization it was easier to double your money. Now smaller coins attract dollars that otherwise would have pumped up BTC so growth stagnates. BTC was considered the most stable of them all and I now find those claims somewhat dubious, they're all extremely volatile
That's fine, I don't think you have any evidence for your position though. You could easily make the opposite argument that Doge is basically a marketing campaign for BTC and will bring in more investment dollars than it sucks away. It's not zero sum.
Why would BTC need a marketing campaign? Isn’t it a value store? Or was it a currency? Or is it perhaps a bubble of nothingness that actually would need a marketing campaign?
I have put about $1000 into various cryptos as a hedge, but I fully expect to lose it all and the day can’t come soon enough.
Saying something acts as a marketing campaign != saying it needs a marketing campaign, I'm not sure how you made that leap..
My point is that Doge doesn't necessarily take cash inflows away from BTC, describing a possible mechanism for the opposite phenomenon, not that anything needs a marketing campaign.
1/ a lot of people really DO believe in decentralized currency
2/ a lot of people are acutally using it as a store of value / currency: from drug dealers to people in states with failed economy such as venezuela or turkey, to chinese people wnating to somehow escape the system.
3/ btc is a gateway currency to other more useful currencies surch as eth / monero / zcash
4/ How is the "no profits / revenue" makes any sense for pricing a financial object in 2021 where amazon for example literally never ever gave a dividend to the shareholder, meaning, whatever you say, that people holding amazon stock are doing it ONLY for speculation of the "perceived value" of the price ?
In the end, btc is not that much more a "baseless asset" than most of the stock market currently.
Everyone should take some time now to learn about Tether, the high likelihood that it is in fact a Ponzi scheme, and that it poses a big systemic risk to the crypto exchanges and therefore the markets themselves [1].
People have been sounding the alarm on Tether for a long time now, but we’re finally getting some hard evidence now to back the allegations [2].
Yoga instructor selling her house to throw it into bitcoin feels like the '21 spiritual successor of the Las Vegas stripper who owned several condos/houses that became the '08 housing market crash meme.
Wild prediction: this BTC crash pops the USDT bubble, cratering crypto in general. TSLA holders (frequently BTC/doge buyers themselves) begin to panic sell, triggering an ARKK bank run. ARKK implosion sparks wide selloff of big tech stocks (essentially their holdings) which depresses the S&P (where tech is the main driver of growth). Everyone is now forced to be conservative; cost to borrow skyrockets; demand chills, and coupled with supply chain disruptions and high commodity and materials costs, some businesses begin to fail. New homeowners who went for broke to buy at the top of their market are immediately underwater, and some of them are now losing their jobs. Fed is now between a rock and a hard place - needs to raise to interest rates but also needs to encourage spending - what to do?
Anyway, there is my daily dose of doom-and-gloom, and I have a vague understanding of any of it, so enjoy.
As a noob who owns some bitcoin and ethereum (both stored on an exchange), how does tether being a scam (which I do believe in) affect me? I don't hold any tether myself.
It affects you directly because:
1 - many exchanges hold Tether as a reserve and use it extensively for various transactions between the exchanges, which means that if Tether collapses they could have huge holes in their balance sheets. Some exchanges (Binance especially) could become insolvent overnight. No money in, no money out. Read up on Mt. Gox if you want to see what happened the last time an exchange went belly up.
2 - If you believe the worst allegations, then Tether is artificially propping up the value of Bitcoin. In the event of a run on Tether, Tether may be forced to sell thousands of Bitcoins abruptly onto the market to get cash.
3 - The fallout of a true worst case scenario for Tether could lead to crypto being reclassified in order to fall under all the relevant financial regulations that banks and the traditional finance sector are subject to.
The theory is that the market cap of BTC/Eth/Shitcoins have been pumped by Tether buying power that isn’t actually backed by USD. People think Tether is printing fake money and buying crypto with it. If/when the world realizes this, the market cap of these different assets will return to their (possibly much lower) “real” values. This slide could cause another crash.
OMG don't store your coins on an exchange long-term. During a real crash, the exchanges have a tendency to be down just when you want to get your coins out. The less reputable exchanges (i.e., everyone but Coinbase) have a history of absconding with the coins during a crisis (see: "exit scams"). I would put your wallet on a hardware wallet, or at least an encrypted removable drive (this might not apply if you're in a dangerous area where break-ins are common).
Tether is used for the purchase of other cryptocurrency (i.e. creates demand). If more Tether has been created then dollars burned, then there has been artificial demand generated for cryptocurrency. Artificial demand, artificial prices. I think sometimes Tether's affect on the market is blown out of proportion, but it could have cooling effect on the trustworthiness of cryptocurrency and then exchanges used to facilitate trades.
Its a fraud in that the money/gold/intrinsic fiat that is supposed to be backing it has not been credibly proven to exist, at least at a value matching the current amount of USDT in supply.
---
Let's say I decide to make NerdBucks. I offer to sell you n NerdBucks for n dollars, 1-to-1, and tell you I will always buy those NerdBucks back at the same price. This is how NerdBucks get "pegged" to a dollar -- if someone will always buy the currency for a given rate, it will then always be worth at least that much.
Now, you might say, "Okay, what's from stopping you from selling a billion NerdBucks, and when people try to sell them back to you, you just refuse?" Well, normally nothing (outside of litigation, but that is a rabbit hole I'm not going to talk about here). In theory, though, I could have a bank account that I publish the amount of inside it, to show you I am prepared to buy every single NerdBuck back in a worst-case scenario.
---
Going back to Tether: The issuing body of Tether has suggested they are holding reserves of USD equivalent to USDT in circulation. If you look at some of the other articles linked in this thread [0] you can find deep-dives that suggest they are lying, and in fact have been using USDT as a way to print money.
They are relying on the hope that more people will buy USDT than come calling to cash in. That is fundamentally the same hope that a Ponzi scheme relies on.
I'm in general just against using Ponzi scheme to describe things that are not systems where previous investors are promised and paid profits with later investors money.
BTC is bubble or mania. But not really Ponzi. Tether is even less so, it's carnival token...
A Ponzi scheme doesn't require a return. Tether is paying out existing investors with new investor's money, while skimming and investing the reserve in risky assets.
"Instead of 100% risk-free, short-term, liquid assets, Tether is less than 7% risk-free, short-term, liquid assets. Commercial paper? Backed by whom exactly? Fiduciary account? At which remote offshore bank owned by a third-party? They could be pointing to a half-eaten sandwich and calling it collateral."
I haven't messed with crypto at all myself, but the IT guy at my office was telling me about the whole Tether scam four years ago. I'm amazed it's kept going for this long.
Surely this is also very much related to the recent announcement in China [1], banning financial institutions and payment companies from providing services related to cryptocurrencies?
"Hong Kong's Bitcoin Association said in a tweet in response to China's reiterated ban: "For those new to bitcoin, it is customary for the People's Bank of China to ban bitcoin at least once in a bull cycle."
This still seems to leave open the ability for Chinese nationals to covertly convert yuan to foreign currencies without limits - buying compute with yuan which converts to BTC which can then be converted into anything.
I wonder what the BTC/USD break even point is for that to make financial sense.
> Global stocks slipped and cryptocurrencies sank deeper on Wednesday as a threat of unwanted inflation had investors shy away from assets seen as vulnerable to any removal of monetary stimulus.
The full title of this article is worth noting: "Crypto crash deepens, stocks slip". For some reason, that was changed for this posting.
Bitcoin is increasingly being seen as a barometer for market liquidity. As Bitcoin goes, so go the markets. That's the real story here.
We may not be there yet, but at some point, Bitcoin will drive broader market liquidity (stocks, bonds, gold, real estate), rather than feeding on its table scraps.
Regarding the volatility, this is nothing new. Anyone involved for more that four years has seen this before and worse. What is new is the sheer number of people involved. Bitcoin's user base doubles roughly once every 1.5 years. That means that at any particular moment in time about half of the participants have been at it for one year or less. When they see their first fierce selloff, predictably accompanied by a vague announcement from China, it can be very unsettling.
When this was happening with a small user base of mostly computer nerds and libertarians, it was easy to write off. When the user base includes respected financial institutions (as it now does), things get interesting.
I mean the technology is highly damaging to society in a whole bunch of ways, damaging the environment, supporting fraud and ransomware, used for money laundering, funding crime, and if it gets integrated into the financial system like some want it to be, it could even destroy human civilization: https://benoitessiambre.com/specter.html (even Douglas Adams tried to warn us 40 years ago).
So it's a relief when it looks more like it's going away or at least staying contained.
As a crypto miner/holder/user since 2011, that article was really great.
I think blockchains (esp. programmable ones) have or will have significant real value in making markets more efficient and transactions lower friction, but right now blind speculation is driving 99% of the market. IMO while this brings lots of useful funding to speed along development, it could also endanger the true purpose of the tech.
You’re not alone. Seeing the comments flooded with “buy the dip” or, God, “diamond hands” makes me cringe every time. They get so offended when you call cryptocurrency a cult or Ponzi scheme but they make it extremely difficult not to. This is from someone with financial interest in a few coins but I’m not ready to die on any hill for bragging rights. I wish they would just admit they want capital gain and call it a day
That's probably the worst aspect of crypto communities. Early in BTC the talk was about the tech and possibilities, trading/selling goods for BTC.
Those sort of comments you mention started creeping in, but now that is the mainstay, in every individual crypto community. I dont care that they are speculation vehicles, but pretending you are changing the world just grates. And the constant calls to HODL, which used to be humourous, are now just so much propaganda.
So true. I wish that the Bitcoin community had seen that fundamentally BTC would only become inequitable as it grew. If early adopters knew that it would eventually reach $50,000, they would be billionaires, and that it would be used far more as a Ponzi scheme / bubble than for anything useful, I think they'd be more horrified than happy.
> Early in BTC the talk was about the tech and possibilities
People who care about that have already moved on. Bitcoin has failed in that aspect, only speculators still care about it. The fact it's still the number one coin despite the existence of coins with better fundamentals like Monero and Ethereum is proof of how irrational this market is.
My rational take is that Bitcoin's carbon footprint is more-or-less a direct function of its price. The market forces are such that you can expect mining to expand until, on average, each miner's expected reward is only a little bit higher than their electricity bill and hardware costs.
If prices come down, that is going to encourage some miners to take capacity offline, which is probably great for anyone who's interested in keeping Amsterdam dry.
And you think China's going to shut down their coal plants and dismantle the train tracks carrying coal there just because the price of bitcoin drops? Or are they just going to use the pollution for something else?
Market forces affect the energy industry as well. They aren't burning coal for fun; they're burning it to make money and/or satisfy a demand. If electricity consumption drops, then plants will produce less electricity, and construction of new plants will slow down or stop.
Basically yeah. There are time lags, but crypto mining has been causing new power plants to be built everywhere and when it goes away that pressure will stop.
However the world always needs more energy so the plants built will unfortunately continue operating in some other capacity for a while, but the sooner the mining stops, the sooner they will be replaced by renewables.
The usefulness of Bitcoin does not depend on its price, but its power usage does depend on its price (it's bounded by how much power can be bought with the block rewards and transaction fees), so it's a good thing when the Bitcoin price goes down.
It may be arrogant sounding, but it’s not stupid. It is in the financial interest of Bitcoin holders to talk up Bitcoin and defend it to the death.
The senior management of regular banks in many countries are often required by law to deny that the bank is in jeopardy right up until the moment they close the doors, as a way to prevent bank runs.
Because crypto is distributed, every holder is a bank manager, and must deny or minimize problems with the currency in order to maintain sentiment and prevent runs.
This for me is one of the biggest problems with Bitcoin - it incentivizes the holders to become engines of disinformation.
Depends on the currency. Not all crypto is the same as Bitcoin. I’m pretty positive about cryptocurrency in the long term, once we have a design that incentivizes positive externalities.
Seems like if a large part of the population of the US held Bitcoin, and 51% of the hash power remains in China, there will be some nasty geopolitical consequences.
For me, it's because the hype isn't around the technology (which is the interesting part and for the most part, why we're on HN), it's around the speculation. From the outside, looks like a bunch of gamblers constantly getting each other off on whether their bets will make them millionares.
But also try taking a step back: why are they gambling? Sure, greed is ever-present in human history—that's a given. But also listen to the doubt in the present establishment. I know what it's like to be poor and what the banks do to you in that state. It doesn't surprise me in the slightest that there's so much being thrown at it. The chances of and potential returns are almost guaranteed better than a savings account. That's a problem, isn't it?
Almost guaranteed? If one put all that money into S&P indexes instead of coin, they'd be up 20% versus betting on crazy coin returns.
Most people aren't equipped to handle the volatility of the coin market and most people don't understand that you don't actually lose until you realize losses. Therein creates almost more guaranteed stress than actually making money, as we're seeing now with all the bag holders from the past couple months getting destroyed.
Traditionally, poor people did not have the means or access to invest money in an index like S&P.
Most people also aren't equipped to see their savings reduce in real value every month. This is a global phenomenon, not one isolated to first-world subdivisions.
You seem to be mistaking my seeking the reason why people might do what appears [to you and many others] to be such a wildly irrational thing to do. I'm arguing it's not irrational in their case, but one of the most rational things one can do as someone without much means when faced with the ready alternatives. It becomes no surprise.
Yes. And I'd add the "hype" around speculation works both ways, coming from mainly from two camps:
- those who care only about making money
- those who care only about seeing crypto fail
OTOH, the excitement and bustling activity around the actual technology is largely ignored by the mainstream media, and seems also conspicuously-absent here.
Many are not aware such a vibrant developmental ecosystem - with altruistic and exploratory goals far removed from a demented push to "make money" - even exists.
So feeling pity for the bag holders because they're gambling in a highly speculative market, of which most have no idea what they're buying, is now egotistical. Gotcha.
I love the sour grapes of the conventional investors. It must really grind their gears when BTC hits a new all time high after each of these draw-downs.
It's not even 1% of the world's energy consumption. If you want to stop wasting tremendous amounts of energy, all you have to do is stop trading with China.
Exactly. I remember the last time I rejoiced about BTC dropping. [0] At that time, I bought it at <$8,000 and bought it again in March 2020 and held it.
And now I am laughing at the ones who bought BTC at >$60K who are now bag-hodling around and have to wait again.
People are envious generally and when something they don't understand does well, they're confused. When that thing goes down, they feel relieved and their worldview makes more sense.
It strikes me as similar to the reasons I see people rejoice when artists or the like struggle to make it. It validates one's life choices like giving up on dreams to take up a dull job that keeps the lights just barely on.
Crabs in a bucket mentality. I for one would be happy if the kids find a better way forward that leaves fewer people in the dust (without instituting a new ecological drain, please). That's not happening yet, but some of the thought work shows progress to me, even if the execution isn't final and still lacking.
The assumption that people who don’t want to buy crypto must not “understand” crypto is a cliché among that community, and it reeks of the kind of hubris that makes me okay with seeing this kind of crash.
This is probably some remnants of Christianity and disgust about easy money. (I think there is no such thing)
But also, I really don't like Bitcoin as an alternative currency, on many levels it is worse than what it was engineered to replace.
There is value behind behind the ideas of blockchain algorithms, and I believe the future of currency is digital, but not necessarily decentralized in the way that Bitcoin is decentralized.
We're not there yet, and because of that, Bitcoin is as close to a scam as tulips bulbs were.
> You cannot sell it in panic, the technology is protecting you from your own psychology.
I know this is tongue-in-cheek, but I honestly believe this is the reason owner occupied housing is a more reliable form of middle class wealth accumulation than liquid financial assets. Most of our risk aversion is psychological, rather than economic. We really dislike seeing red numbers, even if our investment horizons make day-to-day swings largely irrelevant.
Haha, Kraken is the one I use. They've just disabled their login button with no messaging, which I guess is one way to achieve the same while avoiding a mark on their uptime graph.
If I remove the `disabled` attribute then clicking the button does nothing but I get a CORS error in the console.
They're probably doing that to stop BTC from crashing even further. If BTC crashes, altcoins would probably follow (instead of taking BTC's position). Even if they don't follow, just BTC crashing would make exchanges lose the biggest chunk of their income. So shady business, but business as usual.
Most GPUs are used to mine ETH. It is by far the most profitable. Unless another POW coin becomes as valuable as ETH, demand for GPUs will drop precipitously.
If it was like last time (2018), prices remained higher than what they should have been for months after. Then Nvidia got the message about how much people were willing to spend on GPUs, and overpriced their RTX 2000 cards.
Even if the big crash that kills GPU prices happen, I'll probably still have to go second hand, since a brand new, better GPU than the one I have will still go for (albeit less) ludicrous prices.
How do people get that many cards? Myself and about 3 friends have all been trying to get a 3060 or better for the last 3 months to build new computers and none of us has gotten a card yet. This is a mix of following discords, knowing site stock times (or trying their ridiculous lotteries), and one friend has tried bots.
Apps like Nicehash mine the most profitable shitcoin using your GPU and convert it to Bitcoin. When the market pumps people buy up cards and use it to make good money.
ASICs presumably take up valuable chip fab capacity at a time where we are going through a lengthy chips shortage that has real-world manufacturing impact on real goods people use to perform useful work.
A lot of that particular shortage happened because everyone cancelled their preexisting contracts and now they have to renegotiate at a new cost basis, after the government has thrown trillions of new dollars into the economy.
ASICs have had shipping shortages for months now, there's probably a lot of people using GPUs for bitcoin again, on top of ASIC-hard "crypto""currencies" that always abuse GPUs.
Throughout the last week of price declines the rates have stayed positive meaning longs were still paying shorts, implying continuous buying pressure, likely by those trying to time a bottom. But after this mega nuke the leveraged long traders got liquidated. When you clear out leveraged traders it becomes harder to move the price as fewer will be liquidated accelerating price changes. To summarize, retail investors lose in crypto because they take big risks with small money with big leverage and the big boys with big money then flush them out and the crypto lifecycle begins again making the whales richer and more capable of manipulating the market the next time.
I used to be excited to see crypto currency related threads on HN's front page, bc I would be excited to see the technical discussion about he merits and criticisms of the technology. Nowadays, I am just disappointed when the discourse devolves into politics, cultism (on both sides), and misinformation.
Where could I go to see discussions about just the technology?
Seconded, Lobsters is good. Now, my perception has been that it's beginning to have its Eternal September, including a significant uptick in political content, but as it stands it's still much more technical than HN.
I've been trading Bitcoin for several years and have gone through the various booms and busts of that time. I'm not sure I'm ready to call this a crash when it's back to where it was a few months ago.
The idea of Bitcoin and other cryptocurrencies is addictive, but there's always the sobering moment when you realize how limiting it is. I tried to transfer some a few months ago and was hit with $25 in transaction fees, and it took over 3 days to be confirmed. Clearly I should have used higher fees to expedite it, but I sympathize with newer investors experiencing that for the first time. I've also seen folks recently invest in mining rigs only to realize they're not as profitable as they anticipated.
I'm sure in time prices will back up as the cycle will repeat itself--the hype will die down, Musk will tweet something that inspires the next generation to jump on the bandwagon, and the price will rise again. Maybe we'll lament not buying while it was under 100k.
Even though I'm very bullish on crypto longterm and even though this crash caused me large loses on paper, I'm happy about it. I think a lot of people got very greedy and way overleveraged themselves which is not sustainable in the long-term.
For example, almost 9B$ worth of crypto got liquidated in the last 24hr, that's insane. People chasing quick money get burned.
Most of HN isn't aware of the non-BTC, non-Ponzi protocols and dapps being built right now.
There are some very cool things like decentralized lending/borrowing, exchanges, cross-chain swaps, synthetics, etc. These protocols are revenue generating (via fees) and are actively used with billions in volume.
99% of crypto will die off, but the small part that survives could be the backbone of a very robust internet-native financial system.
Whether these DeFi primitives will ever be plugged into TradFi systems remains to be seen, but if nothing else, the ability for these protocols to easily interop is a huge win over existing systems.
Even if everything uses stablecoins and all "altcoins" are ignored, there is still value here.
This is personal opinion and feel free to disagree, but I have zero trust in the government and I don't think central bankers and politicians in Washington care about me. I think the current financial system is highly corrupt, broken and fragile.
So naturally, ideally, I want to completely opt-out of their system. So far in human history, we never had an alternative, but now we do. Bitcoin price in fiat may go up or down, but I believe the Bitcoin network will keep ticking with the same mathematical rules and same transparency today and in 100 years from now.
You didn't ask me but I share this sentiment exactly. I think a digital currency is a neat idea. I think banks suck, their customer service sucks, their security sucks. I think the niche of a digital currency that's really like a more distributed Venmo is really cool.
I worked for an internet company in 2000 and was a stay at home parent looking for a job so as to avoid losing my HSBC mortgaged house in the fall of 2008 but still I share this feeling. I got a job hen and enjoyed the Big Short tremendously. I think the crypto documentaries will have nicer rich people details tho, tho sports cars etc.
I mean anyone sane was expecting a trace back at some stage after the wild couple of months we just had. Predicting crashes isn’t hard. Predicting the timing thereof on the other hand…
It's funny how everyone here worships YC and YC has invested in multiple crypto companies and yet everyone here hates crypto and everyone involved in crypto. How do you justify that? Is it because you think YC is just clever to cash in on the speculation, the same way Trump is clever to not pay any taxes, but you hate all the little guys that cash in on the speculation?
I think the amount of fees per block is what's "insane" here.
Going back a day shows that the fees were on the order of ~3 eth per block (https://etherscan.io/blocks?p=300) whereas now they're averaging around ~20eth per block.
In other words ETH holders are very motivated to move their tokens right now, and the amount they're paying to do so reflects this.
To make a transaction, you have to spend a certain amount of gas. This will then be multiplied by the constant cost of the transaction. But gas fluctuates based on demand. If many people want to make a quick transaction, gas will go up as the amount of transactions per block is limited. Avg gas was around 70 gwei yesterday. Currently there's tons of blocks averaging between 1000 - 1500 gwei, which is a lot.
The fees, on a good day, you can pay somewhere around 50-100gwei for a transaction on eth, right now we are seeing 1500+gwei transactions.
For example, to deposit into a maker vault, a 50 gwei transaction would cost somewhere around 100$, it now costs like 2-3k$ just to execute a single transaction.
And, as usual, Coinbase is also down at the moment [0]. Don't have a super-strong opinion on the crash itself (or whether we should call it a crash given crypto's volatility)--but it does seem peculiar that the exchanges in the space tend to drop when things get rough.
[0] https://status.coinbase.com as of 13:51 UTC status was "intermittent downtime" and "delayed withdrawals"
I very clearly recall Coinbase structurally having these outages back in 2017/2018 as well. Always when big price movements are about to happen, but often before the volume spike. Nothing but funny coincidences I'm sure.
I feel like the HN community, who are more tech literate, should have a better understanding of Bitcoin and crypto. I don't like all the ignorant comments that focus purely on the financials. Is cryptocurrency space not full of technological marvel?
Bitcoin has always been an application for demonstrating the engineering achievements behind it (solving byzantine faults, fungibility of data), so we can build even greater tools like smart contracts, programmable money, trust-less p2p networks, etc so many things. I think labeling bitcoin as a scam is a huge insult to those engineers involved. Engineers like Hal Finney who dedicated his life trying to make a brighter future for everyone, I don't think it is fair to call his and others work an elaborate ponzi scheme.
The bitcoin space has so much history, a lot of battles have been fought on bitcointalk, over mailing lists and pull requests, etc. I feel that as developers we should focus less on financial markets and more technical discussion. Bitcoin has a lot of new things to talk about with the Taproot activation, like schnorr signatures and private lightning transactions. I'd like to see those discussions more on HN but that's just my opinion.
> Bitcoin has always been an application for demonstrating the engineering achievements behind it (solving byzantine faults, fungibility of data), so we can build even greater tools like smart contracts, programmable money, trust-less p2p networks, etc so many things.
If you were to categorize all discussions about BTC between live humans into two buckets: discussions about the price of BTC and discussions about applications build on the bitcoin blockchain, which one do you think would win? I'd wager that >99% of all discussions are about the price. Yet the price is completely irrelevant to the applications built on the blockchain. They work just as well if the price of BTC is 1/10,000th the current price.
So it becomes very hard for people to buy the claim that actually this is all about technology and not about getting rich.
I don't think it's fair to base a topic on the loudest voices in the room. That is a road to madness.
I still wish to see more interest in technical discussion of Bitcoin here. Like the new BIP proposal expanding the scripting capability of the protocol. I don't know what percentage of BTC discussions on HN are in either bucket, but I hope at the very least it would be 50/50. Don't you agree?
Not so strange - Bitcoin prices are mostly set by investor psychology. They were probably thinking to the moon and then when the IPO was a bit disappointing lost that.
Attention seeking headline. Stocks are down as well. From the very first sentence:
> Global stocks slipped and cryptocurrencies sank deeper on Wednesday as a threat of unwanted inflation had investors shy away from assets seen as vulnerable to any removal of monetary stimulus
This whole fiasco is because of money printing at will.
Has anyone noticed how many Crypto rooms are currently on Clubhouse? Mostly led by paid clubhouse admins, trying to pump up crypto and who always have a extra stash to 'buy the dip'. This entire scenario smells of a scam led by companies like A16Z (investor in Clubhouse and other Crypto companies) and other whales like Musk, who have been playing with these coins/token prices since last year.
This is clearly false- Bitcoin had a return of 100000% in the last decade. It's completely irrelevant with those kinds of numbers what the "risk" was.
...Now, you may have a personal opinion that the next decade will not see similar returns, but that is a completely subjective assessment on your part, even if you try to pretend that you're being objective by using the phrase "risk-adjusted returns".
Because of the environmental and societal consequences of that action. It is a collossal miallocation of electricity, advanced manufactured goods, and the time and focus of intelligent people all around the planet.
The argument to not buy lottery tickets, is if you have no need of the return so it's not worth giving up the 5% of your portfolio that could be reliably generating returns for you.
Software engineers for example are easily capable of reliably earning six figures in the US, outside of the Bay Area. With stock compensation their earnings potential is that much higher. It's a solid multi-millionaire track if you grind away at that career path and keep your expenses in line.
So why bother with the lottery in that case? Because a few million dollars isn't enough?
If you're earning $40,000 per year with an inability to generate much in the way of savings (compared to the software engineer), your job prospects are highly capped, you do manual labor in a factory in a 2nd tier city, your education level is weak, and your shot at a multi-millionaire outcome is essentially zero, maybe giving up 5% of your savings makes sense for a shot at an epic outcome to escape that lower middle class trap.
What I've read is that one has to distribute the portfolio across a risk spectrum. A big % to very low risk / low yield instruments (say, bonds), a medium % to blue chip stocks, a smaller % to more risky stocks, etc.
So, following that logic with cypto or lottery tickets, a very small % could be put in anything that has a high risk high reward.
When you say bother you mean effort but in theory you could outsource your potfolio so there's not more work by following one strategy or another.
Thus... are lottery tickets a good thing to have in the portfolio?
I'm quite curious if there is an answer to this from a statistics or investing point of view.
Yes, it does, despite the negative expected value. In corporate finance it's known that companies that are approaching failure are often willing to pay for volatility.
This is also why lotto tickets are more popular with the poor.
It's all about Expected Return. lotto's expected return is probably ~25% of the ticket price. You could look at past performance for BTC's expected return, and that would give something >100%. But as is always mentioned "past performance is no indication for the future"
Why not 10% in comic books or any other limited non-productive asset? If we could just convince everyone to put in 10% of their savings into comic book collections, comic books too would become incredibly valuable.
~300% return YoY is bad now? Just put a small % of your portfolio and if it fails, not a big loss, but if it increases at those rates, it'll naturally end up becoming a large % of your portfolio.
There is no free lunch. Your hypothesis is fed-driven policy will continue to be effective (the easy money gravy train). It's likely a better thesis, but after a decade of great returns, people are under the illusion that the Fed has actual control of markets (they can only shape sentiment via policy).
maybe off-topic but: interesting how any cryptocurrencies discussion have tons of comments repeating the same (flawed imo) arguments, while the older ones are both downvoted and argued against, but new ones keep popping up.
look anywhere in this thread. there will be a comment 1h ago, and 4+ others further down with the exact same argument both downvoted and with a few dozen replies explaining why the argument is bogus. You might need to enable the option to see dead comments to get the full picture.
Did anyone else notice that the 'store of value' thesis is almost a verbatim rehash of Jim Rickards gold theories around the time of his book 'Currency Wars' (2011)?
I think an important Achilles' heel of cryptocurrencies is just how hoarded they are. Whales -- in general, they're just early adopters -- own huge swathes of the total amount of crypto out there. If we were to actually move to a world where crypto is used as currency, we'd have trillionaires who "earned" their wealth simply by being early adopters. Government issued currencies can solve this through taxation or more generally through monetary policy.
One could argue they "earned" the wealth by taking an enormous risk and holding through crazy swings when no one else would. And ended up be rewarded for taking the risk, as they should.
Along comes the people salty they didn't take the risk, and want to steal the money from the people who did take the risk. It's a tale as old as time.
Their average buying price is in the ~20-30k range, still lots of way to go. And if they have losses on their coins, they can harvest them to offset their other incomes, etc.
Crypto is DE-CENTRALIZED. As long as there are people out there that rather trust a ledger produced by a collection of de-centralized computers than a ledger held by a private institution/government (closed) its value will remain useful/practical.
Big banks and the rich are squeezing out paper handed retail and leveraged traders. They are buying in at the low and will go full steam by the summer.
This is what a healthy market looks like, without circuit breakers, without Powell stepping in, without the POTUS making emergency statements to contain the panic. Price discovery at its finest.
When you buy crypto you are effectively voting with your wallet against the Fed and all those phony protection systems
Every day more and more people are understanding the machinations of the Fed.
This is one hell of a take. Give me a stable financial system any day.
If, by understanding, you mean, realizing that having a centralized entity with a mandate to keep inflation to stable levels so the monetary supply doesn't swing wildly in value from day to day, sure?
1:1 human relationships are unstable as it is, think about a 300M individuals megasocial group where everybody is interacting with everybody and constantly adjusting.
The Fed is like the doctor who fills up the patient with cortisone and throws away the thermometer to avoid reading the temperature
We need ups&downs, love&hate, forest fires and rebirths. Anestetyzing the whole process makes me wonder what are we even thinking
BTC mimics nature as opposed to the Fed which mimics the arrogance of man.
Basically, bitcoin is like a religion in that 1) the founder is shrouded in mystery, 2) he/she goes missing/vanishes/dies before being able to benefit (i.e. they sacrifice for the benefit of others), 3) thus the actual spread of the religion/technology is left to an inner circle of disciples, 4) the masses that are brought in often talk about it incessantly furthering its spread, and 5) it has rituals/holidays (bitcoin halving day, bitcoin pizza day)
This changed the way I think about bitcoin adherents.
Interesting point there. What is also interesting is how well jokes are received. HODL and 'buy the dip' or 'to the moon' are taunts.
Note how far my comment was modded down - no room for humour if you have had your 'money' wiped out.
You can't tease religious people either. I once sat next to a girl at work who was seriously Christian. I jokingly asked if she believed in Father Christmas one slow Friday afternoon and the looks I got from my colleagues who knew what I was doing and how morally wrong my teasing was!
It is the same with the Bitcoin religion. You quickly learn not to question it.
I also consider The War Against Terror to be a religion.
So much nocoiner butthurt in here lmao. Yes, it's down 50%, yet I'm still a multi-millionaire thanks to holding, from a small mining stint a couple years back, $0 invested directly aside from mining machines (GPUs I would have bought anyways for gaming).
With how it's progressed, I never have to sell. My employment income is zero, and I can't get any mortgages cuz of this... no problem, I can literally use crypto to sythnetically underwrite my own mortgages.
A lot of people here can’t separate emotion from logic. They love Element / Matrix because it’s decentralized. They love Apple because of their focus on privacy. But they hate Bitcoin: a private, decentralized currency.
They say it’s because of “volatility” or “power consumption”, but when these problems are fixed they move the goalposts (see the ETH proof of stake thread).
The truth is, they missed out on the bull run, and whether they consciously realize it or not they’re letting their emotions cloud their judgement.
I consider crypto currency as it is to be an elaborate Ponzi scheme (personal view), but even with that cynicism nothing about this dip looks unhealthy to me. (I have views on what ultimately happens, but I will hold back on that)