Key Post Bitcoin is a clearly identifiable economic bubble

Discussion in 'Alternative Investments' started by Brendan Burgess, Nov 25, 2017.

  1. noproblem

    noproblem Frequent Poster

    Posts:
    1,084
    Or just maybe some little busybody sneaked in slyly ;)
     
    Dan Murray likes this.
  2. Firefly

    Firefly Frequent Poster

    Posts:
    2,859
  3. TheBigShort

    TheBigShort Frequent Poster

    Posts:
    2,623
    Last edited: Mar 9, 2018
    Interesting to an extent insofar that it mirrors the views of those who say it's all a bubble, worth nothing, just a puzzle, hot-air, it will return to zero, etc.

    However it makes two typical points that reflects that the author is simply not grasping the concept, or at least the value inherent in the concept, in my opinion.
    Before that, to be fair to the ABC's, there is a lot of noise around Bitcoin - 'it will replace fiat', 'destroy central banks', 'go to $100,000 or $1m'etc. And as far as going to $100,000 or $1m theoretically it could. But theoretically so could the price of cabbage, or even so could the price of a tulip!
    So the question is often asked, what gives it any 'intrinsic' value? Personally, I think all value is subjective and effectively in the eye of the buyer and seller.
    It's why my wife will pay you €50 to get rid of my record collection out of the attic, even though to me it is clearly worth €10,000. Or why someone will pay $300,000 for a Gibson guitar just because it was owned by Elvis, when the same guitar is mass produced and retails between €2,000 - €3,000. Or why a Da Vinci painting of Christ will auction for $450m (increasing from $200m in the space of 20mins) even though it's possible to commission a top artist for €15,000 - €20,000 to paint a replica, which arguably will be of superior quality.
    Of course some of these things have associative, sentimental, historical and artistic value. But none of these values actually place a $ amount on that value.

    The market of buyers and sellers do.

    So back to the author, the first point that he makes that I disagree with is his comparison with Bitcoin with the .com bubble. This is not to say that Bitcoin is not in a bubble, for the record I don't know if it is or not, certainly it is showing the characteristics of bubble. But the .com comparison fails insofar as well, some 20yrs+ .com is still here. The .com phenomena simply emerged as something other than what the market speculators thought it to be. The author speculates that Bitcoin could still be here in a decade from now.
    The second point is the references to ideology - that ideology is rarely a sustainable value. I disagree, ideology surrounds us all the time. Religious faiths are all ideological as are political doctrines, many of which have failed or on the fringes of society. Many are however, dominant and sustaining real value over the centuries.I happen to think there is real value in the teachings of Christ around forgiveness, pursuing peace, for example. Do I think he walked on water, rose from the dead and went to heaven - no. But every ideology probably needs its hook lines, and 'the end of central banks' is as good as any that I've heard in a long time - not quite 'forgive them Lord for they do not know what they do', but a ear-pricking for lots of people.
    The € currency is an ideological project, when you think about it, we gave up our sovereignty on the concept of an ever closer Europe without ever really questioning if it was good idea! The US dollar as a world reserve currency is also ideological.
    There is ideology attached to Bitcoin and crypto, the question is does that ideology hold any value?
    If you are like me and think the concept of holding money and being able to transfer money securely outside of the centralised banking system is a good idea, then Bitcoin is a great idea. If you don't then it doesn't.
    Currently the market values the Bitcoin concept at circa €7-8000 per unit. Or $140bn in total. If Bitcoin is backed by anything, it's backed by $140bn!
     
    Last edited: Mar 9, 2018
  4. Firefly

    Firefly Frequent Poster

    Posts:
    2,859
    This story is beginning to sound like a broken record :D
     
  5. Firefly

    Firefly Frequent Poster

    Posts:
    2,859
    I agree, but I would have thought that its price would have settled at this stage, particularly since it is just meant to be a currency (rather than a share / investment).

    My own belief is that Bitcoin will stick around, but that will really depend on whether people use it do buy stuff rather than just holding it in the hope it increases in value. Regards the price, I think it will be ultimately pegged to something like gold - the same as, a multiple of or a fraction of.
     
  6. Firefly

    Firefly Frequent Poster

    Posts:
    2,859
    It’s a matter of when, not if, the Bitcoin bubble will pop, according to Allianz Global Investors.

    “In our view, its intrinsic value must be zero,” Stefan Hofrichter, the company’s head of global economics and strategy, wrote in a recent web post. “A bitcoin is a claim on nobody – in contrast to, for instance, sovereign bonds, equities or paper money – and it does not generate any income stream.”

    https://www.bloomberg.com/news/arti...hless-bubble-may-pop-soon-allianz-global-says
     
  7. TheBigShort

    TheBigShort Frequent Poster

    Posts:
    2,623
    Its a fair point, that is has no claim on nobody. Unlike sovereign bonds, equities or paper money which all promise to pay.
    But that is where I think the misunderstanding kicks in. Bitcoin, or cryptocurrency, doesn't require a promise to pay. It is a trustless system, hence no need for over-arching authorities to stand over it and promise anything.

    When that concept is finally understood, commentators like the above might think differently.
     
    Gus1970 and Firefly like this.
  8. jman0war

    jman0war Frequent Poster

    Posts:
    254
    Behind that 'promise' lies ugly things like compulsion, and coercive laws that are not generally applied equally.
    It's one thing to break that promise to punters, but it's quite another to break that promise to the "important people".
     
    TheBigShort likes this.
  9. PaddyBloggit

    PaddyBloggit Frequent Poster

    Posts:
    3,113
    Last edited by a moderator: Mar 15, 2018
  10. TheBigShort

    TheBigShort Frequent Poster

    Posts:
    2,623
    That story was covered by firefly above.
     
  11. honeybadger12

    honeybadger12 Registered User

    Posts:
    10
    And now Bitcoin is back above $8,000, so unpredictable.
     
  12. newtothis

    newtothis Frequent Poster

    Posts:
    422
    Not bad for something that has no value...... :rolleyes:
     
  13. Protocol

    Protocol Frequent Poster

    Posts:
    2,685
    https://voxeu.org/article/cryptocurrencies-are-lousy-investments


    Cryptocurrencies are lousy investments

    Jon Danielsson 15 June 2018

    Are cryptocurrencies the future of money, Ponzi schemes, speculators’ dreams, or just a prosperity gospel? While there is money to be made in the short run, this column argues that cryptocurrencies are lousy investments and will eventually reach a price of zero.
     
    MrEarl likes this.
  14. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    35,042
    Good article. I particularly liked this bit

    This leaves the intermediate scenario where cryptocurrencies partially replace fiat money. Bitcoin is already used for certain types of transactions. The central banks might also start holding cryptocurrencies as reserves, or large retailers like Amazon may begin accepting cryptocurrencies for transactions.


    Unlikely. I don't think many people would like to earn their salaries in dollars, pay rent in Bitcoin, buy groceries with Ethereum and compensate the hairdresser in Ripple. We want to use a single currency, one that provides price stability and ease of transactions. I want to know how large my monthly mortgage payment is, and will be, as a fraction of my salary. This means using the same money for everything. If fiat money competes with Bitcoin or any of the cryptocurrencies, one will win. That leaves the two extreme scenarios.
     
    Swyper and MrEarl like this.
  15. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    35,042
    He has written other good articles on the topic

    https://voxeu.org/article/cryptocurrencies-dont-make-sense

    He summarises the arguments very well

    Privacy and security
    That leaves privacy and security.

    Cash is 100% anonymous, but one is at some risk of theft. Electronic transactions are not anonymous, but are safer.

    While some cryptocurrencies promise anonymity, the most popular, Bitcoin does not, unless one is really careful in hiding one's tracks using skills that are only available to a small group of users. The reason is that transaction records on the blockchain cannot be changed or deleted and are therefore searchable.

    Meanwhile, not a day passes without reports of theft from cryptocurrency investors. The best advice is to keep one's private key on an air-gapped burner laptop.

    Cash and electronic money are also subject to theft. Still, there is no need for a private key with cash transactions and keys are much less important for electronic cash transactions. There are multiple layers of security that protect us. The fiat money of non-expert users, provided they take basic precautions, is very safe.

    I feel quite confident in doing online banking without resorting to an air-gapped burner laptop.

    Cryptocurrencies are only safe from theft if one is expert and takes elaborate precautions. We are much more likely to be a victim of a crime with cryptocurrencies than cash or electronic money.
     
    Swyper likes this.
  16. ant dee

    ant dee Frequent Poster

    Posts:
    276
    I believe many currencies will coexist Fiat and Crypto and it will be so easy to switch between them, it will be barely noticeable.
    Tap to pay, the app will decide what to spend and how to pay if you are not bothered.

    You can denominate your mortgage as a fraction of your salary, or choose to make things more complicated. Involve your house value, your pension, your savings in the calculations.
    Pocket accounting and budgeting apps will only get better.

    And as for the much discussed Privacy and Security, my bank account is safer than the private key, let's just repeat ourselves...
    Tell that to the Venezuelans!

    You can buy a hardware wallet for like 50e, write down your seed and then securing it is as simple as hiding cash under the mattress... Please not under the bed and not in the socks drawer :D
     
    tecate likes this.