Key Post Bitcoin is a clearly identifiable economic bubble

TheBigShort

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You might find the discussion on this thread of interest on the differences between investing, gambling and speculating.
https://www.askaboutmoney.com/threa...quities-over-a-period-of-just-4-years.203846/

Thanks, some interesting views there.
My own personal view is that there actually no difference between gambling, speculating and investing.
In the discussion you linked to, there appears to be an underlying tendency, by some, to assume that 'investing' has mostly long-term positive outcomes. Speculation and gambling, are short-term, un(-ill)informed punts that can, and often do, go terribly wrong.
So if you place your money anywhere for a return, it was an investment if it pays off, a gamble if it didn't. Either way, it's all speculation.

However, to avoid going off-track, I think one point has been missed in all of these comparisons between Bitcoin and tulips. That is, blockchain technology.
If I am to believe what I read about blockchain technology is that it cannot be tampered with without that tampering being recognised almost instantly.
Apparently it was, and is easy to tamper with tulips, and nowadays nobody cares - except maybe horticulturalists.
As someone explained to me once (I'm joe soap with technology and science), blockchain is the financial equivalent of DNA. That is, each transaction leaves a footprint, that is not erasable, and should anyone tamper with it, it is detectable almost instantly.
If that technology exists, and is available mainstream, and becomes mainstream, then we are for serious, I think, talking about a revolution in the monetary system.
On the other hand, perhaps it is a tulip, a Rubik's cube, a block of apartments in Bulgaria or a golf course resort in Doonbeg? Either way it is a speculative investing gamble for sure.
 
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elacsaplau

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Thanks, some interesting views there.
My own personal view is that there actually no difference between gambling, speculating and investing.

Hi Big Short,

I'm not sure if I'd quite go as far as "no" difference but your essential point of granting a disproportionate emphasis to these terms has struck me at times during this debate. [Labelling certainly has advantages and drawbacks!]
 

Brendan Burgess

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My own personal view is that there actually no difference between gambling, speculating and investing.

Hi Shortie

Let's say you buy a small office building paying €15k a year in rent. You can see that this is an investment. You will get an income stream. You will have an asset which can be sold at some future stage. Of course, it might be a poor investment, because you pay too much for it or things go wrong. But if you have a portfolio of similar investments, then you can expect a positive return in the long term.

Let's say, that instead of buying the property, you decide to go into a casino with your money and play roulette. The house has a small advantage. Small enough that any individual bet might win big for you. But over a short period of time, your money will gradually whittle away to nothing.

That really is the key difference between investing and gambling. The first has a positive expectation, the second has a negative expectation, at the outset.

It's a very, very important distinction and it's essential that people understand it before putting their money at risk either in an investment or in a gamble.

Brendan
 

Brendan Burgess

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As Bitcoin Wiki, itself reasonably supportive, observes, just because it costs a lot for 1000 men to dig a huge hole in the ground does not mean that same hole has value. Similarly each one's fingerprints is extremely scarce but that does not confer much value.

Hi Duke

That is brilliant.

Brendan
 
D

Dan Murray

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That really is the key difference between investing and gambling. The first has a positive expectation, the second has a negative expectation, at the outset.

John was a very careful and risk averse man. The idea of gambling, whilst strictly not against his religion, was a complete anathema for him. He had built up reasonable wealth through hard work, frugal living and steady low risk investments.

There was a time when he had some exposure to the equity markets but his faith in equities was so shattered in the last crash that he prefers now to invest in high grade sovereign bonds. "I don't want to take any gambles with my money" he would say.

Recently, upon mature reflection, John placed much of his money in short-dated Swiss government bonds. It will be as safe there as anywhere, he figured. The fact that the yield is negative is a secondary consideration - his mantra being: I need the return of my money more than a return on my money.

He meets his old pal, Brendan. They talk about the universe and John mentions his allocation to Swiss bonds. Brendan is convulsed - "why the hell are you gambling with your money at this stage of your life? You do realise that you are guaranteed to lose money here? This is not investing - this is gambling - you have a negative return expectation, nay, guarantee. If you play roulette, there's actually a chance that you won't actually lose money."

John just looks at Brendan and says...."don't you understand?.....it's a new world out there, man.";):D
 
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TheBigShort

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Thanks Brendan, I do understand the nuances that are generally accepted to differentiate 'investing' and 'gambling'.
If I put my money on red in a casino, I am armed with the knowledge that in a very short space of time, either I win or I lose all of stake. And in between 'no more bets' and the end result, there is absolutely nothing I can do to withdraw, sell, retrieve any part of my stake - the highest form of risk taking.
If I buy a property to let, I can arm myself with historical data, economic trends, to establish the knowledge that over the long-term, my stake has a high probability of being returned with profit. That is still speculation, and as there are no guarantees, it still amounts to gambling in my view, albeit very low risk gambling.
Casinos are high risk gambling. On the other hand, 'investing' in the premier league leaders today to win a game of football will return you about 10% profit on your stake. If they don't win (as quite may well be the case), I can arm myself with historical data, competitive sport trends, to establish the knowledge that the team that sits on top of the league are never more than a 3-4 games without a win. Thus building a strategy long-term that will return my stake with profit.
 

TheBigShort

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But you are not investing in the underlying technology nor the companies building products on it!

Correct, I never said that. Buying bitcoin is a speculation that the underlying technology of fiat currencies (paper, central bank printing presses) are flawed and destined to collapse the value of the currencies they produce.
To put it another way, if everyone had a rock solid belief that the value of their currency was in no way in danger of losing value, bitcoin wouldn't even see the light of day.
Bitcoin is outside of the centralised command banking economy, the technology that underlies it is, to date, accountable and verifiable, and it is the gift of every person to determine if it is overvalued, undervalued or actually worth nothing at all.
 

Brendan Burgess

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I strongly advise you stay away from sports betting and buying Bitcoin as there are fundamental gaps in your knowledge and experience which might well cost you heavily.

That is still speculation, and as there are no guarantees, it still amounts to gambling in my view, albeit very low risk gambling.

I distinguish between investing and gambling. I tend not to use the word "speculation".

Property investment has a positive expectation. There are no guarantees and you may lose money.

If you consider it gambling, then I am afraid you simply can't distinguish between the two - which is probably why you are a punter on Bitcoin.

to establish the knowledge that the team that sits on top of the league are never more than a 3-4 games without a win. Thus building a strategy long-term that will return my stake with profit.

Again, this shows you have little understanding of gambling strategy. People use the same reasoning to always double up on black in a casino on the grounds that it must come up sometime so "they can't lose".


Brendan
 

Brendan Burgess

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it is the gift of every person to determine if it is overvalued, undervalued or actually worth nothing at all.

Hi Shortie

You and I may well have different views on social and political issues. That is fine.

People who buy Bitcoin do not have the gift of determining its value. It's worthless. You will only gain money if the greater fool progression continues. When it stops, you will lose all your money.

Brendan
 

TheBigShort

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Again, this shows you have little understanding of gambling strategy. People use the same reasoning to always double up on black in a casino on the grounds that it must come up sometime so "they can't lose".

Admittedly, the 3-4 game strategy is doomed to failure. There are other factors to consider, but all of which, the historical data is available to analyze. Thus reducing risk over long-term.
 
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TheBigShort

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People who buy Bitcoin do not have the gift of determining its value. It's worthless. You will only gain money if the greater fool progression continues. When it stops, you will lose all your money.

Of course, if this speculation continues on bitcoin price continues, the last ones in will take the hit. But that is the same for 'investing'.
If I'm to believe economic forecasts for property, they will rise 20% in two years. Alternatively, I think Dublin, London, New York, San Fran, Toronto, Vancouver, Beijing, Singapore, Sydney and Melbourne, are clearly in property bubbles. Therefore, my view is not to invest in property in Dublin as it is due another correction.
You may consider bitcoin to be worthless, you may be correct, and I consider its price to be pure speculation. But I do consider its underlying technology, blockchain, to have real value.
It may be a case that when blockchain becomes mainstream that bitcoin will be redundant, or alternatively, it may be that bitcoin has stolen a march on using the blockchain technology and will by default, become the defacto form of using blockchain technology.
To dismiss it as worthless is to dismiss the underlying technology that it is built on.
 

Brendan Burgess

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To dismiss it as worthless is to dismiss the underlying technology that it is built on.

Shortie

This has been pointed out loads of times in this thread.

You are not investing in the underlying technology. I have a visa card. I am not investing in AIB who provides the card. Sure I am benefiting from their technology.

Brendan
 

TheBigShort

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Shortie

You are not investing in the underlying technology. I have a visa card. I am not investing in AIB who provides the card. Sure I am benefiting from their technology.

Brendan

And my response to that was

Correct, I never said that. Buying bitcoin is a speculation that the underlying technology of fiat currencies (paper, central bank printing presses) are flawed and destined to collapse the value of the currencies they produce.
To put it another way, if everyone had a rock solid belief that the value of their currency was in no way in danger of losing value, bitcoin wouldn't even see the light of day.

I suppose the point is that confidence in fiat currencies, central banks etc is starting to erode. Gold would be an obvious 'safe haven' but there is evidence that gold markets are manipulated too.
Bitcoin offers an avenue to trade securely, without interference, based on its underlying technology. It's current price is pure speculation. For sure, some will be burnt, perhaps everyone if it's price returns to zero. But I would consider its price to return to zero only if;

- an underlying flaw in the technology is uncovered.
- confidence in fiat currencies begins to reverse
- a competing blockchain technology undermines bitcoin.

All of the above are quite plausible to greater or lesser degrees. But until any one does occur then bitcoin has its place.

- My understanding, as it was explained to me, was that blockchain technology is akin to DNA technology, for it's ability to verify. So, if correct, I'm of the assumption that an underlying flaw in the technology will be hard to unearth.

- Once confidence in fiat currencies begins to erode (as I believe is occurring), historical analysis will show it never reverses. Although there is always a first time for everything.

- A competiting blockchain technology is plausible, but if it doesn't do anything different, creatures of habit - like humans, will opt for what they are used to, that is bitcoin.
 
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Brendan Burgess

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I suppose the point is that confidence in fiat currencies, central banks etc is starting to erode. ...


Bitcoin offers an avenue to trade securely, without interference, based on its underlying technology.

If I pay you €200 for some professional service today, you can be fairly sure that you are going to be able to take a friend out for dinner and have a bottle of wine and a few pints and get a taxi home with the €200.

Today 1 euro will buy you $1.19 or 88 British pence.

The euro will change in value against the dollar and sterling. Inflation may well erode its purchasing power in Ireland.

But €200 today won't be worth €2 tomorrow and nothing the next day.

Bitcoin is worth nothing. It will drop to zero and it will happen overnight. This will happen whether or not the world loses confidence in fiat currencies.

Brendan
 

Jim2007

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A competiting blockchain technology is plausible, but if it doesn't do anything different, creatures of habit - like humans, will opt for what they are used to, that is bitcoin.

You don't need a competing technology! The Swiss banks are investing very heavily right now in blockchain which will be based on the Franc. How do you think the Swiss Banks reputation for secrecy, the same blockchain technology and the strength of the Swiss Franc will stack up agains bitcoin???

Blockchain is a game change, but it can just as well end up supporting any other currency, just as well as bitcoin.
 

TheBigShort

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How do you think the Swiss Banks reputation for secrecy, the same blockchain technology and the strength of the Swiss Franc will stack up agains bitcoin???

The Swiss banks reputation for secrecy is the sole reason Switzerland is not a fully fledged member of the EU. If it was, they would have to comply with all ECB rules and regulations and effectively open their books. As they don't open their books to scrutiny, the obvious conclusion is that the same books are crooked and manipulative of international financial markets. It suits Switzerland and the EU and the ECB to keep it that way.
If the Swiss develop a blockchain technology based on the Swiss franc, by its very nature, it will have to be a currency that is wholly verifiable - that is what blockchain technology is. The notion that there is 'heavy' investment by banks in blockchain technology, suggests that the technology will be open to control and manipulation by the banks themselves.
In other words, it won't fare very well against bitcoin.

Blockchain is a game change, but it can just as well end up supporting any other currency, just as well as bitcoin.

True, and I have already suggested that. But if any other currency is controlled by banks, governments etc, it is open to manipulation. It is not blockchain in the form that we know bitcoin to be.
On the other hand, if banks and governments support a blockchain technology that is not manipulative in the way they like it to be, then yes, that could be the end of bitcoin.
 

seamless

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[QUOTE="To dismiss it as worthless is to dismiss the underlying technology that it is built on.[/QUOTE]

I disagree. Bitcoin is an *application* of Blockchain technology - so while the Bitcoin "application" may very well turn out to be worthless, it is quite clear that Blockchain technology has a value in certain business domains.

The biggest project to date in the Linux Foundation is the IBM Hyperledger initiative which is an active and rapidly growing Blockchain community. It is unashamedly Enterprise focussed and promotes permissioned (i.e. clearly identified parties) rather than permissionless (i.e. anonymous like Bitcoin) interaction models.

Many Blockchain practitioners (myself included) spend a lot of time trying to separate the cryptocurrency Blockchain *applications* from the underlying Blockchain technology stacks.
 

fpalb

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I still think a lot of you are missing the most basic aspects of this. The primary value isn't the payment mechanism (not yet at least, and especially not since bitcoin starting reaching current transaction limits), it's the permission-less nature, the hard scarcity and the censorship-resistance. A blockchain 'controlled' by a company or nation isn't a cryptocurrency in my view. If that kind of thing interests you look into Ripple, but it doesn't interest me, I'll be holding the leading crytpocurrency.

I keep repeating this, but not requiring backing is better than having backing.
 
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