Paddy Power giving 5/6 on Bitcoin being below $15,000 on Jan 1 2019

[fpalb]

Thanks for the kind words Dan. I actually went off on such a tangent that I forgot two things I had originally meant to include

Firstly, I think if you want to profit from the possibility of bitcoin falling the spread betting option is probably much better than betting on the price on a specific date such as this PP bet. For example I think there's a higher chance bitcoin dips to 8k *sometime* in the next year than that it will be below 15k on a specific date at the end of the year.

Secondly, is anyone reading this aware of Nassim Nicholas Taleb, and if I'm curious about your opinions? I read his book The Black Swan: The Impact of the Highly Improbable and found it very interesting both in general and in terms of the bitcoin phenomenon. It's a bit long winded but If you enjoy my posts and considering outside-the-box thoughts about risk, probability and human behaviour it's worth a read, or maybe start with the wikipedia page about Black Swan Theory

 

[Fella]

Fpalb excellents posts you write really well, I have that book myself it’s a great read.

I did consider Brendan’s bets today and the problem I see with the spread Bet is there is often a rally just before the bubble bursts which might take out his spread bet on the way to it collapsing.
( this is not an opinion on it been a bubble that will collapse , but a scenario in which Brendan’s correct prediction yields a loss ).

 

[fpalb]

Thanks Fella, you're right, it's a trade off of whether you think you can better predict the upper limit this year, versus predict the timing of the drop. I'd still be more comfortable with the former, especially since you could bail out of the spread bet for a partial loss if there was legitimate news that was likely to result in a sustained rally.

 

[ant dee]

Taleb's books are great reads indeed.
He also mentioned that there is no way to properly short bitcoin. Any strategy that doesn't entail options is nonergodotic.
Is there still no put option to short bitcoin?

 

[24601]

I think people often divide things into risky and non-risky. Bitcoin is risky, prize bonds are non-risky - therefore prize bonds are better. This might surprise some but I used to be hugely risk averse, to the extent that I never wanted to take on any debt, even a mortgage if I could avoid it, and I hesitated to invest in anything other than saving fiat and term deposits. Part of this was avoiding things I didn't fully understand and part of it was not wanting to risk my hard earned money.

I eventually realised there is nothing that is non-risky, it's a scale not an absolute, there is just varying degrees of risk. I apply this to a wide range of things in life not just investing, and I consider investing as just a low risk type of gambling. Is it better to sit down at the poker table with 1000 or invest it in a stock? It depends on your risk tolerance, whether you can afford to lose it or not, what percentage of your worth 1000 represents, how good you are at poker compared to the people you'll play against, how much you know about the stock etc... Every case has to be evaluated.

I remember being in a Risk Management lecture a couple of years back with the lecturer stressing that risk is a line, not a point, which is obvious but not necessarily how most people perceive risk. Like you say even capital-guaranteed, low return options can cause losses. There's obviously a huge difference in the total loss of capital versus capital erosion through inflation but it is an interesting point. I think the vast majority of people don't have the financial freedom (or risk appetite) to take punts on risks where the risk-return equation gives you a probable loss of your entire investment 90%+ of the time and Bitcoin now has that feel of Joe Bloggs trying to get in on the action, which is generally a good indication that it's heading toward the cliff edge.

As Benjamin Graham once said, price is what you pay, value is what you get. I can't see any value in Bitcoin once the bottom falls out of it. It's obviously very "valuable" for those that have already cashed, out but the near-religious fervour around it from some quarters would suggest that it's going to sting some of the early purchasers pretty badly when the price plummets towards zero, whenever that may be. Whether or not it'll be above or below €15k on 01.01.19 is anyone's guess but with a max bet of €145 it's probably with risk tolerance!

As far a millennials are concerned, have you worked with or managed any? I think their approach to risk probably says more about their attitudes than anything else.

 

[fpalb]

I think the vast majority of people don't have the financial freedom (or risk appetite) to take punts on risks where the risk-return equation gives you a probable loss of your entire investment 90%+ of the time

Pretty much everyone can afford to take punts, it's just a matter of how little they can afford to stake. The risk doesn't even have to be directly monetary anyway, it can be the risk of attempting to start your own business instead of going to university for example.

But anyway my point was don't be surprised if increasing numbers do have the risk appetite, because they may feel that if they don't take risks they will never have financial freedom.

As far a millennials are concerned, have you worked with or managed any? I think their approach to risk probably says more about their attitudes than anything else.

My comments were about their attitudes.

 

[Inigo]

I need to chime in. The biggest bubble I see here is in posts by Brendan about Bitcoin. I think we got it Brendan, you are a sceptic. How about you leave it at that? It's fair enough to be a Bitcoin bear, that's a valid position. What's not valid is the idea that it will soon collapse to zero. It might fall to 10K or 5K or even 2K but zero??? Please. It's not possible to take you seriously when you post such nonsense.

Brendan, you post relentlessly with your anti-shilling, it's frankly quite tiresome. But I would actually respect your tirades if you really put your money where your mouth is. Risking only 145 euro is just childish. Where's your conviction? I mean you're 99% certain, aren't you?

I politely propose that you either put up or shut up. Your opinion is always valid but your relentless posting is getting boring now and is bringing down the quality of this forum overall IMO. I don;t think this forum should be dominated by your personal agendas. And I think your post about the end-of-the-world doomsayer is highly ironic.


Edit: even if Bitcoin is priced at 14,999 in 1 year and you win your bet, it means very little. Bitcoin is very volatile and the price could be almost anything on any given future date, that doesn't mean it's going to zero or to a million. In fact, given your statements, if Bitcoin is 14,999 in a year you would have been grossly in error overall even if you technically win that specific bet.

 

[Brendan Burgess]

Hi Inigo

Thanks for your measured comments.

It's important to point out that Bitcoin is worth nothing. It has no value.

It will reach zero at some stage. I suspect that this will happen during 2018, but the timing of bubbles is very hard to predict.

The Paddy Power bet was that it will be below $15,000 in a year's time. I would have bet a lot more had the limit been higher.

It might fall to 10K or 5K or even 2K but zero???

The issues are discussed at greater length here:

If Bitcoin was worth $1 each in 2011, why are they worth $12,000 each now?

Brendan, you post relentlessly with your anti-shilling, it's frankly quite tiresome.

When the suggestion of a Bitcoin forum was first made, I was strongly opposed to it as I thought it would give it a credibility which it does not deserve. But as there are many people looking for informed commentary on it, I dropped my opposition. It appears that some of the contributors here have substantial holdings of Bitcoin. It may annoy them to have their faith questioned, but if they listen to the comments, they may may well preserve their wealth. Otherwise, they will lose it all.

Brendan

 

[Duke of Marmalade]

I politely propose that you either put up or shut up. Your opinion is always valid but your relentless posting is getting boring now and is bringing down the quality of this forum overall IMO. I don;t think this forum should be dominated by your personal agendas. And I think your post about the end-of-the-world doomsayer is highly ironic.


Edit: even if Bitcoin is priced at 14,999 in 1 year and you win your bet, it means very little. Bitcoin is very volatile and the price could be almost anything on any given future date, that doesn't mean it's going to zero or to a million. In fact, given your statements, if Bitcoin is 14,999 in a year you would have been grossly in error overall even if you technically win that specific bet.

Inigo it was fairly clear that Brendan would have bet as much as PaddyPower would take. He has also suggested shorting on IG. I wouldn't be surprised if he had a very substantial short position on IG, but I wouldn't expect him to make that position public.

If bitcoin is priced at 14,999 in 1 year and Brendan wins his bet I am sure he will not be braggadocious about it.

 

[Gordon Gekko]

Inigo,

“I don’t believe that it’ll go to zero in 2018” is hardly grounds for optimism.

Bitcoin is a one way bet and will end up having negligible value; the only question is when.

Its limited supply is spurious and it’s attracting the ire of regulators.

Relentlessness of posting is worthwhile because it is likely to stop fools from investing money that they do not have in this nonsense.

Gordon

 

[Gordon Gekko]

You are the one making definitive statements about it, not me. By all means put your money where your mouth is also.

Your post illustrates how little you understand the mechanics of investing. I believe that Bitcoin has negligible real value and that the price will ultimately reflect this. However, the timing of the chickens coming home to roost is uncertain. There may still be money to be made or there may not. Like Buffett, I’d probably buy 5 year put options if they existed, but as things stand I’m putting my money where my mouth is by avoiding cryptocurrencies completely and investing my spare cash in global equities.

As an aside, your post is also representative of the attitude of cryptocurrency zealots.

“This time it’s different”; except it’s not.

 

[Duke of Marmalade]

It is strange for someone that is usually quite reserved and open to debate, having such a blindspot on this topic, especially when fpalb has been so patient and accurate with all of his responses to questions. There is not one question that has been thrown at him that hasn't had a reasonable response, especially the bit about what gives BTC its value.

I think fpalb will admit that there is a non-trivial chance that bitcoin will go as close to zero as makes no difference to anybody who is buying at these levels.
As for blindspots it is a syndrome displayed by almost every informed commentator on the subject including any Nobel prize winners who have chosen to make a comment.

 

[fpalb]

It is strange for someone that is usually quite reserved and open to debate, having such a blindspot on this topic, especially when fpalb has been so patient and accurate with all of his responses to questions.

I'm patient because I understand the other side of it. I can speak factually about how bitcoin works, it's easy because it's open and therefore there is proof for that, but I can't prove that people will continue to find bitcoin valuable, I can't convince other people to find the value in decentralised money that I do, and I can't prove how much of the current market value is due to short term speculation that will disappear in a bear market. I can only try to explain why people are finding it valuable right now, and the rationale behind my own assumptions and actions.

I agree that too much is made of this aspect. Bitcoin is wasteful of electricity, it also seems to appeal to the criminal classes but to use either fact to demonise the hapless "currency" is a side show. What I do think is worth repeating from the Guardian article is the following:
This highlight the nonsense at the core of bitcoin. Why the need for these quintillions of pointless arithmetic? Not to ensure the integrity of the blockchain, that was achieved with a mere fraction of today's effort before. No the reason for this immense artificial effort is because the protocol has built into it that only so many bitcoins can be created every 10 minutes. That is so the target of 99% of the 21M max supply is reached by 2032. If Satoshi knew what was happening today would happen she would have built in a failsafe which simply accelerated the timescale.

I've been thinking that maybe I didn't clearly explain a very important implication of the mining, It's not just to regulate the coin rewards and the transaction blocks, it's to ensure the immutability. This is really important. The blockchain history is for all intents and purposes absolute truth.

For example we can look at block 100: https://blockchain.info/block/000000007bc154e0fa7ea32218a72fe2c1bb9f86cf8c9ebf9a715ed27fdb229a

This was mined back in 2009 and only contains one transaction, the 50BTC block reward to address 13A1W4jLPP75pzvn2qJ5KyyqG3qPSpb9jM

We *know* beyond all reasonable doubt that this transaction happened as it says there at that time 9 years ago, we know that exact amount went to that exact address. We know this information has not been changed since. We know this because there have been over half million blocks solved since most of which have very high difficulty, and changing anything in block 100 would require re-mining those half a million blocks from scratch - basically re-doing all of the bitcoin mining effort that has been done since 2009 at a pace that catches up and overtakes the current blockchain growth.

This is a digital historic record which can be verified to be true by anyone who chooses to, no trust in anyone required. There is nothing that achieves this apart from blockchains.

I think fpalb will admit that there is a non-trivial chance that bitcoin will go as close to zero as makes no difference to anybody who is buying at these levels.

I would like to further the discussion on the recent key post when I get time (hopefully at the weekend), and I'd be happy to add more about my thoughts on the threats and risks to bitcoin.

 

[Firefly]

There is not one question that has been thrown at him that hasn't had a reasonable response, especially the bit about what gives BTC its value.

I don't recall any arguments put forward which can explain why Bitcoin should trade at circa $10,000 now when it traded at only $1,000 this time last year...

 

[Duke of Marmalade]

I've been thinking that maybe I didn't clearly explain a very important implication of the mining, It's not just to regulate the coin rewards and the transaction blocks, it's to ensure the immutability. This is really important. The blockchain history is for all intents and purposes absolute truth.

You explained it very clearly. The point I was making was that requiring quintillions of pointless hash puzzles is way over the requirement to ensure immutability as is evidenced by the difficulty level of the earlier blocks. It is not the need to ensure immutability that is driving the mining effort to these absurd levels but the 10 minute requirement built into the protocol. Unless we have a blind faith that Satoshi has got everything right my guess is that if she had the benefit of hindsight she would have done some things differently, wouldn't we all, and one of the things she would have done differently is to let the time line be more flexible. Does it really matter if we achieve 99% supply by 2020 instead of 2032?

 

[fpalb]

You explained it very clearly. The point I was making was that requiring quintillions of pointless hash puzzles is way over the requirement to ensure immutability as is evidenced by the difficulty level of the earlier blocks. It is not the need to ensure immutability that is driving the mining effort to these absurd levels but the 10 minute requirement built into the protocol. Unless we have a blind faith that Satoshi has got everything right my guess is that if she had the benefit of hindsight she would have done some things differently, wouldn't we all, and one of the things she would have done differently is to let the time line be more flexible. Does it really matter if we achieve 99% supply by 2020 instead of 2032?

It's a good point that in hindsight some of the parameters may have been different, it's certainly interesting to consider, but observations of how bitcoin has worked in practice and experiments with alt-coins using different mining specifications showed that bitcoin's algorithm is actually pretty damn good in general. If you change the parameters you risk messing up the game theory or security. For example if the coin release schedule had not been regulated to be as slow as it has been, and for example 99% of coins had been mined within say the first 3 years, there's a good chance bitcoin mining would have collapsed completely as the reward for miners to continue would have dropped to too small an amount of bitcoin too quickly.

In reality, this week we've just reached the point where 80% of all bitcoins are now mined, this is where you would start worrying that the reward will in the coming years become too small for mining to continue BUT we also this year reached a transaction level where the fees from transactions for the first time became a significant reward to replace the mining rewards. By smarts or luck Satoshi made a pretty good estimate of a schedule that had a chance to work.

My understanding (and I may understand nothing) is that at these price levels mining becomes very lucrative and so the competition amongst miners increases dramatically. To make sure only 12.5 BTC are created every 10 minutes the code adjusts the difficulty level based on how quickly the puzzles have recently been solved. The level of difficulty these days is then driven by competition to be the winner in each 10 minute lottery and is far in excess of the level of difficulty adequate to secure integrity/immutability.

Your explanation is correct, but I'll add that the amount of security 'required' is always a bit fuzzy BUT it's important to consider that it increases as the value of bitcoin increases. When block 100 was mined in 2009, the mining difficulty was low, only a few people were mining with their home PCs if all of us AAMers on this thread got together we could have perhaps re-mined every block at that point but bitcoin had no market value then and nobody cared about it, so the little security it had was sufficient for the little value it had. It makes sense that as bitcoin increases in value, and the incentive for mining increases that the security needs of the system also increase.

fpalb can correct me if wrong, but the two points (immutability & difficulty level) are different.
It's more accurate to say, that the quicker it is taking to mine a bitcoin, which is driven by the number of machines mining, the more complex the calculation becomes in order to try to keep it as close to a block validated every ten minutes.

His point on the immutability was that in order to change a block written back years ago, you'd have to change that block, mine that block, and re-mine every single block to date to overwrite an old transaction. It is virtually impossible.

Your explanation is also correct.

 

[Duke of Marmalade]

I don't recall any arguments put forward which can explain why Bitcoin should trade at circa $10,000 now when it traded at only $1,000 this time last year...

Firefly, fpalb has put forward the arguments to explain the price change, and they seem perfectly reasonable to me, being based on an analysis of supply and demand which is the arbiter of price. Everything that happens in this world has an explanation. However, I think you really meant to ask how can you justify the increase in price from $1,000 to $10,000. In pondering this I keep coming up against a basic problem of mine, the relevance of the unit. So I prefer to put the question as follows: how can it be justified that the total value (price) of bitcoin in the world increased from $16bn to $160bn? Of course since I cannot see any justification for the opening value, a fortiori (that's for Dan) I can see none for the 1,000% increase.

 

[cremeegg]

even if we know Bitcoin will crash you can’t predict when

Of course you can.

Bubbles go through stages.

See diagram, click on title, and decide which stage Bitcoin is in now.

 

[Duke of Marmalade]

I completely agree with considering the 'market cap' value instead of the arbitrary unit price. I don't know how to differentiate between an explanation and a justification, how do you define it? is it in terms of whether the explanation is sustainable and likely to continue?

I suppose so. BTW I am not having a go at you. I suppose the point is best illustrated by example. The price of tulips went stratospheric due to a speculative frenzy, but it was not justified on any fundamental basis. The price of Apple shares has also had a spectacular trajectory. The earning prospects for the Apple company possibly justify that price performance.

 

[Duke of Marmalade]

And how would they do that?

TheBigShort has posed a similar question. I am talking about a situation were bitcoin is actually growing up as a currency. A typical indicator might be Dunnes Stores pricing in both euro and bitcoin and genuinley accepting bitcoin and not merely facilitating intermediaries who convert from bitcoin to euro. An even bigger indicator would be a major retailer pricing in bitcoin only. Now people would actually need bitcoin to satisfy a want for a good or service as with any other currency.

Central banks would step in long before that, simply by banning retailers accepting bitcoin. That would absolutely kill it as a viable currency.

But possibly you are pursuing your favourite "zero non tolerance" policy. So before you do let me assure you that I accept that the authorities will never be able to banish bitcoin completely. It will always be possible for diehards to trade bitcoins through exchanges in the Cayman Islands etc. But presuming current speculation is based on the prospects of bitcoin becoming a genuine currency that speculation would also be killed off.