So where are we with Bitcoin after 4 months of discussion?

[Brendan Burgess]

I launched the Alternative Investments forum on 25th November with this post.

Bitcoin is a clearly identifiable economic bubble

Have I learnt anything? Have I read anything which has changed my mind?

I have certainly learnt a lot about what is involved. Blockchain seems to be a very useful technology. There are other extraordinary cryptocurrencies like Tether which may well be scams. For the record, I have never believed that Bitcoin was a scam.

I learned how to spread bet on Bitcoin and sold Bitcoin in early January at $14,500. So far, I have been lucky with this bet. I placed some smaller bets on Bitcoin being below $5,000 at the end of the year.

While fp has written a great post on Why Bitcoin has value, no one has yet been able to explain why it's worth $1, $1,000 or $100,000.

The truth is that it has no value. It's possible that it might have a residual value of a few cents, but even that seems very unlikely to me.

The only unknowns are the timing of its fall to zero and the journey it will take to get there.

I am really surprised how much of my time has been taken up by this. I check the price of BTC frequently, which is probably irrational, as I know that it will rise and fall. Maybe it's not irrational, as there could be a sudden collapse and I might have to make a decision on closing out my spread bet.

The volatility of BTC was of academic interest to me until I spread bet on it. It was great watching it fall towards $6,000 but very dispiriting watching it rise again to $12,000. This suggests that when there is no rational basis for valuing something, then really it could go to any price before it eventually falls to zero. Although I set a stop loss at $34,500, I fully accept that this could still be triggered,even if the price today is down to $8,000. If it rises to $34,500 I will have lost my bet.

The thing I still don't understand is why smart people believe stupid things?

This never fails to surprise me. Whether it's creationism or the dot.com bubble or the Flat Earth. The supporters of Bitcoin on askaboutmoney are clearly not stupid - look at the quality of their writing. In particular, fp's explanations of BTC shows a very high level of intelligence. But they believe stupid things.

There is some disconnection in the reasoning. The first premise may or may not be true, but the conclusion makes no rational sense.

• Blockchain is wonderful...therefore BTC is worth $20,000 per coin.
• The banks and international monetary system are corrupt...therefore BTC which is not corrupt, will replace them, so it must be worth $20,000 per coin.
• Although the main trading is done in Japan, South Korea and China, it's very useful in developing countries in Africa, so it must be worth $20,000 per coin.
• There is a limited supply of BTC ...therefore it's worth $20,000 per coin.
• The intrinsic value is irrelevant. Bitcoin really is worth $20,000 because someone will pay that for it.
• A Leonardo sold for $450m so Bitcoin is worth $20,000, at least.

And they discount all the danger signs

• Virtually every economist of note says that it is worth nothing
  
• Virtually every investment commentator says that it is worth nothing
  
• It's possible that some strange activity by another cryptocurrency, Tether, has been responsible for the bubble
  
• Nothing is priced in Bitcoin in reality
  
• Although limited in supply, it forks off into other coins, thus increasing the supply
  
• "Hackers rob $70m worth of Bitcoin"
  
• Credit card companies ban purchases of Bitcoin

It might be something to do with herd behaviour. If a big enough herd buys Bitcoin, some people will abandon reason and join the herd. They validate each other.

So have we wasted our time discussing Bitcoin on askaboutmoney?

I don't think so. It has been frustrating at times, but it has also been entertaining.

I doubt if any of the faithful have had their faith shattered. Faith is much stronger than reason.

I have been confirmed in my non-belief. I still think it will be zero by the end of the year, but I am less sure of that timing now. I had a sense that the $20,000 was the bubble which would suddenly burst and drop to zero. Today's $8,000 is a lot closer to the $5,000 price I have bet on, but it could well be up again at the end of this year.

I hope that some people who were thinking of buying BTC have come across these threads and have been discouraged.

It will be a very useful record in years to come of how smart people can justify believing in stupid things. Or just maybe it will be a useful record in years to come of how so many clever people like the Duke and me could not foresee the demise of the euro, Dollar, Yen and Sterling and their replacement by Bitcoin.

Brendan

 

[Negotiator]

Virtually every economist of note says that it is worth nothing

^This is laughable.....virtually every economist of note said that Irish property prices would have a 'soft landing'. Economists are academics full of theories and love nothing more than giving examples from decades ago. If predicting the economy was that simple then they would all be Billionaires! How many economists predicted the impact smartphones would have on the tech industry? How many economists predicted the GFC? How many economists predicted the likes of Amazon that was losing money for practically 20 years staight would become one of the biggest company in the world

Virtually every investment commentator says that it is worth nothing

Same as my previous reply. Commentator's are just that....they commentate on events after the fact!

It's possible that some strange activity by another cryptocurrency, Tether, has been responsible for the bubble

This is absolute nonsense. I posted about Tether v BTC in another thread. It equates to about 0.75% of BTC market cap

Nothing is priced in Bitcoin in reality

Agreed but neither is anything priced in Gold!

Although limited in supply, it forks off into other coins, thus increasing the supply

That's very simplistic but I'm not going to go into a full counterargument here because it would take too long. Forked coins are effectively new coins that have little to do with the coins they forked off. The supply of the original coin does not change

"Hackers rob $70m worth of Bitcoin"

I see this as something that is very similar to banks being robbed or bank accounts being hacked or large jewelry or vault heist etc. These sorts of things will always happen in every industry. If handled correctly, Cryptocurrencies are arguably a safer means of keeping your funds secure (ignoring the volatility and value issue for this example). If you keep them in cold storage (or deep cold storage) they are a million times safer than your cash in a bank or under your mattress (assuming you do it correctly etc).

Credit card companies ban purchases of Bitcoin

I don't know too many operators in the banking industry that are Crypto enthusiasts. They are simply using their dominant position to try to curb it...might help them a little bit for now but they will be disrupted big time at some point in future (might take another decade to really start to bite) and they won't know what hit them!

 

[newtothis]

• Virtually every economist of note says that it is worth nothing

I was really curious about this statement, so I went looking. A couple of examples: "Speaking with CNBC in advance of the upcoming World Economic Forum in Davos, Switzerland, where Shiller will give a talk, the author of the best-selling book Irrational Exuberance said that Bitcoin “has no value at all unless there is some common consensus that it has value.”"

All I can say to this is "d'oh!". That's a bit like saying "water is wet": something has value precisely because there is some common consensus it has value. Note that he didn't say it has no value.

Another example: "Richard Jackman, an economist at the London School of Economics, and Savvas Savouri, an economist at Toscafund Asset Management, however, estimate the coin is still trading far higher than it should. "We often read in your pages the view that bitcoin has no value and therefore, in a rational market, would have no price, but that surely is wrong," the duo said Thursday in the Financial Times...." The quote goes on, but note they don't say it has no value, just that in their opinion it is badly overvalued.

So, where are these "economists of note" saying it has no value? If they are there, they seem prepared to ignore the evidence, which points to the opposite conclusion.

 

[TheBigShort]

I'm having a quiet night in before a busy St P's weekend. Enough time for a few glasses of wine, 'Wonderwoman' on Sky (not my choice) and a response to yet another Bitcoin thread - which, incidentally, and thanks to AAM and its contributors, provides entertaining, engaging and at times intriguing commentary from all sides.

That said, I do enjoy a bit of slicing and dicing, so here we go;

I have certainly learnt a lot about what is involved. Blockchain seems to be a very useful technology.

That's brilliant Brendan, I for one would be interested in hearing why you think blockchain is a very useful technology. Perhaps you could open a thread on it sometime?

While fp has written a great post on Why Bitcoin has value

Absolutely, for or against his/her views, s/he has an ability to engage the reader from start to finish. Contributions of merit and value I would say.

no one has yet been able to explain why it's worth $1, $1,000 or $100,000.

That's because value is subjective.
You can apply any methodology you want to determine for yourself what you think what anything is worth at any given time.
There is no scientific mathematical equation to determine the true value of any given thing at any given time.
There are mathematical equations and formulas to indicate what is a fair and reasonable price, but those equations and formulas are ultimately inconclusive and their determinations always subject to debate - the terms 'rip-off' and 'bargain' spring to mind.

The truth is that it has no value.

In your opinion, that's all.

The only unknowns are the timing of its fall to zero and the journey it will take to get there.

Saying it is worth zero, but not knowing when it will be zero is (as Delboy would say) "about as useful as a pair of sunglasses on a bloke with one ear!"

Here are other tips, the iPhone 10 will return to zero, the shoes on my feet will return to zero, the Late Late Show, Sky Sports, the Xbox, the XFactor, Messi's wages for playing football.
All will return to zero. When? Who knows?

I am really surprised how much of my time has been taken up by this

Because it is a fascinating subject whether you are a skeptic or an optimist.

Blockchain is wonderful...therefore BTC is worth $20,000 per coin.

You just made that bit up, which in my opinion, diminishes your core argument that it is worthless. Anyone who takes to deliberately misrepresent the views of others devalues their own position in my opinion (that said, you may have a mathematical formula for arguing otherwise?).

The banks and international monetary system are corrupt

The banks and the international monetary system are corrupted. It's important to understand the difference.
There are no 'evil banks' or 'evil conspiracy'. There is only what Adam Smith correctly identified as self-interest, and what Marx also correctly identified, as the conflict between those self-interests (or the inherent conflict within capitalism).

This sets the stage for democracy and government, courts and laws, rules and regulations, licences and permits, etc..etc..

When the rules are subverted, there are consequences...typically manifesting in investigations, criminal proceedings, convictions, etc

From time to time, when the rules are subverted to such an extent as to threaten the very structure upon which the system is built, and then the rules are changed (selectively) by way of 'too big to fail', or 'whatever it takes QE', then to me, the system is inherently corrupted, leaving the way for vast fraud and corruption evidenced by the litany of financial banking scandals in this country and in the broader Western developed economies over the last decade.

I may be wrong, perhaps it's all just coincidence?

therefore BTC which is not corrupt, will replace them, so it must be worth $20,000 per coin.

Admittedly there are those who proclaim that Bitcoin will do this, I've yet to read any such commentary here however.
It's important that you can differentiate between the comments you read here and whatever it is you are reading, watching, listening to elsewhere.

The intrinsic value is irrelevant.

Value is subjective, I think that point has been established. If you wish to argue the point perhaps you can provide an example of the intrinsic value of, well, anything at all?

A Leonardo sold for $450m so Bitcoin is worth $20,000, at least.

Another misrepresentation, based on fudge and spoofery. A financial column for 'The Sun' surely awaits you?

And they discount all the danger signs

Let's see them so?

Virtually every economist of note says that it is worth nothing

This statement is so devoid of actual factual information that it is hardly worth commenting on, except at least for this one point - Bitcoin, Blockchain, Cryptocurrency are all technological innovations. Why, oh why, would anyone rely on what any economist has to say about them?
For sure, their opinions on how people have interacted and engaged with this technology and how they consider it will impact (if at all), for positive or negative, on the economy, can be worth listening to. But any economists who proclaims that it is worth 'nothing' is, in my opinion, is spoofing.
I would be interested in knowing the names of at least some of these economists.

Virtually every investment commentator says that it is worth nothing

I can't comment, could be true, but to me such commentary is next to worthless.

• It's possible that some strange activity by another cryptocurrency, Tether, has been responsible for the bubble

Perhaps, it could all fall flat on its face and in the end you could be right. You just haven't convinced me that you are.

Nothing is priced in Bitcoin in reality

I agree. And as pointed out up above, neither is anything priced in gold.

Although limited in supply, it forks off into other coins, thus increasing the supply

Art forks off into other forms, paintings, sculptures, music, dance, theatre - these will fork off too into oils and watercolours, abstract and modern, bronze and marble, rock and jazz, etc...etc...
Some will hold more value over others and not because of P/E ratios, but because of taste and timing.

Hackers rob $70m worth of Bitcoin"

So what? My Bitcoin can be hacked. My credit card has been hacked.

Credit card companies ban purchases of Bitcoin

Buying Bitcoin on credit is a risk to both those who buy Bitcoin and the persistence of the perpetual debt based monetary system. Bitcoin is high risk, highly volatile, risking amounts greater than what you can afford to lose is not recommended in my opinion.
Banning purchases of Bitcoin on credit is a good idea, not a warning sign.

It might be something to do with herd behaviour. If a big enough herd buys Bitcoin, some people will abandon reason and join the herd. They validate each other.

There is validation in this. The €euro, in which there is plenty of analysis showing that it is fundamentally flawed (not that this needs proving anymore) was adopted across large swathes of the EU without barely a murmur of discontent is typical herd mentality.

So have we wasted our time discussing Bitcoin on askaboutmoney?

It's fun, let's be honest. I even have my own syndrome named after me, albeit it's done to dismiss and devalue my views, I'm satisfied at least that my views are based on actual events occurring rather than the tabloid, redundant tactics of spoofery and deliberate misrepresentation.

I doubt if any of the faithful have had their faith shattered.

That would be a failing on your part then?

Faith is much stronger than reason.

Sometimes, perhaps, obvious examples are religious faiths - does this mean you think Christianity, Islam, Judaism have no value?

I have been confirmed in my non-belief

I'm really happy that you have found your belief in all of this. That is important.

I still think it will be zero by the end of the year, but I am less sure of that timing now.

It didn't take long for your faith to waver, did it?

I had a sense that the $20,000 was the bubble which would suddenly burst and drop to zero.

Don't be modest Brendan, you considered cashing out your bet "as it fell to $6,000", by amazing coincidence, through hindsight, you managed to call both the peak and the bottom of the Bitcoin price.
Amazing! Surely you made a tidy packet?

Or just maybe it will be a useful record in years to come of how so many clever people like the Duke and me could not foresee the demise of the euro, Dollar, Yen and Sterling and their replacement by Bitcoin.

That's some call...again I repeat, it's important that you distinguish between comments made on this site and wherever else you are sourcing information.

Happy St Patrick's Day!

 

[Negotiator]

Happy St Patrick's Day indeed Big Short! It seems Cryptos are turning green too for the day that's in it!

 

[Duke of Marmalade]

Jayz B/S have you tried counting cryptos at that time of the morning

Plenty to come back on there but I will drip feed my ripostes. I note that you are now adopting the tecate (another early morning poster) line that the community is not seeking to overturn the existing order. In your case that would appear to be resignation to reality for it seems to me that if crypto did per chance blow the central banking conspiracy out of the water you would be in Shortie Paradise.

You really have gone overboard on the word games. Yes of course all value is subjective. I prefer oranges to apples. But oranges and apples have intrinsic value, I like them both. Intrinsic and subjective are not mutually exclusive.

One more for the moment. Bitcoin is not a technology. Blockchain is a technology. Satellite television is a wonderful technology. Hopefully this afternoon it will deliver to my living room a victory over the old enemy for which I would gladly pay. But you must admit that 600 stone of tetestorone fighting over an egg is not technology. That same satellite TV is capable of showing me instant pictures of a sand dune in the sahara, to which I would give no value. What am I going on about? The analogy is that blockchain delivers bitcoin but no matter how marvelous is blockchain it of itself cannot give value to that which it conveys.

 

[Brendan Burgess]

As someone else said about dealing with flat earthers, it's like punching fog.

So much of this stuff is repetitive and has been answered elsewhere that I will only respond to new arguments.

virtually every economist of note said that Irish property prices would have a 'soft landing'.

In my summary post on house prices in 2007, I gave the views of independent economists.

You will find it at the end of the post

What the independent experts have said

December 2000 Central Bank warns that house prices could fall dramatically

February 2002 [broken link removed] analyses the then housing bubble


November 2004 [broken link removed] (PDF)

March 2006 Dublin house prices heading towards 100 times rent earned

September 2005 US Federal Reserve report on house prices in different countries

November 2006 [broken link removed] “ even if there is some overvaluation, this should not necessarily mean that house prices would fall; the most likely way that the overvaluation would be corrected is via a period of low and stable house price inflation while the economy continues to grow. Bearing this in mind, a soft landing for house prices is the most likely outcome.”

December 2006 [broken link removed] "we may be looking forward to large and prolonged falls in real house prices of the order of 40–50 per cent, and a collapse of house building activity." (PDF)

 

[Brendan Burgess]

Agreed but neither is anything priced in Gold!

Gold is not a currency.

Bitcoin is held out to be a currency.

Brendan

 

[Brendan Burgess]

No, I didn't. It's a summary of the main argument put forward by the Bitcoin faithful. Take fp's brilliant Key Post. He kicks off on the explanation of Blockchain and that is just one example.

 

[Brendan Burgess]

Did the credit card company refund you as a matter of interest?

My credit card was also used by someone else. Visa reversed all the charges and issued me with a new card.

If someone hacks into AIB and empties my bank account, AIB will be responsible, not me. I presume that the same holds true for the crypto exchanges, but are they in a position to refund the stolen money?

Brendan

 

[newtothis]

In my summary post on house prices in 2007, I gave the views of independent economists.

You will find it at the end of the post

That may well be true, but where are "Virtually every economist of note says that it (Bitcoin) is worth nothing"?

 

[Brendan Burgess]

Hi newtothis

Good question. I did a quick Google search and came up with lots.

Here is one from 2013

Why don’t economists like Bitcoin?

I am not aware of any reputable economist who thinks that Bitcoin is not a bubble. I have done a quick Google search and can't find any.
Perhaps there are some?

I genuinely want to see someone putting forward a piece of analysis showing what the value of Bitcoin is. I have not seen anyone doing it. Many of you believe it has value, but you won't show your workings.


Brendan

 

[TheBigShort]

Beannachtaí Lá Féile Phádraig, a chairde go léir. Bua iontach inniu ar fad do na fir i nglas. Tá na piontaí scaoilte anois agus 'The Dubliners' ag seinnt thar na haerthonnta. Is am domsa sos beag a thógaint ach is dóigh go mbeidh mé ar ais arís níos déanaí!
Ach, ceist coitianta, cad é an luach bunúsach a baineann le Lá Féile Pádraig? Is dóigh nach féidir é a tomhas?

 

[Brendan Burgess]

cad é an luach bunúsach a baineann le Lá Féile Pádraig? Is dóigh nach féidir é a tomhas?

Ach ní infheistíocht nó airgead é!

Brendán

 

[TheBigShort]

Ach ní infheistíocht nó airgead é!

Brendán

Ní airgead é, aontaím, ach is infheistíocht mór é. Ó thaobh Bord Fáilte agus an tionscail turasóireachta comh mhaith leis an Taoiseach sa Theach Bán, tá deis mór tradála ag baint leis.

 

[Negotiator]

Beannachtaí Lá Féile Phádraig, a chairde go léir. Bua iontach inniu ar fad do na fir i nglas. Tá na piontaí scaoilte anois agus 'The Dubliners' ag seinnt thar na haerthonnta. Is am domsa sos beag a thógaint ach is dóigh go mbeidh mé ar ais arís níos déanaí!
Ach, ceist coitianta, cad é an luach bunúsach a baineann le Lá Féile Pádraig? Is dóigh nach féidir é a tomhas?

I don't speak Irish so unfortunately this post makes about as much sense to me as some of Brendan's babble about Cryptos on here!

Sorry Brendan, I couldn't resist! I'm sure you'll contest that I'm not exactly babble free myself!

Cracking match this afternoon.....we did it, finally!

 

[ant dee]

I just want to point out, you are all aware that all blockchains are different?

A decentralised blockchain needs an underlying asset.
The bitcoin blockchain and bitcoin are reliant on each other. You cant separate them...

You can clone the bitcoin blockchain and make it DukeCoin blockchain, that will not give DukeCoin any value ( sorry I meant price... or is it worth?) and it certainly wont make the DukeCoin blockchain more secure or reliant than the spreadsheet i keep on my Google drive.

 

[Duke of Marmalade]

I just want to point out, you are all aware that all blockchains are different?

A decentralised blockchain needs an underlying asset.
The bitcoin blockchain and bitcoin are reliant on each other. You cant separate them...

You can clone the bitcoin blockchain and make it DukeCoin blockchain, that will not give DukeCoin any value ( sorry I meant price... or is it worth?) and it certainly wont make the DukeCoin blockchain more secure or reliant than the spreadsheet i keep on my Google drive.

I think I see what point you are making. Let me try another metaphor for the point I was trying to make. Imagine someone invented a technology for transferring grains of sand instantly all over the World, the grain of sand being the "asset". That would be a truly amazing technology and one could see a future where it might be able to "beam me up Scottie". But as it stands it delivers an asset that is worthless.

So the bitcoin blockchain transfers digital entries on a decentralised ledger which are immutable etc. etc. So what?

 

[ant dee]

I see. So I guess blockchain is worthless as well.

 

[newtothis]

Hi newtothis

Good question. I did a quick Google search and came up with lots.

So did I, and I can't find a single one!

Here is one from 2013

Why don’t economists like Bitcoin?

I am not aware of any reputable economist who thinks that Bitcoin is not a bubble. I have done a quick Google search and can't find any.
Perhaps there are some?

There are plenty (all?) who think it's a bubble, but thinking Bitcoin is grossly over-valued is not the same as saying it has no value, which is what you are continuously claiming.

There are even some (reputable) economists who put a value on what they think it should be ($20), such as: http://uk.businessinsider.com/2-eco...g-it-should-be-trading-at-20-2018-2?r=US&IR=T

You clearly have a different opinion, which is fine. That's all they are, however: opinions on what the value should be. The fact is that the value is not zero and stating it is all the time won't make it true.

I genuinely want to see someone putting forward a piece of analysis showing what the value of Bitcoin is. I have not seen anyone doing it. Many of you believe it has value, but you won't show your workings.


Brendan

It's not my belief it has a value, it's a fact! The fact that it is being bought and sold all the time establishes that.

The analysis is simple, and one I've already pointed out: it's something that is traded and the value is set by the market. You may as well say show me the analysis of what the value of a Picasso painting is, or indeed anything.