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Comment by kevando | Hacker News Reader

Does anyone think that when the crypto bubble bursts, that will cause a stock market level crash?

I have had multiple affluent friends who are absolutely non-tech non-geek ask me what are the hot coins. They're shoveling tens of thousands of dollars into Bitcoin, Ethereum, and Ripple based entirely on the fact that there's a run up happening. They have no understanding of what it is and the intention is sell to the greater fool after another 10x move.

Maybe it isn't a bubble, but it sure does walk like a duck and talk like a duck.

Tens of thousands of dollars can be shovelled into low-probability high-risk outcomes nightly at a single Vegas table, of which there are many, at a single casino, of which there are many. The state lottery jackpot can swell by tens of millions of dollars in a single day when the potential payout reaches nine digits.

This is just high-stakes gambling, it's not a systemic bubble until pension funds, university endowments or state sovereign funds get significant exposure.

this is a great point. And given market caps I doubt there are any sizeable funds invested, which may point to no bubble at all.

are these guy all gonna sell at 10k? I'm not rich and love the idea of BTC, but the gambler in me is looking to 10k - mainly b/c I think thats what the ppl with real money on the table are looking to

Please do yourself a favor and invest in other things too. I'm also a bitcoin believer, but it's a relatively small part of my holdings, which are mostly in real estate.

It's entirely possible it might be the catalyst for a large unwinding. Let me just set up a hypothetical scenario:

Bitcoin prices begin to unwind (trigger: emotion? unknown unknown?). Chinese holders of bitcoin, who have been using them to get out of the yuan and avoiding capital regulations, start selling, accelerating the problem. Chinese WMPs (wealth management products) that may hold bitcoin start to default or go under, accelerating the deflation of the current Chinese debt and borrowing bubble. Global market contagion risk from China causes markets to rethink what is going on? The US has been calling for a correction for months, and the VIX is stubbornly low. Central banks have interest rates very low but are trying to tighten, and if they tighten into weakness it might cause a recession.

How many Chinese buyers of BTC are buy-and-hold investors into BTC itself versus just using cryptocurrency as a transfer mechanism for real estate, commodities or fiat currency investments?

I'd say the causality is more likely to go in the opposite direction. A slowdown in China provokes a slowdown in capital flight via crypto which triggers the crash. It might actually be the canary in the coal mine of a global recession. Barring significant positive reform in Chinese capital markets as an alternative explanation, I am going to start getting scared when I see a crash in the Vancouver, BC real estate market coinciding with a crypto crash.

I think a slowdown in China would actually accelerate capital outflows and further inflate crytocurrency valuations.

I would expect to see a surge and then a rapid drop off, but I think we've been in the surge for a while now. The surge reflects people not having faith in native Chinese markets, which has already been the case for most well-off, well-informed Chinese. They know their stock markets are a joke and that the government has been driving investment toward pointless building projects. The real estate market has been irrationally exuberant, in no small part because of the absence of alternative long-term savings vehicles such as interest bearing accounts or a reliable stock market. They also don't have complete faith in their government's respect for property rights and know having the option to flee abroad if things go south is invaluable.

And the PRB has been slowly ratcheting down the markup they pay on US dollars as an export subsidy, so the incentive to convert US dollars to renminbi relative to offshoring earnings via bitcoin or other channels has been declining over the past few years. Just to clarify what I mean because a lot of people don't realize this, but many Chinese exporters receive payment for goods in US dollars (or other foreign currency). The People's Republic Bank of China (their central bank) purchases those dollars with renminbi at a markup over the fair market value, basically giving the Chinese exporters a subsidy. That's part of why the PRB has such enormous US Treasury holdings. They bought so many US dollars that they couldn't invest them in anything other than US Treasuries. A billion dollars in cash is an asset. A trillion is an unmanageable inflation risk.

The PRB has been trying to move away from that model because they know it isn't long-term sustainable. So as that implicit subsidy declines, Chinese manufacturers receiving US dollars find alternative methods for converting their excess currency, such as BTC or other foreign currencies (e.g. the Canadian dollar), relatively more attractive.

The bottom line is that anyone who can afford to expatriate their capital has been doing so at the maximum viable rate for a long time now. A slowdown would simply reduce the amount that is available to expatriate, decreasing the US dollar -> BTC purchases and accelerating the BTC -> hard foreign assets such as real estate, reducing the total market cap for BTC. It's also possible the PRB might react to a slowdown by once again increasing the implicit export subsidy, which would divert funds from BTC transactions back into renminbi and further accelerate a crypto crash.

Not really, but the crypto currency community looks like a pyramid scheme. First users gets most of the coins.

its actually closer to a multi level marketing scheme, so only slightly less shady. but hey bitcoin works, the others? like gnosis, not so much

First users also have the risk of their investment becoming worthless.

All the users risk their 'investment' becoming worthless, that is not a risk exclusive to first users.

yeah but it obviously takes less risk to invest in Apple in 2015 than 1978

Do you have any idea what is going on here or are you ignoring away in bliss? This is as much a pyramid scheme as VC industry is in that early investors make disproportionate gains (and losses). Finding the right tokens to invest in is the challenge.

Only disproportionate gains, not losses. When a startup goes bust, every investor can only lose what they put in. No one loses multiples on their investment.

It is generally a portfolio investment approach in which you would invest in multiple coins in the hopes one of them gains 100x and you lose your money in the rest. If you think it is so easy and there are only gains to be had, why don't you go ahead and make a few investments and come back with results?

> No one loses multiples on their investment.

Leverage is a multiplier in both directions. People do borrow money to invest in bubbles which is what can make the eventual pop so economically devastating.

Well I will gladly change my mind anytime someone can provide a convincing argument against the "bitcoin pyramid scheme" that is nor an ad-hominem attack, neither a cryptic response like "value come from scarcity induced by the growing complexity of the arbitrary mathematical problem solving that require big amount of current tech silicium mostly running in a non-democratic country who don't care about power efficiency...(goes on with technical gibberish)"

My theory is that if MasterCard roll-out a "masterbyte" crypto-currency that can automagically convert to real cash usable in all MasterCard enabled retails, bitcoin will loose all value almost overnight. Prove me wrong using strong arguments and I'll change my mind.

PS: needless to say, downvoting me don't count as an argument. It just keep me thinking that you are in lack of a better one.

Where are the victims?

Your statement indicates that you don't know what a pyramid scheme is, or that you do and you're expanding its definition to generalize its negative connotation to something else that doesn't fall under the proper definition of a pyramid scheme.

A company using credit card technology in combination with bitcoin and other cryptocurrencies is simply leveraging existing technology interfaces for companies that want to accept cryptocurrency without said companies having to deal with alternative payment systems. The payment system handles everything related to the cryptocurrency and the payee simply sees the USD (or other fiat currency) value in their accounts.

I will stick to the pretty basic definition that a pyramid scheme cannot sustain itself when less foreign currency enter the system. That is because the system is blatantly unable to produce value and only produce virtual currency from foreign currency.

I stil don't see any argument, just as-hominem as usual when defending bitcoin: "Pheeww you know nothing...".

No one needs to prove you anything. You are free to believe what you want. The world doesn't have the responsibility to convince a stranger of a concept s/he hasn't taken time to read or finds too difficult to understand.

I would encourage you to read more about cryptocurrencies and how it has massive disruptive potential. Here are a good set of articles to get you started: https://thecontrol.co/some-blockchain-reading-1d98ec6b2f39

Still, but nicer, ad-hominem "you don't deserve explanation, because you don't know enough" followed by a link of endless references.

I don't deny that cryptocurrencies might play a huge role in the future. And algorithms are indeed pretty clever. But I don't see why that prevent current bitcoin implementation to be a pyramid scheme and thus I ask. And haven't been answered so far.

It's like arguing that tulips madness wasn't a buble because tulip are beautifull and still sells today. Evrything can be used by speculators to build a buble, even rice or corn (and that's even worse than bitcoin because lots of people don't eat as much as needed as of today).

Sorry man - I tried to help.

Feel free to believe what you want. Good luck!

Luck has nothing to do with that. Thanks for trying. Still hope someone can come with a better argument. But I follow bitcoin new since a few year and still nothing tangible in sight.

Some like you find my lack of faith disturbing, but I don't "believe" anything. I prefer scientifical skeptiscism.

PS: And because I am ready to change my mind, I've dug : https://www.reddit.com/r/Bitcoin/comments/5lsu8p/hot_news_fi...

Still no arguments, only bitcoin supporters performing ad-hominem attack against the analyst...

A+... this is like a geek storm in a glass of water... the average investor will not be harmed at all...

I try to think of crypto-currencies, and their collectors as a class not unlike POG collectibles and POG collectors. The age bracket associated with each probably experiences significant overlap too, so the idea seems fitting.

Taken to extremes, if any given POG collector suddenly went bankrupt, due to a crash in values in the POG collector's price guide, how many people are associated with a particular POG collector? Would they notice, when that POG collector's business failed, because of an inability to meet obligations, now that all POG collections are worthless?

If banks and businesses accept The POG as legal tender, how many transactions disappear with the POG craze, leaving them unpaid, or stuck holding worthless assets?

"POG"?

https://en.wikipedia.org/wiki/Pogs namesake of https://en.wikipedia.org/wiki/POG_(drink)

Milhouse: I'm really sorry... I kind of traded your soul to the guy at the comic book store. But look! I got some cool pogs:

[shows them]

Milhouse: Alf pogs! Remember Alf? He's back... in pog form!

https://www.reddit.com/r/OutOfTheLoop/comments/3dyh6j/what_i...

It depends on how big the derivatives market for cryptocurrencies is; i.e. how much is leveraged in bets related to cryptocurrencies.

:) , why would that happen?

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