Maybe a bit late, but you finally understood why Bitcoins get more valuable over time: their number grows slowly or maybe decreases, while the number of people wanting them increases.
That's why Bitcoin is the best Store Of Value ever devised.
Yes - you are right to point out that as BTC's disappear, it's not such a bad thing.
But why do you assume people would continue wanting them?
"That's why Bitcoin is the best Store Of Value ever devised."
It's currently one of the worst 'stores of value' possible.
It's massively volatile, and inherently risky: governments could decide to regulate it tomorrow - or even ban it. It's highly susceptible to popular whims. It has massive chunks owned by individual investors who could 'change their minds' on something.
If you have $X USD and want to 'diversify' and have 'strong store of value' - there are many other better options. Real estate being on the top of the list. Over the long-haul, there are innumerable places in the world where real estate will hold it's value for hundreds of years. Baskets of commodities, currencies, decent bonds.
Bitcoin is a very speculative asset, which makes it the 'opposite' of a 'store of value'. And if it's not a currency, then why are we using it again?
Let me put it differently:
In 200 years - do you think there will be demand for real estate in London? There has been for 1000 years. What about Tokyo? Shanghai? Of course there will. Maybe less, but certainly some, and probably more.
Will there be demand for BTC in 100 years? It's hard to say. Possibly, but there's a decent chance nobody will know what it is then.
Reward and risk are strongly related. Nobody should know that better than startup people.
Bitcoin is a religious subject among the tech crowd.
The most fascinating thing about BTC has nothing to do with 'block-chain' - it's the manner in which it has created hype among tech circles.
Techies look at it from a tech perspective, financial types from a financial perspective.
From a financial perspective, BTC is downright bizarre. Even the 'threat of disruption' aside, it doesn't make a whole lot of sense.
But from a tech perspective, is uber-cool.
So it's hard to have a discussion about BTC because almost nobody talks about it as a financial instrument - it's always about tech.
The amount of systematic hype is surreal - constant streams of articles etc. etc..
It's going to get bigger before it gets smaller as the hype is just starting to reach mainstream.
I am really impressed with it as a technology. It's absolutely brilliant.
But when I put on my business hat, I'm still not seeing it. For quite a number of years I've been asking for proof of daily use among significant market segments. For just as many years, I've been getting, "OMG THINK OF THE FUTURE!!!" as an answer.
I have some hope that we're at peak BTC hype, though. A lot of the enthusiasm (and the bigger scams) seem to have moved on to smart contracts, ICOs, etc. It's much harder now to ignore Bitcoin's years of not being very useful.
There are an amazing number of people who own a little BTC and are in on the hype.
And this is like Facebook 2007, where I already thought 'everyone was on it'. No. The 'rest of America' is just learning about it - then the 'rest of the world' - and then the other 3 billion or so people who are barely on the Internet. FB grew for quite a very long time after 'we thought we all were on it'.
BTC though is tricky to access, my Mother is on FB, she will never buy a Bitcoin.
But I do believe BTC has a lot of popular hype to ride yet.
I suggest it will start to wane quite a long while after the press stops talking about it daily. A lot of people will just 'hold' so I don't think we'll see a crash though.
There are caveats:
The press is notorious for flipping on things. They could turn on BTC and make enough noise. Since it's highly speulative, it's easy to see a flood of people rushing out to 'cash in'.
And of course governments: A Scandinavian country could opt to regulate it, or treat it like 'real currency' and require transparency etc. - which for any other currency would be 'great' because it's validation, but really, the whole point of BTC is anonymity etc. - esp. for black market transactions, so really, it's not a good thing.
It's a brilliant and fun excercise we're going through, but since it's doubtful BTC can ever be an actual currency or medium of exchange, I really wish we would 'move on' because it's not really a useful thing in the end.
Somebody may come along with an actually useful crypto - but i don't think that BTC or the ICO's we're seeing are it.
[1] https://bitcoin.stackexchange.com/questions/31933/why-is-bit...
That's a strong disadvantage vs nation-state currencies, which have clear inflation targets (generally in the 0-2% range) and the ability to hit them. It may be great for speculation, but it's terrible for a medium of exchange. For that, you want the value to be constant or very slightly decreasing.
And I don't think that's fixable. If the Bitcoin supply is limited but those tokens are used in a world of continuous economic growth, then Bitcoin will always be deflationary.
BTC has been on a wild ride, and could evaporate at any moment. I don't think it will, but it could, since there's no reason for anyone anywhere to own it.
There's no question the safer bet is S&P 500.
Now - in the range of outcomes, admittedly, the BTC owns the higher end of the spectrum - no doubt, there are possibilities where BTC completely outraces the S&P, however, it also owns the lower end of the spectrum of outcomes, where a lot of those outcomes are 0.
One fundamental of investing is that stocks represent an economically productive asset. In contrast, commodities just sit there. If I buy a chunk of a company, that company is working to become a bigger, more effective, more value-generating company. If I buy an ounce of gold, it stays an ounce of gold.
Index funds represent a broader bet still. Because they're composed of many things, volatility is lower and you're betting on whatever the common factors of the index are. So buying an SP500 index fund could easily be said to be a bet on the American economy.
And in many ways, Bitcoin is worse than gold. The historical value of gold is known. Bitcoin is new. Gold's floor price is set by the practical use value of it, both industrial and decorative. Bitcoin's floor price is that of bits. That is, zero. The gold market is broad, with producers and consumers all over the world, and open markets in many countries. Bitcoin is effectively controlled by a relatively small number of people and requires careful long-term cooperation of those people.
So it seems pretty obvious to me that Bitcoin is much higher risk. Which can mean higher reward. But as anybody who has shares in a failed startup knows, higher risk doesn't guarantee higher reward.
I own 1 share of a SP500 ETF. That gives me an actual fractional ownership of Apple. That gives me an actual cut of the dividends of real american companies. It has an actual meaning of what you own.
What does 1 BTC give you? What is the fundamental purpose of a BTC?
Tulips went up in price too, but they were not a very smart investments. Tulip chases do not win in the long term.
Owning a BTC is the same as owning a dollar, functionally. The main difference is that dollars, on the whole, tend to lose value, and that BTC tends to gain.
Commenting against BTC is sure to get you down-voted.
It's ok though, it's just one of many HN quirks we're all used to :)
Oh, and so many people "who are in control of it" have too much of their own money invested into it to allow it to fail.
What is the floor price of Bitcoin, once you eliminate all speculation/hoarding?
Gold has use value in that even if the commodity speculation activity drops to zero, I can still turn the gold into jewelery and sell that. Or I could sell it to somebody who needs it for industrial purposes. Heck, I could sell it to the people who put gold leaf on candy.
Bitcoin has no such intrinsic floor. It only has exchange value. If people stop accepting it as a medium of exchange, you're left with bits. Bits are approximately free.
You cannot judge future performance by past results. That is the fundamental thing you need to understand before investing. Zoom in on the right part of 2000, and pets.com and a really nice upswing. There have been other stocks that had a nice and steady growth for years and years.. before exploding.
Don't forget it's still relatively hard for average folk to purchase crypto. But once you have acceptable ETFs and funds that you can purchase at a click of a button through your brokerage account -- a lot of people (and pension funds!) will probably allocate 1-2% of their portfolio to crypto. That is 1-2% of $300tn or so, or 30 to 60 times the amount of money in the space today (in terms of market cap).
If you think this bubble will run for a while, then I also think it's not unreasonable to assume you can multiple your initial investment by 10x by investing in either Bitcoin or Ethereum. But that's my opinion (and this is obviously not investment advice).
Whether it'll be around in 40+ years, I don't dare make that bet. But no one is saying you can't move money around to the better investment opportunity at a specific time.
You need to think of the reason for an investment. If you are set for life, and want to gamble on it... cool, buy BC. You could also go to vegas, or bet on horses, or start a HFT trading shop. All are reasonable ways to gamble for fun and possibly profit.
If you are looking to build a nest egg to retire when you are old, it is very unlikely that BTC is a good route for that ;)
Please don't compare this to Vegas, where the odds are known to be against you.
Have a small/tiny % of your investment in cryptocurrency is a smart move.
So something that only people with significant incomes and the ability to lose 98% of their investments should touch it? I am fine with that definition. Not sure most BTC investors would qualify to invest in a startup though (see qualified investors law)
> Please don't compare this to Vegas, where the odds are known to be against you.
The odds are against you in many markets. I would argue the odds are against you in BTC. It is a zero sum game, and there are many people looking to steal or scam. In a zero sum game with scammers, your EV is negative unless you yourself also want to steal or scam (which is a different conversation to head down.
> Have a small/tiny % of your investment in cryptocurrency is a smart move.
Why? Should you put a tiny % of your investment in horse races? For most people, a small bet with an unknown payoff is not something they should touch.
If you only invest 1%, you can only lose 1%. And with bitcoin, you can invest at $1 if you want.
> I would argue the odds are against you in BTC.
Seems that in reality they weren't.
> Should you put a tiny % of your investment in horse races?
Still talking about Vegas? In that case you don't seem to understand risk-return. NOBODY should invest in horse races or Vegas, or the lottery. Nobody! Not rich, not poor. Why? Because the risk-return ratio is known to be < 1. Why? Because casino's and bookmakers make sure it is < 1.
The risk-return of Bitcoin is not known to be < 1, and neither are that of startups. Therefore people can actually make money investing in these high risk things, by averaging them out.
Let me put this in another way, if you place a huge amount of Vegas bets, you average out the risk-return, and you will end up with < 1 return. If you place a huge amount of 'bets' on startups and similar investments, you can end up with > 1. That's why people are making money with it.
Instead of arguing with me, maybe you should consider that there might be a tiny bit in truth to all of this. And then maybe that wisdom can make you some decent money in the future. But I won't lose any sleep over it if you don't. I have a sane, pretty conservative investment strategy, and it's doing fine.