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Comment by ttul | Hacker News Reader

This. Like it or not, we are in for a crash followed by a long crawl back for cryptocoin investors. The tech is cool and useful, but not $6400/BTC useful just yet.

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I can't predict the future, but my gut feeling is telling me you're wrong. Institutional money moves the needle and I wouldn't be surprised if this goes another 20x (into trillions of dollars) before we see a major correction. The current market cap ($180bn) is nothing.

Facebook went 10x, from $50bn to $500bn, after it was added to the S&P500. A similar pattern can generally be seen for other stocks being added to the index. That's one company / stock.

There is only one Bitcoin. There is only one Ethereum. You have investors globally buying mostly those two assets. Want to buy the asset class? You buy one of those two (or both)

Pension funds manage around $300tn. If those allocate 1 or 2% to crypto, a sparkly new asset class, you'll have a $3-6tn market cap. Which they might, given the above average returns it's been generating.

Gold is worth $8.2tn globally. Bitcoin in my view qualifies as digital gold. Why was gold originally picked as a store of value? You could've picked other metals. Or diamonds, etc. But someone decided gold was the one. Gold in itself isn't very useful. It's been given its value by people, because they believe it to be a store of value. (I'm not a gold bug and I personally don't think gold is worth holding) But think about this: how high could gold and silver go in a speculative bubble? $13tn? $16tn? Higher?

There will be 20-30-40% corrections along the way, but in my view, it's going much much higher -- very much like the .com bubble (which went up to approx. $5.6tn). Wouldn't be surprised if this entire space achieves a multi trillion market cap ($2-4tn) over the next few years, with most of that ending up in Bitcoin and Ethereum.

Note: this is not investment advice. Do your own research and make up your own mind.

Also, if someone is confident BTC will fall, they should short it and make money on the way back down. But people tend not to do that.

people do, but they often lose money and you never hear from them (except for the rare instances where some make money and then they don't shut-up about it)

Not necessarily. 'The market can stay irrational longer than you can stay liquid', etc. To short you not only have to believe something will eventually go down, but that it will go down soon.

which makes sense, because the market is cyclic, there's going to be a crash sooner or later. crying "it's going to crash" doesn't say anything useful.

There's no good way to short BTC today. Real financial institutions hardly touch it, and if you make a bet on a crypto exchange, there's no guarantee you'd ever get paid. If BTC tanks, likely the exchange will go away too, and you won't be able to cash out.

You can easily short BTC since 2014.

https://www.youtube.com/watch?v=K844yk2BAuI

I think bitcoin could go a lot higher since the supply is limited and as of yet there hasn't been an easy way for institutional investors to buy into it.

But at the same time I don't think the comparison to Facebook or any other listed stock is apt - they trade at a multiple of earnings, you can base the valuation on some underlying fundamental. That is not the case with bitcoin

No. There are tons of coins. Two are being hyped.

Gold wasn’t picked as “the” original metal for coin, it was just one of many metals used. What they had in common that bitcoin doesn’t, was the value of the material the coin was made of. It wasn’t the idea that made gold coins valuable, it was the ability to melt them down and produce jewelry, teeth or other valuable things.

Gold still has that value even though it’s price has been inflated and corrected many times.

Bitcoin on the other hand has no real world value outside of crime because it never evolved to a real currency. Which means that the only way to gain a net value on your investment, is for orher people to come in and buy bitcoin after you.

Which means you’ll also have to sell it before those people too.

I’m not telling you not to buy bitcoin. It’ll probably go much higher than it is now, but it will some day go to zero because it lacks any innate value.

That's not exactly true. Bitcoin does have intrinsic value. Bitcoin is expended to move bitcoin. This sounds a bit circular, but if you think about it, it's not really. Value transfer is a service that Bitcoin (the network) provides. It provides that service using Bitcoin (the currency) as its incentive mechanism. This is the kernel of intrinsic value around which Bitcoin's valuation is built, and why it is, in fact, analogous to gold.

Now, what that means for the price is nothing really. Speculation commodities (like Bitcoin and gold) go up and they go down without a whole lot of rhyme or reason. But the analogy to gold is valid.

Gold gets it’s value from it’s application and bitcoin has none of that outside of crime.

You’re right that you need to expend bitcoin to trade it, but this is more a weakness than a strength. It gives you a banking system of sorts, in that you’re guaranteed someone will handle your transaction for money. This also means that if the value of bitcoin drops then nobody will be around to do the calculations required to do transactions, making it an inherent risk.

It's use as fuel for transactions is its application. Gold's intrinsic value is very very tiny relative to its price. Same with Bitcoin's.

Financially that's not application though, it's a scam along the lines of your bank lending you money to invest in your bank.

You can downvote it all you want, but the value of the transaction is directly tied to the value of Bitcoin. This makes it profitable on the way up, and an outright danger in the way down because it'll prohibit you from selling your bitcoin when the value crashes.

Like I said, invest all you want, there are plenty of money to be made still, but at least be aware of the risks.

...it was the ability to melt them down and produce jewelry, teeth or other valuable things

Not true. Gold has its value mostly because it is rare. Jewelry can be made of silver, copper, and any number of other metals. Its "real" value exists because people believe in its "intrinsic" value, not practical value.

You have it backwards. Jewels are valuable because they are made of gold, not the other way around.

I've been hearing this at $500, $1000, $2000, $4000, $5000, and now $6400.

I'm certainly willing to believe anyone at those times. But... everyone's been quite wrong.

I make a weekly purchase of a small basket of cryptocurrency (mostly BTC) and I actually mine XMR with some leftover hardware since it's price efficient currently. No different than hedging your retirement portfolio with commodities and other non-correlated assets with your equities basket.

Cryptocurrency isn't going anywhere anytime soon, that's about the only thing we can say for sure.

Yeah ppl who keep predicting bubble need to hang it up and just admit they were wrong.

It's less about being "wrong" and more about making a falsifiable claim. You can certainly just call something a bubble literally forever: until you die, or until humanity goes extinct, until the heat death of the universe, etc. If Bitcoin stays relevant up to any of those points in time, I'll consider it a success regardless of how many people continued making the unfalsifiable claim that it's a bubble.

The universe is a bubble!

Any advice for newbies looking to mine XMR?

/r/moneromining is OK. Lot of resources to check out there. SimpleMiningOS is a popular operating system that runs a ton of miners.

Didn't it already have a major correction at 200 and 1000 and a pretty significant one the first time it got around 5000. Yeah, people keep saying that, but it also keeps correcting sporadically. It's not like it's been a smooth ride up from sub $1.

That is terrible logic. The same could be said of any bubble in history. Even though tulips reached $X, they still crashed in the end. The problem is that you can't tell that you're in a bubble while you're in a bubble, especially since bitcoin is an asset that is intrinsically difficult to value (unlike, say, a CDO or less-so a tulip bulb).

I'm worried people will lose money seeing all these gains in crypto and taking statements like yours at face value. Just because someone out there made 50x their initial investment in crypto from times t1 to t2 doesn't mean anybody will make this much money after t2.

Cryptocurrency might not go anywhere in general, but there's no reason coin X on chain Y will be worth anything in 10 years. Miners are already pretty ruthless about switching chains to whichever makes them the most money.

>>That is terrible logic.

Was this foreshadowing? Because this statement absolutely is:

>>The same could be said of any bubble in history. Even though tulips reached $X, they still crashed in the end.

You've neglected to include every other asset appreciation model like the DJIA, NASDAQ, Nikkei, etc, solely to focus on... tulips.

BTC may very well be a bubble, just like real estate (or is it?), but like you cannot tell if you are in a bubble while you're in it, nor can you tell if it IS a bubble either. If you are authoritatively stating that we are in a BTC bubble, your opinion is worse than mine, which is to say it is inconclusive and the person I responded to - had they had any conviction to bet against BTC at $500 or other price points where his same argument was trotted out - would have lost his entire stake, or close to it.

>>but there's no reason coin X on chain Y will be worth anything in 10 years

If you could quote from my comment where I said BTC would be worth anything in 10 years, this statement would make more sense. As it is, you just knocked down a strawman. I specifically said I am willing to believe that BTC will go to zero USD tomorrow. Because it's totally possible that it will.

It just hasn't, yet, and anyone saying that it will has the same amount of information as the people saying it will go to $50,000: None.

Sure, but when speaking in dollar terms, your asset appreciation models (stock indices) represent tangible businesses with assets and revenues in real dollars. That is, if I buy stock in X company, I (theoretically) own a certain share of the total assets of the company. A company is relatively easy to value in terms of real dollars because you can use its total assets, debt, revenue, projected growth, etc. to provide a rough score of its worth. You can assume that when a stock's value increases, the company generally has improved on these metrics in some way.

With Bitcoin, your "asset appreciation model" relies on people continually buying bitcoin at a larger rate to usd. There is no underlying asset (a business) that has intrinsic worth that may drive the price. You could argue that there are some analogues, for example, the mining hash rate or the strength of the blockchain, but the actual value of these is extremely hard to define. That is why Bitcoin may be in a bubble, people may be overestimating how these intangibles may be affecting price; it is hard to say what the value may truly be.

I am not authoritatively stating that we are in a BTC bubble, just that I would be very cautious with bitcoin and think a bubble is likely. Nobody knows what will happen, but we certainly can't say that Bitcoin isn't in a bubble (as you seemed to originally suggested), and in my opinion bitcoin resembles a bubble, though I respect that it may not to you.

>I've been hearing this at $500, $1000, $2000, $4000, $5000, and now $6400.

If BTC was the stock market, then it has crashed at one of those numbers. It gradually went from $1000 down to about $200. If the stock market did that, everyone would be in a panic.

If you're as confident on this as the comment suggests, you could purchase the appropriate futures with most of your net worth and make lots of money.

If you don't want to do that, maybe it isn't quite as certain as you suggest.

I'm a huge proponent of putting your money where your mouth is, but staking most of your net worth against what still is a pretty manipulated market is just stupid and is a gamble no one needs to make.

uh, or you could be a reasonable human being and weigh the risks that you're willing to endure for a given return on an investment...

"The market can stay irrational far longer than you can stay solvent"

This comment doesn't really apply here, because the post above suggests explicitly that the true value of Bitcoin is far lower than it is now and the market will realize this in the near-term (i.e. "the market will crash").

If the comment only suggested that the true value of Bitcoin is lower than the currently traded rate (and made no mention of what the market value would do), this particular observation would be relevant.

That's the great thing about a futures market. People who want to short Bitcoin with reasonable risk management can do so now. There are a lot of people who have lost their shirts betting against Bitcoin because all you could do were naked short - these derivative markets will provide sophisticated traders the ability to hedge their bets so they can continue to short without getting margin called if Bitcoin happens to double in value before crashing in the coming months / years.

We had an article on the Kelly criterion just the other day that handily refutes your point.

Even if bitcoin is certain to crash, without a deep understanding of when (and by extension, how) a naive futures trader still runs a good chance of being eaten alive, or making poor returns.

Stating bitcoin will crash is a bit like the conventional wisdom that smoking is bad for your health. One can reasonably be very confident in the truth of it without being confident in specific odds on any bad outcome.

"The market remain irrational longer than you can remain solvent."

Or maybe you were just wrong and not everybody else? Just a thought. (I know this is a quote from Keynes)

Care to link that? I am pretty sure the Kelly Criterion is a betting strategy. What does that have to do with bitcoin?

Edit: Found it. https://rhsfinancial.com/2017/06/line-aggressive-crazy/

I hope you really think about applying the Kelly Criterion to trading bitcoin futures and hope you realize that the person completely ignores friction(transaction costs),and does not show a sharpe ratio( who cares if you beat a benchmark with 10x the risk).

"[In November 2000.] Those kinds of times… when everyone is running around like a chicken with its head cut off, that's pretty good for us… "~Jim Simons (https://en.wikipedia.org/wiki/Renaissance_Technologies)

The Kelly Criterion is a betting strategy that, given the probability and payoff of different outcomes, tells you what percentage of your bankroll to bet.

That is true if you have arbitrary knowledge that says that at some point in the future, Bitcoin is certain to crash.

If you're able to associate some timeframe to the idea that with p = 1 Bitcoin will be at half the value it currently is, the Kelly criterion suggests you should be quite a bit of the farm. Applying the Kelly criterion in supposed p = 1 situations (e.g. "Like it or not, [the market will crash]") is pretty invalid.

The better question is how the CME is going to replicate the value of a Bitcoin.

The funny thing about this is when the real smart ones get there hands on this contract (quants), watch out. Goodbye free lunch and hello very efficient pricing.(Low vol)

They don't need to replicate anything, they just need to match buyers and sellers.

Maybe replicating was too strong of word

What I meant was, how they plan on "replicating", constructing the index value ,in which ,they( the CME) will base the value of bitcoin to be.

It is detailed here. https://www.cmegroup.com/trading/files/bitcoin-reference-rat...

CNBC stated that it is a weighted average of 4 index's in the video, but could not find anything of the sort in the article (https://www.cnbc.com/2017/10/31/cme-plans-to-launch-bitcoin-...)

The press release gives some details. The exchanges are Bitstamp, GDAX, itBit and Kraken.

http://www.cmegroup.com/media-room/press-releases/2017/10/31...

but commodities are much more volatile than stocks though

I firmly believe the price is going to crash but I also think it could double or triple before it does. The bitcoin market is insane.

What level of confidence would you say is represented by that comment? I’d say 95% sounds reasonable, which implies a 5% chance of being wiped out with your strategy. Might be too high for many people.

I’m really not sure what the dollar value utility per BTC should be, I just know that it’s so uncertain that I have no business playing the game unless I’d already had the fortune of acquiring a large amount of bitcoin for “free.”

I didn’t, and I consider the profit I’ve made to be a satisfying amount of “free money”, so I’m just going to keep watching from the sidelines.

No judgement, I’m just out.

I believe that looking at bitcoin as a currency suggests it is not worth its current high price. Looking at it as a service for circumventing local currency and legal controls, then current events suggests that demand for these types of services might be high enough to warrant even higher prices.

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