Bitcoin is a bubble, no plans to short-sell: Japan Post Bank CIO | Hacker News Reader

Bitcoin is a bubble, no plans to short-sell: Japan Post Bank CIO

reuters.com

32 pointsmbgaxyz50 comments

I'd like to know how on god's green earth they did the 'valuation'. Because there are certainly no generally accepted ways of doing that - hence the volatility.

"Here are a set of numbers that you can own and rigorously control (i.e. establish ownership). You can possibly exchange them as value, like a currency, but not many people will do that. Start the bidding!"

It's the most pure form of speculation imaginable.

Most other forms of speculation are derived, yes, from what we think 'others' will pay, but what 'others' will pay is usually derived from some economic value: i.e. a home is a place to live, a building a place to work, shares are rights to future profits, bonds get 'repaid' and pay 'coupons' ... so you can try to figure out 'what they are worth'.

BTC ... it's literally just worth what some other guy will pay - and that's 100% of the story. That's a difficult thing to predict :)

Bitcoin is no more speculation than gold. Gold has its price. It is rarely used (I have not seen anyone exchanging value using gold). It cannot be eaten, drunk, lived in, or used as a tool (I guess you can use it as a weapon like a brick). Yes, it is used to make jewelries because it is expensive not because its intrinsic usability or functionalities (there are other metals or plastics that look better and weigh lighter than gold). Yet it is expensive. As a matter of fact, it is harder to use gold to exchange value than Bitcoin because you have to weigh gold and test its purity.

All other things aside, gold has a several thousand year history as being used as currency. To pay for grains, hostages, to buy protection, raise armies, pay people etc etc.

Bitcoin on the other hand...

"It is rarely used "

???

If you walk down the street you will see literally hundreds of people wearing it on their fingers as Jewelry.

BTW - it even has a high degree of utility as Jewelry because it does not tarnish.

Also - it has some industrial use.

And yes, it's highly speculative, but nowhere near BTC.

And finally - it's use as a currency predates recorded history, across countless civilizations and cultures. Which counts for a lot of credibility.

If you walk down the street you will see literally hundreds of people owning it as an asset. BTW - it even has a high degree of utility as an asset because it cannot be tampered or destroyed. Also - it has some real life uses (Everledger, MiVote etc.) And yes, it's highly speculative. Imagine the first people using gold as a currency - crazy right?

If you walk down the street of my city (population close to 2 million, outside US) you will probably see zero people using Bitcoin. If you are extremely lucky to find one that uses it, it is someone that speculates in it, and never ever thought of using it for "real" transactions.

Gold can be tampered with. Debasing gold currencies (and other precious metal ones) has a long tradition. Likewise producing jewellery from cheap substitutes as opposed to 24k. As has plating with it.

Our entire high-tech industry relies on gold because of its amazing physical properties. To say it's rarely used is not accurate.

If gold was less expensive, I'd use it for a roof on my house!

http://www.usesof.net/uses-of-gold.html

And of all gold that's mined, what % of it goes towards industrial usage for its amazing physical properties?

Before high-tech industry even existed, gold was expensive. Clearly, the demand from high-tech industry did not make it expensive.

It's a metal that does not tarnish, which makes it good for making pretty things, like monuments and Jewelry. That it is rare, gives it's high price.

The way I see it is that bitcoin's potential value is the share of the economy it will manage when bitcoin adoption is widespread. Then the current value is some fraction of this potential value, the product of the likelihood that the state of widespread usage comes to pass. As more people become aware of bitcoin and buy it, that future becomes more likely, and so the current value increases.

"the share of the economy it will manage when bitcoin adoption is widespread"

Nobody will use BTC as a currency. It's too volatile and has no underpinning.

Much for the same reason Gold is not used as a currency.

Currencies are designed and managed for economic zones. Having a second currency for any zone is unwieldy.

Think: you sell Milk and Bread. You make 5% margins. You sell in USD. Now - if you price in BTC - the price of BTC is fluctuating all day! So how do you even do that? You don't. You could 'accept' BTC and just do the calculation on the spot - as many Canadian stores accept USD at some specific exchange. But - with 5% margins - you can't afford to hold on to those BTC, quick, you have to convert to local currency. So the whole BTC thing is a useless exercise.

Granted - there are some business entities that could use BTC, but again, they'll almost always have a local currency problem and given the inherent volatility of BTC ... it will never go away.

The 'more people that hear about BTC buy it' - true for now, but has nothing to do with economics. It's just a speculative mania.

I remember analysts and experts in 2004 sneering at the thought that Google might be worth $23 billion at the time of their IPO.

The pundits and talking heads gravely warned that investors were crazy to pay 230 times the prior year's net income.

They said Google was a "one-trick pony". They said Google could never grow into that insane valuation.

It was a bubble, they said.

Why didn't foolish speculators learn from the dot com crash, or from the Dutch tulip mania?

Maybe today's wise men are right, and the cryptocurrency bubble will burst in a spectacular bonfire of hubris.

Or maybe they aren't really wise. Maybe they only know what they know, and can't understand what's right in front of their faces, just like they couldn't understand what Google could become.

Google is a company that earns revenue. It has a valuation that is based on the expected future revenue of the company. Bitcoin is not a company.

No, it's a bunch of companies, individuals, cash, and gold mixed together and borderless.

But when you buy a bitcoin, you don't own any of that.

The point is it's more like the internet than like google. And people were naysaying the internet more than they were naysaying google.

To that point, from the article:

>“During the information technology bubble, we saw a rally in dot-com company shares. But at least at that time, there were people using Yahoo or (Japanese internet firm) Rakuten -- people were using their services,” he said.

>“But this time, I see quite a lot of people doing crypto-currency businesses in my circle of friends. But I hardly know anyone in person who is trading crypto-currencies and I haven’t seen anyone using them in real life,” he said.

Google is a real thing. The impression from a lot of people isn't that Bitcoin is "actually" worthless, but that it's not currently being used in society in a way that validates the high numbers we're seeing.

Shorter thesis: Bitcoin right now is fueling Bitcoin startups, but not much else. Google was search.

In 2004, analysts and pundits acknowledged that Google had some utility, but they had great certainty that Google's potential was far too small to justify the valuation.

Today, almost everyone accepts that the blockchain is a disruptive and valuable innovation and that cryptocurrencies have some utility -- just far too little to justify the valuation.

They could be right. It's just not obvious to me that the potential isn't there, and I question how they can be so certain.

This might be more pedantic RE the comparison to Google, but there's a good subset of people who think that Bitcoin provides no value.

I think there's a lot of interesting innovations in the space, but I can think of a lot of counterarguments to Bitcoin's "value". These are points I've heard...

- distributed ledger: In practice, things that require ledgers also have a degree of trust between parties. They also usually are bound by contracts and laws. Enforcement power is necessary for ledgers to be useful

- store of value: Many different securities exist with less volatility. Also I either store my value in exchanges I can't trust to stay solvent, or I am now hiding my BTC under my figurative couch and can't use it super easily.

- Transaction mechanism: For small transactions, the mining fees are prohibitive and the speed's not great. For large transactions, banks work fine. Each transaction uses absurd amounts of energy

I think the blockchain is interesting (smart contracts as a thin layer under "real" contracts), and can come up with theoretical use cases. But large-scale "real" usage needs to happen for a lot of these counter-arguments to become less compelling.

Warren buffet wrote a good piece about the expected value of buying ownership of a chunk of the us economy (i.e. shares) vs. buying gold.

The former is normally a good investment, because it grows. Gold just sits there. It’s decent as a store of value compared to cash, but that’s about it.

Google is a company. It had a high valuation because some people expected it to grow larger and earn future revenues.

Bitcoin seems more like gold. What does it do? Why should it have more value tomorrow than today?

The only reason I can come up with is that it has intrinsic scarcity, like gold, and can be a store of value. But this doesn’t seem very convincing - other people could make other blockchain based currencies.

Can someone explain why bitcoin ought to be worth more money in te future?

Pretty simple, really.

1) People are building business with cryptocurrencies

2) Bitcoin is the biggest, oldest, most conservative, and most reliable of the cryptocurrencies

3) Therefore, as crypto businesses grow, transaction volume increases, and more people need to hold and save in Bitcoin

4) More people holding and using it, with a supply that is capped, means the value per unit would tend to increase with growth

Now maybe that growth is over-estimated, or already priced in, or speculative forces have over-shot the true value.

Or maybe more people are finally waking up to the real potential, and it's actually under-valued right now.

Hard for me to know. That's why it's curious that others have such great certainty.

Thanks, that’s the clearest explanation I’ve received of a plausible mechanism for bitcoin having any intrinsic value.

I’m not convinced that justifies it’s value, but I’ll mull this theory over when bitcoin articles come up.

Based on your theory, would it be fair to say the following:

1. Like gold, bitcoin won’t be a long run value producing asset. (Unlike stocks)

2. Like gold, bitcoin may settle on some value relative to non-bitcoin

3. People investing in bitcoin are betting it has not yet reached that value, and are thus hoping it will increase in price to a future equilibrium.

Obviously gold fluctuates based on market conditions, but it has rough parameters of value. Are people assuming btc has some similar level of value and will rise to it?

That's a pretty good way to describe how I think about it.

Like many innovations, usage probably looks like an S-curve -- slow in the beginning, then a period of rapid growth, followed by a plateau.

It's unclear where we are in the cycle, and it's definitely possible that valuations have over-shot.

But it seems to me that there's something real going on in addition to the hype, and that potential could be worth a hell of a lot more than $100b globally.

Yep... the way I see it is that the blockchain is like Linux. Lots of utility and value which will continue to grow as more people explore the applications of a technology which is free for anybody to use. However, Bitcoin as a currency is like VA Linux (ticker: LNUX) whose meteoric rise was due to the hype around Linux (the OS) but it eventually tanked as it had no monopoly on the underlying technology.

LNUX popped at almost 700% growth on the first day. It then rapidly tanked: https://cdn-images-1.medium.com/max/1600/1*UsaIAmwMhcngaCDNP...

To use your Google analogy, Google in 2004 might have looked like a "one trick pony" and people thought they were not worth $23 billion.

In time Google came up with products like Android, Gmail, Chrome, Youtube etc. They moved away from their "one trick" of relying only on search engine ad revenues and serving ads on those platforms as well. Given that serving up ads is getting costlier if they relied solely on search ad revenues, no one knows what might have happened.

So, on that note pray tell what kind of diversification is happening in bitcoin? People can't even let go of a simple change like the block size. There is so much infighting for it that any thing else looks impossible.

Unlike what people, specially bitcoin supporters, think many believe blockchain has a future but not like this hype fueled boom. As the same guy noted in the end -

"Sago noted that blockchain is a great technology and one day bitcoin could become a major means of settlement.

“But that will be years away, possibly more than a decade -- so there’s no need to buy bitcoin now. Since no one knows when the bubble will burst, the best thing to do here is to stay away from it,” he said."

“During the information technology bubble, we saw a rally in dot-com company shares. But at least at that time, there were people using Yahoo or (Japanese internet firm) Rakuten -- people were using their services,” he said.

-> People ARE using Bitcoin's services, notably Venezuela now after the default. Argentinians have been using it to escape the terrible inflation that plagues their peso.

“But this time, I see quite a lot of people doing crypto-currency businesses in my circle of friends. But I hardly know anyone in person who is trading crypto-currencies and I haven’t seen anyone using them in real life,” he said.

Just because you are living in a bubble doesn't mean people don't use it. TenX's cards have been around for a while and they can be used quite seamlessly. i have also paid my friend for lunch using Bitcoin just to test it out. Heck there are even bitcoin atms in Japan. I think this speaks more about the quality of their leadership than about cryptos tbh.

That said, I am not claiming the currency will go up or down. As noted by some other users, the value is quite arbitrary, and like gold this is a market that is sentiment driven. But if he understood the theory and tech behind it, he wouldn't have made the $100 claim, really makes him look like a joke.

The price of bitcoin may be bubbly but the tech isn't. Most of the people buying in to bitcoin and crypto right now are chasing $ and are mostly driven by speculation instead of an understanding of the tech behind it and its potential.

Regardless if the price doubles in the next year or corrects 30% in a few days, there's a ton that's going on in the blockchain space (if you look past a lot of the get-rich-quick/scammy ICO companies). Payments, cross border transactions, IPFS, security, voting, etc are all things that are being or could be disrupted by the blockchain tech

This guys says as much towards the end -

""Sago noted that blockchain is a great technology and one day bitcoin could become a major means of settlement.

Yeah, but any ideas who are the big players on blockchain ( on the stock market?)

>or corrects 30% in a few days,

Didn't it just do that?

It was more like a 20% correction but it's already is back up and higher than pre drop.

With abandoning of segwit, Bitcoin will step away to other coins, because of the high transaction fee. It's already too high, so only large sums make sense.

> The price of bitcoin may be bubbly but the tech isn't.

> Payments, cross border transactions, IPFS, security, voting, etc are all things that are being or could be disrupted by the blockchain tech

Oh, certainly cryptographic dilettantes will "disrupt" voting or data storage with their timestamping service.

No, the blockchain tech is a bubble. It attracts idiots who know nothing about the cryptography and algorithms and then they invent data storage layers or voting on totally mismatching thing, so very expensive for very little benefit, even if it works correctly at all. And the mismatch in cryptographic applications usually leads to catastrophic results, unlike most of IT fields.

Voting is one spectacular example. There are several cryptographic protocols for electronic voting, and none has or uses the properties exhibited by blockchain. Using blockchain for voting is just plain dumb.

you have these dilettantes in all emerging markets. The soundness off the underlying technology isn't invalid thereof. And nobody knows if bitcoins itself are validated at the correct price. We could over estimating it right now or underestimating it and a single bitcoin may be worth a million dollar in 10 years or a billion. we have no way to predict these things. only in hindsight it becomes obvious.

> you have these dilettantes in all emerging markets.

Yes, but in blockchain case the market consists almost entirely of dilettantes. And it's even worse: those dilettantes often think of themselves as experts.

> The soundness off the underlying technology isn't invalid thereof.

Only the soundness of the protocol for timestamping documents. The soundness of its usage, on the other hand, is usually invalid, except for maintaining a ledger (which is an ordered sequence of transactions, so exactly the use case for timestamping service).

"Sago said bitcoin’s rally could end after its price hits the $10,000 mark or right before the CME Group launches bitcoin futures some time by the end of this year."

Given the fact this happened yesterday: https://www.bloomberg.com/news/articles/2017-11-15/bitcoin-e...

It will be interesting to see how things pan out once the future contracts are released.

Bitcoin cannot be expected to be priced "correctly" (whatever that means) since there's no practical way to short it.

How does shorting inherently help a commodity approach its "correct" value more rapidly?

Performing a short is a sort of counter to to-the-moon talk. If you look at the mechanistic properties and costs associated with shorting, you can see how far the person buying the short thinks the value is from open market value. If you were to bet against the sun rising tomorrow, the market would "bet" to the contrary and the short would be cheap and accessible.

It's not craps gambling, it's like betting on a boxing match. The bookie odds are based on previous records and some valuation model, you only come out ahead in the long if you have a superior valuation model, insider knowledge, luck, etc.

Bitcoin Futures start trading on the CME in the next few weeks:

http://www.cmegroup.com/bitcoin

However the largest electronic brokerage in the US considers it unwise:

https://cointelegraph.com/news/cme-clearing-member-to-regula...

Peterffy's letter to the CME is short and fun reading.

https://www.interactivebrokers.com/download/11-IB17-1145-tp-... [PDF]

His doomsday scenario is based on the Bitcoin price rising rapidly.

The CME's volatility limits would kick in, preventing shorts buying to cover their positions. This leads to "ruin" for them and the CME, and contagion for the real economy.

He has a good point, since losses on short positions are theoretically infinite, there's no way to put up enough margin for perfect safety.

Then this has happened -

https://www.bloomberg.com/news/articles/2017-11-15/bitcoin-e...

So it will be interesting to see how the pricing really works.

You can short bitcoin just like you can short gold or yen or pork bellies or Treasury bonds.

Be prepared to put up some hefty margin, though, because shorts have a tendency to get eaten alive.

And you can still sell cryptocurrencies that you own, why exactly is shorting an asset required to value it fairly?

Does anyone argue that difficulty in short-selling residential real estate prevents it from being fairly valued?

I did read that argument about real estate just the other day.

Why can't you short bitcoin, will no one lend bitcoins?

You can, saying you can't short it is false.

But you can short it, there's lots of exchanges where you can do it.

In other news "emperor naked"

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