Citadel's Ken Griffin Says Bitcoin ‘Bubble’ May End in Tears
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Stocks have tangible assets that generate earnings to justify their investment. Bitcoin, however, generates no real returns beyond its exploding popularity resulting in a higher price. While that doesn't automatically doom its fate (see: traditional currency pairs), Bitcoin is different in that its only real use so far is as an alternative bank account. It will likely remain this way until people can live their lives on Bitcoin in the way people live their lives on a traditional, centralized currency. Many people who simply use it as a bank account may deposit their money for a long period of time, resulting in a sustainable price; for simplicity's sake, we can give the benefit of the doubt and assume that 100% of those looking for an alternative bank rather than an investment will hold it indefinitely.
The question is: Of those pushing the price from ~$750 to ~$10,000 in one year, after several years of stability in the ~$500 area, how many are looking to hold it as a bank account alternative, and how many are looking at it as an investment to eventually sell for a profit? Given the trajectory, it's hard to believe individuals are adopting it this rapidly for purposes other than investment; it seems like this 'mainstream adoption' is really just primarily mainstream investment. Is it sustainable when the majority of people are just buying in expectation of others buying? With companies like TSLA it can be sustainable, as investors believe that future earnings will justify the valuation. Here, there's nothing but a hope that others will buy because the price keeps going up.
The only way this bubble doesn't pop is if the money being pumped into Bitcoin results in commercial adoption as a viable currency, however that seems unlikely in the meantime.
My biggest problem with Bitcoin these days is the developers pushing Bitcoin to become 'store of value'.
Originally Bitcoin became popular because it simply let people transact over the internet quickly with low cost. This was what gave Bitcoin its utility, and thus value.
Now that the Core team has decided that ease-of-use is not important, they are literally trying to hype Bitcoin as something intrinsically worthless except for people's perception of it. Bitcoin is now coasting on its reputation it accumulated in its first 5 years of life. So what makes Bitcoin _not_ a pyramid scheme?
Other cyptocurrencies have their own uses-
Litecoin - Buy stuff over internet cheaply and quickly
Ethereum - ICO and contracts
Ripple/Steem - Pseudo-decentralization allows for huge number of transactions.
Monero/ZCash - Privacy
Gold - People have liked shiny and non-degradable stuff since the stone age
Stocks/Bonds - Dividend/Interests
Tulips bulbs - Grow tulip flowers
Bitcoin in 2017 - ??? Store of value
The first 4 example cryptos actually have real world usage that could potentially justify their prices. What use does Bitcoin have right now? Every transaction costs >$1 and takes hours to process. What could Bitcoin do that other cryptocurrencies couldn't do better?
It is a severe misunderstanding to think a coins market cap is a reflection of its current utility. "Potential" drives valuations, and bitcoin has the greatest potential to be the currency of the future, despite its limited current utility. The fact that almost every alt-coin has cheaper/faster transactions, and yet are worth tiny fractions compared to bitcoin should clue you in. Bitcoin is still the most valuable because it has by far the most name recognition, and this name recognition will carry it to success down the road when things like the lightnight network are implemented and in widespread use.
First, no where I mentioned current market cap, let alone its link to utility. As an aside, Ethereum and Bitcoin Gold combined mkt cap are slightly half of Bitcoin's, so it's not tiny fractions by any measurement.
As you said, one has to make the distinction between current utility and potential utility. You argued that Bitcoin is valuable because it has the most name recognition, and it has the biggest potential utility via Lightning Network.
I actually typed up more on how Lightning Network in my previous post, but I deleted it because I don't want to stifle the conversation. But hear me out, other crypto currencies have implemented LN and are beginning to use it. Aside from the fact that it would only give BTC 1.7x transaction counts boost, what other features does LN bring to Bitcoin that other currencies can not achieve? Name recognition again.
I haven't even gotten into how long it is taking the Core team to put in a functional LN into Bitcoin. By the time they are done, so would every other cyptocurrencies under the sun.
Okay fair enough. What I was going for in using the word "value" was the intrinsic worth of having a free-flowing currency that can be use by anyone.
>other crypto currencies have implemented LN and are beginning to use it
>No one is near having a functional lightning network...it needs to be in widespread usage for its full potential to be reached.
Maybe I am too dumb to understand LN, but what gives BTC an edge over, say Litecoin, if both BTC and Litcoin have LN fully implemented.
>LN enables off-chain transactions and so would scale the effective transaction capacity orders of magnitude.
I never see anyone ever claim LN will allow +10x transactions. Most claims I read are 1.7x-4x . If you have a source on that I'd really appreciate it (I will read it.)
But all these are moot points. While BTC is waiting for LN to be implemented, other solutions (that have their uses) are available today. A bad analogy would be a restaurant owner telling hungry patrons that a new master chef will start next week, and the food will be amazing. Great, but people are hungry now and they will just go to other restaurants (and maybe the other restaurants are almost as good as this one and so the patrons will stop coming to yours.)
By the time LN is done, I hope there's enough left of BTC's reputation.
You have to understand the end goal of the LN. A future with LN is one with off-chain instant transactions with unlimited throughput. This is enabled by a network of LN hubs where each "edge" is a payment channel. Then sending a payment on the LN is a matter of routing your payment through existing hubs. As long as you already have some locked amount on the LN and there is a route between you and your intended destination, the transaction can happen instantly and immutably off chain. Once you close your connection then the transactions are settled on chain. Essentially an unlimited number LN transactions can occur in between an on-chain settlement. But this requires widespread deployment of LN hubs which only happens if there is enough incentive by sellers to join.
If enough of their customers have bitcoin they want to spend, they will join. If some alt-coin has all the tech ready for the LN, but lack the widespread distribution of their tokens to incentivize sellers to join, it won't happen. This is why the idea of bitcoin being a store of value is a necessary step in the mainstreaming of bitcoin for payments: it gives people an incentive to buy and hold it now. A "currency" that only greases the wheels of transactions (i.e. bought for the duration of a tx then immediately sold) is no currency. It has to be worth holding in its own right and "store of value" bitcoin provides that.
>I never see anyone ever claim LN will allow +10x transactions. Most claims I read are 1.7x-4x . If you have a source on that I'd really appreciate it (I will read it.)
I'm guessing what they mean is that Segwit reduces the signature and thus increases the on chain capacity by 1.7x. People say this in an attempt to cloud the issue of Segwit vs bigger blocks. The LN isn't about stuffing more transactions into each block.
>Great, but people are hungry now and they will just go to other restaurants (and maybe the other restaurants are almost as good as this one and so the patrons will stop coming to yours.)
But most people aren't hungry now. For most people, paypal and VISA works just fine. They will only switch when the advantages over these legacy systems are great enough. This only happens with the fully deployed LN. For the small number of people that want anonymous transactions now, or need to circumvent the banking infrastructure now, they will use bitcoin or any number of alt-coins. But the value this service provides as it stands just doesn't warrant multi-billion dollar market caps: there simply isn't enough simultaneous transactions (i.e. instantaneous demand) to drive up the cost of the service.
>I never see anyone ever claim LN will allow +10x transactions. Most claims I read are 1.7x-4x . If you have a source on that I'd really appreciate it (I will read it.)
I don't have any good authoritative sources on hand, but a recent comment I saw on reddit really drives home the value of the LN (warning, its a bit ranty): https://www.reddit.com/r/btc/comments/7fde71/im_switching_to...
The only substantive way to read "this was what gave Bitcoin its utility, and thus value" is through its connection to market cap.
>other crypto currencies have implemented LN and are beginning to use it
No one is near having a functional lightning network. Simply enabling segwit isn't enough. Furthermore, it isn't enough to just have the LN, but it needs to be in widespread usage for its full potential to be reached. Say some low usage alt-coin did enable a fully functional lightning network. It wouldn't matter because there are no scaling concerns for that coin to begin with. It would be functionally no different than doing a transaction with the bare network. The LN is a solution to the kinds of scaling problems only bitcoin is currently having (perhaps Ethereum as well).
>Aside from the fact that it would only give BTC 1.7x transaction counts boost
LN enables off-chain transactions and so would scale the effective transaction capacity orders of magnitude.
As a sibling comment mentioned, it could be a gold alternative. Bitcoin is much more volatile, however, and it already has a $160b market cap. The total value of all gold ever mined, from what I've found, is $1190b. Gold has gone up in value while Bitcoin has been rallying, which is a small but nonetheless existent indicator that people are not changing their store of value.
Bitcoin will only be stable when most of those invested in it view it as that store of value, however even then it will be shaky compared to gold. Though it may receive commercial adoption due to its popularity, the slow transactions you mentioned really disable that.
In conclusion: Thanks for the list of cryptocurrencies, as I'll certainly be looking into buying them rather than Bitcoin ;)
Bitcoin has the brand position in peoples heads. For most, cryptocurrency and Bitcoin are the same thing. You "google" it, you don't "search the web".
I chose this example because both financial markets and Web 2.0 depends on network of scale to be efficient. At the same time, just because most people use your product today, doesn't mean they will remain to do so tomorrow. Constant improvement is the key, and Bitcoin is actually regressing in its utility.
I'm actually a little surprised that local coin shops haven't gotten into the cryptocurrency market.
Bitcoin will certainly survive, at least, as a niche alternative for short-term storage (easy transactions) and/or those in physical danger (decentralized and without a physical existence).
Only? Thats not true though.
> With companies like TSLA it can be sustainable, as investors believe that future earnings will justify the valuation.
Why do you keep using stock and equity analogies when talking about a completely different asset class that behaves more like a commodity?
So so strange.
What does a "pop" and "doom" mean to you? Bitcoin has swung 90% downwards multiple times and all tearful holders at any point in history have a profit right now. The people that are using bitcoin for more than an alternative bank account will still have uses for bitcoin.
limited supply cryptographic hashes have utility for a variety of reasons at any price to various market participants, just like oil and gold has utility for a variety of reasons at any price.
but yes I can see why that might be confusing when your only valuation model requires revenues and earnings.
Edit: changed "has" to "as", as it was a typo.
Is it though ....?
https://www.smithsonianmag.com/history/there-never-was-real-...
The tulip mania comparison is lazy. It's just a way for pass of FUD as a "scholars approach", when in reality nobody knows if it is a bubble or not since it hasn't yet crashed.
When the price sinks down to <1k/btc and stays there, we can look back and laugh over the tulip mania. Until then its all speculation, on both sides.
No horses in the race (except a sense of regret I didn't buy more sooner), but isn't this exactly what the majority opinion is about every contemporaneous bubble? I was a Finance major back before the crash when my professors used to say homes were the only asset that always increased in value.
If you don't want to end up crying about bitcoins or crypto you do the following: 1) make a plan that you're happy with. 2) if it fails, oh well 3) consider your assets lost as soon as you put into cryptocurrency.
I am aware of the potential for cryptocurrency and I am aware of it's increasing value. But if all my money is tomorrow BTC instead of USD, for instance, how will I survive without converting it back into USD every time I needed to use it?
Not trying to be facetious, just curious as to what the bitcoin crowd is using BTC for. If not to pay for goods and services, then isn't it a misnomer at this point to keep calling it a currency?
1. As a buyer, sending money via Bitcoin means whoever I'm buying goods/services from won't be able to bill me monthly, they won't be able to lose my credit card info, and they can't overcharge me.
2. Also as a buyer, there are also no "restrictions" on who I can send money to, and how much. Nobody can close my account because they don't approve of what I bought, or can restrict where i'm able to send money to (ignoring custodial wallets, which can do all of those things to some extent).
3. As a "merchant", receiving payment in Bitcoin means that I don't need to worry about "chargebacks", "reversals" or any other way that the money could be taken back after it's been sent.
4. As a developer, Bitcoin is a fantastic way to receive tips and donations. I don't need to maintain an account with some service that might go under or get hacked. I can create an address for donations securely once, and can put it everywhere knowing that it will work indefinitely.
Yeah, I agree that at this point people trying to live on Bitcoin are a little crazy, but if more and more places start accepting it it's a fantastic way to buy and sell things that is a lot more "safe" feeling for all involved.
This is why I wouldn't use BTC to buy anything. Banking and consumer protection regulations did not just come out of thin air. They came out pain that occurred at some point. BTC will never replace the bulk of traditional transactions until remediation can happen.
The pain that they mostly solve for people (at least from what i've seen) is due to the fact that most payment systems work on a "pull" method. You give your information to the merchant, and the merchant tells your bank to give them $X. With that kind of setup, it's obvious that things like "chargebacks" and friends are absolutely necessary.
But since bitcoin is "push based", the only person that can send money is you. So generally the only time you would need to "charge back" is due to fraud. And escrow services can add that "protection" back into the mix if it's needed or wanted by the people transacting. And the legal system can take care of larger or systematic abusers.
Escrow services can give you the exact same protection you are looking for, but with the difference that it's opt in, and you can freely choose your escrow service independently of where you keep your money.
Drugs, ransomware, and maybe web hosting or a remote shell.
>if all my money is tomorrow BTC instead of USD, for instance, how will I survive without converting it back into USD every time I needed to use it?
You won't. Crypto-libertarian dweebs are convinced that someday somebody will accept their Dunning-Krugerrands in exchange for goods and services, but right now the price is so volatile that everyone who owns them won't spend them to pay for milk and bread if it's likely they will be worth twice as much next week as they were this week, and nobody selling real world necessities gives enough of a shit to go out of their way to accept them.
Someone already will, most notably for illegal goods and services.
> ... what is bitcoin useful for right now? ... all my money is tomorrow BTC ... what the bitcoin crowd _is_ using ...
I would contend that this isn't the right question -- value right now is not based on utility right now; it's based on an estimate of discounted future utility. Unfortunately, that future utility includes a component of "price momentum", which may or may not actually exist, or may just be in part a self-fulfilling limited-timeframe prophecy (or a bubble, as some call it). There's even, in some quarters, worries that onroads to cryptocurrencies may become more difficult in the future as AML laws start to focus on it, so better to have some on hand so that when the "one true cryptocurrency" emerges, you'll be able to get in on it despite your government's reluctance to allow it.
> What makes BTC today better than my cash?
Today, I would say the immunity to politically-directed manipulation of value. As compared to "cash" as in folding paper money that you hold on your person, I would say it gains the advantage of being electronically transferable, and arguably, easier to secure. As compared to "cash" as in money on deposit in a demand deposit account, it offers the liquidity of cash (no bank to tell you "you can't take out that much right now), and immunity from other failures: bank runs do happen (rarely), banks do fail (less rarely), "identities" are stolen (not rarely at all), and accounts are closed because of violations of terms of service or because of suspicious activity (which may just involve transactions over a certain dollar amount). If you're sufficiently paranoid, concerns about a cause you support being labelled as "terrorist" and having money laundering protections slapped on it, or a country that you have relatives in being labelled a "rogue state", or even (true story!) a neighboring country being artificially branded a terrorist state to blackmail them into building a wall.
> isn't it a misnomer at this point to keep calling it a currency?
Maybe. But if it walks like a duck and quacks like a duck... I mean, this ends up just being a semantic game where we're fighting over the definition of the word "currency". If it makes you feel better, call it a crypt o'currency, which is its own thing distinct from currency; it just shares some attributes of currencies.
But it isn’t, and while it does get used to buy things it’s hardly the most common use.
Which is why most critics liken it to investments, and why it’s a problem.
Question: On what principles do you base this assertion?
Unless you think the value can keep increasing forever. If that's the case, can you name one example of something with no value whatsoever, other than that it's value was known to be increasing over a certain period of time, that continued increasing long term?
The OP's assertion was that bitcoin must have some use other than as an investment vehicle if it is to survive long term.
You asked the OP "On what principles do you base this assertion?".
If you arguing that bit coin is useful outside its use as an investment vehicle, and must be so to survive long term, you are agreeing with the OP.
If you arguing that bit coin is useful outside its use as an investment vehicle, but it doesn't have to be to survive long term, you need to provide an example of something that is not useful outside it's value as an investment vehicle that has survived long term.
Then again, maybe that doesn't even matter.
2) We're living in strange times.
We really are living in strange times. I can't tell if it's a brave new world or a hype train headed off a cliff.
- Transferring "value" to another person without oversight.
That's pretty much it. And the latter wouldn't exist if you couldn't do the former.
If you have a way of accurately predicting when that storm will happen and when it will be over, you should look for ways to cash in on that.
Otherwise pulling money out of the stock market because you think there might be a bubble is a terrible idea. People have been warning of a bubble for the last 5+ years--there will definitely be a downturn, but it could be next year it could be 10 years from now.
The average person should adjust their portfolio based on how much time they have to keep investing, not based on reading the market entrails.
Without a real justification for why Griffin values Bitcoin at less than the current market price this article is nothing but fluff.
Of course if it is a bubble, this is a bad thing for those invested in Bitcoin. That is not up for debate. If it does burst, there will be plenty of tears, but the value of the entire Bitcoin ecosystem is still tiny compared to classic commodities like gold or real estate.
I have seen several articles here on HN recently that have seem to all confirm that Bitcoin is a bubble, but I haven't read anything that dives into the real substance behind the claim that Bitcoin is overvalued.
I understand the scaling issues, but I am confident that something like the lightning network can solve those. I don't believe that all transactions can be on-chain as this would make running a full-node and verification of the entire chain very difficult over time.
Bitcoin is obviously a bit of a new bird when it comes to what sort of financial instrument it is. To me it seems to be half gold, a hedge against currency and other economic troubles and half ponzi scheme, a lot of the valuation is driven by the belief that there are more people in line behind you than there are in front of you.
So if we take it that there is a bubbley aspect to bitcoin built upon ponzi scheme psychology but also the new aspect which is that many participants are aware it's a ponzi scheme and still believe in it anyway - is there anyway to pop it? It seems all the normal methods of popping a bubble like this have been eliminated by the completely decentralized nature of it. Is it even a bubble anymore if that's true?
Other investors see X going up, and put money in X because it's going up. That's the start of a bubble - when people buy, not because they think the fundamentals are good, but because it's going up and they don't want to miss out. So of course X goes up more because of all the new money coming in.
The next stage comes when, because X is reliably going up, people borrow money to put in X. Now X really shoots up, because there's so much money going in. This keeps going while new money keeps coming in, but the investors are more nervous, because it's borrowed money. They're in trouble if they can't pay it back. And the more recently they invested, the more nervous they are, because they've got less room for it to fall before they owe the bank money.
This falls apart in panic selling when the price of X drops. The price drops either when nobody can believe the current price of X any more, or else when banks won't lend any more money for buying X.
So, if my understanding of bubbles is correct, and if Bitcoin is going to be a typical bubble, the relevant question is, how much of the money invested in Bitcoin is borrowed?
That isn't just the start of the bubble, that's pretty much the definition - asset trading at the price that exceeds the asset's intrinsic value. If people are buying on speculation and not for it's utility, it's a bubble.
>>> So, if my understanding of bubbles is correct, and if Bitcoin is going to be a typical bubble, the relevant question is, how much of the money invested in Bitcoin is borrowed?
The amount of borrowed money used to purchase Bitcoin is certainly a lot greater than zero, which while not strictly a characteristic of a bubble, probably is a sign of nearing critical levels.
But then it started taking longer and longer for bitcoin transactions to clear. And the price was often moving during this window between when I bought in one currency and I could sell in another currency.
Now I just use TransferWise. Less hassle. Costs are much more reasonable (a few bucks for small amounts) and I don't have to have do multiple transactions to get money from Point A to Point B.
How do they get Bitcoin to begin with?
Is value moving out of Argentina in a way that has little to do with Bitcoin?
People who buy bitcoin are largely trying to buy in "early". This raises the price, which makes other people want to be in "early". This raises the price, etc etc etc.
Bitcoin has legitimate uses, but most people who buy crypto don't plan to use it. They plan to sell it. And they rely on the newcomers to inflate the price. Very much a pyramid type model. I think the most real threat is legislation restricting its handling.
Until then, bitcoin price is not going to stop rising.
I don't get Bitcoin, why don't they all use banks instead, banks are cool because I use them and I am def cool. Bitcoin is not supported by anything, look at that nice cool bank where we used to fuck whores, USD is backed by all that coolness, Bitcoin is backed only by math and I don't get math.
But tbh fees are now ridiculous, I think Bitcoin will crash soon
Bonus points if one can point to a well researched article on positive catalysts for BTC in 2018.
Only thing is no one knows when and how deep the pullback will be.
It could go up to 12-15k and then drop to 3-5k. Or it could go up to 20k and drop to 1k. No one knows.
Disclaimer: I've only mined and sold my BTC since 2011 no speculation.
- me-too buyers drawn by the huge 2017 increases
- investors that have a mandate to seek out high-risk investments for a certain %age of their portfolio, and are gradually overcoming technical and regulatory barriers ( https://www.bloomberg.com/news/articles/2017-11-16/bitcoin-e... )
For a decrease
- MtGox style failure of a company holding a lot of coins
- crypto-diversification as other projects get stronger
A major holder of bitcoins tries to pull more than can be converted into a national currency. This basically topples what I equate to a ponzi scheme when people find out that it doesn't convert so easily back and forth at current evaluation, and reduces the value enough that others fearful of loss start to try to convert as well.
I think that this is probably the most likely scenario where people discover that bitcoin, as a currency, is a bad idea: deflationary currencies cannot succeed (the rate of creation goes down while population goes up, so it must be deflationary). Further, it shows that bitcoin as a commodity/investment doesn't work, because to be honest there is nothing backing it up. What recourse do you have when the bitcoins you bought at 10k are now worth 1k? What real gain/loss has occurred that the rest of the GDP need concern itself with?
Philosophically, I believe that bitcoin has presented an interesting technological breakthrough, but the implementation of production is off. I do believe that in the future that we'll see national currencies using blockchain technology.
In the meantime, I'm not going to worry about it, and I'm not getting involved. If some of my friends become wealthy for it, then great for them, but I'm not particularly keen on 'get rich quick' or market timing schemes.
I agree bitcoin is inadequate as a currency. (I think ETH is better as a currency, since it sort of has the "tax base" of executing contracts and enshrining the results on the blockchain.) I view it as a store of value. If your wealth is mostly represented as various numbers in various databases (mine is,) then bitcoin is a robust form of integer storage, or at least vulnerable in ways that are uncorrelated with my other wealth storage providers.
I wouldn't be surprised to see BTC reach $50,000 by December next year.
The question now becomes, what is the relationship between that utility and the quantity of bitcoin owned? I think the answer is clear: there is none, and based on that, I think it's safe to conclude that this gigantic rally based on a desire to own bitcoin is very likely a bubble.
Ken Griffin "may" find a $10 bill on the street today. He "may" see his stock portfolio flash crash 30% this week.
Why is this even news?
There will definitely be a lot of corrections, but I see stable future for bitcoin as an asset.
How can this possibly scale of the net value of created bitcoins grows at the rate of $10 billion dollars per day?
So he is saying the same thing. Only he thinks there will be single event, I see this as a series of corrections and bitcoin will become more of an asset then a currency.
Business as usual.
I highly suggest you do a little more research. This is a transfer of wealth on scale that I haven't seen in my lifetime.
I'm not a wealthy elite. I'm getting wealthier.
I do have money in cryptocurrency, just to be clear. Only because I expect to be able to sell it for a higher value to a greater fool down the line (and have no misconceptions about what it is and the risks involved).
Why would ycombinator backed REQ try to replace Paypal with crypto technology if there wasn't fundamental value in the tech?
They don't just invest in anyone, they do due diligence, why would they conclude this is even a viable risk taking opportunity if it was easy to see there is no utility in the technology?
Difficult to steal or confiscate.
Confidence of transaction completion in a low trust environment.
I'm sure there are more but those are three off the top of my head.