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Comment by charlesdm | Hacker News Reader

Even if it is a bubble, that doesn't mean it can't go another 20x from here, depending which crypto you put your money in.

There's cheap liquidity (ho ho ho said the FED and the ECB), there are institutions (pension funds) that are starting to buy in, and in comparison, the dot-com bubble (which was mainly a US led bubble, not global) went to $5.7tn to $1.7tn. Gold is worth $8tn globally. Why couldn't Bitcoin get to part of that level, e.g. $2tn?

It sure looks like a bubble, and it probably is, but it could literally be the largest bubble in our lives -- unlike one stock in the market, this is a global phenomenon + you only have a few currencies that matter.

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It's strayed so far from fundamentals that it's bound to crash. I really hope it's not that big when it does...

Bitcoin doesn't have fundamentals. Stocks are a claim on assets, buildings, inventories, and future profits. Real shit, like a parking lot full of trucks or something. Those are the fundamentals. Cryptocurrencies dont have anything like that.

To the extent that there is an analogous concept it's their utility as a means of exchange. Which outside of drugs and hard drive ransoms is minuscule at best.

Bitcoin has fundamentals though. Per the whitepaper it was designed to be just a means for individuals to transfer money to each other digitally without much friction. The further it gets from that the more we're asking the network to stretch to meet demands it was never designed to.

This only works if the value of BTC is pegged to one or more fiat currencies. As it is, people are basically speculating on blockchain address space on BTC.

And looking at this fundamental value, other cryptocurrencies have arguable superceded it in terms of better tech/efficiency, so the value seems incredibly hard to justify.

Just curious, which ones in your opinion are better tech/efficiency?

Look into DASH, it has a fundamentally different architecture than bitcoin. The biggest pros are instantSend, privateSend, and the DAO (A governance system).

In addition to the other response, another example is ethereum's ability to offer smart contracts, which is not possible with bitcoin. Transaction rate limits and power consumption also are more efficiently handled.

They're different, which is why I used the term arguable--there's no clear reason afaik that bitcoin should be so valued relative to others, but I could be wrong.

One reason of bitcoin possibly being more valued would be its cap at 21 million (which AFAIK is not there with Ethereum)

The pedantic response:

- if 1 BTC were $100 trillion, then it's clearly passed the fundamentals of "being a unit of exchange between commercial entities", since it would be way more than what any form of exchange would ever require.

The truth behind the pedantic answer:

- if it's a store of value, then the "fundamental" value is the amount of fiat that's gone into the system so far. If all the exchanges have roughly $100 in USD deposits, the base value of their bitcoin deposits will be at least $100, roughly.

- If it's as a means of transactions, then the fundamentals are linked to how much transaction volume is going on. For example the flow of USD into BTC and vice-versa. BTC <-> BTC exchanges in that universe probably help to define things as well, as it would be used as an alternative to USD.

The dollars don't come from nowhere, so there's at least some base numbers you can think about. Thinking of it as "USD going into the ecosystem" and "USD going out" is a good proxy for now I think. Obviously very fluid, though.

You’re forgetting currency control evasion. If a businessman from a country with tight controls wants to move money out of the country he would buy bitcoin and then sell it the other side of the border. This sort of activity is going on all the time, and it creates demand for crypto currencies.

I don't see how bitcoin can facilitate currency control evasion. The government can simply shut down all local exchanges, and some already did.

With amounts this large they could meet in person to trade.

If you have to do that, it doesn't seem particularly advantageous over existing methods. You're meeting in person, exchanging cash illicitly, etc. If someone is willing to do that, why not just buy USD in a foreign bank account directly? (That's my understanding of the current system; people with clean histories open accounts with varying amounts of money in USD / EUR / JPY jurisdictions, then transfer control of those accounts to someone else, for a small profit margin, who then transfers them again, in exchange for cash at a significant margin, in, say, China.)

Either way, someone ends up with cash CNY and the other person ends up with electronic USD or EUR or whatever.

The immediate limiting factor is the vulnerability of any in-person transaction to traditional law enforcement mechanisms, and the eventual limiting factor is that the exchange rate is going to be impacted by the demand for cash CNY. Eventually nobody is going to want to sell you USD (or whatever) for your cash-in-a-bag CNY, or will only do it at exorbitant rates.

I don't disagree with this, but if true, then it means that the value of cryptocurrency comes at the expense of other currencies. Every time someone in china sells their renminbi to buy bitcoin, bitcoin's value increases while the value of renminbi decreases. If that is the case, then bitcoin does indeed have value, and will reflect the differential of the cost of renminbi vis-a-vis its value on the world market.

Easy enough to rob someone for this amount of money too. As Eric Schmidt said (in the context of a hostile government, but it works here too): no passcode in the world is going to protect you from a man holding a gun to your head and demanding said passcode.

Split your loot into 100 pieces and convert to BC one by one. So you get robbed five time out of a hundred, no big deal. Eventually find a reliable trader and take your business to him.

You don’t have to make it totally safe, just safer compared to other methods of evading control.

Can you lie convincingly enough to someone with a gun to your head (or the head of someone you care about) who demands the other 99 pieces as well?

> You’re forgetting currency control evasion. If a businessman from a country with tight controls wants to move money out of the country

Before you can move it out of the country, you have to get it out of the bank, and your bank will refuse to do that with currency control measures in effect.

What I don’t get is that you can’t buy a car with bitcoin. So surely this should also create a selling pressure, unless they just buy bitcoins with the intent to transfer money at a later stage.

Yes you can: https://i.redd.it/d5wrulv2ndjz.png

Yet you do realize that Bitpay just converts BTC to USD, correct?

It's the equivalent of you selling your BTC holdings at market rate and buying the car with USD.

It's not obvious to me that "fundamentals" apply here. This is literally unprecedented and cryptocurrency economies are uncharted territory.

The fundamentals are at the current price of $17,000/btc bitcoin mining costs are about $14.5B annually(144 blocks of 12.5 btc/block plus ~3.8 btc/block in fees) in electricity expenses due to paying off miners which is about on par with the 8th largest company in the world Facebook. Bitcoin's revenue/year is however much money people feel like FOMOing in + however much tether money bitfinex feels like printing which right now is more than the mining costs. Once this figure changes, the price will decline. For reference, Facebook has ~$24B in revenue/year.

It isn't crazy to imagine crypto becoming adopted for actual transactions. Even if people are currently speculating, they're still downloading wallets they can spend from and loading it up with currency. For all these users there is now nearly zero obstacles to spending. This isn't even to say bitcoin is the transaction layer, but bitcoin still provides liquidity to any alt/2nd layer solution.

You don't need to physically control your own coins to speculate. I suspect many people are just keeping their stash on exchanges or online wallets.

The vast majority of novice speculators are using Coinbase. They at least attempt to maintain the appearance of compliance; but I suspect a large market run would wipe them out of USD fairly quickly.

The fact that “experienced” Bitcoin speculators are getting nervous is a sign the bubble is about to pop. Tether volumes are hockey-sticking up as a result. There has been enough technical analysis to show that USDT volume drives BTC price and not the other way around. USDT volume is hockey-sticking over the last few weeks. Feels like a Ponzi scheme and the whales are cashing out.

The price of one bitcoin is arbitrary. $1 is no more crazy than $1 million. It's all crazy. But the question is, what's the supply and what's the demand.

At some point there will be a correction. This velocity can't be maintained forever. But this is also a technology that heavily relies on going viral to become functional (payments/contracts) - and based on real world interactions I think crypto is heading towards an adoption curve that justifies its price.

Bitcoin can never achieve mainstream adoption since the transaction throughput is capped at 3 per second.

Maybe other technologies will, but Bitcoin cannot.

This is incorrect. Firstly, it's 10 per second. Secondly, it shouldn't be all that hard to imagine "side chains" or even "local-party networks" being built to handle transactions and use the underlying blockchain as a settlement mechanism. This is, as I understand it, how the lightning network works/will work, and I see no reason to think it wouldn't improve Bitcoin's adoption, which is already orders of magnitude better than other cryptos.

>Croman, Kyle; Eyal, Ittay (2016). "On Scaling Decentralized Blockchains" (PDF). doi:10.1007/978-3-662-53357-4_8. Retrieved December 10, 2017. The maximum throughput is the maximum rate at which the blockchain can confirm transactions. Today, Bitcoin’s maximum throughput is 3.3–7 transactions/sec [1].

1. http://www.comp.nus.edu.sg/~prateeks/papers/Bitcoin-scaling....

I’d be interested in seeing evidence that USDT “drives” the USD-BTC exchange rate. I do think it’s a good indicator of sentiment about the exchange rate. Typically it’s within $0.02 of its supposed $1.00 value, but today it reached at least $1.08 and is still at $1.06. That means people are willing to pay a 6% premium just to be able to cash out of BTC today.

Maybe USDT is used in cross exchange arbitrage, where USD would be a lot slower and thus not worth as much.

There is a whole (and very good) book titled “this time is different”

https://www.amazon.co.uk/This-Time-Different-Centuries-Finan...

It's not obvious to me that "fundamentals" apply here. This is literally unprecedented and the Internet economy is uncharted territory.

-- said a million articles in 2000

But how far? Corrections of 30% in say Bitcoin are common. Does this matter? I would say not -- it's not something I lose sleep over. It's fine, boom and bust.

If you buy in, buy in during a consolidation phase, when you see the price is stable. Ethereum had a huge run up, yet then consolidated for around 6+ months around $300. I would say that is healthy. Now it's heading higher. "Fundamentals" aside, of course.

You love bankers that much? Boy we have come a long way since 2008.

edit: Oh you said "hope it is not" - my mistake.

It's not that I love banks; it's that we rolled back all the banking regulation that kept that stuff in check prior to 2008. Replacing that with a system with zero regulation does not seem like progress...

Can you provide proof of one pension fund that has bought in to crypto?

I have heard many anecdotes about finance money coming in. We are witnessing it.

Also, rich Saudis are scared shitless about losing their wealth when political winds change. They put their money into crypto and it's much, much harder to take it from them, provided they own the private key. This is the best mechanism of wealth storage yet created, provided the value holds, which as more around the globe believe in, it becomes more likely. Bitcoin could be digital gold, but we shall see.

>>>They put their money into crypto and it's much, much harder to take it from them, provided they own the private key.

That's not exactly trivial - how do you store a private key in such a way that it's safe, accessible to you and only you, cannot be destroyed by your enemies, and can be passed on to your heirs upon your death?

Judging by the lifestyle of the playboy branch of the Bin Laden family[1], probably stick it in a safe deposit box at a bank in NYC or London.

[1] yes, there's such a thing: https://www.goodreads.com/book/show/2211931.The_Bin_Ladens

It's comparatively safer than holding millions in government-controlled banks, property which can be seized with the stroke of a pen, physical wealth like gold which is tough to store and move, and has value anywhere in the world (not many people in Europe care about your franchise holdings in Riyadh).

In contrast, if you buy bitcoins, when you flee the country you can bring your wealth with a memorized 24-word code or a slip of hidden paper, and people in other places will accept your Bitcoin.

They will accept it now. Not when everyone wants to sell. But yes, instead of having the state take it away, it's better to store some value in BTC.

Use Shamir Secret Sharing.

If you have enough trusted friends, that should work.

no, it's not trivial, but you can just follow these steps. https://glacierprotocol.org

Maybe not yet as of today, but they're coming. I have a friend (wealthy family with a substantial family office) who bought into crypto at the beginning of last year.

His dad runs quite a large traditional investment fund and knows of people in his network working at pension funds that are looking at putting money into Bitcoin / Ethereum and others. The family has done private equity deals together with some of these funds (mostly raising debt financing from them).

I'm not an extreme crypto bull, but I honestly think it's still early. But there will be massive volatility along the way.

Note: not investment advice, obviously. Just my opinion.

Wow, pension funds should not be doing currency speculation. That's bad.

The problem with crypto-_currency_ is that it's not a productive asset. A share of a business pays dividends over time and thus has intrinsic value (and _some_ speculative value), while a currency does not. A currency transaction is a zero-sum game, which is good because it minimizes friction.

Buying cryptocurrency with the expectation of increases isn't investment, it's _speculation_.

Crypto has been one of the better performing asset classes in the last 5 years. That is just a fact -- if looking in percentage terms.

Pension funds generally allocate up to 5% of their portfolio to alternatives, which could be smaller funds investing in art, watches, music royalty rights, farmland, wine, and the likes. This also includes crypto.

If you're an investment manager, it isn't necessarily crazy to allocate 0.2 or 0.5% of your portfolio to crypto and try to capture some of those gains.

Absolutely -- To the parent: think of it this way. If you had $200 in your fund last year to invest last year, and put $1 into crypto, then at worst, you lose that entire $1, and your portfolio is down to $199 (notwithstanding what you did with the other money), a loss of 0.5%. If you happened to pick Litecoin, and bought 0.25 LTC when they were at a stable price of $4 a piece, today that 0.25 LTC would be worth $80, giving you $280 in your fund, or a gain of 40% in your total portfolio value. You can look at ETH, Bitcoin as well and also see large gains.

Even without perfect timing of the market, it's a pretty easy decision for a portfolio manager to look at this and say: "While, like any other asset, past performance isn't an indicator of future performance, given the price history and increasing trading volume over time, the risk/reward balance skews heavily in favor of putting at least some tiny bit of money into crypto for all but the most risk-averse."

You and your parent comment are describing a kind of hedge, not a material investment. That’s fine but did not seem to be what my parent was implying. Funds may just as well choose to maintain several points in cash (also not a productive asset).

The analysis presented is a bit disingenuous. If you put money into every thing that could pop 400x, you’d have no money. Pension funds in particular need to be conservative and even if they’re doing “risky” things like venture capital for example, they would want late stage funds — lower returns, lower risk.

I don't understand why you are being downvoted. Pointing out the difference between productive and non-productive assets is exactly what is needed at the moment.

Everyone is talking about what if scenarios where huge offshore money or sovereign wealth or whatever comes into Bitcoin YUGE. Well, ok, do you think that money is just parked somewhere or is actually invested somewhere in a productive business?

Most dollars which aren't spent on consumption are converted into equity in productive businesses. In this case, dollars are merely the unit of account. You aren't invested in dollars, you are invested in businesses that produce the things that people need and those investments are measured in dollars.

> Most dollars which aren't spent on consumption are converted into equity in productive businesses.

Like real-estate?

You can take the crypto out of the above statement and it's still true - yet I know plenty of funds that speculate on currencies.

You know pension funds that spend a material portion of their holdings speculating on currencies? I’m skeptical. Currency trading is zero sum and highly risky. Pension funds may keep small amount as a hedge, but to actively speculate on currencies seems like a breach of fiduciary duty.

I used to work for a hedge fund. Now I'm in a different industry. While many individuals at the fund were interested in cryptocurrencies, they weren't going to put client money there. In order for pension funds to invest in cryptocurrencies there have to be very liquid securities that they can invest in. Futures don't count because almost no pension fund will use them directly (though pension funds do invest in hedge funds, which might have a futures strategy).

This is my belief too. I think if you can buy and hold for the next 5 years or so, massive volatility doesn't affect you. Volatility affects the day traders and the like.

To draw a parallel to the stock market is not appropriate, but those who bought into MSFT or AMZN even during the peak of the dot com bubble have nothing to regret today.

What about people who bought pets.com or webvan stock, or any number of countless stocks which soon became worthless?

Most coins will become close to worthless, but many will survive and support whole new industries. And this time it looks like it wont be an ad supported future, thank $DIETY.

That’s a risk on any day of any calendar year. We can find points and counterpoints to prove any scenario.

That was my point... OP had cherry picked the examples of microsoft and amazon to support the claim that buying and holding cryptocurrency through a bubble is a smart investment, which is of course absurd.

What I meant was that if you distribute your money across all cryptocurrencies even if some of them become worthlesss you won’t have anything to regret, in he long run. I don’t know if anyone who had the foresight to cherrypick MSFT and AMZN. Most of them invested in the tech basket. This is just general diversification principle nothing new

It can also lose 20x. Losses hurt more than gains feel good. Utility theory suggests to sell if probability weighting of loss is high enough.

How? If the value goes to 0 you lose 1x, not 20x.

It can become worth 1/20 of it's original value.

Going to $0 is -Inf% loss.

Then if I lose 100% of my investment, how much have I lost?

Everything.

Sometimes its easier to describe this in terms of words, than numbers and symbols.

Everything is not that bad. Many people lose more than that on the regular stock market (using leverage).

Usually there is margin liquadation levels that are in place so you can't lose ore than 100%.

You're not wrong. It very well could. I think there will be a major correction before (if) that happens, though.

You're not wrong either. And the higher it goes, the riskier it gets. And while I'm seeing signs of a bubble, I don't think that (excluding a few volatile 30-40% corrections along the way) we will see an implosion in 2018 just yet. The entire crypto space "only" equals the value of Facebook.

In the end, if it goes another 30x from where we're at today, and then has an 80% correction, you'll still be up 6x. It only makes sense to exit if you think such a correction is imminent, or you believe the entire space is going to zero.

Gold is worth $8tn globally

Drawing comparisons between gold and a fiat currency (BTC) is completely confusing.

“Fiat” usually implies something different from the way you are using it. No government has issued Bitcoin via fiat, there are no treasuries or armies backing it.

Gold is a tangible commodity. I’ve been in the cryptoasset space for a while and I’m still not exactly sure how to cleanly classify it.

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