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> For people who are young, familiar with technology and largely without any wealth, Bitcoin is much more attractive.

This is a crazy way for young people to think though and the opposite of how they should be thinking. If they don't have much wealth, they certainly shouldn't put it in something so incredibly risky as Bitcoin. They would be really hurt if/when BTC tanks. Someone who's rich wouldn't really notice 10% of their net worth gone.

> It's risky, sure, but to many of us, the entire economy looks just as risky, and with lower growth potential.

The entire economy is definitely not as risky as BTC. The economy doens't see 50% swings in value week-to-week.

I have a friend who's been investing loads of cash into BTC and doing well. My advice to him (and others) is to take a certain % out every time it spikes and transfer it to a more stable currency, while leaving enough in that it can continue to snowball. This is doable.

For instance, he took $2k and turned it into $12k in a few months. I told him, "Take 4k out and put it into an index fund." That way, he comes out ahead no matter how you slice it, even if he loses the rest of what he has in BTC. If what he has remaining in BTC goes up to $18K, I'd take another $4K out and move it into an index fund. Rinse and repeat.

It's not as risky if you run it that way.

Except you are assuming it will just magically go up. If you are the unlucky person to do that at the peak, then you will lose most if not all of your money.

Which is why you put $2k in, and don't bet your house on it. Or if you do bet the house, be aware you could lose it all (or be set up for life, of course)

The overwhelming majority of Americans do not have $2k lying around for a risky investment, nor do they understand the risks associated with crypto (especially the speculative coins).

In order for someone to invest in crypto as diversification, on the order of 5-10%, they'd need to have $20-40k lying around.

Needless to say, outside of the tech bubble that situation is quite rare.

"...who's been investing loads of cash into BTC and doing well."

I have a problem with the terms "investing" and "doing well" here.

Buying bitcoin is not investing. You are not funding any productive enterprises---not even indirectly as in buying stocks on the secondary market. You are giving someone money in return for a ledger entry. You expect someone to give you more money for that ledger entry at some time in the future, which is the problem with...

An "investment" in bitcoin isn't doing well, or doing poorly, or doing anything. A stock can do well, if the enterprise it represents is producing economic value and thus the stock represents an increasing value (and assuming the market recognizes the increase, which is another discussion). If you BTC is worth more today than it was yesterday, the only thing that has changed is the price (and the conversion of some more coal into heat and carbon dioxide) and prices don't have anything resembling inertia. The "doing well" can turn to "doing poorly" tomorrow with nothing more than a change of market opinion.

Savings accounts used to pay 10% interest. Now all investments that beat inflation are "risky" including s&p indexes, simply because they are at their all time high and there is so much uncertainty in the world. So by that calculus the risky investment that's been showing 5000% annual return is more attractive than the risky investment that's showing 15% return.

Nope. Wrong. Just because they're at their all-time high doesn't mean they won't continue to go up. Doesn't mean they won't tank tomorrow. And it's naive to think there's more uncertainty in the world today than there was 20, 30, 50 years ago.

Your "more attractive" investment has shown 5000% annual return for 1 year...the "risky" investment has shown 8-10% return ON AVERAGE for over 100 years.

The S&P saw extended significant bear markets in 2007, 2000, 1987, 1980, 1973, 1968. It's naive to think that it won't happen again.

What you are saying is that if I put my money into S&P 500 10 years before I was born, it would match the gains on the same investment in cryptocurrency from 1 year ago.

Salty nocoiners.

Nocoiners? If you’re that confident in the future of BTC, please take me up on my offer to sell me some puts (see my other comment)

I'm not interested in your put options on BTC (nobody in their right mind would sell you that), but I would make a wager that the percent increase of total "market cap" of all "cryptocurrencies" (loosely defined as cryptographically secured tokens redeemable for fiat currency, e.g. coins listed on CoinMarketCap) at least 2 out of 3 of 5, 10, and 15 years from now exceeds the total "market cap" increase of the S&P 500 in the same period. I believe my bet more closely models the prediction I am making - that cryptocurrency gains will continue to outstrip S&P 500 gains.

I would take that bet, since I think 98% of the crypto's on this CoinMarketCap will be non-existent in 5 years.

I think you misunderstood me - I don't think that buying and holding any of the current tokens on CMC is a particularly good idea. You have a very very low chance of picking the ones that will be around in a few years. However, staying aware of what new development are coming around and trading into the new promising ones as they become successful may be a good growth strategy. I agree with you that 98%+ of the current coins will be dead in less than 5 years - but there will absolutely be new ones with an increasing amount of value.

There may well be a point in the coming months or years that the market cap of current crypto deflates - maybe by 90% or more - but new cryptocurrency applications and tokens will certainly exist in 5, 10, 15, and 100 years.

> And it's naive to think there's more uncertainty in the world today than there was 20, 30, 50 years ago.

There's more uncertainty in bitcoin today than there was in almost all available investments 20, 30, or 50 years ago.

> Savings accounts used to pay 10% interest. Now all investments that beat inflation are "risky"...

Note that when savings accounts paid 10% interest, inflation was (I think) at 14%.

> Someone who's rich wouldn't really notice 10% of their net worth gone.

It depends more on how leveraged your wealth is than on how much you have.

> The entire economy is definitely not as risky as BTC. The economy doesn't see 50% swings in value week-to-week.

Price volatility != risk. A number of people lost everything they owned in 2008. Everything. In fact, I've heard it said that half of the world's wealth disappeared.

> This is a crazy way for young people to think though and the opposite of how they should be thinking

I dunno, seems like this sort of risk is the only way to get anywhere now.

Using that logic, you should “diversify” into lottery tickets too

Not really, crypto is high risk but it's a far cry from a lottery. The point is that safe investments over a couple decades do nothing for people who are trying to actually move their life forward now.

This idea that young people should be more circumspect ignores basic tenants of the time-value of money, and how life and responsibility work. When you are young you have the most amount of time to make up for losses and mistakes. You are also far less likely to have mouths to feed, a mortgage, and college tuition to think about.

Things can get really bad if you are nearing retirement and lose even 15% of your portfolio in a downturn. On the other hand you can lose 100% and even have to declare bankruptcy at 25, and still have plenty of time to get your life back on track.

I am not saying that Bitcoin or anything like it is a good investment. I'm saying that it gets harder to take risks as you age, unless you've been very successful and/or lucky. But being either of those things probably required some risk taking in the first place.

I think its just the opposite - young people generally have a higher risk tolerance and would only be at an advantage against older investors when it comes to the most innovative and new investments that they may have insight into.

Check out Bill Miller's investor letter where he discusses the "certainty" of storied investors that Bitcoin will fail. Miller is the most successful mutual fund manager in history.

https://millervalue.com/certitude-not-test-certainty/

Also a good read is Miller's letter on Bitcoin from 2015. He put 1% of his fund into Bitcoin (now 50% of his fund due to the meteoric rise in price): https://millervalue.com/a-value-investors-case-for-bitcoin/

Check out Bill Miller's track record to see what a wild ride he takes his investors on: https://www.cnbc.com/2017/05/10/legendary-investor-bill-mill...

Something like this?

https://finance.yahoo.com/quote/LMOPX/chart?p=LMOPX#eyJpbnRl...

"One of Bitcoin’s biggest advantages over other payment networks like Visa (V) and MasterCard (MA) is minimal transactions fees. While other payments networks typically charge the greater of ~3% and $0.15, Bitcoin’s transaction fee tends to be a negligible fraction of the transaction, if any at all."

Could you please explain succinctly why do you think that Bitcoin is undervalued, why should it produce solid future returns and why do you think it is a good investment for someone with (comparatively) little investable cash?

1. I came to see it as undervalued in early 2017 (when I started buying it) because I saw the price curve, read the whitepaper, observed the community governance at work, tried it out, and reasoned that it has the potential to take a significant, long-lasting role in the global economic system. So I bought a small amount that I can afford to lose.

2. I didn't say Bitcoin produces returns, and don't believe it will. It's a currency, not a business. Like I said, I don't have the wealth to get a significant share in anything that produces a return. It's a class of assets I just don't have access to yet (in my mind, and for many other reasons I haven't mentioned).

3. I would advise anyone to only invest in what they know. I wasn't recommending anyone invest in Bitcoin specifically, and in fact, I myself haven't bought any in 2018. I was only explaining why I did consider it a good investment in 2017, and why many people might have felt that way and still feel that way.

What is it that Bitcoin has that any other cryptocurrency doesn't, or is unlikely to have in the future?

> it has the potential to take a significant, long-lasting role in the global economic system.

What role, and why is it uniquely well suited for that role?

Speaking for myself, back in 2013, I was excited by what I saw as its potential for micropayments on the internet. That is (and was) clearly wrong - it can't do the transaction volume, is too hard to safely acquire and use for most people, and is too volatile.

Its current role is "hype-y speculative security". I don't see a significant and long-lasting need for such a thing, or how bitcoin is uniquely qualified to be that thing.

> I would advise anyone to only invest in what they know.

What is it to "know" a thing? Put another way, what exactly makes it such that you "know" bitcoin? Put another way, what useful information is there to know about it? I understand the details of the whitepaper and the block-chain concept at a technical level, because I find them innovative and fascinating, but I think any translation of that technical with knowledge of its value as a security is illusory.

I'm honestly curious about this: I've gone from very bullish to very bearish over the last 5 years or so, while I've watched the population at large take an opposite course from indifferent and unaware to very bullish, and I'd really like to understand what I'm missing.

>>Speaking for myself, back in 2013, I was excited by what I saw as its potential for micropayments on the internet. That is (and was) clearly wrong - it can't do the transaction volume, is too hard to safely acquire and use for most people, and is too volatile.

This is strictly speaking not true. Yes, the current implementation is not good for taking micropayments, but it never was designed for this. If you thought this, you misunderstood the scaling architecture of the paper. It was always likely an off-chain derivative was going to be necessary for that to be a thing (Lightning Network), even before the rise of and prediction of ASIC miners and explosion in general computing power making the original algorithm chosen look... not ideal. We just got here much faster than people originally predicted, which is about what you get when you try to predict computing power curves as a linear function rather than a step function.

Whether it's undervalued at $14k isn't for me to say and I don't think anyone can truly tell you in either direction. But BTC has scaled as promised, just not as people would have liked. Then again, that's not BTC's problem, that's people not understanding BTC from the beginning.

It has a very prominent role in pseudonymously exchanging large sums of money near-instantaneously, securely, recorded in a global and publicly-auditable distributed ledger forever. There's a great number of use cases for this particular method of funds transfer, ones that I use today and many do and find a lot of value in it, even over other cryptocurrencies (for now). Would I prefer everyone take LTC and cut my fees down? Sure. 75% of BTCs problems go away if everyone would just activate Segwit too, but that hasn't happened either for whatever reason, so, it is what it is.

I know enough about Bitcoin to know that its value is nonzero. In tech, nothing this unprecedented just goes away. Either it complements or supplants something else, but it finds a use case, even if that use case changes over time. My opinion is that the most important use case for Bitcoin is related to economic sovereignty. It gives people an escape hatch from the global financial system. The price is affected by speculation, sure, but it mostly depends on how many people use the escape hatch, and to what extent. Just a theory, I guess. Only the future will show who's right.

>I'm honestly curious about this: I've gone from very bullish to very bearish over the last 5 years or so, while I've watched the population at large take an opposite course from indifferent and unaware to very bullish, and I'd really like to understand what I'm missing.

The number is going up and there's a fun tech-beats-banks narrative. I'm as bearish as you.

>I don't have the wealth to get a significant share in anything that produces a return.

I don't understand your reasoning as to why this matters to the degree you think it does. Or why a minority share in an unproductive asset somehow becomes de facto better option over minority share in a productive asset.

I hold a small percentage of my net worth in cryptocurrency so I'll answer it from the non-speculative side.

>>why do you think that Bitcoin is undervalued

There's no way to know this. Or really, know that about any asset.

>>why should it produce solid future returns

No evidence it will.

>>why do you think it is a good investment for someone with (comparatively) little investable cash?

Ah, that's a different argument.

The total market cap of cryptocurrency is $726 billion with a 24h vol (as of 9:08 AM PT 1/10/2018) of $52 billion, with 33.8% dominance by BTC. Let's just go with the top two currencies, BTC and ETH, with $245b and $129b in market cap, respectively.

Can you find assets with similar volumes and market caps that are legal and easy to invest in that you would ignore in a balanced index fund approach to retirement? Probably not. Neither would a responsible financial adviser. Yet because it's BITCOIN, we're supposed to think it's stupid, dumb, valueless, etc (not saying you feel this way, just saying that's the stuff I hear) without just looking at the market signal that's being sent: A hell of a lot of money.

IMO, the real speculators are the ones blithely ignoring the three-quarters of a trillion US dollars being traded on cryptocurrencies and thinking it's a bunch of crap. They might be right. But that runs counter to sound investment strategy, which is to own the market and to cover all potential areas of growth, because as history shows, a vanishingly small number of equities/assets is responsible for a huge part of the return on investment of capital.

Even for a conservative investor, a 1% portfolio investment could produce 30 to 50% of your total gains for the entire year. I don't see how you can not at least own some cryptocurrencies.

Since it's entirely global, the space could very well grow to $5-10tn before crashing down to $1-3tn. We're at $730bn now. The dot-com bubble, which was US focused, went up to $6.7tn before coming back down to $1.7tn.

For me, 5% of my future retirement contributions are in cryptocurrency. Rebalancing is obviously tricky since it's so volatile but that's the general target I hit, and the remainder of my portfolio has shifted to be more bond-heavy as a result of the additional risk. This suits my current lot in life but may not be for everyone.

> why do you think Bitcoin is undervalued

I see it as a variation of a tontine. But instead of people increasing in value when a member dies, it does such when a member loses access to a coin. Once that coin is lost, it can never be sold, thus cannot drive down the price.

But the interesting thing about this is, AFAIK, there's no way to accurately determine if a coin has been lost permanently or not, so the the true value of all accessible coins will be completely disconnected from the market cap. So people using market cap as a valuation metric will always be considering at a wildly optimistic one.

For example:

Coin A purchased at $100.

Coin B purchased at $120.

Coin C purchased at $130.

Current bid price $150.

If access to Coin B is permanently lost, then one of two things happen, A) the market cap falls from $450 to $300 to reflect the reduced number of coins, or B) the market cap is maintained at $450, and the "real value" of each coin is $225. Because it's impossible to know which coins are lost, the valuation metric will always be B.

Essentially, the owner of Coin B lost 100% of their investment, and the paper value of his asset was invisibly transferred to the owners of the remaining coins.

My opinion is that cryptos will be undervalued until one of two things happens, A) coin management becomes more robust and they stop being lost permanently, B) people realize that investors realize that there's a very real risk of their investment going to $0 (without the market crashing) and begin to price in that risk (much like unsecured v. secured credit pricing).

> But when he buys, he either buys all of a company, or enough of it to have some level of control over it, and that's only possible these days if you're wealthy as he is.

A lot of that is simply that he now has too much money to be able to efficiently buy bits of companies. His early career was still based on value investing, but mainly consisted of regular stock purchases. Berkshire Hathaway still has decent-sized chunks of Coca Cola and various other companies on its books.

Correct. His mindset or sugguestion is to only buy shares in a company you would wish to own entirely, and forever. Buffett stresses the ownership of the underlying business, rather than securities speculation.

And he employs a couple of people to make those sorts of investments for him.They're quite good at at it too. I can't remember their names, but it should be easy to look them up. I think they're mentioned in all the recent annual reports.

Buffet is first and foremost a reader and an investor second. He reads A LOT! If he does't like bitcoin it's because techies have failed to explain it or he truly thinks it's not valuable (perhaps he has knowledge of money/currency/banking that most of us dont?).

Not only does he invest in things that are undervalued but they also must provide value. Crypto currencies themselves do not provide value. The companies that make the hardware for mining provide value. Power generation companies that make the electricity for mining provide value. But a crypto currency provides no value by itself, it's just bits and bytes on a harddrive.

I'm not saying he's wrong, but he's notoriously bad at investing in technology. He just does not get it, for the most part.

He would probably have never invested in Netflix, or Facebook, or Google. Yet any investor who did made a killing.

Now, I'm pretty sure everyone is aware at some point the music has to stop (at least I hope they do). A major correction will happen at some point. But no one knows when. It could be tomorrow, or it could be 3 years from now.

More importantly, tech investors have definitively netted lots of profit even if the music stops.

For example, if you are making x50-100 gains on tech investments, you are not rolling the dice full again but netting out some of that profit. Which is still a plenty and more profitable than traditional investment channels.

Sure it can't work for everyone and the market is very heated right now but we should not incorrectly assume that the tech industry didn't create enormous amounts of wealth.

> He would probably have never invested in Netflix, or Facebook, or Google. Yet any investor who did made a killing.

Buffett's strategy is to avoid losses -- not to worry about missing out on possible gains. He believes you avoid losses by investing in companies with a long, successful track record of doing the same thing for many years and that are likely to continue doing that same thing for many years into the future.

So, it's not that Buffett doesn't "get" technology, he just can't make intelligent guesses about what tech companies will be earning 10 years from now. He sticks to his circle of competence and it works.

Which is fine. He's a great investor on his own terms. But the complete counterexample to Buffet is George Soros -- a different way of thinking and operating.

Both lines of thinking clearly work for some people.. your investment style is tied pretty closely to your personality. There is no perfect solution, and everyone has to find their own way.

I would never put money in a railroad or an oil company, because I can't properly assess what drives the stock price and which unexpected issues might pop up. I can more easily do that with tech.

"This is all I could afford" is not a valid reason to make a bad investment

spot on.