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