How Bitcoin Compares to History's Big Bubbles | Hacker News Reader

How Bitcoin Compares to History's Big Bubbles

bloomberg.com

57 pointsakrymski64 comments

Millions of people in developing nations bought into the “reliable store of value” philosophy and bought bitcoins, whilst the early adopters and whales have profited. At what point does this equate to what Madoff has done? When they’ve lost all their savings?

Does anyone really believe it is a reliable store of value? Surely the violent price swings and numerous scandals related to dodgy exchanges are hard to not notice. I assume they either perceive the risk as the cost of taking money out of the country or ignore it out of pure greed. Madoff disguised himself as a wise asset manager. I don't think bitcoin is disguising itself into anything else than a speculative product.

Investing with Madoff was also a speculative endeavour. He never guaranteed anything.

People invested with Madoff hoping they'd make money. People invest in BTC hoping they'd make money. Some people may have even pulled their money from Madoff prior to collapse and made a killing. As some did with BTC.

The difference is Madoff knew the people he stole from, and they knew Madoff. BTC sellers can't put a face to the wallets buying their coins.

This is a ridiculously weak comparison.

> BTC sellers can't put a face to the wallets buying their coins.

I have often bought and sold BTC to/from a friend I know.

> People invested with Madoff hoping they'd make money. People invest in BTC hoping they'd make money.

Madoff advertised a legal investing business, while he was actually running a ponzi scheme and didn't invest anything. Bitcoin is a transparent open-source system that anyone can inspect very thoroughly how it works. The two cases don't have much to do with each other.

Transparent? Does everyone know who the handful of individuals are that hold 90+% of all coins? Do they report their transactions to the SEC? Do they manipulate or distort the market? Do they advertise and promote securities without retail investors knowing about it?

Wolf of Wall Street was also pedalling stocks that people bought at their own risk. This is now illegal, because it leads to the same price dynamics as a ponzi scheme or a speculative bubble. HFT firms manipulating the market with large sums - also illegal. To think that the crypto market has no insiders is very naive imo

Madoff told people he was holding money in people's accounts that was not there. He spent money he had no right to spend under any circumstance in order to perpetuate a fraud. He lied repeatedly and deliberately. It's completely different.

Ask yourself a question. Do you believe that at any point in future, we will have a reliable store of value in form of digital information? Banks don't provide that, it's somebody else saying that he will take care of your money an give you when you need it. We want some kind of gold but in a digital form. Information as a value in its most direct form. I believe we are going to have it. It would be a sad future without having such thing, now that we know it's possible.

Second question. Is it going to be Bitcoin? Obviously it's possible and inevitable that there will be (or there is already) a cryptocurrency that's technically superior to Bitcoin in every aspect. So let's assume we switch to that, you move your "savings" from Bitcoin to X. But of course, at some point there will be something Pareto better than X. Is it going to be Y or Z? And is it already time to switch? Run that scenario in your head. It just doesn't work. You can't have a reliable store of value like that. Ever.

That's why I think that if we are ever to have a reliable store of value in form of a cryptocurrency, it's going to be Bitcoin.

It is however possible to switch to a completely new tech if you want to while not ruining the reliable store of value aspect, thanks to sidechains. But the magic of it is that Bitcoin keeps working as a store of value.

> It would be a sad future without having such thing

Would it? An economy dominated by a deflatory currency would be very different from what we know and enjoy. Driven to the extreme it could even be a mass starvation level threat (well, that's easy to say given the low margin for error we have left).

It's about a storage of value. To be able ta have a place to put what you have earned and not worry that the inflation is slowly eating it up. Apart from precious metals an example of asset of this type we already have would be real estate. And I don't think that in itself it's causing things like starvation.

I'm not 100% certain though about the assumption I made at the beginning that you are questioning. I do believe it's better for society if we have it, but I don't think I've read enough history and economy books to be super confident about it. Money makes money and the gap between poorest and richest surely is getting wider. Even in inflationary economy. However I don't know any 10,11 figure VC who isn't worried about that and is not trying to do something to protect those at the bad end of the spectrum (yeah, I don't know many VCs this is just a quote from some Eric Weinstein interview).

>Do you believe that at any point in future, we will have a reliable store of value in form of digital information? Banks don't provide that, it's somebody else saying that he will take care of your money an give you when you need it.

1. Banks don't provide that? Care to provide a source for banks taking or losing your money after the great depression?

2. The money in my checking account is in USD which is accepted everywhere I go and the price for things hardly ever changes. The bitcoin to USD price can fluctuate by up to 50% a day. How is that a "reliable store of value".

3. You don't want to sit on money but instead use it to make more money. Assets like gold are the worst way to do that: https://www.joshuakennon.com/stocks-vs-bonds-vs-gold-returns...

1. Cyprus would be a pretty fresh example: https://www.theguardian.com/world/2013/mar/25/cyprus-bailout...

2. I'm not saying this is where you should allocate value that you want to store safely and have access to it in the near future. It will continue to fluctuate wildly for quite some time. As a long term store of value though, it came a long way from where it was a few years ago. There's just no scenario where it disappears / goes to zero by now. And we're talking about store of value, it doesn't matter if they won't accept your gold coin when you go to buy some groceries. That doesn't change the fact that if I had to choose where to freeze some money for next 20 years I would definitely go with gold rather than USD.

3. Store of value != investing

This Cyprus thing gets repeated by cryptobugs without considering the details:

- Cyprus is a tiny country whose banks failed and needed a bailout, they had violated rules for staying in the Euro

- It was used as a tax haven for Russians and a lot of the large deposits were not taxed and the loss to many of the largest depositors may have been a wash compared to paying their fair share.

- The haircut was 30%, but didn’t apply to deposits under €100k.

- Cyprus banks and depositors are less likely to suffer from moral hazard (cf recent American bank failures where large depositors were made 100% whole by the state)

It was a really unique situation, and a 30% haircut sucks, but bitcoin is down 50% from its peak of 30 days ago. Unlike Cyprus where the middle class and poor were somewhat protected, the fall in value of bitcoin et al is probably affecting less wealthy retail investors disproportionately.

I was just asked for an example. I'm in EU and I guarantee you that those less wealthy were hurt more during the whole crisis. They couldn't get money out of their accounts. Some couldn't buy food. There were accounts that got the haircut with money for their salaries and so on. The top 0.1% likely knew what was coming and got their money out in time.

But the whole thing is not really all that relevant to the original point - that money in your bank account is controlled by the bank, not you. Many different people may decide that you should not have access to it after all. Currently you can have your account frozen because you had something to do with Bitcoin. Maybe next time the reason will be that you supported EFF. Sounds ridiculous, right? Well the present is ridiculous when you look at it from some years ago.

And to be clear, there are many cases where the fact that it is the bank that controls that money is a good thing. Especially when the governments, central bank and banks excel at what they're doing.

These are good points, and I think it's important to consider the worst case scenarios, because history does prove that the unexpected can happen in politics.

I only challenged the point, because even a 30% haircut seems better to me than the inherent volatility, price manipulation by shady exchanges, difficulty and risk of storing safely, lack of recuse in case of theft and key loss seem like bigger threats for most people than those from banks and governments (especially in the west) when considering a long term store of value.

> I don't think bitcoin is disguising itself into anything else than a speculative product.

I’d add “successfully” to that — there are plenty of hucksters trying to spin it as a cash replacement (old spin) or store of value (current spin) so that failure isn’t for lack of trying.

Millions of people bought bitcoins, that's true. But not because of the 'reliable store of value' philosophy, just because they were speculating on a quick finanical win.

After a month of btc, my conclusion:

fear of missing out + group think + self reinforcing beliefs

it's a strong force to be honest, our brains are tailored to seek for such situations, especially when real cost are passed on forward.

The best (altruist) behavior is not to play, the second best (egotist) is to cash out early.

The problem with cashing out early is that you are doing something equivalent with timing the market, which is really difficult to do. The best minds can't successfully time the market every time.

The best behavior in my opinion is to get educated in investments and finances. For people that want to start learning about investments, The Intelligent Investor book is a classic.

i'm not suggesting perfect exit, just exit when you are above an average profit.

The altruist would play. By saying this you fundamentally misunderstand Bitcoin. The altruist that buys (and takes on the risk, joins the movement) is allowing somebody else to withdraw. Likely in a situation better than when they entered, (or at least in accordance with their desire to trade since they are doing this voluntarily). By doing this, we lift everybody up slowly out of debt, and provide a protocol for liberated transfer of wealth for trade and banking. Cashing out early is fine, but there is every chance that it will always be 'early'.

Many of the people who I've seen make the claim that Bitcoin is a "reliable store of value" or digital gold then go on to talk about how its undervalued, an investment, one of the few things that can give you these kinds of returns, etc. There doesn't seem to be much reflection on a how using currency, storing something in a reliable store of value, investing in assets, and speculating on asset prices are all very different behaviors. It's also telling that when the economic issues of bitcoin are pointed out, the response is often that people don't understand the technical side or that they need to read the white paper. It would be like if someone said they don't think many consumers would like the iPhone X and the response was "you really shouldn't comment unless you know the details about how the iPhone X is manufactured."

There was also a story of some guy buying an expensive car for Uber and then they cut fares [1]. Are Uber also Madoff?

When you buy into new, volatile services you do it at your own risk.

[1]: https://news.ycombinator.com/item?id=13757628

In fact any economic decision based on an estimate of future return is speculative to some degree. And every service is new and volatile to some degree.

Madoff targeted wealthy people I seem to recall targeting naive (in financial terms) people in poor developing nations is even worse.

Bitcoin is not an instrument offered by a company but more like a commodity, like oil or gold. Similarly people can falsely advertise gold or oil as very good investments, and they can crash.

In mainstream media there have been lots of warnings about Bitcoin. For example various central banks have been issuing warnings regularly since the early years of Bitcoin. I wouldn't compare Bitcoin at all to something like the Madoff ponzi scheme. Is it totally different in a sense there are lots of information with various approaches. In addition to the promoters there have been always lots of critics and sceptics.

Why removing all responsibility from the buyer?

This was pure speculation. Buyers knew the risk.

There is no comparison between BTC and what Madoff did. He sent statements to people for years saying that he held clients money when he had spent it. He accepted a fiduciary responsibility to handle people's money (very different obligation then selling someone something) and went to great lengths to lie to them explicitly about facts that had no shading in opinion.

You're all talking in the past tense like it's done. It's already recovering right now, the US market will wake up, and it'll be back on track. Every January is the same story for 4 years now. This thing will hit far far far up before really crashing down. Bonus if some coin can be adopted as a reliable Digital currency for buying and selling stuff.

What are you seeing as a recovery? It's had tiny upticks back up like what's happening this morning many many times during the slide since early December.

Comparison my ass, the article name-drops 3 historical events and goes no further to do an actual comparison.

You probably missed this picture so I'll just post a link

https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iubORDgEzeo...

Yeah useless statistics overlaid on top of each other. You could just as easily overlay Amazon's stock price in 1998 from the perspective of 2001. Totally useless uncorrelated figures arbitrarily plucked out to make a correlation seem natural.

The conspiracy theory in me says the Goldman Sachs of the world are irked this missed BTC, and it is still out of their control to easily manipulate. Queue the daily bad press on Bloomberg in an effort to do just that.

There are plenty of problems with BTC, but they are typically harder to explain to the laymen rather than 'hey...tulips'.

I just hope Bitcoin gets phased out to make way for a more stable front runner of cryptocurrency.

Or maybe bitcoin becomes more stable after this crash?

The FUD is strong with Bloomberg. Are we really going to see this type of posts every time there's a 50%-70% crash in prices? That chart is also extremely misleading.

>Are we really going to see this type of posts every time there's a 50%-70% crash in prices?

Lol. Yes, duh. A popular new asset which had gone to the moon and received all sorts of financial press buzz and was even receiving coverage inside financial companies, etc. falls back to earth and falls hard. Of course it's going to be covered this way by the press. Besides when you say "every time" how many more times are you expecting Bitcoin to crash? At a certain point doesn't it stop being an asset and start being a gamble?

This "crashed" term must mean different things to different people. Stop looking at daily charts, zoom out.

Bitcoin is 50% down from it's 20k peak a month ago.

https://imgur.com/tCAXmKt

If that isn't a crash then what is?

There is still a long way to go. I did not believe it when it first crossed $1,000. It is still above $10,000.

For now, however the 1929 stock market crash right before the Great Depression was only an 80% drop. Saying it's up from 4$ / coin is also true, but does not mean much to the people that bought at 20,000$.

The Great Depression stock market crash was much less brutal than many think, but the consequences were severe. Initial drop about 10%, going to 20% with peak to peak at ~50%, but YoY it only was ~20% down.

https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

However, since many people were using excessive leverage, they got margin called and their positions were liquidated, leaving them royally screwed.

If the market goes down 50% to recover to -25%, that’s fine. But if the market goes down 50% when you are using leverage 4:1 you will be liquidated quite fast.

There is a great story in Harpo Marx's autobiography where one or more of the Marx brothers had a massive margin call and covered it by doing a command performance for some of the major mobsters.

Over a few weeks the Dow fell ~50% from it's 1929 peak Sept. 3, 1929, 381.17. Longer term it as a ~90% drop by July 8, 1932 at 41 points.

So, it depends on the timeframe your talking about. If you bought in 1910 or 1990 then the 1929 or 2000 crashs seems less important than if you bought at the Peak.

It's also up around a 1000% since the start of 2017. If that isn't a healthy correction, what is?

A 1000% up in a year is IMHO not a sign of health.

That's why the GP didn't say it was.

For a startup financial technology, not bad at all.

Zoom out even further – bitcoin was literally worthless in 2008 and it’s been growing ever since!

Indeed, it was worth zero, and now it's worth has multiplied 10 000s of times!

Crashing implies an event that leads to serious damage. The U.S. housing market crashed in 2007/2008 resulting in people loosing their homes, companies going bankrupt, people loosing jobs... If Bitcoin goes down by 50% nothing like that happens. People just loose money, but Bitcoin/crypto is not yet linked to reality. It's all artificial and therefore: Bloomberg, who cares?

What? Bitcoin is linked to reality in that people paid money for them.

I posted the link yesterday (and many other times), but a survey showed most people have spent ~3k on BTC. There is no comparison of a BTC crash and losing 3k to the housing crash and people being on the hook for 100s of k and losing their job.

Play money, but your mortgage won't burst because of this.

You could argue that:

* Bitcoin reached the price of 10k 2 months ago, at the end of November. The Bitcoin has only lost "one month" of its price, for the moment.

* There has been a dip in the price of Bitcoin every January for the last 3 years. It fell from ~1200 to ~700 in January 2017, for example.

I'm not saying that this is not the "final crash", just that what's happening for the moment isn't really surprising. I saw numerous people predicting that the price will fall at least back to ~8k.

Isn’t it fair to report a massive drop, just as it’s fair to report a massive spike?

Reporting on price drops doesn't help the price going up...

Actually, it kind of does. If people think the price is low, they'll buy more.

Bitcoin isn't crashing. It's just on sale. Buy now before it's too late!

Judging by the graphs I think we have some more time to buy before the bottom of this Valley is reached.

You find a 50-70% drop in prices not to be newsworthy?

Someone please explain to me why is this kind of thing on HN? This place is becoming more Reddit-like by the day. The problem? You only have one subreddit, the main one. Could we please stop filling it with garbage like this? Is HN really a place for dumping random people's opinions on investment opportunities?

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