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There is a dangerous theme of companies aimed at millennials that misappropriate Bitcoin (etc) as an investment, when it is just glorified currency exchange speculation. Blurring these lines obscures the real-world value created through actual investments.
The supply is mostly a function of time, as defined by the blockchain's algorithms.
The demand is a function of what, exactly?
Still looks mostly like luck to me.
demand is a function of greed.
It's not at all sustainable, though.
And it's worth noting that people do invest in currency. It is not merely an exchange vehicle.
Well... we're just shoving a poor definition of investment off onto a poor definition of gamble. If potential drawdown could be considered part of the risk of 'investing' )or 'gambling') then Bitcoin is definitely more of a gamble.
1. There's more government regulation and less manipulation.
2. New money is constantly flowing in, via 401K's and pensions. Most people aren't even aware they're invested in the stock market.
3. The government cares so much about the stock market doing good. Look at how Trump brags about the booming market. If it goes in a funk, the government will think of ways to prop it back up.
That said, without any of those 3 things, stocks are just as a gamble as bitcoin.
People say "past is not a predictor/indicator of the present", yet they love to say "stocks return 7-8% annually, and you should just invest in an index to enjoy such returns". Why? That's such as a huge assumption that everyone takes for granted.
> If it goes in a funk, the government will think of ways to prop it back up
I don't disagree with the second statement. I guess what you're saying is that there is manipulation (talking about government intervention in this case) but overwhelmingly in the "right" direction?
Well, you're leaving out something something about the company putting your money to use to increase efficiency or output something something and something something about dividends from the proceeds, none of which you have with cryptocurrencies. (Though it may be disputable whether those are truly the reasons behind the historical returns of stocks and thus good reasons to expect it to continue, even if you wouldn't guarantee the exact numbers, or if those are simply motivated reasons that may or may not be reliable future indicators...)
AKA buy stock at 100$ and sell it at 100$ does not mean you broke even. You could have gotten 10$ in dividends. Now that positive may be small and some people may lose money, but that's allowed as long as the expected returns end up positive.
Bitcoin's can't have a net positive return because they only way to add money into the system is via coin buyers. Further because of transaction costs it's inherently negative sum.
I'm not disagreeing with you. In fact I almost agree with you, but your argument fails for most stocks.
If every year your coin splits so now you have 2 coins then 4 etc no money was added. I can have 10^1000 in a database, but that's not new value.
https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ
Staking doesn't produce new coins. It pays dividends from transaction fees. I.e. actual economic activity.
Lets say I Buy '1,000' tokens including a 10 token payment for a transaction fee for 1$. Now A had 1,000 tokens and now has 1$, I have 990 tokens and another group get's 10 tokens. But, notice that other person(s) got tokens not money.
If I got to keep 1,000 tokens or someone else get's those 10 tokens nothing changes because nobody who has tokens got any money. The only way people with tokens get money is if they sell some number of tokens minus a fee to someone else. It does not matter of all 10 tokens go to a miner, or miners get 5 tokens an 5 go to 'investors' or what not.
It's still a (edit: negative sum game) and contracts don't change anything about this.
I apply, get eth, cashing out by selling it to someone else, then get hit by a buss or just ignore you.
Now, in what way can the system enforce that loan?
If you can get the eth from someone that gave me money then they are not going to give me money in the first place. If you say, sue someone in the real world that's fine. But, the smart contract did not actually do anything. If you say I need to put up eth as collateral then you did not give me a loan.
If they went to the work of creating digital contracts and didn't consider escrow, that seems to be a fairly significant omission.
Escrow accounts are fine if I am doing contracting work, but that are not a loan.
https://i.imgur.com/AltAcnB.jpg
Keep in mind this graph is logarithmic in scale.
If I take that same money and invest it in a business -- the business is going to take that money and create something new. Hopefully what it creates will be worth more than what you invested, but in any case your investment has changed the world in some way.
I think a cryptocurrency is probably something in between that, because your 'investment' is actually ultimately going to miners who will expand the network, so you are actually building something new in a sense by investing in cryptocurrency. However I'm not sure that building the bitcoin network out is a net positive for the world.
Only if you're buying at the IPO. Most of the time, you're just buying stock from another person and the company gets zilch. The service you're providing to the company is just better information about its ability to raise additional capital from selling equity.
For some cryptocurrencies, you are providing a service to the miners by adding liquidity and pricing information, but given the volume trading on crypto exchanges, there is simply not enough currency being mined for even a tiny fraction of it to be going directly to miners as a counterparty. For a currency like Ripple, that is completely pre-mined, you don't even have that.
However, over a long enough timeframe storage fees eat up the entire value of gold stored thus it's not a long term investment.
Also, if you 1 one bitcoin you can only sell less than 1 bitcoin from transaction fees. Remember, someone needs to spend real money maintain servers and that money is constantly being removed from the coin ecosystem.
If I own a house I get to use the house today and still have a house tomorrow. With a field I could grow crops and then still have a field next year.
Commodities are an interesting 3rd thing. But, closer to buying something from a wholesaler than an investment as they represent actual goods (ie Oil) that will be sent somewhere. Think of it like this, if you buy coffee contract you get coffee which can be sold off. However it's a physical thing and it's got a physical expiration date, if you keep it in a pile somewhere for 10 years you end up with dirt.
You could speculate that the utility created will increase the value of the coins you hold. However, unlike mining there is no connection between buying a coin and enabling other people to do these transactions.
gambol: A playful skipping or frolicking about.
The only way money enters the system is for someone to buy a coin, so having more tokens in no way makes something an investment.
Don't forget that investing in the stock market is still something of a gamble, because the return for everyone is not guaranteed to be greater than zero - a company can go bust leaving the shareholders with nothing.
PS: Berkshire Hathaway still returns money to shareholders via stock buybacks. Which preform similar functions the difference is simply related to taxes. They can and are likely to at some point issue dividends.
"Chances are" alone, is an assumption. How is that any different from your speculation on Bitcoin. The only difference is longevity of the window period, otherwise it's the same principle.
so one difference then is that stocks have a justification for their returns given the variance you experience.
Putting money into a company in return for a share of ownership is an investment. A lot of stock market shenanigans are little more than gambling. Gold and crypto-currencies for the most part are speculation.
Although it's not always clear with ICOs if any form of ownership is conferred or what the relationship might be between future profits and token gains.
But yes, in principle.
--edit-- to be clear, I'm not trying to say one class of thing is better than the others, just that to me the words have different meanings.
-Ben Graham, from chapter 1 of The Intelligent Investor
In (spot) market movements, your value goes down as the market declines, but you don't stand to lose everything in a moment.
I can imagine a lottery where usually nobody wins anything but every now and then everyone who bought a ticket wins collectively. It's still a lottery.
With stocks, for example, I can make a prediction about a company's future performance, buy or short accordingly, and expect that if I am correct I will profit.
I may be wrong about my prediction, but if I am correct then I've got far better than chance odds of also being correct about the future price of the asset.
Without making any further predictions about the state of the world I can equally easily imagine the price of Bitcoin in 5 years being $100 or $100,000. Neither price feels "wrong" the way it would if, say, Google's stock price rose or dropped by an order of magnitude without the company changing anything.
With other assets, there's a clear causal arrow leading from outside the system back in. If Google the company performs better, Google the stock will overwhelmingly tend to perform better. If Google the company folds, Google the stock will overwhelmingly tend toward being worthless. The asset is a proxy for something that isn't the asset.
Bitcoin doesn't appear to work the same way. There's no obvious not-Bitcoin that demand for Bitcoin is a function of. It's a proxy for itself, after a fashion. That doesn't mean it has no value, but it does feel uncomfortably self-referential when compared to almost any traditional asset class.
This is true even for the miners, since they would not build out infrastructure and burn energy if bitcoin was worth zero.
It's backed by hash rate, which secures the blockchain.
Even time I think I should play another hand, some new technology gets invented that makes more money for the players in the game.
Even some of the scammy non-blackjack games that people keep making, which act like blackjack (and the players also keep making money).
But there is no way i will ever take part in blackjack because gambling is wrong and stupid.
"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
http://buffettpedia.com/2017/08/investment-versus-speculatio...
By definition one: yes, by two: no.
It's just betting that the value will change arbitrarily (or through manipulation).
The stock market is a secondary market with people trading stocks, not providing capital.
Providing capital to someone does not only occur in the IPO stage. I'm not even sure how to go about refuting that statement; that's... not how finance works anywhere on the planet.
People do trade stocks with the expectation of stocks rising or falling in varying periods. People also hold stocks for long terms and then sell them afterwards. Just like cryptocurrencies!
However - it's just not the same. A share in a company has evolved and subjected to regulation for hundreds of years. An IPO is a highly regulated legal process involving investment banks and many lawyers (and that is how it should be - so that we don't have con artists running ICOs). It is sold by a company that generally provides jobs and services to society. It represents an actual piece of ownership in that company - if you have enough shares, you impact how that company is run. There are many other points I could make differentiating the two comparisons entirely.
"Providing capital to someone does not only occur in the IPO stage. I'm not even sure how to go about refuting that statement; that's... not how finance works anywhere on the planet."
First, I provided that statement in the context of the parent comment. In the equities market, providing capital occurs only in IPOs, not in the secondary market. When you buy Apple stock, you typically are exchanging money with another person who is selling it. You are not providing capital to Apple.
Second, you could've gone about refuting my statement by providing a counter-example. It's that easy. Otherwise you're simply just trying to put me down, and make me look like an idiot, without explaining why.
Yes, Apple is not receiving any money if there is a share transaction between two investors (duh?). However, providing capital to public companies or does not only occur in IPOs (edit: even if we restrict that with the clause: in an "equities market").
You're right, I could have provided a counter argument. However, at the same time, you should not make such an absurd, unqualified assertion that other people who lack knowledge and are reading these forums may read and assume to be true.
so why not provide an actual counterexample that actually adds value? You still have a chance.
This sentence explains everything about the world we now live in.