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> The math regarding Bitcoin’s price increase is actually pretty sound, and I encourage anyone who disagrees to read this article:

https://medium.com/the-crypto-times/why-is-everyone-investin....

The article doesn't prove the math is sound except quote some people about price prediction and talk about how pricey bitcoin will get because population, gold market size etc.

And then it also misses why people don't invest in bitcon. It has nothing to do with Kanehman's psychological studies etc but because people still don't understand what is the use case of a bitcoin.

Additionally, it is these kinds of poorly written articles used as proof which dissuade people even more because the narrative is - if prices are going up then it must be good. I am sure many said something similar about housing prices in 2005.

> I am sure many said something similar about housing prices in 2005.

The difference is that the housing prices were clearly in a bubble and banks were intentionally packaging subprime mortgages that they knew were bad and selling them as a low risk investment. This is much much different than Bitcoin. I would argue that Bitcoin is the only asset class that is not currently in a bubble.

> The article doesn't prove the math is sound

I suppose you are right, but I still think it brings up some good points. The Bitcoin market cap is minuscule compared to any other established market. What gives gold its value? It is not that it is used in jewelry. It is that there is a limited supply of it, it can’t be easily created/counterfeited/reproduced, it is divisible, and it can be used to store and exchange value. Bitcoin has the exact same properties, but is even easier to purchase, store, and exchange. I fully believe that Bitcoin and Gold market caps will reach parity some day. Maybe it will take 10 or 20 years, but I believe it will happen.

>The difference is that the housing prices were clearly in a bubble

The above article shows that Bitcoin was at the very least, in a bubble last year, and may still be one.

>and banks were intentionally packaging subprime mortgages that they knew were bad and selling them as a low risk investment.

And nearly every coin has an ICO which is a "sure thing". Everyone is selling their coin like it's a low risk investment.

>This is much much different than Bitcoin.

How?

>I would argue that Bitcoin is the only asset class that is not currently in a bubble.

So, you're living in denial then?

> So, you're living in denial then?

No, I believe that Bitcoin is going through a more general adoption wave.

So yes, it was in a bubble last year, but it is all part of a larger adoption pattern. It is the same way Amazon stock was in a bubble from 1998 to 2000 when its value rose from $3 to over $100 and back down to $5, but where is it today?

> The difference is that the housing prices were clearly in a bubble and banks were intentionally packaging subprime mortgages that they knew were bad and selling them as a low risk investment.

That's exactly what Bitcoin looks like to me. Places like Goldman Sachs are getting involved in selling Bitcoin derivatives. These are akin to subprime mortgage derivatives; the bankers know their current value is inflated with respect to their fundamental value, but for the time being people clearly want to buy them, so they can make lots of money selling them. Once they are making money selling them, it behooves them to downplay the risk. They can point at a BTC graph, talk about it is the future, draw a line up and to the right, and make it seem like a no-brainer.

What you are quoting about banks and bubbles is all in hindsight. At that time everyone and their grandmother thought real estate could only go up.

So, if you have data to backup the fact that bitcoin is not in a bubble, please show that. Until then it is just your gut feeling nothing more.

> What gives gold its value? It is not that it is used in jewelry.

But statistics disagrees with this point:

https://www.statista.com/statistics/274684/global-demand-for...

I haven't calculated but quick eyeballing tells me jewelry beats investment by a far far margin.

Additionally, gold for the most part is a risk-off (safe harbor) asset. As in people rush to gold when markets are crashing because it is supposed to be divisible etc. On the other hand people rush (and encouraged no less) to put money in bitcoin when markets are booming. So my gut feeling is that once we hit a rock in these booming times and S&P drops people will still prefer gold. But let's see how bitcoin performs during a market crash before we talk about it's investment potential in the same breath as gold.

All valid points. I personally am very eager to see what happens to Bitcoin and crypto currencies during the next recession.

It's an interesting question, but rationally it seems like BTC should decline during a market crash / recession. It's arguably a way to store value as other assets decline, but given that it has no yield, the rational thing to do after that decline is over would be to cash in your BTC and use it to purchase those other assets that have declined, such as real estate, bonds or stocks, and now have either attractive yield or a strong potential for future asset growth.

(And you see this kind of rebalancing effect in general when a major asset class declines - eventually it pulls down other, unrelated asset types because as it goes down in price, it becomes a relatively more attractive investment.)

I wrote a bit about my opinion in a reddit thread a while back. It is here if you are interested, but a fair warning it will probably be quite an unpopular opinion with the hacker news crowd:

https://www.reddit.com/r/BitcoinMarkets/comments/7xq7mp/comm...

The problem isn't that it's unpopular, it doesn't seem (from the post) like you have some kind of underlying economic or financial principle supporting your argument.

* why would it have an inverse relationship with other assets? It's not a short. It's still valued based on purchase price vs sale price, adjusted for risk. If risk has risen and nothing has changed about purchase or sale price, why would it rise?

* if Bitcoin was at a market-clearing price before a downturn, and other assets are now much cheaper, why would BTC then be comparatively more attractive in terms of expected investment returns?

Well can we at least agree that no one knows with absolute certainty what will happen to Bitcoin and other crypto currencies during the next recession?

The reason I believe it will be inversely related is because it is still a relatively new market whose market cap is minuscule compared to other established markets.

During a recession people will naturally look for other places to put their money and gold will be the obvious choice. Bitcoin has all the same properties as gold except it is cheaper to acquire (fees), cheaper to store, has a fixed mining rate (with gold more supply is created when the price increases which drives the price back down), and has only 1% of gold’s market cap. The way I see it, it would be silly not to at least hedge a small amount of money into BTC/crypto.

The other economics reason is pure supply and demand. The supply of Bitcoin is shrinking every day as more people decide to hold it long term. Many more get lost or stolen. Every couple years the block rewards get cut in half as well.

All of that said, the rise and fall in the last year has definitely shaken the public’s confidence so it may take a long time before new money starts flowing into it. All of my timelines are years down the road. (10-20 years)

Obviously, nobody can predict the future, but the whole point of talking about what's likely to happen is to make reasoned guesses based on the best available data and economic models.

The nature of a hedge, in particular, is that you do it before a market downturn, not after. Once the market has dropped, you want to unwind that hedge, which in the case of gold or Bitcoin means selling. If you look at gold's performance during recessions since we unlinked it from the dollar, it's as likely to decline as rise. That makes it a poor hedge against recession.

In terms of supply and demand, it's true that supply is constrained, but that's only half the equation. Demand is extremely volatile, as there's no inherent "consumption" of crypto currencies (aside from lost wallets and other breakage), not is there any production occuring that requires btc to continue. The demand is entirely composed of people buying it with the expectation of a future sale at a higher price... that's speculative demand, and it's not a stable or dependable type of demand.

The issue with using Tethers to pump up the price is that it implies there's billions of U.S. dollars backing up that Tether. If there isn't billions of USD to be found then... what?

The USD pumping up the stock market is undeniably there, but if the Tether pumping up BTC isn't real (real being defined by the 1 USDT = 1 USD), then the price is essentially being pumped up by nothing.

But the article and report do not prove that Tethers are not backed by USD. In fact, it constantly says, “If Tether is not fully-backed by dollars”. All it definitively claims is that Tethers were used to buy Bitcoin when the Bitcoin price fell last year.

There's exceedingly strong evidence Tethers are not backed by USD - the Tether website claims "frequent professional audits", but they never completed their first one, were fired by their auditor, and cited a document explicitly stating it was "not intended to be, and should not be, used or relied upon" as proof of their reserves.

It's a demonstrably fraudulent claim right there on their home page.

That is not strong evidence that they are not backed by USD. That is strong suspicion.

> Lack of transparency does not necessarily indicate fraud

https://blog.bitmex.com/tether/

Putting it another way, there is no evidence that Tethers are backed by dollars.

> Lack of transparency does not necessarily indicate fraud

Fraudulently claiming "frequent professional audits" that don't exist is good evidence of fraud.

So is having a big link "proof of funds" on the home page that links to https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co... which says "not intended to be, and should not be, used or relied upon by [non-Tether parties]".

Clearly we do not agree so it is not worth continuing to argue. Honestly, I just want this whole thing resolved one way or the other. I have no personal ties to Tether, and do not care if they are backed 1:1 with USD.

I agree with you they should have an audit done to prove definitively one way or the other that they are backed by USD to put this entire thing to rest.

As it is now, it keeps coming back up every few months in the media, and the narrative is getting old.

Do you not think that perhaps the media should keep coming back to the possibility of multi-billion dollar fraud like this?

Valid point, but there are also billions of dollars created out of thin air by the Federal Reserve to pump up the stock market, and perhaps that deserves some media attention as well.

https://suremoneyinvestor.com/2017/08/how-the-feds-money-pri...

Those actions did garner media attention. Massive amounts of it.

Do you feel that the narrative about Theranos was getting old, too? Continued questions about fraud and deception?

Shouldn't it be incumbent on them to prove that they are backed by USD and not on me to disprove it? They are the ones making the extraordinary claim here.

Given the little we do know about the company the most reasonable assumption is that it is a slightly reworked Ponzi scheme.

What makes the claim extraordinary? If I wanted to make an easily tradable form of USD on the blockchain, I would take a similar approach. Take deposits in US Dollars and issue an equal number of “dollar backed coins” on the blockchain that can then be sent around from exchange to exchange. Nothing about that seems extraordinary to me.

It is very likely the federal reserve is going to do something very similar in the coming years. They will also print more of their coin at will, but no one is going to make a stink about that cause they have already been doing it for a hundred years.

The extraordinary claim that people pumped billions of real US dollars into an upstart exchange with no proper accounting.

Ahhhh. Okay that makes more sense. Although at the time they did have accounting and audits. The last audit was September 2017, I believe.

No, Tether never completed an audit. Their auditor fired them. Their claimed "frequent professional audits" on the home page encompasses precisely zero completed audits.

https://www.coindesk.com/tether-confirms-relationship-audito...

> Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.

Wrong. They were fired after their audit in September 2017 which is available here:

https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co...

That's not an audit. It's a memo.

It explicitly states on the first page that it cannot be relied upon.

When Tether posted it (https://tether.to/announcement-transparency-update/) they stated " These consulting services do not constitute an audit or attestation engagement, which would include a significantly expanded scope of procedures and take substantially more time to complete."

And into a bank that has no US dealings or holdings, because Wells Fargo dropped them, and there are challenges with them using a US banks.

A bank that, through 2017, raised no questions when they were supposedly depositing multiple hundred million dollars, _multiple_ times a week.

I agree that there are dubious actions surrounding Tether, but I still want to see proof.

I think the bank argument is a little weak since banks are the exact group that crypto currencies are disrupting and stand to lose the most if crypto currencies succeed. If I were a bank I wouldn’t want to be involved with any company that makes it easier for people to trade US dollars for crypto currencies either.

Then they are doing a REALLY bad job at managing their presence, because "Transparency" is one of their hallmarks:

https://wallet.tether.to/transparency

... supposedly.

Those are very specific numbers to be touting without anything supporting them.

People will simply look the other way on this as long as it benefits their worldview. Once things go south the cries will be "Tether lied to us, how could we have known?"

I don't know. There's a certain level of cognitive dissonance required. They will say...

Tether was FORCED to print, even if they didn't have the USD. The amount of FUD, and active attacks from the traditional banking system suppressed the price of bitcoin. Tether were trying to SAVE us... and so it goes.

Of course they don't, the only reasonable way to prove such a claim would be to make a full audit of Tether. Which as of the moment is out of the cards due to lack of a willing auditor.

I don't think there is a lack of auditors that would take the job. I think there is a lack of auditors that would release the report that Tether wants.

Good comment, I just have one picky edit (attached to a story I enjoy). You wrote, "during a bull market, when the price started to decline."

It's the opposite. Bull markets are when price starts to increase. Bear markets are when price starts to decline.

Years ago, I had an amazing macroeconomics professor named Alex Kelly. Dr. Kelly was an amazing educator with an incredible sense of humour, a penchant for telling the truth as he saw it, and genuine glee when he'd see students start to understand his material.

I'll never forget the class where Dr. Kelly stood up, did his impression of a bear standing on his hind legs, growling and pushing down the market. Then showing the converse, snorting like a bull and pushing up the market.

Afterwards, he did his usual shrug, reached into his pocket to fish out his everpresent Rolaids, quipped "now if anyone gets that wrong on the midterm..." and shook his head menacingly.

Dr. Kelly could flat out teach and I quote him to this day.

Oh I am well aware of the difference. I meant what I said though. During a bull market it is smart to buy up the dips. During a bear market it is smart to sell the rallies.

For example last year there was a point during the bull market when the price dropped from $5k to $3k and that was one example of “when the price started to decline”.

Thanks for the story!

Yeah, this narrative has been around for a while and there have always been two major problems with it:

- If Bitfinex was buying Bitcoins on their own exchange with fake USD in order to push the price up, they wouldn't do so by printing Tether because USD on Bitfinex is not backed by Tether - it's supposed to be backed directly by USD in Bitfinex-owned bank accounts, with Tether only being minted as necessary to handle Tether withdrawals. (Someone even found externally-visible evidence that there wasn't enough Tether in existence to cover the Bitfinex USD balances - naturally, this was seen as further proof it was a scam.)

- During the period in question, it was Coinbase/GDAX which was pushing the price up, and that exchange never accepted Tether. The price of Bitcoin on Bitfinex and the other exchanges was pretty much always lower than GDAX, or to put this another way, Tether USD was worth more than its face value during the time when Bitfinex was supposedly printing it to push the Bitcoin price up. This is the exact opposite of what should have happened if they were doing so.

It looks, at a quick glance, like this still has the same problems.

Edit: this is more clever than the previous arguments, in that it also uses evidence from round-number trading biases and odd end-of-the-month behaviour of the kind you'd expect if Bitfinex had to make the Tether shortfall disappear for their monthly audit, and also examines outflows of Tether from Bitfinex to other exchanges. (The round-number stuff is less convincing since the divergence between exchanges and even between currencies on the same exchange was particularly bad around round numbers.)

They also attempted to test the hypothesis that the Tether printing was a reaction to demand by comparing the amount of printing with the Tether-USD price. Unfortunately, they used the price on the Kraken exchange which had almost no volume or market depth compared to the potential Bitfinex-Bitcoin-GDAX route. Basically, no-one actually used it, and so it didn't accurately represent how much it'd cost to actually exchange any substantial amount of Tether to USD or vice-versa. It's entirely unsurprising that it wasn't correlated with anything of note.

Yes. The fundamental issue they don't seem to address is that strongly positive correlation between Bitcoin prices and Tether issuance is to be expected even if there is no manipulation, or, at most, manipulation from unrelated 3rd parties that are actually pumping real dollars into the market via Tether. Tether could indeed hide the manipulation, but there still doesn't seem to be a smoking gun.

In addition, a willful design for manipulation of the whole cryptocurrency market would strongly motivate Bitfinex to hide or manipulate public Tether data precisely to make such a link impossible to prove.