Will Bitcoin Make a Good Investment?
beth.technology
beth.technology
BTC has been around for a decade, how many more decades does it need to be around before people will admit that hey, maybe, for some reason, this has some sort of value?
People still arguing that BTC has no use.. 10 years of usage, adoption, and rising value would seem to offer a different opinion.
Is it going to be around forever? Who knows. Maybe it goes bust tomorrow, I don't know.
What I do know is this: people are willing to buy it, sell it, and trade for it. The value goes up and down. To me, that makes it a currency that you may be able to invest some money into. Maybe you make some money, maybe you don't.
I would even argue BTC falls under the traditional definition of invest, which is:
>expend money with the expectation of achieving a profit or material result by putting it into financial schemes,
When people buy BTC, they are expecting to achieve a profit. BTC is a financial scheme. Seems fairly cut and dry to me.
What exactly do people mean when they say they expect to make money on BTC? Do they mean they’ll get more BTC, or that they can sell it for USD or some other currency? Why do you think that is?
I don't know about everyone else, but here's what I mean when I say you can make money on BTC: Buy low, sell high.
And, when you say buy low, sell high, low and high relative to what?
And again, your second question is just baiting for an argument I never made. Of course I mean relative to fiat currency, what else would I have meant?
My second question was getting at precisely the same point: that fiat currency is strictly superior to BTC.
If you can’t provide a single legitimate use for it other than as a magical money machine, I would take that as evidence that it’s useless.
Why do you keep moving the goalposts? First, it's completely useless. Now it might have a use, but if it's not superior it might as well be useless. Oh, and now it has to be legal (in the USA? Mexico? Russia?).
To indulge you, here's a transfer of 194k BTC for $0.00[1]. How much would your bank charge you for an international wire transfer of a few hundred million dollars or more?
[1]https://www.blockchain.com/btc/tx/1c12443203a48f42cdf7b1acee...
However, there is a system that is evolving to generate returns for your open lightning network channels. They do generate small amount of returns. [0]
[0] https://medium.com/@timevalueofbtc/the-lightning-network-ref...
Not all stocks have dividends. Most don't.
Some bonds have negative yields.
Some consider a store of value to be an investment (like, as you mentioned, gold or silver). Unlike gold or silver, though, there's a hard limit to the number of bitcoin that will ever be mined. It's not inconceivable that in the not too distant future we'll mine gold/silver/other precious metals from space, and prices will plummet.
Bitcoin can certainly provide dividends, not necessarily in the traditional sense, via future hard forks. Anyone who has held bitcoin in the last 2 years or so have already received equivalent amount of Bitcoin Cash and Bitcoin SV. Those chains can, in turn, hard fork, and assuming you have held you'd receive equivalent amounts of those forks, and so on.
Every form of investment is, at its core, speculation on some level. If i pour my savings into Apple and they tank, the dividends would pale in comparison to my losses.
Flipping houses is absolutely speculating in real estate if you neither occupy them nor rent them out during the time you own them.
Not all forms of investment are speculations at some level. If I own a landscaping business and invest in a truck, I can drive it until it goes to the junkyard. I generate a return that hopefully offsets the depreciation, and I might not get even a dollar for it when I'm done... I may even have to pay to get it towed away.
All investment is speculation. Bitcoin is no different in that regard to stocks of any kind.
Not entirely, but apple’s price is based on a predicted future cash flow and growth in cash flow and assets.
This is different from bitcoin.
Gold is a better analogy though the physical existence and thousands of years of use as a store or value give it a pass compared to anything crypto.
Buying a commercial property and renting it out is an investment. Buying a house in the hope of selling it for more in the future is not investment.
Same goes for Gold, Bitcoin, momentum trading in stocks in not investment. Buying a stock that does not pay dividend but is a real business that produces something is an investment.
1. Putting money into something that generates a return of some kind, and which may also be sold to someone else, and;
2. Putting money into something where the only return you get is from selling it to someone else for more money.
Both practices can even involve the same kind of entity: If you buy a condominium and live in it, it is an investment. Your use of the property as a home is a return. If you rent it out, it is more obviously an investment.
Whereas, if you buy an empty plot of land and do not use it or rent it out as a parking lot/whatever, you are speculating in real estate.
Alice wants to send $1 to Bob via Bitcoin.
Alice needs some Bitcoin to do so.
Hoddler sells some Bitcoin to Alice for $1.01
Alice sends that to Bob.
Now Bob wants to change it to $.
Hoddler buys back for $1
Hoddler has a return on his investment.
So everyone seems stuck -- we agree cryptocurrency can be an amazing idea, and the first version of it is something of a technical (and economic?) miracle, but now we're stuck with the V1 flaws forever (unless the group governing it decides to 'fix' those flaws, but there's another issue, I don't want you messing with how my money works...)
Now that those people already have BTC, they are less likely to purchase a second coin. For one, they already have money invested in the space. Secondly, BTC has shown that it has staying power - outlasting many altcoins which came after it - which further solidifies BTC as the top contender (for now).
So, those already invested in BTC have little impetus to change from BTC to another coin == a first mover advantage.
Assuming a limited amount of resources to invest, someone who is already invested in X, is less likely to remove their money from that and invest into Y, unless Y is really good. All things equal, there is no reason to move from X to Y if X came first and you already invested into X.
So, the first mover advantage for BTC is the fact that new coins need not only be equal (in the eyes of the investor) to BTC, but better enough to convince that investor to move out of BTC in favor of that coin. People who are, in addition, buying other alt coins are still solidifying BTC's first mover advantage if they do not remove their investment in BTC in favor of something else.
[0] https://blockstream.com/liquid/
Disclosure: I work at Blockstream.
> unless the group governing it decides to 'fix' those flaws, but there's another issue, I don't want you messing with how my money works...
That's exactly the reason why arguably technically superior projects are worth less - they are constantly messing with how their money works.
The community around Bitcoin, it's so called "immune system" is incredibly conservative. All they care about is stability and security. Every new feature is being introduced as an opt-in soft fork. It can take around 3 years of rigorous testing and discussion to go from a BIP to a protocol upgrade. Yes, other projects may be technologically superior, but it doesn't matter because they are funny money and Bitcoin's rigor and resistance to change make it hard money.
While it's hard to define what the "original" Bitcoin community really is, you'd struggle to make up a definition under which the above is true.
Looking through the commit log, none of the developers match any known Bitcoin developers at all, neither past nor present. It's hard to know for certain of course since there are many pseudonymous developers in this space.
A large reason might be that drumming up interest in consensus breaking changes is difficult enough as it is, and interest in a completely different codebase with incompatible rules is likely to be even harder.
Do we?
We all agree that currency can be just a pyramidal scheme.
This lack of governance as well as scarcity consensus is by far the strongest mechanism to maintain a scarce supply that we have in existence. It is not totally infallible - maybe a superhuman AI could social engineer the entire bitcoin community to increase the cap. But it is the best I can imagine is possible. The network effect of more people buying into it makes that 21 million meme stronger and stronger, and satoshi being "gone" reduces the risk that he comes back and declares that he has "changed his mind". Even if he did do that the core 21 million devotees will fork the coin to a 21 million and that will be the truly scarce bitcoin.
Therefore, this is the most securely scarce asset in existence.
The inflation is fair, in the sense that it is well known. It is also fair in the sense that nobody decides who gets the newly minted coins, everyone has an equal chance.
There is no creator still around. Nobody can dictate any changes to the rules. Sure, development is still ongoing, but if a change does not have close to unanimous consensus it's not going in. There seems to be a general understanding that unless this is so the community would be splintered which not make for a working economy and everyone would lose. Game theory holds this system in place.
(There have been a few coins which mostly shares Bitcoin's history, but so far the market seems to treat them as separate projects in their own right and valued separately, which so far seems to validate that theory.)
Not many other projects have managed to replicate the above (although some come close), so talking in terms of first mover advantage is selling the project a bit short.
The USD is, along with every other major, government-backed currency, already an almost 100% digital currency. I don’t see any advantage there. In fact, BTC has the disadvantage of no major government backing it.
If nobody is required to accept it, and I can’t do anything with it otherwise, what good is it?
Please explain.
Bitcoins are, of course, nothing. But it's a nothing that is pretty guaranteed to stay, to be in rigidly limited supply, and that is easily exchangeable. People give it a value that depends on their expectations of other people's willingness to buy them. Would you buy 10 bitcoins from me at $1000 each? I bet you would without hesitation. We're talking of giving a $1k value to something that is useless and completely immaterial, yet you just know it's an excellent deal.
This means that if you sell a car for gold, you can expect that gold to be worth the value of a car a year or two from now. Fiat money does not offer such assurance, it can lose most of its value almost overnight if government turns on printing presses or fucks up in some other way (see Turkish lira or Venezuelan bolivar).
Cryptocurrencies mimick the same properties of gold. Their "base value" comes from the speed/ease of transactions and other useful features (eg cannot be confiscated). Their supply is algorithmically limited and well-known in advance.
I would argue that, beyond industrial demand and use in jewelry, the thing driving the price is primarily speculation.
> ...if you sell a car for gold, you can expect that gold to be worth the value of a car a year or two from now.
What you’re saying is that the car to gold ratio should be constant if your understanding is correct, right? I don’t have data for cars, but I do for houses, and your conclusion is false: https://www.jmbullion.com/investing-guide/pricing-payments/u...
Re:your criticism of fiat money, I would accept that if I lived in Venezuela, Zimbabwe, or Turkey. But, I’m talking about specifically the USD and other established currencies such as GBP and EUR. There is literally no danger that the US, UK, or EU is going to experience hyperinflation short of near total governmental collapse.
Oh, and if you think BTC can’t be confiscated, I have news for you: https://www.theblockcrypto.com/2018/11/07/analysis-the-u-s-h...
No. I am aware that the value of gold fluctuates, but it is safer than many national currencies, stocks of failing companies or overvalued real-estate. The amount of gold in the world is known and stable and there's no way to massively "print" gold to crash its value. This stable supply is mimicked by algorithms built into cryptocurrencies. As long as there is demand for a something, and there is limited supply of it, it will be worth >0. Cryptocurrencies satisfy both requirements: they are limited in supply and have demand because of their usefulness (fast & cheap transactions).
> Re:your criticism of fiat money, I would accept that if I lived in Venezuela, Zimbabwe, or Turkey. But, I’m talking about specifically the USD and other established currencies such as GBP and EUR. There is literally no danger that the US, UK, or EU is going to experience hyperinflation short of near total governmental collapse.
No need for hypotheticals. The government of Cyprus confiscated 47.5% of all holdings above 100 000 EUR in 2013 during its banking crisis. https://eu.usatoday.com/story/money/business/2013/07/29/bank... Cyprus is full member of the EU and Eurozone, so these risks are not limited to corrupt and failing third-world countries.
> Oh, and if you think BTC can’t be confiscated, I have news for you:
Most cryptocurrencies cannot be confiscated by network nodes like traditional banking institutions can freeze or rewrite payments and accounts (see Cyprus above). Only the one who has private keys controls the assets. This is a major feature.
What happened immediately after that?
Had the 300k been held in cryptocurrencies, the government would've been powerless to seize a part of it.
You could have also taken the prudent measure of not having that much money in a single bank account.
No, it cannot. No government can issue an order to seize 47.5% of everything over 10 BTC (ca 100k EUR) from a list of accounts. Third parties cannot freeze cryptocurrency accounts or rewrite their balances. That's the major innovation of distributed ledgers (blockchain).
This is a fundamental difference compared to traditional banking where account balances are just fields in a writable database.
At best, they can seize private keys that control accounts, but to achieve that, they must confiscate personal devices (phones, tablets, computers) and examine each of them with forensic tools. This is not viable on a large scale, especially when considering that private keys are easy to hide with plausible deniability (using encryption, steganography, memorization, etc).
News stories about "confiscated" cryptocurrency are nothing more than private keys found on seized computers. No-one can take control over any account by any other means.
I see. I suppose if the US government orders, say, Coinbase, to turn over control of someone’s account, they won’t do it? You have an example of that happening, right?
Each cryptocurrency user generates a private key that becomes a wallet and is used to sign transactions. These signed transactions are then broadcast to the internet for balance keeping nodes to keep track of. They do it in a globally distributed manner (no central entity) and earn rewards for their work (like collecting a tiny fraction of the transaction as a fee).
The private key is never disclosed to anyone.
Sure. So I suppose you invest in groceries: I mean, everybody needs food, right? Sure money.
https://www.youtube.com/watch?v=_pDTiFkXgEE
So, can I sell you those 10 bitcoins?
As for buying BTC, you’re clearly not paying attention to my comments here. ;) The only reason I would want 10 BTC is to immediately sell them to some sucker for more than I paid for them.
So, yes, I would buy 10 BTC from you at a very steep discount, but not at the market price.
In military, even a pack of cigarettes functions well as a currency. It does not need to be government-backed. It needs some kind of useful property to ensure demand.
EDIT: But sure, if government-backed means they force people to accept the currency, then it will have value. I don't see this as a good selling point though. Not trying to be sarcastic.
"Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize. Assume good faith."
If you could think of a way to show BTC has value, I’d accept that as a selling point of BTC.
Of course it did not!
Money or money supply should not be determined by government, it should be a result of market mechanisms!
Every year the US government collects about 25% of all economic activity as taxes payable only in USD. Every person and business in the country must sell on average 25% of their productive output for USD, and you can buy all those things with USD.
If you disagree, I have some $IBs to sell you, and an insured account to store them!
I think the de facto meaning of backed, despite what people say about gold/silver/etc is actually this:
American dollars have value because the US Government taxes things, like land, and if you do not pay those taxes they will send you mean letters (trust me) before resorting to other means (trust Al Capone). You pay these taxes in US dollars. You just having dollars does not make them valuable. And dollars are not valuable because they are backed by gold or silver or sea shells. What makes dollars valuable is that the government wants them back.
From something I wrote a while ago about why being "backed" is important: https://medium.com/@simon.sarris/the-guns-of-bitcoin-1f77930...
"It’s a gambling device… there’s been a lot of frauds connected with it. There’s been disappearances, so there’s a lot lost on it. Bitcoin hasn’t produced anything."
But it's a good gambling device and people like to gamble. I both think it's kind of nuts and hold a few bitcoins.
There's no "should". Moral theories about the propriety of the value of currencies are not material. Bitcoin has value because people are willing to trade valuable stuff for it
What can you buy with BTC besides drugs and the occasional coffee at a Silicon Valley coffee shop? How does that compare to what you can buy with USD? Call me when you can buy a house with BTC reliably.
If you're saying "BTC is less useful than some other currencies", then I don't disagree, but then you should have said that in the first place, rather than motte-and-baileying.
Most people bought during the peak, that's why it was a peak.
As any other pyramidal Scheme the only way to win is to be there first. Later on you are just trying to put other people into the scheme to regain some losses.
There is no cure for jumping in with your emotions and money into markets.
How is it any different from buying stocks at its peak? If you bought SPY during 2008 peak bubble, you had to wait for 6-7 years to even break even!
Bitcoin will probably never be a currency equivalent to fiat, but it surely is a store of value in the long term.
Yes. But they don't remotely justify its value, which has been established long before its technological applications.
No, gold is not a currency (anymore). Gold is an asset. Gold is rare. Gold has real world use. Gold can be used for many things. Gold can be purchased with money to be worn or used.
So no, by that logic, gold shouldn't be worthless at all. You're comparing two different things.
Most people would probably disagree on that. Gold even has an ISO-4217 currency designaton, XAU.
Credit rating agencies are using gold reserves(among other things) so this could be a reason
As far as I know, none of those countries promises to redeem bearers of banknotes with an equivalent value in gold, which is what being on a gold standard means[1].
Plenty of central banks have gold reserves, that's basically a vestige from the past, but that's not the same as saying the currency is backed by gold.
For years I heared people talking about how important role institutions play, but luckily so far Bitcoin remained people's money.
The current set of exchanges which are setting the price are totally unregulated banks (effectively) and with Tether (a "stablecoin" that isn't 1:1 backed and which has been rapidly inflating it's supply) there are significant concerns about how much of the price is really reflective of demand.
Do countries smaller than the largest 100 corporations really need their own central banks ? And if they are themselves consumers of the ecb or the fed, they have custody issues also.
Democracy is the custody of people’s power with elected representatives. With immigration people can reallocate the custody of that power.
Not all people need 100% 3rd party custody of money.
Also, bitcoin makes it easy to detect theft and audit 3rd parties more easily.
Would x spins on a slot machine make a good investment?
Btw I have 1.x bitcoin in my wallet. Not as an investment though.
Not saying Bitcoin is a good investment.
I think Bitcoin is largely taking value from individuals trying to stash money pilfered from the public in some way (usually through their public offices, but sometimes through embezzlement, theft, or a previous illegal accumulation that has to be moved in the face of imminent arrest), and opportunities for this sort of large-scale theft come rarely. So upward movements are caused by small groups and happen very quickly. After the theft is made, the first priority is to get the money out of the country (or tied for first with getting your children out of the country), then to get one's self out of the country. The tolerance for loss in exfiltrating this cash is virtually unlimited, in exchange for speed.
Small pops and falls caused by individual incidents will sometimes coincide making a larger pop, and periodically some legal loophole (or prosecution pressure) will open up in come country that puts a lot of people in this situation at the same time. This is inevitable. The small pops are muted due to the selling of previous market moving buyers. The big pops are virtuous circles; they exhaust the supply of previous smugglers, who cash out, and the resulting acceleration in the upward price movement filters to the media, where knife-catchers step in. You probably want to time your sales to the knife-catchers, anticipating the first articles reporting on the price rise.
There will always be western countries where you can cash out. There's no way to suppress a currency designed for money laundering in a west that is entirely financial services and intellectual property; there will always be some official that can be bribed, or a country that needs the tax receipts. Bitcoin can do to nations what Uber and AirBnB do to cities.
I'd bet the floor on bitcoin would probably be a good measure to determine growth in the general world corruption rate; the more good pops, the more people feel like they can hold a little bit longer.
Think of cartels burying cash in fields, and how much they'd be willing to pay to make it spendable. The only other option is to burn it. Going into business to help them from the comfort of your living room is not a bad business.
This article is not good, though, just nonsense reassurance mostly (bitcoin is small, but things that become big start small, so bitcoin will be big.) Worse, the more large institutions are holding bitcoin, the less benefit for individual investors, not more, because they'll absorb the big pops, and do it in a way that they end up holding an optimum amount of BTC all the time using their international nature and their ability to shift losses to offset gains for tax purposes (in short, regulatory arbitrage.) Bitcoin could ultimately end up as an exclusive partnership between thieves avoiding capture and banks avoiding taxes. A sort of high-speed virtualized real estate.
/flight of fancy
Solid source.
https://twitter.com/CL207/status/1142651211310485504?s=20
50-100k a coin by December 2021 is what many are targeting this time.