Hacker News Reader

Comment by andrewmcwatters | Hacker News Reader

I’m enjoying sitting on the sidelines and watching people “invest” in a digital “currency” that you cannot spend, does not produce cash flow, and whose values are determined by other shmucks buying it from previous shmucks.

What a time to be alive. No wonder the S&P 500 CAPE ratio is beyond the 1929 high. No one has any idea of what the intrinsic value is of anything.

Investing in companies that don’t make a profit, investing in companies whose investment returns are below real inflation, investing in SPACs that don’t expose financials.

You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.

View on HN

I'm enjoying sitting on the sidelines and watching people "save" in a fiat "currency" whose value is not linked to anything intrinsic, whose supply can magically be increased at the discretion of a few powerful individuals, and whose value has been declining relative to almost any tradeable assets.

What a time to be alive. No wonder the M2 money supply is at an all time high. No one has any idea of what the intrinsic value is of anything.

Central banking as it exists in the US is designed to encourage spending. One person’s spending becomes another’s income. Having finite dollars and increasing demand leads to a currency that only increases in value. If an asset increases in value, there is an incentive to acquire it and not part with it.

No matter how much I read on the subject, I always feel like the true nature and complexity of money eludes me. I don’t mean to disparage your comments, but I believe they reflect a lack of appreciation for the magnitude of the subject.

I agree with you. I don’t mean to suggest economic machinations are trivial, but some of the comments in this subthread raise counterpoints that I think casually dismiss the original points.

It’s true, but hardly limited to this subthread. While I disagree with most of HN about cryptocurrency and economics, the discussions are significantly more considerate and studied than anything I’ve come across in my daily life. Even society’s proclaimed experts seem to have an admittedly limited understanding and predictive capability. At the core, economics are an expression of collective human desire and thus it seems it will never be truly rigorous.

Money is a faith.

Put your faith in the entire human history of scarcity leading to optimization, or you can try the US Federal Reserve and Bretton Woods.

what I don't understand is Modern Monetary Theory: https://www.investopedia.com/modern-monetary-theory-mmt-4588...

Could it be that all this worry about printing money really doesn't matter?

As long as the US dollar is the global reserve currency, then forcing all other countries to accept our infinite printing is easier. But MMT will incentivize foreign countries to use alternatives, and when the US dollar is no longer a reserve currency, the game is over. MMT also requires the government to rapidly increase and reduce taxes, from my research on it. All of this makes it intellectual masturbation, plus a very terrible idea IMO.

It only doesn't matter as long as your demand outstrips supply --

Read as: as long as others want access and are not fully satiated to you, your affiliates, or what you both possess

So, yes. Also, if the answer is "no", we're already very screwed.

Yes, the problem with this power is the inevitable folly of short term fixes (through interest rates and government stimulus) by mortgaging future value. The pressures and short term thinking of believing you can fix your economy catches up to everyone eventually.

We are in an era where saving does not exist, where interest rates are negative.

Many believe this to be a good thing. To discuss it we'd have to go all the way down the keynesian vs. austrian rabbit hole. Someone here might be up for it. I'm content to sit on the sidelines and watch it continue to succeed and speak for itself.

Yeah, I agree. That’s actually a really interesting discussion, too!

How could a lower velocity of money be a good thing when there's still underemployment?

Central banks are trying to prop up the deflationary structural changes happening in the broader world economies due to aging demographics and technology reducing the value of human labor.

The end result is an enormous asset bubble as their only solution is to print money to prevent any actual deflation from happening as that would implode the financial system.

Yes but the inflation will come in 5-7 years. Just in time to liquidate the amount of debt the government owes.

Pretty clever trick but it’s only a random accident of the financialized systems that make modern life possible. It’s like how all the pandemic chaos only increased corporate profits and government power.

It’s just endless consistent accidents that never benefit 95% of people.

Central banks seem to accept low deflation now. At least here in Germany we have low deflation. The money the central banks print is not for preventing inflation. They would need to put money in the hands of common people, but it just stays in the financial system and keeps asset prices up.

> whose value is not linked to anything intrinsic

The value of US currency is backed, whether you like it or not, by US's military might. Very much not nothing

Can you take your dollars in to the government and redeem it for units of "military might", whatever that means?

You have it backwards. The military is an instrument in protecting the US dollar's dominance, control and influence as a reserve currency.

No, but you can pay your taxes with USD, and stay out of prison, which is kind of nice.

Practically all fiat currencies that have ever existed can or could also be used to pay your taxes and keep you out of prison, including all the ones that got destroyed or are currently being destroyed by hyper-inflation.

So I don't think that it's a good argument for the USD being backed by value.

Exactly. How did that work out for Venezuela and their currency?

>I'm enjoying sitting on the sidelines and watching people "save" in a fiat "currency" whose value is not linked to anything intrinsic

I'm pro crypto, but this is ridiculous.

No intrinsic value? I can spend my dollars anywhere in the world with no input or reliance on any other entity. They might be the most valuable asset on the planet.

As a means of trade, yes, they are powerful because they are widely trusted and preferred.

However once you have them, you get rid of them. Good assets don't lose value over time. https://www.statista.com/statistics/1032048/value-us-dollar-...

Good assets also don't get stolen if 51% of the network becomes compromised by a bad actor.

Hm? Stolen assets you say?

https://en.m.wikipedia.org/wiki/Civil_forfeiture_in_the_Unit...

https://en.m.wikipedia.org/wiki/Executive_Order_6102

https://en.m.wikipedia.org/wiki/Greek_austerity_packages

A 51% attack doesn’t let the bad actor steal someone else’s coins. It lets them reverse and double spend their own spending. They can’t directly steal coins. The flexibility of open source software gives opportunities to mitigate such an event, should it happen.

That's not intrinsic value though. Fiat currency by definition has no intrinsic value. Fiat literally means "let it be done", i.e. it is given value by a decree and not because of its intrinsic value.

You have to pay taxes in USD. Not being thrown in jail is value... maybe not intrinsic though.

USD in paper form can also be burned for warmth, or used to write on. In coin form, it has the same intrinsic value as the metal.

I think you would agree that the intrinsic value of dollars as backed by the metal in USD coins is negligible compared to how many USD exist, because nobody has them in substantial amounts (due to being impractical). The value of the paper that the dollars are printed on is also negligible compared to the value of the bills themselves, let alone all the USD that exist (as you probably know, the vast majority of which don't actually exist as bills or coins).

Besides, everything you said, including tax payment and keeping out of jail, also applies to the Venezuelan bolivar and quite a few other fiat currencies that completely crashed in value due to hyper-inflation.

So I don't think those are good arguments for the USD being valuable or having substantial intrinsic value.

> I think you would agree that the intrinsic value of dollars as backed by the metal in USD coins is negligible compared to how many USD exist...

Yes, I agree.

> Besides, everything you said, including tax payment and keeping out of jail, also applies to the Venezuelan bolivar and quite a few other fiat currencies that completely crashed in value due to hyper-inflation.

USD will always be valuable as long as the US government exists and taxes its citizens in USD. This means that there will always be demand for USD (again, as long as the US government exists).

I don't think it's wrong to say that the US government is more stable than the other governments that print currencies that are less stable.

> USD will always be valuable as long as the US government exists and taxes its citizens in USD. This means that there will always be demand for USD (again, as long as the US government exists).

For the USD to have value, you need technological innovation and productivity. You need to export more value than you import.

Simply existing and taxing your population does not give your currency value.

Indeed the fact that you have to pay taxes in USD is not intrinsic value, that is actually what makes it fiat (That is the decree by which it is given value)

However the flammability is a good example of intrinsic value

There's no such thing as "intrinsic" value. Value is determined by humans depending on the context.

While that's true, if we take certain basic human values to be universal for the sake of discussion, it's not unreasonable to say that a loaf of bread has intrinsic value in a way that a dollar clearly does not.

What’s the basis for the distinction or that choice of word? Why not just say bread is more widely valued than a the dollar?

There are also many, many situations where I’d rather have dollars than bread.

Bread isn't necessarily more widely valued than a dollar. Bread has more functional/useful value than a dollar. A dollar only has value if you can exchange it for something else

It doesn't sound like you are arguing for intrinsic value, but I'm not sure. I don't necessarily disagree with what you are saying.

Although I think we should mention that one can write a sentence for bread that is very similar to the one you gave for dollars. Bread only has value if you are hungry and don't have other more preferable food sources.

Sure, but when you are hungry then that intrinsic value is expressed for you. But there's no situation in which cash is useful except for exchanging.

What's special about "being hungry with no better alternatives" versus "being able to exchange with others who use the same money as me?""

I don't understand what specifically makes some kind of value "intrinsic" under your model.

"An object with intrinsic value may be regarded as an end, or in Kantian terminology, as an end-in-itself."

"In philosophy and ethics, an end, or telos, is the ultimate goal in a series of steps. For example, according to Aristotle the end of everything we do is happiness. It is contrasted to a means, which is something that helps you achieve that goal. For example, money or power may be said to be a means to the end of happiness."

https://en.wikipedia.org/wiki/Intrinsic_value_%28ethics%29

Fiat currency and bitcoin, and to some extent gold, are not an end-in-themselves but just a means to acquire something which is actually useful to you. They are not in and of themselves useful to anybody.

Food is just a means to sustain my metabolic processes and create pleasant sensations. It isn't an end-in-itself.

If those goals were satisfied through other means, whether by using bio-engineering to modify my physiology or through some other process, would bread no longer have intrinsic value?

This seems uselessly contrarian. Just because there are some philosophical edge cases/open questions about how we identify intrinsic versus extrinsic value doesn't change the fact that today, for human beings, the most useful and practical definition is one in which paper bills don't have intrinsic value but bread does.

I’m just trying to get at the heart of things. I am not trying to be difficult. I honestly don’t find the concept of intrinsic value to be useful or compelling.

What are some examples beyond bread that meet your criteria of intrinsically valuable?

How do you determine if something is an “end-in-itself”? I find it difficult to definitively attribute that label to anything.

Fair enough... I am not sure how to precisely describe my interpretation of "end-in-itself". But here are some more things I would consider to have intrinsic value: Other food, clothes, fuel/oil/gas, building materials, consumer goods, etc. Some things like gold have some intrinsic value (for jewellry and electronics) and some extrinsic value (demand just for investments). You might say cash has some intrinsic value since it can be burned or melted down (but it's barely anything compared to the extrinsic value). Then you have bitcoin which literally has no intrinsic value at all, only extrinsic value.

Crypto true believers should be shorting dollars to buy Bitcoin according to those arguments.

There are two ways to look at currency (fiat or otherwise):

- Medium of exchange

- Store of value

Fiat currency has utility for both. If crypto was more widely accepted by merchants (thereby satisfying bullet point #1) then this certainly changes the game. But it's not.

Comparing both in their current capacities is disingenuous.

Fiat currency as a store of value is plainly bad, not sure how you determined there is much utility in using it for saving. A US Government 10 yr bond currently yields 0.91%, and has been falling consecutively since its peak in 1981.

It is at the whims of whoever decides the interest rate.

> It is at the whims of whoever decides the interest rate.

Which is precisely what makes it a fiat currency - its value is determined by a government entity.

> A US Government 10 yr bond currently yields 0.91%, and has been falling consecutively since its peak in 1981.

You know there are other fiat currencies right?

> not sure how you determined there is much utility in using it for saving.

"store of value" doesn't mean simply saving, it means the asset doesn't depreciate. The alternative to a fiat currency is to hold your goods as is and barter them, which relative to a fiat currency is a bad idea. Your cow eventually dies, your milk eventually soils, your tree eventually dies, etc. etc. In other words those assets all eventually depreciate to zero.

Most people aren't investing in fiat, they are investing productive assets like real estate or businesses e.g the share market.

I don't have strong opinions on fiat vs crypto, primarily because it seems like a boring question. Whatever currency is the future, currency isn't the present or the future of investments, productive assets are.

Most people aren't investing in bitcoin either. Current market cap of bitcoin is ~200 billion dollars. This is so minuscule it qualifies as rounding error on any meaningful scale.

And there is the hint to the rational mind that you ought to take notice of the sector. Why is the status quo 'elephant' saying anything at all about the crypto 'ant' ?

Fiat game mechanics force them to "invest" in "productive" assets in order to stay ahead of inflation.

Scare quotes used because a ton of the price of those assets now reflects a monetary premium. I.e. a portion of the price of a house is its value for living or renting out in a given area, but a lot of it is its value as a scarce asset that is somewhat resistant to inflation.

Needless to say, this is not a great allocation of resources and is an incredibly inefficient way for saving to work.

> Fiat game mechanics force them to "invest" in "productive" assets in order to stay ahead of inflation

So you’re suggesting this is a bad thing? And the alternative of hoarding unproductive assets is preferable?

> houses...a lot of it is its value as a scarce asset that is somewhat resistant to inflation.

The reason houses are expensive has nothing to do with being resistant to inflation. They get expensive when the supply of the land they sit on gets used up relative to the number of people who want to live in a given area.

Houses in rural Kentucky aren’t expensive at all, because nobody wants to live there. That’s the main factor driving prices, not some inflation hedge. If the only reason people bought houses was to hedge inflation, they’d be better off buying stocks which are even more productive and produce returns above inflation.

> this is not a great allocation of resources and is an incredibly inefficient way for saving to work.

After reading this, I could not be more confused.

So you’re saying that, the inflation mechanics of fiat is bad because it encourages people to invest in productive businesses and build useful real estate? And it’d be more efficient for society if everybody kept a useless stash of gold bars in their basement and took no risk?

How would this make less people want to live in SF and houses suddenly cheaper?

“Fiat” money has its value by there being a lot of obligations in it. If I sell stuff for Bitcoin, I still have to pay taxes in Euro to the German State for that. There are a lot of credits in fiat currency that have to be paid off. Currencies are used for valuation and obligations to pay in trade.

How did that work for Venezuela and their currency? USD is heading the same way, just slower.

There's too much idle wealth in the world, or more precisely too many people with wealth have no idea what to do with it. It ends up 'invested' into negative yield assets like bitcoin (billions of dollars lost to mining per year - over 7 at the current price) or hyped companies running at perpetual loss.

Bitcoin is interesting because it's possibly the biggest actual wealth destructor from all tradeable assets. Companies can have large losses on paper, but how much of that is actual wealth destruction, and how much just redistribution to new owners? I suspect the fraction that's actually gone in the physical sense is very small, allowing wealth to slosh around for a long time. Bitcoin's proof of work is designed to actually destroy wealth in the physical sense - transformed into waste heat and devices designed to do nothing else. This means that it's eventually certain to be outcompeted even by redistribution-type loss schemes, as groups that stay away from bitcoin completely are going to be increasingly wealthier relatively to groups that buy into it.

In the short term it may not look like it, but what's happening is social redistribution of power away from people that think bitcoin is a great idea.

What's the difference from any kind of resource extraction industry that produces waste heat in addition to the resource?

That the gain from resource's utility is larger than losses, increasing the total amount of wealth in the world. Even in the case of gold, majority of demand is utility demand.

https://www.goldbroker.com/media/image/cms/media/images/glob...

I don't really understand. If Gold didn't have use cases as jewellery or for industrial uses then are you saying it would be a net destructor too? How can it be a net destructor if the coins are worth more than the mining energy?

Would Gold become a net destructor if jewellery demand declined for some reason?

If the value of a cryptocurrency is dependent on the community of the faithful, it's possible to "start the engines of faith", and keep it going for a long time. Fine art has been a large component of generational wealth in the West for the past six centuries. Of course, art has value as aesthetic objects; the same can be said for the potential use of cryptocurrency, however nebulous it may be. Religions, too, demand faith and, once they get started, often have staying power on the order of centuries.

That's a good point, also described in the book Sapiens by Harari: In a way Religion, currency and contract law (and many other things) are all "made up". They have institutions (priests, central banks, lawyers) with magic words (amen, price stability, due diligence) and a certain combination of magic words creates a new reality out of thin air. Think about how weird it is to "sign" an important contract and thereby changing you own future or the future of your company irrevocably.

While I'm definitely not a fan of crypto currency and wouldn't seriously consider investing a single Euro into this mess, it's certainly misguided to simply laugh at it being "not real", because a lot of important things are. Obviously the gp makes some other important points.

You've made the first step towards the deep dive of realizing cryptocurrency is a world changer. Good luck!

You don't buy stocks because the company "makes money" you buy stocks because the expectation is that they will make more money in the future than they are now.

Also, stocks don't really produce cash flow either - A dividend drops the price of each stock by the equivelent amount. So if you get a 3% dividend a year, the stock price is dropping by the same amount.

I will say, it is easier to quantify that Apple/Google/other company is in an industry and makes things, and has revenue/expense to look at and thats why they are worth xyz today. I can't explain why bitcoin goes up or down. (other than whale buys a bunch, so the sheep follow)

No, that’s pretty much the number one reason someone would purchase equity in a company.

I don’t know where the concept of dividends dropping the value of a company came from, but from a transactional point of view it doesn’t make sense. Sure, there are more earnings that have not been retained for increasing future earnings, but the value does not drop correspondingly. That’s just not how companies are valued.

3% of earnings going to shareholders just does not at all mean the company drops by 3% in value. Companies are valued in a number of different ways, but not one of them is based on a 1:1 proportion of earnings. Earnings multiples, yes, but what you’re suggesting is companies drop equivalent to being valued at a P/E ratio of 1.

A company making 1 billion in earnings is not worth 1 billion dollars. Certainly not a majority of the time, at least.

I am well aware of this myth, but not from where it originates. Yes, certainly cash on hand drops which affects valuations, but not by as much as you’re suggesting.

I don’t understand your comment about stocks not producing cash flow. You’re buying part of a company. You’re not buying the certificate.

>I don’t know where the concept of dividends dropping the value of a company came from,

Well, there's taxes for example.

I should have been more clear in that first line. I don’t understand where the concept of a valuation of a company dropping 1:1 proportionally with its dividend payment came from.

Because it's roughly what happens, absent other factors on the ex div day.

https://www.investopedia.com/articles/investing/091015/how-d...

https://finance.zacks.com/stock-price-change-dividend-paid-3...

It's not 100% true, but it's a fair bit better approximation than the other end of the spectrum which is roughly "dividends create free money out of thin air".

Basically companies have an optimal cash reserve. Below that optimum a dollar in the company increases future discounted cashflow of company by more than a dollar -> They should raise money. Above that optimum a dollar in the company increases the future discounted cashflows of the company by less than a dollar -> They should hand out money.

Because of transaction costs there is in practice a zone where they should neither raise nor give dividends.

Close to the optimum a dollar in dividend will change the value of the company by approximately one dollar.

> 3% of earnings going to shareholders just does not at all mean the company drops by 3% in value.

But this is not what's being claimed. Dividends are measured relative to stock price, not earnings. And a 3% dividend - that is, a per-share dividend equal to 3% of the share price - absolutely does cause the price to decrease by 3%.

It's pretty clear why this must be the case - it's one of the weakest possible forms of the efficient-markets hypothesis. If it wasn't the case, people would buy (sell) the stock just before the dividend and sell (buy) just after for a nearly guaranteed profit.

It's true that you would typically expect a stock to drop in value after paying out a dividend, but you would also expect it to grow in value after achieving increased profits.

No. A company that doesn't grow but has positive cash flow is still worth something. You can view a stock as a bond with a coupon rate that is not fixed and doesn't have to be paid back to you immediately if the company thinks it can reinvest it to make even more money. A company's stock might drop at the ex-dividend date, but it would have gone up incrementally each day before that.

> So if you get a 3% dividend a year, the stock price is dropping by the same amount.

Here is the reason the stock price drops by the dividend amount.

Dividends are issued to the person holding the stock at the date the dividend is issued.

This means it is possible to buy the stock one day before the dividend issue date, hold the stock for another day which then entitles you to the dividend and then sell the stock the following day.

So you can hold the stock for just three days yet still get the dividend and the price drop accounts for this possibility.

If the price did not drop that would effectively equate to free money, as you could take out a three day loan to get the dividend and the interest on that loan would be way less than the dividend amount.

As such it is capital market forces that is causing the share price to drop.

> I’m enjoying sitting on the sidelines and watching people “invest” in a digital “currency” that you cannot spend, does not produce cash flow, and whose values are determined by other shmucks buying it from previous shmucks.

Is that any different than a stock though? You can’t spend stocks, they don’t produce cash flow (ignoring dividends), and their value is what other’s are buying and selling it for.

Just as I can offer to sell my share for $10,000 despite it trading at $100, I can do the same with Bitcoin. There’s a reason some people call Bitcoin an “investment.”

Now, before anyone thinks I’m advocating Bitcoin, I’m not. I’m just pointing out the similarities to the stock market.

If I buy a company, I literally can choose what to do with its earnings. That’s the point of valuing businesses. You’re not buying the stock. You’re buying a portion of the business.

Say you have a drywall company in town. You and the owner are good friends and the owner wants to retire but doesn’t have a family member who is interested in the enterprise. He seeks out buyers. You mention to him you’re interested but you have to ask yourself how much you’re willing to pay for the business, its fleet, tools, leads and customer database, current lease agreements, employees, etc.

Someone has to value that, because it intrinsically has value. It’s not worthless. You can’t rebuild a multimillion dollar business over night.

So it turns out if you have this entity that produces cash flow, it’s worth something. So how much are you willing to pay for each dollar of earnings? At the end of the day, that’s what a business produces for its owners.

Sure, voting is something different. I didn’t say they were the same. I said they were similar. Also, I know plenty of people who purchase stocks simply to make money: I don’t know anyone who does to vote.

The existence of companies that have voting and non-voting shares allows us to measure how much voting is worth. Google's non voting shares trade at basically the same value as their voting shares. Berkshire Hathaway's reduced voting right shares trade at basically the same value as their full voting right shares.

Whatever drives the value of shares it's not voting rights.

> If I buy a company, I literally can choose what to do with its earnings. That’s the point of valuing businesses. You’re not buying the stock. You’re buying a portion of the business.

I used to think that, but then I saw what happened to TSLA this year. I don't think that these markets are as different as you think they are.

Just as an aside, you cannot build the Bitcoin blockchain overnight as well - because of proof of work and network effects of bitcoin full nodes. That gives it "value". It's function is to serve as that - a store of value.

The difference to me is that gold is a precious metal with finite tangible volume. It can be used to create goods. So, there’s value there.

But Bitcoin was designed to be a currency. Certainly the software is worth something. Or maybe nothing really. Look at other FOSS.

As far as a currency goes though? I don’t want my currency to fluctuate.

The idea of bargaining with an employer or client to pay me “more” this week versus last because the value of the currency dropped 11% is ridiculous.

Bitcoin is dead on arrival because it’s design doesn’t evade the central banking problem. A currency cannot have a limited supply when value as a production of labor is not limited.

The intrinsic value of gold (i e. for jewellery/electronics uses) seems likely to be much less than the current market value of gold. So I don't think those limited use cases are a good explanation for gold's value.

Also, Bitcoin was not necessarily designed to replace every fiat currency for every single everyday spending use case and it's a strawman to imply that if it can't do then it's "dead on arrival". There are plenty of important possible use cases which don't presuppose the collapse of all fiat currencies.

Finally we don't really know the volatility of Bitcoin in the long term. It hasn't existed long enough. Looking at the price behavior in the first decade of its existence is not likely to give you a promising picture of any new asset class.

That applies to small companies where you're significant in any way. It does not apply for ~anyone investing in stock market. The larger companies neither care what you think nor know that you exist. Your investment has no impact on it and the price you get is a result of collective belief influenced by predicted valuations.

If you invest in large companies on the public stock market, it's about the same as investing in cryptocurrency.

I think you make a fair argument, but it breaks down immediately under two separate but related counterarguments.

1. If companies don’t care what they’re valued at, it makes M&A infeasible. A business could never be sold.

2. Selling equity is done to raise cash. If no one cares what the business is valued at, equity is worthless, and 1. is infeasible.

That's not quite what I wrote. The larger companies don't care about you as the retail investor, but they of course care about valuation. But the valuation is often based on some belief / future predictions. Otherwise we wouldn't have large changes and following corrections. The value of the business does not change that much - the collective idea about the value, opportunity, chance of speculation, and other things influenced by the validation is what changes. Also no company would complain about having too high valuation as long as it's consistently too high.

Why are we ignoring dividends? That's a significant piece of stock valuation

> ignoring dividends

Well, this is a bit of an unfair premise :) the whole point of equity is that it is a claim on a company's future profits, and companies return profits either via directly via dividends or indirectly via buybacks (which push up the value of existing stockowner's holdings). It's easy to forget this in startup land, where most companies are unprofitable and thus have no profits to distribute.

>Is that any different than a stock though?

Nobody is claiming that stocks will replace fiat currency, though. In fact, it makes no sense.

Was Bitcoin created to replace currencies? Or was it created to be another one? Genuine question. Because if it’s the first, you’d have an argument, but if it’s the latter, it’s a straw man to make the claim you did.

I think Bitcoin has a promising future, but it is not like investing in stocks.

When you invest in stocks it is sort of like giving a loan to a corporation so that they can spend your money on growth, to create more profits, which allows them to become more valuable. That is why stocks are expected to continually grow in value over time.

Bitcoin might be many things, like a store of value, transaction network, etc., but it is not really a long term investment vehicle except maybe as an inflation hedge.

You don’t invest in stock. You invest in companies. Companies are expected to grow over time. A share does nothing. It’s a percentage.

Just semantics, you clearly interpreted my point just fine.

(difficulty to execute hardest to easiest) - Starting the right business

- Picking the right businesses to invest in

- Investing in Crypto(used to be easier than it is now)

- Convincing shmucks to invest in the wrong business

- Investing in index funds

ROI if executed successfully(highest to lowest) - Starting the right business

- Convincing shmucks to invest in the wrong business

- Investing in Crypto

- Picking the right businesses to invest in

- Investing in index funds

strategic money making popularity scores

Don't try this at home. Very few people do this well. Those that do make a lot of money.

- Picking the right businesses to invest in

- Starting the right business

The "Dominant Strategy" of the market right now

- Convincing shmucks to invest in the wrong business

If you know what you're doing

- Investing in Crypto

What shmucks should do

- Investing in index funds

> You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.

Well yeah, starting a business is literally the riskiest thing you can do with a wad of cash. Much riskier than cryptocurrencies, riskier than most casinos. Of course it's going to have higher potential upside, but 75% of companies go completely broke within their first 15 years.

You’d also find that most public companies don’t increase their earnings growth substantially over extended periods of time, causing one to lose value correspondingly.

Looking at Bitcoin solely through the lens of an investment vehicle is myopic. Bitcoin solves a number of problems right now, for example providing an opportunity for the nearly 2 billion people without access to a traditional banking system to securely participate in the world economy with nothing more than an old Nokia phone that can be bought for a few dollars. Another example is how it is providing a way for people in hyper-inflationary economies like Venezuela to store value.

Demand is not only coming from people falling for the "greater sucker" theory. You're either ill informed on the topic or being dishonest.

> Bitcoin solves a number of problems right now, for example providing an opportunity for the nearly 2 billion people without access to a traditional banking system to securely participate in the world economy with nothing more than an old Nokia phone that can be bought for a few dollars.

This is a fantasy put forth by Bitcoin enthusiasts that's not supported by the facts. The average cost of a bitcoin transaction is currently ~$7.5USD[1]; nobody in the unbanked world is spending the cost of 1-2 Nokias to make day-to-day purchases.

> Another example is how it is providing a way for people in hyper-inflationary economies like Venezuela to store value.

This isn't true. Zelle's ability to store actual USD make it the preferred means for storing digital currency safely in Venezuela right now[2]:

"Ecoanalítica, a local consulting firm, estimates that 17% of transactions at retail establishments in Caracas go through [Zelle] and that other Venezuelan cities are seeing similar usage levels. The actual figure may be larger, considering the data do not include smaller shops."

Accusing others of being ill informed or dishonest while yourself pushing forth maximalist narratives that aren't grounded in reality is a bit rich.

[1] https://ycharts.com/indicators/bitcoin_average_transaction_f.... [2] https://www.bloomberg.com/amp/news/features/2020-11-11/zelle...

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

I'm glad you're enjoying the sidelines. I'm enjoying that the $1000 I've invested in crypto has returned about $20,000 so far. Maybe it will still go to zero, who knows. I've already taken out more than I put in, so I don't care.

> You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.

Yes, this incredibly vague statement is almost tautologically true. You can definitely think of a business that will make more money than some cherry-picked example of an investment that lost money. Bravo.

Although digital asset prices are not a good proxy for their utility, there are plenty of utility for enough people and that expands and the addressable market expands.

Crypto businesses are very lucrative so don’t be too busy asking why when you should be asking how

I’m not asking why, because anyone can find instances of mania in history such as this. Beanie babies. Tulips.

The law of large numbers, in this case—the speculative experiment of seeking returns from assets that do not produce value, will iron this out. History does not repeat, but it rhymes often enough for those who know the tune to sing along.

Rattling off references to other asset bubbles only shows how little you know about those asset bubbles and undermines the credibility of your strongly held opinions on what makes an asset worth paying attention to.

For starters, you should probably start over on whatever you think you know about the tulips. Primarily its relation to tulip derivatives and the spot market of tulips, and the government's role in the dutch derivatives market at that time. And secondly, the length of that asset price distortion, compared to the crypto markets.

I don’t know what you’re getting at. It would be like trying to better understand the microeconomic factors behind Beanie Babies. It’s an exercise in futility. They’re toys and they ended up being resold at prices that made no sense to the common man.

Of all the endless knowledge that humanity produces, you have to ask yourself whether or not there’s meaning in pursuing topics endlessly.

They’re flowers. This isn’t a discussion about some ECON 500-level course topic.

There’s an academic argument to be had about whether or not the accounts of the event are credible, but that’s not what we’re talking about here.

> This isn’t a discussion about some ECON 500-level course topic.

It is.

> There’s an academic argument to be had about whether or not the accounts of the event are credible, but that’s not what we’re talking about here.

It is.

You brought it up. You threw in conjecture. And every rebuttal is more complex than you decided to be willing to pursue. That doesn't become false by saying we aren't talking about something that we absolutely are, and all of your hyperbole keeps reinforcing your willing self-proclaimed but obvious ignorance.

Yeah, I’m ignorant and flowers can be planted by anyone, so great conversation. If you really want to have discussions with people maybe try not to focus on meaningless pedantry.

Your side of the argument is ad hominem. I’m ignorant. OK, great, what’s your point? I should rethink tulips. Why?

You don’t actually make an argument yourself; sure I spouted off some things I think are generally bad because my statements imply you’re not going to find long-term returns from that type of “investing,” but are you not also spouting off some points of your own?

Okay.

Truce, one last "ad hominem" and I'll move on

> Of all the endless knowledge that humanity produces, you have to ask yourself whether or not there’s meaning in pursuing topics endlessly.

This is a verbose way of saying ignorance.

Okay moving on.

My real argument is that Tulip mania is actually the worst poster child of speculative bubbles, as the spot market was largely unaffected and for a brief period of time the futures market became very divorced. It also ended with a local bubonic plague, which means the speculators died, so we don't really know if there was merit to the future delivery or not. Also public policy played a role in the futures contracts, and for that I would have to brush off more literature to expound upon. But the idea in popular culture is quite wrong.

I personally did not comment on beanie babies and ignored it. My first inclination on that speculative bubble is that it was silly, but I didn't comment on it because I don't know if there were supply and demand conditions to support it, and such imbalances can occur in any asset class whether there is utility or not.

Regarding crypto in the light of other speculative asset price bubbles, even ignoring the utility that it does have for a broader and broader set of people, the staying power alone has defeated the bubbles you mentioned. But to counter the lowest hanging rebuttal of "but it can remain irrational longer than you can remain solvent" you have to then counter in how the utility does address a wider and wider market. Its not just a payments, it is far beyond payments right now, and all of these crypto assets inherit the payments capability.

> My first inclination on that speculative bubble is that it was silly, but I didn't comment on it because I don't know if there were supply and demand conditions to support it

So I researched the Beanie Babies bubble and it also does not seem irrational. Ty Warner encountered a temporary supply chain problem and announced that was permanent, and this was not priced in as in, nobody expected that. Beanie Babies did have high sales before this, and people wanted ones they couldn't get.

The Beanie Babies bubble burst when Ty Warner flooded the market with too many variants at once. He didn't know it at the time and was also more interested in his own revenue.

It is not irrational if the traders factored in the possibility of the market being flooded. Does that include the infamous tale of a divorced couple splitting their Beanie Babies investments on a family courtroom floor? I don't think that matters. This is a hallmark of all markets, a spot commodity that there is more of.

Beanie Babies traded at their retail value after Christmas 1999. It is possible to have sustained above market value, such as with diamonds. Maintain the scarcity properly at the expense of near term revenues.

In relation to crypto, the market doesn't become diluted just because there is "more cryptos", the digital commodities that have known immutable supply and market share occasionally have supply shocks and are expected to have them at greater amplitude.

At this point, I can only draw the line of irrational exuberance at equities and credit market bubbles. And even then, only sometimes. So that gives us South China Sea bubble, and the 90s Tech bubble in the Nasdaq.

There's your argument for Bitcoin. It cannot be planted by anyone, like tulips. Its supply cannot be increased arbitrarily. Tulips, in fact, could be a bit more complicated. Bitcoin is quite simple that way. Spent electricity is stored and traded - and is a good yardstick to measure other things, etc. etc.

wouldn't storing electricity mean that you're able to take some out of storage & use that stored electricity?

I don't see a way to turn bitcoin back into electricity. One could exchange bitcoin to fiat currency and then buy new electricity(created from a different source) but that's not really using stored electricity.

That's true. It's a verifiable "burn of electricity". The only upside to the burning is the verifiability. If there was some other way to generate this verifiable scarcity of something that we all agree on (electricity is kind of universal, that way), that would be better - obviously.

Oh come on, I'll bet you that there were in fact numerous 500-level Topics in Economics courses on precisely speculative asset bubbles with tulip mania as a central case study.

The tulip derivative bubble lasted for a few months; beanie babies were a year or two at most. Bitcoin is over ten years old.

Do you have any examples of a bubble which

- lasted more than 5 years - recovered from previous drops in value of more than 50 %?

What kind of evidence would convince you that bitcoin were different from these past bubbles?

The dot-com bubble played out over a decade. Bitcoin’s price history has only been significant for 3 years. It otherwise looked like any other penny asset.

> It otherwise looked like any other penny asset.

Before 3 years ago, it wouldn't have looked like "any other penny asset" it would have had a similar chart as now because its prior booms and busts 3 years prior to that all had similar degrees of amplitude. Just zoom in on a chart and pretend that it is summer 2017 with no future price history available, just like all the traders at the time had.

Regarding "penny asset" again, in price 3 years ago and 6 years ago Bitcoin would have been hundreds of dollars, which is not like penny assets, and even if comparing "penny stocks" to a digital commodity the marketcap of bitcoin 3 even 6 years ago would be greater than 99.9% of anything in the penny stock markets (bulletin boards, pink sheets), of which - of course - commodities and commodities derivative do not trade on.

You speak in hyperbole for emphasis and that's generally fine, but that only works if you know what you are talking about and it is pretty clear you just conflate concepts over and over again.

Its fine if you personally don't want to or don't have the risk profile to be in this market, yes you are missing a lot of alpha from sitting on the sidelines. No, you don't have any insight to support you sitting on the sidelines. But again, it is a completely valid choice to do so.

You’re seeking some deeper meaning here than one that exists.

It’s supposed to be a currency. And yet it’s not. It doesn’t exhibit any of the traits of a currency I’d want to spend at least. Maybe you’re OK with that, so have fun. It’s fundamental existence doesn’t work for me.

> It’s supposed to be a currency. And yet it’s not. It doesn’t exhibit any of the traits of a currency I’d want to spend at least.

ah that argument, I read that recently, those are skeumorphs, here is a quote

> When it comes to this asset class, there are still people that argue against the concept of Bitcoin, mostly in reaction to one of its sales pitches without ever noticing what this really is. For example, people are likely to debate about the “coin” or “currency” nomenclature of “bitcoin” and “cryptocurrency” respectively. Ultimately, what we have is an asset with a fixed known supply, which has some attributes of all other asset classes, some improvements, is continually updated to have more attributes and improvements, in a world with massive inflation. This is the macro story of bitcoin, the big picture.

You might begin to notice that I use the term "digital asset" and "crypto" in its new asset-based context very reliably. It can be transferred peer to peer and I frequently do that, I don't use the term currency and I typically don't single bitcoin out specifically as I'm not usually talking about bitcoin specifically.

The creator was trying to make “electronic cash” that evaded central banking manipulation from what I can tell.

Except there’s a fixed supply. There isn’t a fixed supply of value in the world.

That is correct, there are a lot of things as well as incomplete features in the first versions of bitcoin that were deprecated by the open source community, some of it while in ongoing communication with Satoshi Nakamoto. One of the strengths of this asset class is that it has no static limitations, while any improvements to its core concept must reach overwhelming consensus otherwise it debilitates the entire system.

The amendment ratification process has a long lead time, even when it is not politicized. The current Taproot and Schnoor amendments actually improve the "electronic cash" feature set, and has signaling consensus already but they must signal for I think 6-12 months before the nodes start updating their software. Hopefully wallets and exchanges use this time to implement the technology as default for the users (but they won't, human nature)

This doesn't mean anything, you need to make an argument as to why you believe that for an asset to be successful as a currency, its number of units needs to expand or contract in relation to value being produced.

It's a "fixed supply" of something that's very divisible. The media loves the fixed supply narrative, but it's really not important. Other coins have permanently inflating supplies and their charts mostly match the bitcoin chart.

The real gift of bitcoin is that it jump-started a wave of innovation by birthing "cryptocurrency". Once people saw that money would flow into bitcoin, people started new projects to try out all the other now-obvious ideas for cryptocurrencies. People want to build important things.

If you're thinking of bitcoin in the mindset of beanie babies or building a better credit card, then you may have missed the bigger thing that's happening. It's becoming obvious, to me at least, that cryptocurrency is trending in a direction where it will profoundly disrupt any industry that uses the internet, beginning with finance.

Also, I've been following this thread, and you should probably re-read all of vmception's comments. IMO he's right about some important stuff that your replies suggest you may be missing.

Currency is just a vehicle for the transfer of value. What traits should a currency have?

3 years to whom? I've been following the price since the first "bubble" up to $200, in early 2013.

That one from one dollar to $32 is the best of all time

>Bitcoin is over ten years old.

Plus the Lindy effect. If it's lasted 10 yrs, it's likely to last another 10.

The idea that tulips are similar to the tech behind ethereum is ridiculous. And that’s sort of the implication.

>You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.

You refuted yourself in the second paragraph. I suspect that crazy cash and financial instruments are crowding out the value of business investment.

> that you cannot spend,

You can spend it.

> does not produce cash flow,

Neither commodities nor currencies produce cash flow. People still reasonably invest in both.

> and whose values are determined by other shmucks buying it from previous shmucks.

The value of every other asset in existence is also determined by this process.

Bought any coffees (in person) with the crypto-currency of the week recently?

haha yeah I wasn't able to buy my coffee this morning with my gold bar so I threw it away. worthless metal amirite

At least gold has intrinsic value and isn’t attempting to be a modern currency...

> gold has intrinsic value

"Intrinsic value" isn't a rational concept and doesn't exist inside any successful economic formalizations.

Gold has value because it has useful properties, just like Bitcoin.

Gold: Shiny, sort of limited supply, difficult to store and transport

Bitcoin: Not shiny, hard-limited supply, easy to store and transport

So I asked this cute barista if she'd be able to accept a fraction of my TSLA stonks for my coffee

I don't drink coffee, but I bought a JLC Geophysic last week.

Lovely, fitting watch for (crypto) nerd :)

Agree re:CAPE. Meanwhile, people are ignoring the relatively attractive valuations of small, value, plus developed and emerging ex-US markets. While retail investors pile onto overvalued US stocks, these are now slowly catching back up and starting to get ahead. Funny thing about all of this to me is that people are always fighting the last proverbial war. Ten years ago, US stocks and tech in particular were in the doghouse - no one was buying them then.

TL;DR A lot of investors buy high and sell low. We're seeing that now with crypto as well as US stocks.

> You’d literally make more money today taking your cash and starting a business

Right. Small businesses are just killing it these days.

I find it interesting that HN crowd doesn't really refute your claims after 18 replies.

I take its value that its supply doesn't unexpectedly increase by a single entity's decision but controlled and doesn't also need the help of another entity to transfer.

Not sure if you call that intrinsic value but there is value.

There is a whole mindset that has invigorated growth investing and has been invigorated by it: success is more luck and social proof than correctness or work + winner will take all = illusion management is key work + valuations don’t matter, but getting in does.

It underpins major perspectives on investment, monetary and gov policy, and individual agency. It is infuriating, but it has worked spectacularly for a long time and has just enough truth in it to keep people building castles in the air.

Bullish. HN has an abysmally bad track record when it comes to investment advice, from Facebook to Bitcoin.

crypto is money. money can be invested, i.e. crypto can be invested. one does not invest in crypto. you are looking from the fiat=the_only_money prospective, which is limited. there are many types of money - fiat, crypto, gold. you can move between them, but those are not strictly investments in a sense of cash flow generation.

re intrinsic value - i think that intrinsic value is a fiction. there is always a market value. i don't know what the hell "intrinsic" value is and how useful can it be.

How many legs does a dog have if you call his tail a leg?

5. what is the point?

And where halve of the raise on crypto is because of tether...

I call BS. Bitcoin's trading volume has been between $20 and $50 billion USD per day (in the last year).

Tether's total valuation is $19.4 billion. It's a drop in the bucket.

Then explain, by your own quote:

> Research by John M. Griffin and Amin Shams in 2018 suggests that trading associated with increases in the amount of tether and associated trading at the Bitfinex exchange account for about half of the price increase in bitcoin in late 2017.[29][11][23]

https://en.m.wikipedia.org/wiki/Tether_(cryptocurrency)

In the past, ethereum was also highly automated trading.

Bitcoin is traded, even is we forget for a moment about wash trading. In each transaction we generate only a small margin, which adds to the value of traded assets. Only 2-5 billion dollars of bitcoins were from mining in 2020. Tethers are printed out of thin air and sold fully, from 0$ to 1$ (in equivalent), margin is 100%. So 15 billion of new tethers printed this summer had much more influence on the market than even greater amount of Bitcoin trades.

I'd say not less than 75% of this year Bitcoin raise is because of tethers. They are printing "money" like crazy since early summer.

heard of gold?

Wait until you hear about gold index funds/trusts....

Anyway, the reason you buy it is so you don't need to manage the security.

Both Binance and Circle Pay ended United States operations causing my friends to either move their Bitcoin or they didn't and had it sold at 3k/coin and can get it from their states "lost money".

I agree and I took your advice. I believe in building things not trying to find some investment. I mined bitcoin and bought it at $1. And I looked at Ethereum prior to their ICO.

Start a business, build a product. If you have excess cash by all means invest in crypto assets and startups.

Reply on news.ycombinator.com