MicroStrategy's Bitcoin Debt Bet
kevinrooke.com
kevinrooke.com
In 2017, bitcoin hit the high $19,000 price on huge volume, intraday during a bubble.
Now it has taken months to go from $10k to $19k, with many pull backs and many dips being bought.
If you average daily closing prices over a sliding 30 day window, this is currently bitcoins all time high by a fair bit.
Yet no mainstream media attention, low trading volume, etc etc.
The current situation is analogous to December 2016 when bitcoin was flirting with it’s 2013 All time high of $1,000.
See the “Drawdowns” tab here [0]. The market is at a high only when it’s equal to the line at the top of the graph.
[0] - https://www.portfoliovisualizer.com/backtest-portfolio?s=y&t...
Edit: Corrected points and added percentage.
If you set a 10% threshold, then you’ll have many more days “at ATH”.
My point is that actual ATH (versus “near ATH”) are comparably rare.
https://www.buybitcoinworldwide.com/volatility-index/
https://www.alphaquery.com/stock/TSLA/volatility-option-stat...
Consider a hypothetical security issued by the central bank. In one year's time, the security will be redeemed. An official will roll a pair of dice. Snake eyes means the holder gets $3600; otherwise, the holder gets $0.
How would the market value such a security? The expected value on the expiry date is $100, so let's say $98 today to account for the time value of money.
How volatile would the price of this security be over the next 1 month, next 3 months, next 6 months? Very low, right? The price would edge up slowly from $98 to $100, with maybe some small fluctuations due to changes in interest rate expectations.
This security has a greater than 90% chance that you lose 100% of your initial investment. If volatility is a good measure of risk, how can volatility be so low when there's such a high risk that you lose your shirt?
EDIT: Corrected the payoff: should have been $3600, not $1200.
It's true that if I hold the security until maturity, I could lose my investment. This, however, is easily offset by buying many such securities and recognizing that many will fail but some will succeed, giving me my expected return on average. In fact, I might even decide to buy many of these and repackage them into a basket of securities and split them up into many pieces and sell them off as low risk tranches.
Now, if you claim that all the outcomes are correlated (i.e. there's only one pair of dice that is tossed once), then the price you're talking about ($98) is absolutely not the price it would trade for because of the inherent risk associated with the asset. Instead it would trade at a much lower price. Just imagine that you were given the option of buying this asset for $98 or something like a US bond for $98, both of which will yield $100 at maturity in expectation. Which one would you choose?
But the risk is not correlated with other assets in the universe. So, according to CAPM, the discount rate should be the risk-free rate. The logic being is that any risk within this one assets is diversified away at scale.
"Just imagine that you were given the option of buying this asset for $98 or something like a US bond for $98, both of which will yield $100 at maturity in expectation. Which one would you choose?"
I'd pay $97.99 at these odds. I wouldn't put all my money in it. But I'd look for as many risky-but-uncorrelated assets as I could with these. As long as I have enough of them, I have a very very high chance of being better off than if I had bought the 'safer' securities with known payoffs.
Are you implying that Bitcoin should reach a much higher price?
Seems pretty regular eh? Like every four years. What happens every four years in bitcoin?
shareholders can and should do whatever they want, that is the point of being so forthcoming
"I want to do X" => market agrees or market disagrees => X does or doesn't happen
they can sell now or buy puts, they've had a week
Sure, MSFT lost some shareholders, but so far it looks like it was a win for everyone.
The shareholders are down because of the perceived risk of conversion which dilutes the shares, not really because of the exposure to bitcoin - which is a factor - but the market is weighing the conversion more heavily.
Credit markets are more fascinating than people think, especially on leverage.
That said, I'm nervous about the debt raise because it begs for regulatory action.
One thing's certain: the successful raise and the increased size point to tremendous interest in Bitcoin from investors of all sizes.
No it doesnt. It points to the fact that the market will buy USD debt paying out interest in USD. A US 5 year treasury note pays out a little under 0.4%, so this note paying 0.75% is a way to get a little more yield by taking on some credit risk.
https://www.theblockcrypto.com/linked/82566/microstrategy-ce...
It might not be terribly cynical to assume that having his own company purchase some of those holdings from himself would be a pretty nice way to turn the theoretical valuation (currently near an all time high) into cold hard cash before Tether hits the rotary ventilator.
Here is a table of all publicly available Bitcoin holdings as of December 12th: https://www.kevinrooke.com/bitcoin
Are they saying the market price of a coin isn't "fair"?
This, incidentally, is pretty much what happened when Mt Gox disclosed that they were backed by hot air because they had most of their reserves stolen.
Indeed.
Let's hope the same story won't repeat when Paypal is found to hold fractional reserves of their BTC-denominated liabilities.
I don't know how a Tether crash would play out but it's an entirely different situation.
I am pretty astonished this has not happened already.
Only way I can explain it is that Tether is helping the CIA launder money. Seriously. Nothing else explains it.
Opinions differ over whether the investment was good, and I doubt anyone's mind was changed in this discussion.
But there is a third element that should be discussed, I think: Does the investment fit with the company's business strategy? I haven't seen the article make an argument that it does.
Apple has cash. Tuna fishing is profitable. But does this mean Apple should invest in a tuna fishing fleet?
Since equities have been the primary investment medium fir years, people think of Bitcoin like a stock — it even has a ticker.
But it is a genuinely new thing. Like gold it is a scarce asset. Unlike gold its scarcity is deterministic, and it can be transacted over the internet.
If you pay out a dividend, you force your shareholders to pay income tax rates.
But, if you can use company profits in a way that pumps the stock valuation, your shareholders can effectively take the same profits with long term cap gains tax. My understanding is that a stock buyback is basically this strategy, and MicroStrategy's CEO has said that he also considered that.
MSTR is up ~100% since they first bought bitcoin.
This is at least, my amateur understanding that could be wrong.
Bitcoins themselves are available in limited quantity, but new cryptocurrencies are created all the time.
> with little to no execution risk.
You've got to be kidding me! Cryptocurrencies are notoriously difficult to even store safely.
Yes, but it's much easier to create a new cryptocurrency than it is to create a social convention that a new cryptocurrency has value.
There is a lot of shady business going on in traditional banking, but I can be reasonably sure that e.g. Deutsche Bank is not just one guy keeping all assets on his personal laptop who may or may not have died in India last week.
As for "outsourced", I thought that was supposed to be BAD? "Not your keys, not your coins", wasn't it? "Insured" by whom?
If you like old guard financial entities, Fidelity has a custody service.
If you want an entity that has been in the space almost as long as Bitcoin and has never been hacked, Coinbase has a service.
If you want star power, Gemini from the Winklevii is your bag.
If you don't want to be asked a lot of questions and don't want to know a lot about your counterparty, I bet Bitfinex will be happy to help.
All of these (except the last) are insured and bonded by respected old guard insurers. I assume the insurance contracts are all written on fiat terms, so take them at whatever value you will. MtGox proves the usefulness of contracts imposed on crypto but adjudicated in fiat.
Of course, if you are an old school cyberpunk, you custody your own coins using a layered security approach designed and implemented by yourself. That sort of cowboy behavior is frowned upon by the SEC, so not really applicable to a public company. I would be surprised if Michael Saylor (the CEO) didn't self-custody at least some of his personal stash. Good luck getting him to talk about it though.
Bitcoin is growing up. It is being integrated into the existing financial infrastructure. The beauty of Bitcoin is that you get to choose how much you interact with these new on-ramps. If you want to stick to the anarco-capitalist foundational philosophies, more power to you. Literally, you retain more power in Bitcoin than fiat.
Don't expect the existing financial world to bend though. It will slot Bitcoin into the existing architecture and keep on keeping on.
This situation is an obvious and predictable consequence of the SEC's refusal, after seven years, to approve any kind of bitcoin ETF whatsoever.
It's not like they haven't had plenty of options to choose from.
Stock market investors obviously demand the ability to get bitcoin exposure using stock exchange transactions. It should surprise nobody that companies are interested in meeting that demand.
Bitcoin is not a business, it doesn't require a staff to run, yet it is still viewed through the same lens as a business acquisition or strategic pivot. If executed right, a Bitcoin purchase changes absolutely nothing about the underlying business.
Bitcoin is nothing more than a tool for MicroStrategy to keep the money they've earned over the last 31 years.
However, the company is starting to look more and more like a Bitcoin ETF. The CEO is out promoting bitcoin much more than his company's services. The stock is trading increasingly in line with the bitcoin price...
This may very well be a genius strategic move on their part, but lets call a spade a spade. At this point, in the eyes of investors, the company is increasingly tied to the success or failure of bitcoin.
Yes.
Let me spell out a clearer downside:
If Bitcoin goes to 0, you're left holding a boring business analytics company that punted off its entire cash balance on a risky bet.
Or another downside: The SEC launches a second investigation into the CEO. After the last settlement the CEO of this company saw his net worth drop $6Bn which is double the market cap of MSTR.
And if you listen to Michael Saylor's interview with Binance [1], the store-of-value argument is at the core of his rationalle/narrative (it's a rather long video, but he gives a complete explanation of his motivation in the first 5 minutes, I think).
I believe MicroStrategy's first investment into BTC was really a case of their corporate treasury making a rather bold (desperate?) move to preserve their asset value in the wake of an absolutely gigantic recent expansion of M2 money supply, and a sign of more of the same rolling beyond the horizon.
Basically, they decided it was worth taking all the the risks of BTC (regulatory, operational, technical, market risk) to get away from the certainty of their fiat assets getting essentially debased by the looming inflation.
But this business of levering up to go even longer is a pure balls-to-the-wall bet tho. It's completely nuts, and I love it. The guy obviously believes in his investment thesis, and you have to give him the credit for being the risk taker in the best tradition of The American Dream.
OK, he didn't exactly bet the company on it, but it's still a ballsy business move, if there ever was one.
Compare that to golds 1.9trillion practical market size. To match that Bitcoin would be 100k$. Which seem to be a stretch in 5 years by many imaginations, one that requires US to pretty much hyper inflate.
A more realistic upper price could be 50k$ in 5 years based on regulatory risk, volatility and realistic cap, half of all of golds theoretical cap.
The down side is a side way risk where Bitcoin will stay around this 20k-30k mark, may as well invest that in equities or ETFs.
According to Google, there were ~ 2825 billionaires in the world in 2019.
That's 2.825 T right there, and we're talking:
- Billionaires the world actually knows about
- Not counting folks who have 10's or 100's of billions
- Private individuals as opposed to large retirement funds
All in all, while I believe 1M BTCUSD to be unrealistic, if a sizable fraction of that stashed money moves to BTC because they're looking for, e.g, an inflation hedge, there's easily another 10x to be had.
My opinion, not investment advice, goes without saying.
Market cap doesn't equal actually invested funds, but two dudes swapping one AMZN share for 30k USD doesn't actually make AMZNs market cap when other trades are happening at normal prices either. BTC's current market price is obviously more subject to manipulation than AMZN, but its price isn't dictated by two dudes swapping one BTC at an absurd multiple of what everyone else is willing to sell for either.
Not what I said.
The reason I mentioned the number of billionaires in the world was to point out the magnitude of money sloshing around in the existing financial system and that it would take much less than nation states giving up on their currency for BTC to do (yet another) 10x.
>its price isn't dictated by two dudes swapping one BTC at an absurd multiple of what everyone else is willing to sell for either.
I guess making a point by pushing it to the limit isn't something that is going to work here, so let me rephrase: the fact that Bezos's net worth is calculated by multiplying the number of AMZN shares he owns by the current price of the share is a completely unrealistic way of doing things.
Were he to actually convert all of his AMZN shares to cold hard cash, he would be left with a small fraction of what he currently weighs.
In the same fashion, the BTC market very much sensitive to liquidity: a very large portion of coins were acquired when the price was much lower, and the actual market depth of BTCUSD is - I suspect - rather shallow and it certainly wouldn't take "every known billionaire ..." to move it up 10x.
A billionaire is worth 1,000 million dollars. If there are 2,895 of them, that’s equal to 2,985,000 millionaires.
But with only 21 million bitcoin, that’s 137,000 millionaires— per bitcoin. And that number gets much higher if you divide by the available supply not the total supply.
There’s never going to be enough bitcoin for the millionaires to own even one, if they all wanted to.
According to google there are approximately 46.8 million millionaires in the world. There will only be 21 million bitcoin.
Less than half of current millionaires could possibly own a whole one.
Plus, 4 million BTC (nearly 20% of total supply) are already thought to be lost forever.
There's definitely not a whole lot of them for something serving as the root of a worldwide movement / new financial system
"A mile is so big that the entire planet is only 25,000 of them around. That's definitely not a whole lot of them for something as big as the entire planet."
The point I was trying to make was, if there are 21 million of them, and it really becomes mainstream, having even just one of them will probably be very valuable, more so than now.
The number has to be less than 1 because 2,985,000 < 21 million. (It looks like you neglected the million when dividing. I'm also not sure how you got 137,000 instead of 142,000.)
At risk of sounding a bit tinfoil, this is the same system of a weird pyramid scheme rich people are doing with art, wine, relics, real estate, etc. As long as everyone does not sell at the same time, and supply is (artificially) constrained, there is a huge amount of wealth locked up, no longer participating.
If you want to compare BTC to hold, you need to compare how much of the gold market is actually being traded, vs how much of the crypto market.
I bet there's actually a factor 10 difference there, if not more.
It’s quite a fascinating metric.
For instance, it dhows that silver is a commodity rather than a precious metal.
Bitcoins stock to flow now exceeds golds.
All of those are non-fungible; that's why rich people like those.
Bitcoin is pretty damn fungible.
Non-fungible assets are far more useful for tax evasion. Watch _Tenet_.
What you describe is how assets acquire monetary value: people start buying them not because they want them but because other people will want them. Then they don’t sell them because they know other people will want them in the future. Thus they develop a “monetary premium” from that additional demand, and become “stores of value” from the general market behavior.
The theory inside Bitcoin circles is that rich people have been buying up art, unproductive real estate, etc., not because they are good money but because they do not have access to good money, i.e. long-term deflationary, fungible, divisible, portable stores of value, because of our current regime of inflationary fiat money.
In seeking to preserve their wealth, they acquire collectibles, which then become monetary due to scarcity and expectation of future demand. It may be the very same impulse and process that led to the emergence of money in the first place, in the form of shells. https://nakamotoinstitute.org/shelling-out/
If Bitcoin demonstrates itself to be “better money,” it should absorb some of the monetary premium of these other goods, as people will have less need to allocate their resources into paintings no one will see and houses no one will live in.
This artificially inflating demand for the item, with a very long delay or even obfuscated feedback.
I agree that the value store is a (the only) viable use case for BTC. Although commodities in general check the same boxes without the awkwardness of Bitcoin.
BTW when you say "better money" you mean for this specific use case right? Obviously BTC and cryptocurrency in general are not as good as regular money in general.
To name a few properties, commodities can not be transferred anywhere in the world quickly and at low cost in a censor-less fashion, can not be transported in an immaterial form (e.g. a "brain wallet").
> when you say "better money" you mean for this specific use case right?
I mean better at exhibiting the properties of money (originally articulated by Aristotle): durability, divisibility, portability, etc.
Fiat fails at durability, through ongoing inflation. Art fails at: divisibility, etc.
https://hangthebankers.com/aristotle-and-the-definition-of-m...
https://omniequivalence.com/monetary-properties/
https://www.economicsdiscussion.net/money/top-8-qualities-of...
This may seem absurd to make such predictions,but it isn't a guess like yours are, it’s based on modeling bitcoins fundamentals. You guess is informed by, presumably, the stock market. That’s reasonable if you think if bitcoin like a stock. But it isn't.
Bitcoin is a new form of money, —the hardest money ever— that is going through the technology adoption lifecycle.
Most people really don’t understand bitcoin, yet adoption grows in fits and spurts, and that’s why we get these huge bubbles in the bull markets and huge pullbacks in the bear market.
But in 2026 if I’m right will you still be predicting inly %10 annual growth in bitcoin price? Will you have remembered this comment?
John McAfee would like to have a word with you...
I have a million dollars on this one.
Mock me now, and next year you will have forgotten this conversation ever happened.
And thus you will not learn from it.
That’s why this site is one actual hackers avoid.
The only reason I didn’t buy Bitcoin when it was $1 was because of the HN comments. I try to do the opposite of what people are commenting here now.
Thinking of the price of Bitcoin is a fairly irrelevant endeavour.
Thinking how much BTC it costs to buy one USD (not hard money by a huge margin) over time is a much more productive way of looking at it.
(yes, I've heard of f(x)=1/x I'm talking about a psychological stance here)
Earlier than that, I might sell a little bit in the upcoming year to free up some cash for a home purchase.
The higher this number is, the better argument it is for Bitcoin's "Lindy" qualities
Same principle as a lot of VC, if you invest in fifty failed startups and one Facebook, you win.
Also, Bitcoin draws libertarians... and HN is full of modern liberals. So, it doesn't sit well with them.
Having said that, it is understandable that most people won't invest in something completely new or risky. One would not be able to build wealth like that. They'd be taking too many risks and that could most likely work against them.
So, a good balance needs to be maintained. If you most of your money in safe assets and try out small risky things once in a while, you are relatively safe while opening up to being lucky.
Your statement is true but Democrats, who call themselves liberals, are not that. They are the most conservative party. They're much more conservative than Republicans on most issues. For example, ideas about "science" or "nature" for example.
In 2020, "liberals" in america have very little to do with the original meaning of the word which meant "in favor of freedom".
If there is one thing the liberals in the US have very little care about it is preserving freedom.
It's the main reason they got spanked by trump in '16.
It has very little to do with the European understanding of "liberalism", which is what americans call "libertarians".
> If there is one thing the liberals in the US have very little care about it is preserving freedom
You can't spend more than 2 seconds researching modern liberalism without civil liberties coming up.
Funny :D
>You can't spend more than 2 seconds researching modern liberalism without civil liberties coming up.
Civil liberties != individual freedom
They actually are more often than not antinomic.
No, it doesn't.
Though it overlaps with a common American use of “socialist” to mean anyone outside of the far-right. Most American “liberals” are center-right corporate capitalists, which is also the narrow sense of “liberal” in much of the world.
> In 2020, "liberals" in america have very little to do with the original meaning of the word which meant "in favor of freedom".
This is false, and even more than just being liberal in this vague sense, most American “liberals” and a great share of American “conservatives” are adherents to ideologies which evolved fairly directly from 18th century classical liberalism, differing largely in whether they view the immediate goals of 18th century liberals as having been terminal or steps in the direction of the desired goal.
We're pretty much in a double-speak world right now.
> Bitcoin draws libertarians... and HN is full of modern liberals.
It kinda sucks that there are no libertarian-ish forums with HN's intelligence level. Bitcointalk was this for a very, very short time (like, until 2012). I miss that.
Need to fit in is much more important to people than acknowledging the truth... mostly because the fear of being ostracized is one of the strongest and deepest human fears.
The only problem with downvotes is the rate limiting that HN applies to users who are frequently downvoted. Otherwise, I don't mind. I know these people are not downvoting me because they think I'm not adding to the discussion or violating guidelines or anything like that. It's precisely because I'm saying things they know is true but they have shadowed it in themselves and managed to convince themselves with other ideas just to try to fit in. So, when they see it out in the open, they feel very uncomfortable and want it to be hidden. I hope some of them will be inspired by by actions and see these things in themselves.
Also that you are blindingly listening to others would make you a bad investor. A good investor needs conviction and staying power.
Would you have sold after Bitcoin has crashed from $30 to $2?
That's exactly it. Let's say you bought at $0.01. What are the odds you would have held on until the price per coin hit $10,000? Or $1,000? Or even $100?
I didn’t know enough about it, and deferred to the “experts”
By now, it seems that most of the original arguments about Bitcoin becoming the currency of the future didn’t pan out. In fact, very few people seem eager to spend Bitcoin because everyone wants it as a speculative investment vehicle. The narrative about what Bitcoin will be used for continues to wander, but for whatever reason the Bitcoin crowd doesn’t want to admit that it holds a unique place as a speculative investment and trading vehicle that has one foot outside of regulatory boundaries, making it inherently attractive to people hoping for abnormal returns.
This is also why you see big banks taking on numerically large positions that are nevertheless a very small portion of their overall portfolios: It’s a weird investment that might produce interesting returns, or it might not. Unfortunately, this news usually gets spun into hot takes that banks secretly predict Bitcoin is the future currency, which leads to more hype and more investment. This effectively makes large Bitcoin investments a self-fulfilling prophecy, as long as the banks manage to get out before the next big down cycle.
I think this is freely admitted as the primary value proposition by many Bitcoin proponents
I think it is a misconception and misunderstanding by many BTC supporters and naysayers that BTC can be viable or that it necessarily must depend on being viable as a mass-transaction medium, unit of account or "currency".
Store of value is likely it's only function, but being finite, highly divisible, decentralized and highly transactable relative to other scarce assets, it could succeed wildly at this.
The scalability issues were evident from the beginning. The idea of running Visa scale transactions on a shared ledger were debated back in 2010. Anyone paying attention knew the main chain would, at best, be a large scale settlement layer. Other layers would be needed for day to day transactions.
It is trading at about 0.013 BTC, which IMO is in line with their current impact.
For those true to the _original_ Bitcoin Cash chain. lol
Bitcoin is arguably the most stable of all crypto right now (outside of stablecoins of course). There are smallcap and midcap coins that can go from -100% to +500% in a month.
Even large, established coins like XRP can go from flatlining for years to 3x in price in a week.
The best part is that no one really knows whats happening, and everyone has their own theories.
You and me both. Fortunately, I've learned most hackers have an extreme risk avoidance, which tops the usual human fear of whatever didn't exist when someone was a teen.
Fortunately, I quickly realized the HN kings had no clothes, so I didn't double down on my mistake and started working in crypto.
That asymmetry means investing even just a small amount (that you're comfortable losing) is an obvious choice.
It's also a fascinating technology (politics and monetary theories aside) and having some "skin in the game" makes you much more motivated to learn about how it works.
The fact is nobody knew where it was going back then. In hindsight sure you can try to shift the blame to others, but seriously I have always noticed that if I do investments based on emotional whims without understanding what I am actually buying I never feel comfortable owning said asset. Then I have no idea if the current price is right or wrong and whether I should sell it or not.
But coming back to your main point, it is more than usual that no small portion of HN comments are conservative and critical towards any new innovations. Therefore, it is up to the reader to make their own research and judgement before taking anything said here for granted. I like that criticality, to some extent, as that keeps you grounded in reality but it is true for certain that some of it is just plain old resistance to change.
I’ve been watching the BTC community recently, and there’s a widespread misunderstanding that all investors have the same goals, risk profile, and strategy.
This looks something like “$BIGFINTECH is buying $HUGEAMOUNT, buy everything you can get before it’s too late!”, without considering that $BIGFINTECH is playing a completely different game.
(Edit: Even this thread has comments that assume there’s only one way to make money with BTC — typically buy low, sell high.)
What other ways exist?
How do you plan to make money while holding?
You could also buy USDC (no fees through coinbase) and BlockFi pays 8.6% apy.
Ally bank just emailed me that they are lowering the APY again. It is lowered almost monthly and is almost 0 now.
As always, where there's a return, there's also a risk.
Do they? Why can’t they drop-ship it?
If they are found to be below a certain ratio of the actual BTC denominated liability, they may run into quite a bit of trouble.
As a matter of fact, if they were playing it straight they could cryptographically demonstrate actual ownership of the underlying.
They will - of course - never do that. That'd be missing out on one hell of an opportunity to play bookie in the BTC sphere.
I highly doubt PayPal is playing that game. Bitcoin is highly volatile and can x10 its price easily. That could bankrupt PayPal overnight if people tried to sell in the short-squeeze.
Actually, the SEC may also want to check whether paypal promissory notes are actually backed by anything but thin air.
LedgerX, for example, is a US based physically delivered options clearing house for Bitcoin that supports both retail and institutional customers. I've been a customer since 2017 and so far I'm pretty happy with them.
(They do futures too, but right now their futures aren't particularly interesting).
BTW: fan of your work, Greg.
I guess investors will be pleased to know they're betting on something that happened at least twice...
I wonder, if you have such a process W, what would the probability of "For all t in [0,7], W_{t+5} > W_t" be? It would of course be less than (1/4) because it would imply W_5 > W_0 , and also W_12 > W_5 , which would be independent events each with probability 1/2 , and so the probability has to be at most 1/4 . But I assume it probably has a much smaller probability than that.
If instead of a Wiener process, we model it as a Wiener process with drift, as X_t = \mu t + \sigma W_t , how does the probability of "For all t in [0,7], X_{t+5} > X_t" vary with \mu ? (well, obviously, as \mu increases, the probability goes up, but I mean stuff like "how big does \mu have to be in order for it to not be unlikely?" and "how quickly does the probability increase as \mu increases?", etc. . )
(Sure, that's way more than 7 entry points :)
But yes, "it working at any time if you wait 5 years" would be relevant. I guess I was trying to think about, "what would the chances be of that happening to have been the case purely by chance?". Like, in order to look at how strongly it suggests it will be the same in the future.
You'd be better of just pointing out it increased quite a bit those two time periods of 5 years, as that would already imply that those 5-year differences were unlikely to be negative in-between. At least if Black–Scholes is to have any merit.
This would be based on a flawed assumption that history is a good indicator of future performance. I choose an entry point into Bitcoin somewhere in the last 12 to 5 years. From that point on, 5 years later, the price is always ahead. Those pairs as you said are not independent. How does that matter here?
Edit: And why would that make a bad observation or a bad strategy?
I don't think I'm "clearly smarter", I just happen to have taken a class that said a little about stochastic processes, which I think are neat, and therefore jumped at a chance to try to apply it a little bit. I don't have any deep understanding of investment. (contravariant might though, idk.)
I mean sure 'it has never decreased' is slightly stronger than just the fact that it increased over 2 independent 5 year time periods, but that's mostly because 'it has increased' is a pretty weak observation. The information it adds is that it must have increased quite a bit, which you already knew.
So rather than a bad observation it just doesn't tell you much, hence my tongue in cheek observation that they're basing decisions on the basis that it has happened 'twice'.
Instead, he's decided to use the existing business he founded decades ago as an outlet for his enthusiasm for Bitcoin. This is why God created activist investors, I think.
In MSTR's case an activitist shareholder will be ignored because as per MSTR's latest 10-Q: "As of October 19, 2020, Mr. Saylor, our Chairman of the Board of Directors & Chief Executive Officer, beneficially owned 2,011,668 shares of class B common stock, or 73.4% of the total voting power. Accordingly, Mr. Saylor can control MicroStrategy through his ability todetermine the outcome of elections of our directors, amend our certificate of incorporation and by-laws, and take other actions requiring the vote or consentof stockholders, including mergers, going-private transactions, and other extraordinary transactions and their terms."[1]
[1] https://ir.microstrategy.com/static-files/dfe9fb22-b4d0-4d49...
The second part though is - does investing in bitcoin make any sense? Well in my opinion no. MSTR has no strategic advantage in buying BTC. It's also extremely worrying that they've crossed the rubicon, they are now leveraging up to buy more. You don't just have to factor in whether this current debt looks like it's servicable. You have to question whether this company is going to continue levering up to buy bitcoin. Also, the down side risks the article mentions are like "Let's assume no downsides". Ok assuming that BTC goes down they can service the debt with other income. Fine. As long as they don't issue more debt which they likely will. Also, even if they can service the debt that doesn't change the fact they've made a bad investment of several hundred million dollars.
It also doesn't include downsides such as "Someone hacks you and all your BTC are gone" or "The US issues a new regulation changing the tax regime massively increasing your tax exposure".
The reason people are bearish on this move is because it's a guy with no busines in investing just punting everything he can onto BTC, which is fine for him to do, but it's not a particularly smart thing for him to do. I mean one obvious concern is that this company is probably trading at a significant discount vs it's assets now, so what's going to stop someone coming along and saying "Hey, $X a share, I'll liquidate the BTC and hand it back to investors" when BTC has it's next dip?
I'm of the opinion that making 290M+ from 475M is a good investment, I don't live near Wall Street so maybe that's not a lot of money these days?
https://www.coindesk.com/microstrategy-used-coinbase-for-mas...
#1 rule of bitcoin: not your keys, not your coins
Disclaimer I work at coinbase on a team related to borrowing.
> Coinbase prioritizes the security of our customer's digital currency through a combination of online “hot storage” and offline “cold” storage. Coinbase maintains 98% or more of customer digital currency in cold storage, with the remainder in secure hot servers as necessary to serve the liquidity needs of our customers. All digital currency that Coinbase holds in its online hot storage is insured. If Coinbase were to suffer a breach of its online hot storage, the insurance policy would pay out to cover any customer funds lost as a result.
> This insurance policy does not cover any losses resulting from the compromise of your individual Coinbase account. Please note that the insurance policy covers any losses from Coinbase’s hot storage resulting from a breach of Coinbase's physical security, cyber security, or by employee theft. It is your responsibility to use a strong password and maintain control of all login credentials you use to access Coinbase.
https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
If you are a large institutional investor you would likely use this and not a normal coinbase account.
I don’t work on custody but they may have a different insurance policy and or do things on a case by case basis: http://custody.coinbase.com/faq
“ What storage systems does your insurance cover? - Coinbase’s policy covers all storage methods. This includes hot, warm and cold storage. Read more about our insurance policy here or ask the Custody team for more information.”
If you are interested in learning more here is a good article on insurance and cryptocurrency:
https://blog.coinbase.com/on-insurance-and-cryptocurrency-d6...
Regardless per that FAQ page you linked:
> We carry an annually renewed commercial crime policy that carries a $255m limit (per-incident and overall), with Coinbase Global as the named insured.
So in the event of a security breach, it's probable that losses would exceed the insured amount.
I agree with most of what you said in general terms. However MSTR is doing this because they've got an eroding business that is in deep shit and the clowns in charge see the writing on the wall. They're not an income stock.
MSTR's sales and operating income the last few years:
2016: $512m sales, $107m operating income | 2017: $504m sales, $74m op income | 2018: $497m sales, $4m op income | 2019: $486m sales, -$1m op income | Last four quarters: $482m sales, $39m op income
The trend is more than written on the wall, it's graffiti'd all over that nice MSTR building in Tysons corner.
This Bitcoin move on their part is because they have no idea what to do with their actual business, they don't know how to deploy those financial resources to actually grow their real business. There can hardly be a worse sign for MSTR. Whatever their strategy has been, it has failed. Bitcoin is a hail mary. If I were large investor in this company, I'd be pushing for an investigation into their finances immediately. I wouldn't trust Michael Saylor one bit, he's a carnival barker that just barely survived the dotcom bubble, and his behavior back then was just as shady as this move is. The cloud era is likely threatening to destroy them as an independent business (at a minimum) and their options are very limited (unlike eg Oracle, they can't just get desperate and go on a big acquisition binge, they can't afford to really buy their way back in with a $2.6b market cap, given how expensive everything cloud is right now).
Maybe the fact that he has 72% of the voting rights and can basically do whatever he wants.
> Maybe the fact that he has 72% of the voting rights and can basically do whatever he wants.
And even if he didn't, this move is the perfect poison pill to prevent an hostile takeover: with the company massively leveraged on BTC, who'll be foolish enough to follow someone who's basically suggesting to realize the loss on the books? And while hoping this very action doesn't tank the company? It's an heroic assumption when debts remains to be serviced (ie, clear liquidity issues, that could crash stock price)
It could go to the point that not even whatever assets may remain would be enough to distribute anything at all to creditors! (ie, bankrupcy)
That IMHO is more concerning to any investor that trading at a discount vs the assets.
1980s style corporate raiding is 40 years old, so by now you must expect owner/founders to know a thing or two about poison pills!
Anyway, it's indeed a bold move, but the assets generate cash flow, and with 72% ownership, it strikes me as the RIGHT move IF the owner want to keep some liquidity handy for whatever project, without falling pray to inflation.
With 72% he can already can do what the hell he wants. He could distribute this as profit to himself but as a billionaire, does he really needs that cash RIGHT NOW? While we're expecting up to 40% inflation when the velocity of money rises back?
It's simpler to just keep the company coffer filled until a good use comes by - if only because there will be no need to bother with the TLAs like the SEC to issue bonds, and also because while parked, all that remains shielded from most taxes.
As a billionaire, it's just his form of edging, while also having a lifestyle business.
In my opinion, bitcoin is one of these assets. If you want to invest in crypto, find better alternatives.
That's not going to happen. The core reason Bitcoin is the hardest money that's ever existed is because of proof of work. Part of why Bitcoin has monetary value is due to the energy used to produce Bitcoin and to secure the blockchain.
Eth 2.0 is unproven so far; it certainly wouldn't be trusted as a global reserve asset in its current form.
Pure proof of stake is fantasy. That's not "Bitcoin" and it never will be.
My personal hope would be that mixed proof of work and stake with on-chain governance, like Decred (their devs have built much of the Lightning Network tooling, performed the first cross-chain atomic swap, etc.) - could be adopted; but, realistically, I think that's also a fantasy.
The growth of Bitcoin mining in America is due to miners partnering with oil and natural gas producers to use the energy that would be otherwise wasted. Instead of excess natural gas being flared, it's being used to run Bitcoin miners [1].
Everyone should read Lyn Alden's "7 Misconceptions About Bitcoin" [2], where she addresses the energy use; here's an excerpt:
Furthermore, a significant portion of the energy that Bitcoin uses could otherwise be wasted. Bitcoin miners seek out the absolute cheapest sources of electricity in the world, which usually means energy that was developed for one reason or another, but that doesn’t currently have sufficient demand, and would therefore be wasted.
Examples of this include over-built hydroelectric dams in certain regions of China, or stranded oil and gas wells in North America. Bitcoin mining equipment is mobile, and thus can be put near wherever the cheapest source of energy is, to arbitrage it and give a purpose to that stranded energy production.
Bitcoin mining converts the output from those cheap stranded sources of energy into something that currently has monetary value.
[1] https://www.coindesk.com/energy-giant-equinor-to-cut-gas-fla...
Carbon footprint of 1 transaction: Equivalent to the carbon footprint of 731,647 VISA transactions or 55,019 hours of watching Youtube.
Those articles are nice and all, but don't reflect more than opinion. The hard facts are that BTC is wasteful in terms of energy consumption.
>Examples of this include over-built hydroelectric dams in certain regions of China, or stranded oil and gas wells in North America. Bitcoin mining equipment is mobile, and thus can be put near wherever the cheapest source of energy is, to arbitrage it and give a purpose to that stranded energy production.
Way to romanticise the issue; again, here are the actual % that make up electricity production in china: https://en.wikipedia.org/wiki/Electricity_sector_in_China It isn't excess hydro power being used, its coal.
Electricity is the main cost of mining, so miners compete in minimizing their electricity costs in order to maintain profitability, including by co-locating mining facilities with point sources of underutilized power (e.g. remote dams). The sources like this, hydroelectric and natural gas flares, the profitable mining electricity rate is regularly competed below the fuel cost of e.g. coal power. So anyone buying coal to mine Bitcoin is losing rather than making money.
E.g. in this example it’s currently hovering around the cost of natural gas: https://www.forbes.com/sites/robertanzalone/2020/08/13/bitco...
> As both the cryptocurrency markets and the power markets are constantly fluctuating, we do whichever is more profitable at any given time - either sell the generated power or mine crypto with that power.
How can you call that the incorrect assumption? It sounds like you are making the incorrect assumption, based off of some idealistic idea of how this could work.
The article you linked even states that that specific project is unique, i.e. a one off thing, not the general state of things.
How about a correction after a face-ripping rally? Check out this chart:
https://www.tradingview.com/symbols/NASDAQ-MSTR/
That's liftoff for the month of November. Sooner or later profits will be taken.
Also, check out that price-to-earnings ratio (P/E) of over 2,500. That's stratospheric and not even Amazon can match it right now. Clearly it was caused at least in part by vast appetite among certain investors for some way, any way, to gain exposure to Bitcoin price moves.
What's more interesting about Microstrategy is that it could be a preview of things to come. Large and/or public companies holding cash need a way to preserve its value from erosion due to the avalanche of government deficit spending to come and the inflation that will come with it. The range of options is rather limited, and Bitcoin has some unique properties that make it especially good at the job.
That said, a public company buying Bitcoin on credit sounds absolutely bonkers. That's not capital preservation. It's a sign that management can't figure out how to grow the company. And it might be a boat that an increasing number of companies find themselves in.
If you can loan billions of dollars for nearly no cost why not put it into something speculative? With a low enough interest rate it would even make sense to take out loans to buy gold, the fiat cost of your loan is impacted by inflation.
Take out a $50k loan this year. Buy gold and bitcoin with it. If the assets appreciate pay off the loan and either collect your profit or let the "free" investment sit. Look at the historical price of bitcoin and there is literally no point you could have bought it and held for a few years and not made money. Take out another loan and repeat.
https://i.imgur.com/96bngmB.png
(If seeing on mobile, use "desktop mode" to see the HQ image)
- It goes up.
- Falls.
- Recovers to last high.
- Then moves up again.
- Repeat.
Yes, period of recovery varies.
Yes, every cycle percentage highs are getting less and less.
But one thing is constant: once the price recovers to the last high, a bull market starts.
The only question you should be asking yourself is: is Bitcoin actually valuable or is it a pure speculative bubble that's bound to burst sooner or later.
You could say the same thing about the US stock market
[1] https://www.treasurydirect.gov/indiv/products/prod_tips_glan...
Sure they can invest in something more productive but the whole point of having reserves is to be more robust to negative changes e.g: COVID or jump on new opportunities (some company goes up for sale).
Not all value can be invested in the present, thus people want to invest in the future (savings theory).
If governments do not offer fiat money or bonds as savings vehicle, assets like Gold or Bitcoin will inevitable soar.
MicroStrategy, and others, understand the situation and want to get in early to make multiply their actual savings.
Gold, as well, is not a safe haven either. The US Government keeps printing money, yet gold is nowhere near it's all-time high (adjusted for inflation).
You shouldn't offer these statements as inevitabilities when history has shown them to be completely wrong.
I agree with your description of the present and close past, thus calling an imminent bull market.
The more time this present situation holds, the bigger is the buying pressure.
I'm guessing you have a computer tech background and still don't share my view: imagine all the macro-investors not having this knowledge. They can't predict magic-internet-money eating their lunch.
Cool thing about free markets: they find out the correct solution out of the greed and collective inteligence of the group. <3
Buying lottery tickets would be uncorrelated. And you've less chance of being scammed or hacked when you do that...
If I buy Bitcoin, what value-creating activity occurs that pays for my reward?
Are the rewards desirable? That's an interesting discusion.
Historically, it has allowed humanity to switch to better forms of money: https://en.wikipedia.org/wiki/Gresham's_law
If you buy in the present what others want to own in the future, you create value for yourself as the price of the asset rises.
You can also understand Bitcoin as a business. Assuming it's a better form of money, it allows any agent of the system to better store or transfer money.
By owning Bitcoin you are assuming a risk, but also making the total value locked (TVL) bigger, through making the token less volatile. That helps. :-)
Even in the case of an index fund, you are ultimately buying shares of businesses which decreases the cost of financing for those businesses and helps them to grow. It's not as impactful as an angel investment in a startup, but it still means that your outcome is linked to successful economic activity that you helped to finance. In the case of Bitcoin, no such activity takes place, so where is the reward coming from?
Furthermore it is non-trivial for global citizens, especially those in corrupt and financially moronic countries like Argentina, Turkey, and Lebanon to get access to a US index fund. Bitcoin is global and apps exist for every platform and country to help people buy it.
One way to look at Bitcoin is that it is an improved version of gold. By your logic, why would anyone want to hold gold? But many do. Bitcoin is an internet-native digital asset that acts like gold but has many interesting properties in how it is custodies and transmitted that make it different if not superior to gold.
Clearly what someone doesn’t want to hold is cash - whether USD and especially fiat currency in mismanaged countries like Venezuela. In the USA it is much easier to avoid holding cash than in other countries.
By investing you are giving somebody money that when used will make access to those bought resources more expensive to other agents.
That is why in the perfect system you don't want to put "all money to work". You want the perfect balance between investing and saving.
Savings allow you to preserve your value into the future till you detect a worthy investing opportunity.
Sadly enough, the present world has lost most important tools to save and preserve value: money and government bonds. Thus obliging all agents with value into risky investing instead of safely save for the future.
The situation explains why gold and Bitcoin soared last decade: economic agents need some store of value to park their savings.
"Bitcoin is a non-sovereign, hard-capped supply, global, immutable, decentralized digital store of value. It’s an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally."
None. But then:
1. You reasoning applies exactly to gold. Yet, people keep buying it. It's call supply and demand. Demand doesn't have to be grounded in anything rational. If it exists and the supply is limited, the price will go up.
2. Bitcoin has never been about value creation. It's about *preserving* value, something the USD has been historically terrible at [1]
About half of gold is used to make jewelry, and 10% is used in industry [per wikipedia]. If the demand for the remaining portion that is purchased as investments/speculation fell to zero, gold would still have value. If bitcoin's investment/speculation interest fell to zero, the price would also fall to zero (or close to it) - it doesnt really do anything else.
Jewelry, a really useful thing if there ever was one.
You're missing the point here, like all acolytes of the "intrinsic value" cult.
There is no such thing as intrinsic value, as much as most people like to sing themselves that lullaby.
There's is just one thing: supply and demand.
Where demand comes from, whether it is rational or irrational is completely irrelevant to the equation.
People want gold (who knows why, whether it's rational or not, and who cares), the supply is scarce (even though it's not limited) therefore it has value.
People want Bitcoin, the supply is finite, therefore it has value.
Add in the fact that it has some nice properties that gold doesn't have (e.g. easy to move and very hard to confiscate unless you're dumb enough to disclose your holdings) ... you get the price we have today.
People need air, therefore demand is strong. However, supply is - for all intent and purposes - infinite (a bit like the USD), therefore it has no value.
No such thing as intrinsic value.
Just supply and demand.
Econ 101.
If people didn't care about their looks everyone would use plain color clothes. Gold jewelry also works as a status symbol. It definitely performs some utility that way. If gold had only speculative demand it would be long forgotten by now.
Nothing like that for bitcoin, it's purely speculative demand and to realize a profit you need another speculator to sell to, and the situation repeats. It's also inflationary and requires billions to run, generating losses, which mathematically guarantess that average bitcoin has negative EV. How do you know when to sell?
So far it only exists during the longest bull market in history, leaving many people and companies with a lot of paper wealth they don't know what to do with. If that situation ever ends, forcing people and companies to spend their financial reserves just to survive, purely speculative bubbles like bitcoin are going to collapse the most - as buyers disappear and many sellers appear.
There are both centralized custodial options as well as decentralized permissionless but custodial options, as well as decentralized permissionless noncustodial options. And yes, the yield is risk adjusted.
https://www.treasury.gov/resource-center/data-chart-center/i...
Heck, even in this crisis house prices can't get down. The world economy is inflating like crazy.
Now you have invest in the business and invest in bitcoin by default.
e.g.: Most countries tax foreign dividends at full income tax rates. 15-30% IRS withholding taxes on dividends.
If you want to see what happens when the treasury is empty, just look at how hard it was for Tesla to survive the Model 3 launch: they were heavily shorted, and oil companies attacked Tesla on every front they could to destroy it.
Now that Tesla has enough treasury to survive a stock crash (and a little bit profitable), shorts went away.
Btw MicroStrategy was attacked the same way and its stock crashed by 95% in the past.
Also just look at 2020 how many businesses that didn't have treasury went bankrupt.
Businesses should increase shareholder value. How they get there is up to them.
You opinion on how that should be achieved is one of many possible strategies and very much your own opinion.
The fact that one is being taught how to do something in school doesn't mean it's the only way.
That's a fairly decent sized prior in my book.
But then, for some people, that's very little.
YMMV.
Secondary is that in order for me to really consider it "money" rather than an asset, I think the ability to spend it as such needs to improve. Until then it strikes me as little different than any other security that you need to sell to convert into negotiable currency. Though I don't know, maybe that's a distinction without (much of) a difference.
It was crazy to think this 5 years ago, now its less crazy, and tomorrow it will be normal. That my thesis and its also why billionaires are pouring in right now. If you asked me to hold a bitcoin vs a bond equivalent for long term the decision is easy for me especially knowing that global debt monetization is essentially a necessity at this point.
Over then next 5 years, highly unlikely.
If your investing horizon is 6 months, Bitcoin is certainly not for you.
This is the problem with the Bitcoin enthusiasts - they think they can predict the future price with near certainty. You don’t think that rosy picture of BTC is held by thousands of others and already baked into the share price? “Highly unlikely” only describes Bitcoin’s potential as a store of value.
If your investing horizon is any amount of time, Bitcoin is not for you. Bitcoin is not an investment, it’s a pure speculation. As another comment perfectly summed it up, lottery tickets are not an investment.
Right before they show you 20 pages of past performance graphs.
I wonder why they would exert themselves in such a fashion after the govt-mandated CYA disclaimer
Also: I think you've missed the point of the video.
Second comment here: Long cyclical runs can be timed. For instance golds decade long rip prior to the decline was due to etf introductions.
And no I dont think you do “got it”. You dont hold anything in existence forever. If youre not comfortable making shifts every few years (or whatever) and having to actually do some thinking from time to time then investing isnt for you.
So you only hold it when you’re trying to time the market? Got it.
That's a bold statement, given that within the last 3 years, Bitcoin dropped 80% from about the current price, only to recover in the last year.
You also completely ignore that Bitcoin might be overtaken by another competitor in this area. Altavista and Myspace didn't win either.
Think about it… it's highly unlikely that something else could achieve the network effects, mindshare, hashing power and all of the rest of bitcoin's attributes right now. In the early days, when bitcoin barely had any value at all, it would have been possible. But having gone from $0 to $350+ billion in market cap, it's too late.
Quoting Travis Kling (@Travis_Kling):
"Bitcoin is a non-sovereign, hard-capped supply, global, immutable, decentralized digital store of value. It’s an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally."
This explains why Bitcoin won't be overtaken.
The British pound sterling, the French franc, the Dutch guilder, they all were reserve currencies but they got overtaken.
Usually not because their inherent values changed but because the environment changed and another, more suitable currency emerged. That's exactly the narrative that people push about Bitcoin's advantages over the US dollar.
But because things happen a lot faster in crypto than they do in traditional finance, I wouldn't bet on "Bitcoin can't ever be overtaken".
Is it though? If you bought BTC at any given time during 2009-2015, you are in the green 5 years after. Pretty good evidence of unlikeliness to me.
Also, the parent took 5 year period (and not 3) on purpose -- it's exactly 1 year longer than the halving period.
Interest rates are close to zero; including inflation, if Saylor kept the company's treasury in cash (and cash equivalents), he's be losing money.
1. Not when corporations and billionaires are investing in it and are planning to hold it for a long time.
2. The dollar has lost 80% of its value in the last 80-90 years. And with no end in sight of the Fed printing trillions of dollars, the dollar is being debased as we speak.
3. The dollar may not be the global reserve currency for much longer; the US is only about 20% of global GDP [1].
[1] "The Fraying of the US Global Currency Reserve System"—https://www.lynalden.com/fraying-petrodollar-system/
And regarding Saylor, you say that holding it in cash is literally losing money - if Bitcoin drops 80% again, he’ll be losing a LOT more than the 1% he’d lose if he had cash.
That was before institutional money and billionaires took it seriously. That was also before a global pandemic that has required virtually all central banks to inject trillions of dollars into the global economy to keep it afloat, inflating fiat currencies.
Saylor knows exactly what he's doing—a speculative attack [1]—when someone uses a shitty currency to acquire a much better currency or asset.
And as predicted by bitcoiners 6½ years ago [2].
[1] https://en.wikipedia.org/wiki/Speculative_attack
[2] https://nakamotoinstitute.org/mempool/speculative-attack/
It is a sign of our times that one can borrow such amounts of debt and be reasonable sure to pay it back by purely investing them in so called "assets". It used to be the case that assets were things that generated tangible income but bitcoin is not such a thing but purely a handle to be bought and sold down the line to someone who is able to pay a higher price as in the meanwhile a lot of additional money has been injected in the system.
Does anyone with a good amount of knowledge in the field think there is an actual basis for assuming Bitcoin is worthy of someone calling $1M per coin? Last I heard bitcoin was not technically able to be used as a payment processor subsitutes. My impression then is the whole affair is a bit of a playing-chicken racket.
> Last I heard bitcoin was not technically able to be used as a payment processor subsitutes. My impression then is the whole affair is a bit of a playing-chicken racket.
The fundamental features of Bitcoin are its limited supply [1], programmability and not being controlled by any single entity, not allowing policy enforcement on-chain. While it is true that on-chain (layer 1) Bitcoin transactions provide very limited throughput, there are other approaches to provide scaling that are built on top of Bitcoin (layer 2) using said programmability.
To date there are two major approaches for trust-minimized L2 systems:
1. Payment channel networks (Lightning [2]) that basically use the blockchain only when joining or leaving the network or on conflicts/fraud attempts. In theory millions of transactions can happen on Lightning without ever needing an on-chain transaction. The main limitation is the onboarding capacity, which (with Bitcoin's current limits) is not sufficient to make Bitcoin a global retail currency. There are also some logistical issues with running a Lightning node that make still trustless, but semi-centralized apps preferable (e.g. Phoenix [3]). Don't get me wrong, Lightning is awesome and the best solution for retail Bitcoin adoption we have right now, but I think if Bitcoin is going be used in retail by everyone globally then that will require other solutions. Luckily that won't happen over night.
2. Federations are another way to scale Bitcoin. Fundamentally they are just a group of entities that jointly hold Bitcoin in a wallet such that transactions can only be made if a quorum is reached (using m-of-n "multisig" wallets) and enforce certain rules on those coins.
One example of such a Federation is Liquid [4], which is a federated sidechain by Blockstream (full disclosure, I contract for them [6]). One can transfer in and out bitcoins to and from this sidechain and transfer the bitcoin-backed sidechain tokens. Such federations allow for easier upgrades (only federation members have to agree), so Liquid is used to test ideas that can't be implemented in Bitcoin (yet?) such as Confidential Transactions which hides transaction amounts through homomorphic commitments.
But other federations that don't run their own blockchain are also imaginable (e.g. based on chaumian e-cash). The fundamental idea stays the same: they create a more efficient, cheaper way to transfer tokens verifyably and fully backed by real bitcoins that are redeemable at any time. The fact that multiple entities enforce the rules and hold the collateral jointly makes them relatively resistent to few of these going rogue. While this sounds a lot like early banking verifyable backing and permissionless, potentially anonymous founding of such federations makes it more robust against regulatory capture imo.
So I think there is a good chance that Bitcoin will at least capture some of the market share of gold, and potentially some of the failing nation state currencies (they always fail eventually because it's too tempting to print your way out of recessions until it doesn't work anymore [5]). You can do the math on where that would put the price.
[1] Some economists disagree that it's a feature for a currency on the basis that it's bad for the economy as a whole. I'd argue that at least on an individual basis a money with little/none and predictable inflation is preferable.
[2] https://en.wikipedia.org/wiki/Lightning_Network
[5] https://www.principles.com/the-changing-world-order/#chapter...
[6] If you are wondering if that's why I'm slightly critical of Lightning, it's not, it's just my personal opinion/observation (as is this whole post), Blockstream also develops a Lightning node implementation https://blockstream.com/lightning/
China might currently be the only country in a position to attack Bitcoin as a protocol (not from a legal angle) but I think it's not in their best interest to do so. They are a rising empire, eventually they will have far less problems with capital flight than others that are declining, so it might make sense for them to let it go on, potentially causing a speculative attack on USD [1]. China's dominance in mining is shrinking, so at some point that won't be a problem anymore imo.
If (which is a big if) a "speculative attack"-type scenario happens the hyperinflation and resulting turmoil will leave a shock and I hope [2] we could actually see new hard currencies emerge. Some of them might be BTC backed as it is a harder money even than gold (at the expense of being younger, not as lindy). If that happens in the form of federations as I mentioned or well-known centralized solutions: who knows? I'll work towards a future with many different, but freely interchangable, uncensorable, private and fully backed BTC-based "currencies". I still like gold in case we nuke ourselves into the stone age, but I try to be an optimist.
Even if Bitcoin doesn't become a predominant store of value (because it gets widely banned, unlikely at this point imo) I think it will at least establish itself as a means of breaking economic sanctions and fleeing failing states. While I don't mind the upside potential in price I'm primarily in it for the freedom, I think either way Bitcoin will increase personal sovereignty by giving people the option to opt out.
That being said, take my opinion with a grain of salt. I'm a libertarian working in that space and quite young. While I try to compensate by reading about history and economics (Dalio has been a great influence) my life experience is very limited. I just try to navigate the uncertainty of this world the best I can, preferably at my own terms.
[1] https://nakamotoinstitute.org/mempool/speculative-attack/
[2] I know that "hope" might sound cynical given the prerequisites, but given the direction we ("the west") are headed it seems inevitable. So the best I can hope for is a better state afterwards: given that too much debt and printing money got us into the dire situation we are in in the first place, my hope is to take this capability away from governments for the foreseeable future to hopefully enable a more sustainable, less leveraged growth.
Gold's market cap is about $10 trillion.
Bitcoin is like digital gold—scarce, hard money not tied to a government. It's better than gold in that it's easily divisible (1 satoshi is 1/100,000,000 of a bitcoin), easy to transport, etc.
Bitcoin is becoming a global store of value; its market cap is about $350 billion. All fiat currencies except the dollar and the pound sterling has gone to zero at one time or another.
The more fiat is inflated in an unstable world, the more it replaces gold as a safe haven, store of value.
Last I heard bitcoin was not technically able to be used as a payment processor subsitutes.
It can be used for paying for things but it makes more sense to use fiat for daily expenses and save bitcoin. Why would I spend something that will be worth a lot more 5 years from now, while the fiat currency in my pocket loses value every week?
Bitcoin is already becoming the standard for large, irreversible transactions, where it excels [1].
[1] A link showing a $165,000,000 bitcoin transaction that cost about a $1.20—https://twitter.com/coinbeastmedia/status/133612299565221888...
A single transaction is not evidence of bitcoin "becoming the standard."
There were 9,064,548 Bitcoin transactions in the last 30 days [1]. There are many relatively large transactions that take place everyday.
Bitcoin transaction are so far only becoming the standard for people who want to gamble.
Everything is predicated on it going up in value. If it always goes up why would anyone ever sell? And if everyone is just HODL, what use is bitcoin? It seems enough to strangle itself.
I'm curious about what you mean by a possible better store of value. To me, that sounds like saying we can go colder than 0 kelvin.
The only saviour is highly valued quantum proof forks of BTC, preserving the original txns
You just answered the quantum question yourself. We can upgrade the bitcoin protocol with quantum resistant cryptography. I very much doubt it would be a contentious fork. No need to bootstrap an entirely new value network.
If we collectively decide to switch to bitcoin as our store of value network, and retire gold and silver from that use case, then we free up all the gold stored in vaults collecting dust as a value store to do more useful work that it's uniquely capable of, like being used in electronics or dental work.
A lot of these use cases now aren't economically viable because the market value of gold is inflated due to being overloaded with the store of value use case.
Tell me mister gxon, are you a good representation of the HN crowd, or is it just Bitcoiners have piled on this article for some reason?
Maybe better store of value isn't the wrong choice of words, but better in terms of having the same store of value properties + more resistant to attack, better privacy, easier to secure, easier to use, scalable etc.
There are projects trying to be better than bitcoin on technical fronts, but it needs to be an order of magnitude better to offset the current moment and network effects at this point, unless a real attack on the bitcoin network threatens its security.
There will come a time when even the most hardcore hodler will have to sell to pay for something. Like buying a house…
edit: yeah, for everyone outthere, don't forget about tether please, remember that it exist, it gets printed by billions without any clear evidence of it being backed and its being used to increase bitcoin price.. So go make your research before you getting heavily invested in bitcoin
Anyways, I am still in bitcoin, but everyday im thinking more about getting out, it baffles me how with certain volume, the price goes down 10% in the course of 3 days and then with 1/8 of that very same volume it recovers the % lost plus additional %.
I am starting to enjoy betting money on markets, thus im visiting WSB every other day and picking up the trends there and betting them on robinhood, it hasnt gone bad at all for me, it's a steady income if you don't really depend on it or risk anything you can't lose, but I am not getting that feeling from bitcoin at all, everytime I check the coinbase APP when I wake up, my hands literally shake because of the fear that while I slept the price went down some insane %
Not sure why you think this, the first time I discovered the relationship and theories as to how Tether influences Bitcoin price was from previous HN discussion threads.
Because it's not an issue? The NY AG issued the subpoena roughly 3 years ago. If tether were fraudulently unbacked, it would not take that long for a restraining order to be issued. Hell, it would be malpractice to see missing funds on their balance sheet and not file in that time.
To believe otherwise is to say that Leticia James got the results of the subpoena, looked at the lack of funds, and decided to let them continue issuance rather than take expeditious action. You'd have to be deep into tinfoil-hat territory to believe she's in on the con.
> In fact, Tether’s reserves of cash and cash equivalents alone (without the line of credit) would cover approximately 74 percent of the outstanding amount of tether. This sort of “fractional” reserving arrangement is similar to how commercial banks work. No bank holds in liquid cash more than a small percentage of depositors’ money. The funds are invested.
https://iapps.courts.state.ny.us/nyscef/ViewDocument?docInde...
It may be that once they actually get to court with the NYAG they can prove this opinion to be true, however as far as I'm aware no independent auditor has confirmed the status of Tether's reserves.
If you've got information to show that they've complied with the subpoena, I'd be real interested to read it :)
NYAG can't, at the moment, do anything as the case has not yet reached court.
Most of the discussions in the case I've seen so far resolve around iFinex trying to insist the NYAG does not have jurisdiction over them, and so they don't have to provide any information about their finances. Whilst they don't appear to be winning that argument e.g. https://iapps.courts.state.ny.us/nyscef/ViewDocument?docInde...
they haven't (as far as I'm aware) actually produced the information about their finances so far.
> They haven't produced the information that would allow NYAG to establish the state of their balance sheet,
I don't know why you think this. It's the basis of the current lawsuit from the NYAG, who questions the nature of the loans that make up a portion of the balance sheet (on the asset side).
How can the NYAG penalize a company based in the British Virgin Islands, who is contesting that they have no jurisdiction over them?
Surely until the question of jurisdiction is settled (from subpoena or lawsuit) there can be no penalties?
The initial subpoena requested financial information. I inferred that the time elapsed since the subpoena to mean tether backing was demonstrated. You mentioned that tether is fighting discovery, implying that financial information has not been provided. The subpoena and discovery are two entirely different matters, and moreover the reason discovery is happening is because Tether Inc complied with the subpoena.
It is the reason that all but the tinfoil-hat people have stopped worrying about tether. Their business might go under, but it wasn't the silly printing fraud that people like Bitfinexed were claiming.
Do you have any evidence of iFinex having provided all the relevant financial information relating to their balance sheet to the NYAG (a court filing for example).
All the court filing's I've seen relate to their case state that they're still fighting having to provide their financial information.
Edit: you can read the latest court filing here https://iapps.courts.state.ny.us/nyscef/ViewDocument?docInde... . Now IANAL but that does not sound to me like the NYAG was given the information needed. And the information they did provide was enough to cause the NYAG to initiate the martin act hearing they're currently contesting.
Tether has been discussed many times and for all the doom prophecies of past five years, it’s been quite anticlimactic.
Audits and bookkeeping aside, the argument “omg have you seen tether printed X amount of BTC to pump the price” laughably misses the point, that it’s exactly what stablecoin are - when somebody wants to buy large amount of BTC through tether, they send real USD which get converted into “printed” USDT which then is traded for BTC on exchange, driving the price up. That’s like literally what one should expect of how this system should work, what’s the issue?
And lastly, if your hands are shaking checking the price - you shouldn’t be trading, you’re killing yourself.
Is just that while NA markets sleeps you see some candle of +600 USD at plain 4am with a volume of barely 80 coins on most used exchanges, its clear orderbook spoofing so when everyone wakes up, it's happy about the price again
Also, I really wonder, how its such big news that MicroStrategy buys 150millions of bitcoin, cause it's a "big amount", yet, tether it's printing the same 150million 3 or 4 times per week, woah, is there so much money coming into bitcoin, people putting 600millions weekly specially into tether so they can buy bitcoin? who are those people, if MicroStrategy hits the news for 150m purchases, why aren't those buying 600m hitting the news?
My last comment about hands shaking it's because the uncertainty it gives me, I can trade everything, I have no problems with it, problems come when I am able to see by myself all that there’s wrong with those exchanges, yet, I'm still part of it and I acknowledge those problems and I am aware of the risks however there’s people making justifications over it.
sorry, you have to provide a tad more solid evidence for claims like this. when sentiment changes, exactly 0 volume is required for that to reflect on the price. buyers/sellers at price X just go away and proceed trading at price Y.
> tether it's printing the same 150million 3 or 4 times per week
that's about $25-30 billion per year while entire tether's market cap after operating for 5 years is at $19 billion. obviously you're wrong and need to crunch the numbers some more.
I know a friend who got so excited and put a large, large amount in BTC. Bought quite a few. It crashed and he sold. Probably at the bottom — didn’t ask. Later when it rebounded and he bought 1 BTC. He could have saved a lot of money if he just bought 1 from the start. What stopped him? He never sincerely considered what his reaction would be if it crashed and then rebounded. Don’t be like this guy.
Reading WSB and using that to direct funds is not investing. It's pure gambling based on the odds of getting out of a pump and dump before it turns the corner. The parent is not an investor, and will with certainty lose all their money.
That's an emotional reaction.
Emotions have no place in a profficent investor or trader. They will fuck you up, it is just a matter of time.
They are also not a signal for anyone else to change, or any system to change, or any discussions to start or stop on certain news aggregators - they are a signal for you to learn to chill with your investment decisions, become more analytical and less emotional with it, or at the very least scale back the size of investments to a comfortable for you level.
Imagine feeling like the smartest person in class who missed out on getting rich from Internet money.
It just so happened that bitcoin dropped about 5% on the same day. Microstrategy is quickly turning into a defacto bitcoin ETF. Maybe the bitcoin price drop had something to do with the stock price drop.
Seeing this bitcoin buying set off some weird red flags. When I look into the company's G2 reviews[1], it just looks like a lot of buzzword bingo with limited specifics around what exactly the product is so highly rated for. Just curious since it looks like they have built a really great and profitable company. I was expecting much more concrete info on how they are outcompeting in this space.
[1] https://www.g2.com/products/microstrategy/reviews#reviews
It is Other People's Money. Definitely crooks
Also, sorry for employees working there.
This is me speaking as someone who read the white paper on Bitcoin in 2010, and then mined on my GPU for all of 2011-2012 to help build out the network. I have since moved on, as have other practitioners.
The only people that remain on Bitcoin are retail speculators, governments with seized assets, and financial institutions. It’s not a healthy makeup, and extraordinarily toxic to the greater crypto community as a whole in my honest opinion.
I suppose you also expect us to believe that you're in line for the British crown?
If it were true, you could easily prove it.
This is exactly what I’m talking about. The original spirit/purpose of Bitcoin has been completely taken over by financial engineering and speculation. And it’s such a shame.
But you started talking about the price and bubbles, how does that further your goal of sharing this sentiment? You wrote about the price yourself? Or are you referring to the bubble of mindshare? "Bubble" usually refers to price, I might have misunderstood you?
If I’m going to invest it will be in a real company with real assets and real vision, not a hyped up crypto scheme that takes as much power to maintain as Switzerland.
https://www.bbc.com/news/technology-48853230
What I’m saying is, if you’re going to make an insane, risky move with your money, dump it in Tesla, at least there’s a real product there _and_ it’s outperforming Bitcoin.
Bitcoiners have understood this part of the game theory for a while (see: https://nakamotoinstitute.org/mempool/speculative-attack/).
Have fun staying poor.