Our Thoughts on Bitcoin
bridgewater.com
bridgewater.com
He says that it isn't an effective medium of exchange or a good storehold of value. I wonder what has changed between then and now.
> For those reasons the “limited supply” argument isn’t as true as it might appear—e.g., if Blackberries were in limited supply they still wouldn’t be worth much because they were replaced by competitors that were more advanced.
I agree that Bitcoin is interesting as an alternative asset, but the narratives have outstripped the facts as it becomes just another speculative trading instrument on the non-blockchain exchanges.
However, I don't think GP's parallel lines up, as another commenter pointed out.
In any case, a single satoshi, which is the smallest denomination of Bitcoin (10^-8 of a Bitcoin), is worth about 0.05 cents as of writing this comment. If Bitcoin didn't have such large transaction costs, slow transactions, and price stability, it's scarcity would be way less of an issue due to this really large level of division of a single coin.
In ye olden days, when Bitcoin was a few cents worth, transaction costs were tiny. I really doubt Satoshi et al predicted Bitcoin to be so unstable, so as to make transaction costs pretty much out of reach for 99% of normal everyday transactions.
Blackberry actually did have a proprietary messaging system, it just wasn't anywhere near enough lockin because most people used Blackberry for other reasons, the non-proprietary messaging layers were actually better and Blackberry's popularity turned out to be nearly all down to being first in class.
In this case however, completely agree with you. BTC is a paid network (a very expensive one at that). It could remain self-sustaining for quite long.
Yes I am a Cardano shiller.
I've been using changenow.io and it always works. As always, don't send in really large transaction, but one by one, maybe like 3000 ADA each time (this is what I do).
bitcoin can almost double (2x) in value every 4 years without an increase of energy usage by miners (if you put a wide enough filter)
- I guess most understand that the reason is the supply halving finding place every 210.000 blocks (roughly 4 years), and nothing to do with technology/moore's law or anything else
- this will probably be true (more or less... lets say 1.8x -2x) for another 2 halvings
- then the rate [1] will decrease from about 2x to 1x while fees rapidly start to be the predominant source of revenue to miners, and less and less the newly minted coins)
[1]: rate of possible increase in value for the same amount of energy consumed
https://medium.com/coinmonks/blockchain-myth-5-proof-of-work...
https://www.truthcoin.info/blog/pow-cheapest/
https://medium.com/coinmonks/proof-of-work-vs-proof-of-stake...
That's a bit to read, but not a topic that one should just think he knows about (and these articles have quite a lot of overlap)
if there was some successful state-sponsored or populist uprising against bitcoin’s energy then the energy use will decrease and bitcoin will continue functioning as normal
it just incentivizes more efficient hardware or lower yield for miners
the network can decrease in difficulty or have steady difficulty forever
the value that the network can support is still several orders of magnitude higher, and there are at a lot of gigawatts of energy to tap into before it reaches said maximum
you are limiting one variable: power consumption, and people will have to work around that tighter than they already do
But that might provide a good excuse for the government to regulate Bitcoin in whatever way they choose.
Way to win over your audience.
It's "look, you don't understand Bitcoin but you've heard it's doing well. We understand it very well including potential upsides and downsides, but won't make any specific predictions. Trust our quality insights into markets we're actually focused on"
I think this is a starting point to try and solicit countervailing facts. Dalio's putting his reasoning out there because he wants to be proven wrong. Reading between the lines, he's probably doing this because his global macroeconomic thesis is that inflation is coming, his normal response to this would be to buy gold, and he's heard that this Bitcoin thing is the new "digital gold" that could replace physical gold ownership. If this new thesis is right, his impulse to buy gold is wrong, and the money that would've gone into it will go into Bitcoin instead. If it's all just hype, though, he should buy gold. So he puts out a public piece explaining the pros and cons of Bitcoin and then waits for the controversy, while his assistants read the online commentary and take notes of anything that might be relevant to evaluating the investment thesis.
I think they're looking for arguments. They want to get the folks who've been in Bitcoin for the last 5-6 years to come out and say "Here's where you're wrong. Bitcoin can do X, Y, and Z and here are the projects that demonstrate that. People are using it for A, B, and C in countries Alpha, Beta, and Gamma and that shows exactly why Bitcoin is going to take over the world." Then Bridgewater's going to research projects X, Y, and Z and countries Alpha, Beta, and Gamma, and determine if those arguments are actually relevant.
It's intelli-trolling, basically. They're crowdsourcing their research by writing a provocative piece, targeting it at people who might know better than them, widely disseminating it on the Internet, and then seeing who responds.
[0] https://www.bloomberg.com/opinion/articles/2019-02-01/bridge...
To me, this read like someone at a congressional hearing asking "Why are you against protecting children from predators?" to a witness opposing something on totally different grounds (ie. being needlessly confrontational from the get-go).
It's a zinger and a challenge to the person making the claims. Some people will be turned off by that and refuse to engage. In the particular domain that YCombinator and Bridgewater are working in - finding undervalued opportunities that everybody else is overlooking - this is a feature, not a bug. Anyone who's turned off by a simple offhand zinger or personal attack is not going to have the strength of their convictions when everybody is attacking them, which is usually what happens when you sincerely hold very unorthodox beliefs.
This actually isn't a bad selection filter for an investment firm, since the #1 reason traders fail is investing on emotion.
To me that sounds like the perfect way to create an echo chamber.
They’re filtering out people who are most susceptible to getting stuck in groupthink.
As pointed out in other subthreads, it's a marketing document targeted at people interested in Bitcoin, not a reflection of Bridgewater's internal culture. And having sucked in people who agree that "most people" seem to want to promote Bitcoin, the actual analysis is a lot more bearish than the Bitcoin-promoting stuff they're likely to have been reading anyway...
I had never heard of Bridgewater; I had no opinion about them either way. Was more than willing to read up on their "thoughts on Bitcoin". But immediately going down that hole with such a characterization will not encourage me to engage or evaluate their thoughts objectively. Had they used 'skeptics' I certainly would have kept reading (though I suspect there's probably half a dozen or more similar characterizations in the text).
You can call it an emotional response on my part if you want (I don't see it that way), but I'd counter their own characterization shows emotional aspects on their part as well.
I think he's missing the mark a bit about the limited supply argument, which I think is as strong as ever, even with so many competing cryptocurrencies. For one, Bitcoin isn't set in stone and can change over time, albeit very slowly. Additionally, network technology is generally built in layers, and the bottom layer doesn't have to be where all the innovative features live. Bitcoin can serve as layer 0 of the future financial system, and we can build fast payments (lightening network), smart contracts (RSK), and other financial services on top of it. The most important thing is to have a robust and secure bottom layer that can serve as a financial clearing house, and Bitcoin has performed flawlessly in that role for 10+ years now.
I also wrote the following recently about some of what makes Bitcoin unique, and gives it value even in an ever growing sea of cryptocurrencies.
Bitcoin has some unique properties that are hard (or even impossible) to recreate in a new cryptocurrency, which form a large part of its primary value proposition. This is why you can't simply fork Bitcoin or create a new crypto from scratch and beat it.
1) Immaculate Conception. The fact that no one ever knew who Satoshi was and that he disappeared (died??) is hugely important. Crypto is all about removing as much trust from the system as possible, and having a leader (or worse, a company) behind a crypto provides a point of potential failure/corruption. I'm also a big fan of Ethereum, but having a figurehead like Vitalik incurs a large risk that he has disproportionate power to drive things in directions that aren't to the benefit of the entire network. It's almost like Bitcoin was a gift from the gods.
2) Extremely hard to change. I hear it all the time, Bitcoin is too slow, has too few features, is too hard to change, etc. Resistance to change is a very good thing for a monetary system. This is a distributed system that's now trusted with over 1 Trillion USD. Do you really want such a system to be easy to add new features to? If I'm Papa Musk and I'm dumping 1.5 Billion into Bitcoin I want security and reliability to be top priorities, not features. Bitcoin has had consistent development over the years by top notch engineers, but the rate of change has always been extremely conservative in an effort to preserve what makes Bitcoin unique and valuable for the long term.
3) Large market cap. Large market cap IS a feature. Imagine you're Tesla and you want to store 1.5B in BTC, you can't do this if the market cap is too small, because there either wouldn't be enough value in the network, or you'd drive prices up wildly acquiring your stake. A high market cap allows individuals, corporations, and governments (next wave of demand I believe) to store very large amounts of wealth. As such, there's a tremendous advantage to being the frontrunner in the crypto game, because you have the largest market cap, and thus attract more investors, which further drives the market cap up. This is a feedback loop that strongly favors the coin with the highest market cap, the highest security, and the longest record of trust. I'm not saying it's impossible to break this cycle, but it's going to be extremely unlikely at this point.
4) A name that's synonymous with cryptocurrency and money. Bitcoin has an enormous branding advantage, in that when people hear it they instantly think crypto/money. Ethereum, eh not so much. I like its name (ETH) more than a lot of other cryptos (Polkadot, WTF!), but it's not even in the same league as the iconic name Bitcoin. A lot of people are simple minded, they don't want to invest in something with a name they can't trust. You always have to keep in mind that money is more a social/psychological phenomenon than a technological one. Yet people get lost debating the merits of various crypto features, and forget about all the social reasons BTC is number one and has set in place the positive feedback cycles that will most likely keep it as number one. People are highly irrational when it comes to trust, and having a reliable brand name that's proven over time is disproportionately valuable.
5) Most secure network in crypto. Bitcoin is by far the most secure, and a double spend attack would be ridiculously expensive at these prices. This is another positive feedback loop that favors the coin with the largest market cap. Higher market cap leads to more people mining, which increases security via increasing the cost to double spend, which increases demand and further increases market cap.
What Bitcoin gives you in this case is that you and I can be in two different broken countries with adversarial governments, but you can I can still transact from around the world without the blessing of our broken governments or their broken banks.
It would also be interesting to see a large market event that causes many people to move bitcoin at once. (What happens to transaction costs? Does this affect perception of bitcoin as a safe store of value?)
Scaling only the price of transactions is NOT going to work, but it has quite a bit of runway to figure this out.
Waiting for PragmaticPulp to join the conversation.....
Given that you're not the author and so not privy to their motives, I don't see your support for your assertion that personal profit is the only possible incentive to have written the article.
Another thing to note here is that these firms can shill any coin they like without any market manipulation accusations from the SEC, were they to do this for any other asset.
You are hearing what you want to hear and you are dead wrong.
It doesn't matter how many use cases or rationales people give, they are still going to be stuck on the negatives. You'd expect HN to understand that everything has tradeoffs, both pros and cons. Is Bitcoin perfect? No! It needs to improve costs and speed through L2, it needs to find ways to reduce energy consumption and use green energy as much as possible, we need to make sure that the money flowing in things like Tether is legitimate. There's still lots of work to be done and it's still just 12 years into it's existence, so you expect price volatility and lots of hype as people are learning and investing into it.
Bitcoin is successful if enough people agree to believe that it is valuable. And that's the period we're still in now: trying to determine if this thing is valuable and by how much (hence the price volatility).
1. Some hedge fund will find a way to short Bitcoins.
2. Someone will inject a lot of illegal sh*t into the Blockchain. People already post images, e.g. https://cryptograffiti.info/
3. Authorities have to intervene, the price goes down, the hedge fund gets rich.
4. Lots of whining from people who didn't understand how Bitcoin works. Shoulder shrugs from those "in the know" who converted to regular money shortly before the fall.
2. This has already occurred
3. This could happen still
4. Something about a tide going out and swimming naked