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Comment by tadzik_ | Hacker News Reader

> If $SPY dropped 40% we'd all call it a crash. This isn't that different

If $SPY was 40% up since last month, would that be normal? ETH is still currently higher than its value from April 19th.

Cryptocurrency market is extremely volatile. This isn't that far from normal.

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SPY is up 50% since 2019 (pre covid crash). As someone partially invested in index ETFs, this worries me. Index funds aren't supposed to be nitro, they are supposed to be slow and plodding, and 10% annual is supposed to be huge. I think major indices should be nice, slow, inertial gains from ~6-7% annual, tops. Why? When at any point as an engineer or a scientist have you observed large exponential growth to be sustainable in any context???

EDIT: Ooops It is ~50% (258 in Jan 2019 * 1.50 = 380)

>SPY is up 100% since 2019 (pre covid crash).

Wait, what? I don't see SPY below 250 for all of 2019. A 100% gain would be 500, but it's 406 now. (Its 2020 nadir was ~228, but it's still not up 100% from that.)

https://www.google.com/finance/quote/SPY:NYSEARCA?window=5Y

Ah sh^t, you are right: I was looking at $258 and said 258 * 1.5 = ~400, and that is ~50%... but not 100%. Edited! Thanks!

There are nitro versions of all the index funds but you usually have to buy them separately, and they come with their own fat stack of disclosures haha.

For SPY see UPRO, for QQQ see TQQQ.

10% annual is not huge at all, it would actually be on the lower end of a year that had positive gains. 10% average is what you should expect for the SP500 - and that tends to be driven by lumps, years with returns >20%.

50% is high from a historical perspective but there are plausible explanations for why it's not absurd.

I remember 7% being the historic average that all the classic investing books said. I think it's after adjusting for inflation and dividends. How are you calculating 10%?

7% is adjusted for inflation. 10% is the nominal average. An up year is commonly 10-15% with down years being more severe but less frequent.

By my understanding, 7% is average for any given year. Average for a year with positive gains would have to be quite a bit more to balance out even the occasional negative year.

> When at any point as an engineer or a scientist have you observed large exponential growth to be sustainable in any context???

what on _earth_ do you think 6-7% a year is? that's exponential growth.

> SPY is up 50% since 2019 (pre covid crash). [...] Index funds aren't supposed to be nitro, they are supposed to be slow and plodding, and 10% annual is supposed to be huge. I think major indices should be nice, slow, inertial gains from ~6-7% annual, tops.

you've confused long-term averages with short term behavior.

the market gets its 6-10% annual by going up a lot when it does, to make up for the years where it goes down, or just moves sideways.

> > When at any point as an engineer or a scientist have you observed large exponential growth to be sustainable in any context???

> what on _earth_ do you think 6-7% a year is? that's exponential growth.

It's not "large" exponential growth, it's inline with the revenue growth of many large companies, so it's sustainable for quite some time.

Human population growths, mosquito populations growths. Sustainable for a certain amount of time. You need to time bound your question. Nothing is sustainability on an endless time scales - the stars burn out and collapse on themselves.

The universe is pretty big. It also has 3 useful dimensions. Earth has basically only two and one very narrow one.

I think we can keep going for quite some time.

These last two comments and replies really have a strong The Last Question vibe.

https://templatetraining.princeton.edu/sites/training/files/...

Really great short story

Considering how much the money supply was increased, and the pending inflationary effects, the 50% up creates a "looks good on paper" sentiment the Fed is eyeing for to keep the economy moving: people spending money, taking on debt, etc. But the real increase (adjusted for inflation) will be less impressive. The on-paper increases pop sentiments, though, which is exactly what's needed in a potential economic crisis spawned by a pandemic.

The stock market doesn't behave in an average way on a yearly basis. Some years it goes up 40-50% and some years it goes down 40-50%. http://amarginofsafety.com/2015/01/19/the-market-return-hist...

> Cryptocurrency market is extremely volatile. This isn't that far from normal.

If that's true then cryptocurrency is pretty much worthless to use as currency. A desired property of currency is to not have wild fluctuations in value on a weekly or monthly bases.

Exactly. Its not so much a currency as a tulip bulb, or a ponzi scheme, or something new that has the worst features of all those.

The tulip bulb mania story is an incredibly persistent but inaccurate myth.

The “debunking” of Tulip Mania has, itself, been thoroughly debunked:

https://fee.org/articles/tulip-mania-not-a-myth/

Plenty of financial records still exist from back then. Tulip bulb mania actually happened.

That article doesn't debunk anything lol Goldgar's points are still just as valid.

As a Dutch person I can attest tulips have an actual purpose. And worth- the flower business is worth billions every year.

>tulips have an actual purpose

As a 1/4 Dutch person I can attest tulips hang around for decades doing nothing while being completely ignored.

I don't think of it as currency but as an asset, like gold. I refer to it as digital gold. Assets are not ideal for currency because overall they inflate in value (deflation), which discourages spend. Currency is designed to deflate in value (inflation), albeit at a controlled rate, to encourage spend. That's why you don't want to keep an excess of money in the bank - you want to move that money which deflates in value to assets which inflate in value - you want to buy gold, stocks, real estate, digital gold (cryptocurrency) and stuff like that.

The confusion of treating an asset such as bitcoin as currency is it's fluidity - which is just a measure of how easy it is to convert currency into an asset and an asset into currency. Stocks, for example, have an extremely high fluidity, which also contributes somewhat to their variability. Real estate on the other hand has a very low fluidity (historically speaking anyway, today's market notwithstanding). No one thinks of purchasing goods and services with stocks, nor should you think of purchasing goods and services with bitcoin.

Viewed in that light bitcoin is actually something that's quite familiar: gold. It's digital gold. Now is it good to invest in such an asset? That's another question we can tackle on another day!

Currency is a broad term, like service. Like many broad terms, it is often misused and that leads to the broader meaning. Currency can be used for different things. In one meaning, currency is a tradable and stable store of value. This used to mean it was backed by some recognized valuable commodity, such as gold, but that is no longer the case. In another meaning, currency is a thing that is traded and has an expectation of growing value over time. The more proper term for that is an investment property. Bitcoin is not (yet) the first type of currency, it is the second type.

It's an investment. Detractors cite electricity usage, but overall it uses much less electricity than the traditional banking system. Also, the value of the second type of currency is only the value that people believe it has in their transactions, which is no different than the US Dollar. Since we went off the gold standard, the US dollar only has the value we believe it has. Part of that belief is that the US Dollar is rightly a bit more stable because it is artificially manipulated by the FED to control inflation.

>In another meaning, currency is a thing that is traded and has an expectation of growing value over time.

What? A painting is currency? A house is currency? No.

If used as such, yes they are. In other cultures things such as beads, neck rings, shells have all been used as currency. In modern times diamonds are used as currency, and in some illicit circles so are paintings or other artwork.

No, not really.

Paintings aren’t used as currency, they are used as assets or stores of value.

Similarly, diamonds are pretty rarely used to actually transact and are rather just asset stores. It goes cash->diamond->cash; not cash->diamond->something else.

Anything can be traded or bartered that doesn’t make it currency. Some cultures used beads and shells and stuff but don’t any more. That doesn’t make beads currency.

> Detractors cite electricity usage, but overall it uses much less electricity than the traditional banking system

The traditional banking handles thousands of transfer per seconds, and many many many more assets and assets types than bitcoin. All things that bitcoin is not able - nor designed to - handle.

It's like saying that F1 engine are consuming less gas than trucks. It's only valid if you only look at it from a very specific angle. Sure, in total trucks are consuming more than F1, but both in consumption per km and in versatility, trucks win. F1 engines are not ready - nor designed to - be a suitable replacement for trucks engines.

Bitcoin and cryptos consume order of magnitude more electricity than the traditional banking system if you put them in equal terms. It's only logical since one is supposed to work in zero-trust environments while the other doesn't.

>Currency is a broad term, like service. Like many broad terms, it is often misused and that leads to the broader meaning. Currency can be used for different things.

No? A currency is a medium of exchange for goods and services.

The secondary meaning that you're attempting to allocate to "currency" is already amply described by the word "asset".

The two are not the same, and assets are not meaningfully regarded as proto-currencies in the way you suggest.

Crypto has a few stable coins

> cryptocurrency is pretty much worthless to use as currency.

I agree. I used to think that this would decrease its value, but that hasn’t happened.

There are crypto pegged to specific currencies, like USD, but the transaction fees are so high that it’s still not useful to use as currency unless I have lots of really high transaction values.

I don’t have crypto holdings but, for example, since Tether is traded on ethereum there’s a $21[0] fee for any transaction.

This may be worse than the fluctuation problem since a $21 fee on any purchases wouldn’t work for me. Comparing the fees on using a check or cash, this sucks.

I suppose this gets competitive with visa/MC, if I assume a 3% fee, around $700.

[0] https://ycharts.com/indicators/ethereum_average_transaction_...

> Cryptocurrency market is extremely volatile. This isn't that far from normal.

I think you inadvertently confirm OPs point. Cryptocurrencies with their volatility cannot replace regular currencies.

650B is a small market cap for a global currency.

Gold is 12T. Once Bitcoin gets to 10T, volatility should drop.

Cryptocurrency is a misnomer. Most cryptos aren't trying to be currencies in the traditional sense. For example, RAI is a stablecoin on Ethereum that's not pegged to any fiat currencies. You can think of RAI as a stable form of ETH.

What does that even mean?

It means that ETH which is a decentralized cryptocurrency can be used as a collateral for an algorithmic stablecoin called RAI that adjusts its price based on the price of ETH from a Uniswap price feed and a PID controller and arbitrage. To mint RAI you need to deposit ETH. The goal of RAI is to create a stablecoin which dampens the price movements of ETH over long periods of time.

The fact the community felt the need to invent a "stablecoin" isn't terribly reassuring

Why not? Its a new asset, what is wrong with improvement? I mean using that logic does it also disturb you that somebody invented the seat belt? Would you prefer they didnt invent seat belts? Would that have been more reassuring of the relative safety of the vehicle if they never admitted that you could die in a car crash? The point of stable coins is really only apparent if you're trading crypto just like the importance of seat belts might make more sense to somebody that drives daily.

On the contrary, decentralized stablecoins are some of the most exciting things in the space. The MakerDAO system, which issues the DAI stablecoin, is earning 2.5 million every year, distributed to token holders. It has survived multiple market crashes. Algorithmic stablecoins attempt the same thing w/o collateral, and seem to have done well in this drawdown as well.

Are you talking about the RAI that traded at $0.0186 a few days ago and that you can now sell for $0.00022 ? That's a "stablecoin"?

https://atomars.com/trading/RAIUSDT

No, that's not the RAI I'm talking about. This is https://www.coingecko.com/en/coins/rai

This makes no sense. 1 BTC still equals 1 BTC.

Currencies are used to purchase things. If the purchasing power of 1 BTC changes dramatically, it matters.

You're assuming I care how much something costs in dollars.

This makes me wonder how you pay for basic living expenses like rent/mortgage, food, clothes, etc

If you are a US citizen you will have to pay taxes in dollars.

Dollars are one of the easiest things to buy with Bitcoin, so how is that a problem?

I also need water to live my life, but that doesn't make me feel the need to price everything in gallons of water.

Fluctuating prices suck for paying taxes.

Buy bitcoin at $1 on Jan 1, sell at $10 on dec 31. I now owe taxes on $9 in gains, so I’ll need USD$3 on April 15. If on Jan 2, I buy more Bitcoin at $10 and it drops to $6 on April 15 that will suck because then I’ll need to sell half my Bitcoin to pay taxes.

Do you care how many chickens or how many beers you can get with BTC?

Unless you're a Buddhist monk living on donated food, you have to.

Yeah, because websites won't adjust the price in crypto for goods and services if its price relative to dollars drops.

I'm long on crypto myself, but come on. This crash still affects the prices of goods and services, unless all you're buying is other crypto and nothing else. We are nowhere near the point where shops don't assume they have to check the bitcoin/usd cost every few minutes to adjust their pricing.

Thats the thing, they arent currencies, they are assets that can act like currencies when convenient.

> hey arent currencies, they are assets

The irony here of course is that the only way that Crypto currencies would meet any standard definition of an asset would be if they were functioning currencies.

Going with Investopedia's straightforward definition "An asset is a resource with economic value", how is a non-currency crypto coin in any way a resource or possess economic value?

Presumably your complaint is that cryptocurrencies don't have "economic value", but what theory of value are you using to decide that?

Exchange theory of value says that a commodity has two values: a use value (what it can do for you outside of the market) and an exchange value (what others will give you for it in the market).

I think it'd be correct to say that cryptocurrency has no use value, but it obviously does have economic value. And it's far from the only asset with these characteristics.

Simple. Gold is an asset that is not used as currency but provides the holder with certain desired benefits and the asset can be liquidated if needed. Crypto is similar in that it prodives a financial vehicle that posesses certain properties. Im not saying they should all be thought of as digital gold but that lile gold, they provide value not only in thier price tag but in some inherent property that provides value to the user (this property varies wildly from crypto to crypto and is what makes each project distinct and unique.

Let's shift this one level up:

Simple. Bitcoin is an asset that is not used as currency but provides the holder with certain desired benefits and the asset can be liquidated if needed. Skepticoin is similar in that it provides a financial vehicle that possesses certain properties. I'm not saying it should be thought of as digital bitcoin but that it's like bitcoin, it provides value not only in its price tag but in some inherent property that provides value to the user.

If someone is willing to pay me interest to use my belongings to generate loans, then those belongings have a value. If you think that banking has value, then banks who use the blockchain ecosystem to provide banking services are generating value, correct? The question I would then ask, on the spectrum of risk, value generated, and trust, do these blockchain based financial institutions offer a complementary or competing product vs traditional banking. As of thus year, I would say yeah. I am close to converting a chunk of savings to stable coin abd putting it with a insurance backed blockchain financial institution, and am looking to ear a much higher apy than a traditional bank.

In terms of risk-adjusted returns, Bitcoin worse than index funds. You can get smoother returns using 3x ETFs like TQQQ and TECL compared to bitcoin and about the same absolute returns. Nasdaq 100 has much better sharpe ratio compared to bitcoin. Same for FAAMG portfolio

When I google "Bitcoin Sharpe ratio," every article that comes up shows its ratio to be quite high.

Here's a chart comparing various assets' Sharpe ratios over time, always for the previous four years. Bitcoin's is at top of the chart, staying over 2 and sometimes over 3: http://charts.woobull.com/bitcoin-risk-adjusted-return/

The lowest I've found is in this article, calculating over the past five years a Sharpe ratio of 1.6: https://www.forbes.com/sites/baldwin/2021/03/02/how-bitcoin-...

According to this, from 2007 to 2021 the Sharpe ratio of the Nasdaq 100 was 0.97: https://backtest.curvo.eu/portfolio/nasdaq-100--NoIgcghgzgJh...

And this gives a FAANG portfolio Sharpe ratio of 1.25: https://medium.datadriveninvestor.com/3-ways-to-evaluate-the...

In terms of absolute returns, TQQQ has done well but not so well as Bitcoin. Since 2016 TQQQ has done 12X, compared to Bitcoin's 85X. Since April 2013 (as far back as Coingecko goes) TQQQ has gone up 37X, compared to a Bitcoin's 272X.

As a bonus, Bitcoin has a long-term correlation with the S&P500 of only 0.01, according to the Forbes article linked above.

If you're holding as long as most people do index funds (i.e. 5-10+ years), historically you would have been way better off putting that money into bitcoin. Even taking this crash into account, I'm way up on crypto compared to my 401k. Not going to stop putting money into my 401k though, for the sake of diversification.

The bulk of btc gains were from 2010-2013. The cagr of BTC from early 2018 onwards is not that great.

Up 20x since 2018 is not that great?

Jan 1, 2018 BTC price was $13k. Price today is $41k.

Not 20x, that’s a little more than 3x.

leveraged etf arent an investiment veihicle

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