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Comment by vbtemp | Hacker News Reader

I target about 2.5% of my portfolio to be crypto. Another 2.5% gold and silver.

It's kind of amusing and baffling watching all these people speak with such certainty and conviction. If crypto currencies collapse, meh, oh well. If they spike another order of magnitude, nice, I'll just sell to keep my allocation on target. Like you, it just seems prudent to have limited downside (ie a crypto collapse won't ruin you.. at all) but also having some exposure to big positive swings, and never basing ones hopes and dreams on it. Anyway, here's to enjoying the show.

Edit: when you disclose something like this, and people get viciously defensive about it, it usually means you're on course (see comments below).

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There's an entire universe of things you can invest in. Picking crypto with no real thesis except one day the entire world may be transacting 7tx/sec isn't really a good one.

If you allocate 1% to every longshot you will be broke. Should I allocate 1% of my portfolio to Dentacoin in case dentists on the blockchain become the future of dental work?

Especially knowing that 80% of all trading volume is against Tether, which is 3% backed by money. 95% of all trading volume in the space is fictitious, according to an ETF that tried to list a few years ago.

Once again, lightning network is here and functional with growing adoption (1ml.com) and that's what they are using in El Salvador. LN can achieve almost instant and practically free Bitcoin payments.

Do they though? Because that's not really what I'm hearing.

Strike is, in the US, a custodial US dollar wallet. You give them dollars and they keep them as dollars. You send them to another person in the US and they just amend their internal ledger.

When you try and send them to El Salvador things go pear shaped. They:

(1) Buy Bitcoin with those dollars.

(2) Use a private LN network that they don't let anyone else onto because it made it totally un-workable according to their CEO.

(3) To send those Bitcoin between their own two accounts.

(4) And then buy Tether with them in El Salvador. You remember, the dollars that are actually 3% dollars.

Strike is somehow the absolute worst case for the people of El Salvador. Centralized, permissioned, censorable (it's not available in Hawaii or New York) and backed by Tether. Not a coin that's likely to have the money (USDC) but Tether, who admits they don't.

El Salvador by the way, is a dictatorship mandating their citizens use of Bitcoin.

Where's the win exactly?

[1] https://davidgerard.co.uk/blockchain/2021/06/11/el-salvador-...

You don’t have to use Strike, all lighting wallets are interoperable, and no need to exchange to Fiat since Bitcoin is legal tender.

Strike is the government sanctioned one, however, so saying options exist is a bit inconsequential. After all people on HN can barely keep abreast of why Tether is bad - I hardly expect the average Salvadoran. A government-endorsed Tether wallet is awful.

>(2) Use a private LN network that they don't let anyone else onto because it made it totally un-workable according to their CEO.

This is a strange statement to make. It still runs on the same LN network as everyone else, it's just that they won't peer with anyone. I wouldn't exactly call that a "private LN network" in the same way I wouldn't characterize verizon as operating a "private internet" because they don't have an open peering policy.

As for the bit about using tether, I wholeheartedly agree that something like USDC would be much more suited. The only explanation I can come up with is that USDC has orders of magnitude less volume than USDT. According to cryptowatch USDT has 24hr volume of 73.3B whereas USDC only has 0.60B.

Not sure why trading volume would matter, they can simply be an authorized participant of USDC. They after all are receiving real dollars.

[edit] Complete speculation, but if I had to guess, Tether's ability to create ersatz dollars is really important to the Salvadoran scheme. After all El Salvador cannot print currency, because it's a USD economy. I know someone who's got an unlimited wildcat money printer (and the reckless abandon to use it) - his name is Paolo.

If I were a criminal mastermind operating in plain sight with about $60B shortfall on my books due to counterfeiting, the best way I could think of to keep myself out of trouble would be to make a poor nation dependent on its continued existence. Literally too big to fail. Again, purely speculative.

Remember, frauds have to keep getting bigger out of necessity.

This is what I am hearing from the Bitcoin crowd

1. Bitcoin mining will eventually halvening away and all security will be funded by transaction fees.

2. Most transactions will move to the Lightning Network and be practically free.

As the LN will remove the need to pay fees with it combining so many transactions, the Bitcoin network will thus not be worth mining on, and will thus be able to be easily attacked. As the security of the network is diminished, it will quickly become worthless.

I don't see how this works long-term.

There will always be demand for on-chain transactions (for very large transfers, cold storage movements, batch opening/closing lightning channels, etc).

The 1MB limit makes it highly likely that there will always be a backlog of transactions even post reward world.

Understood. So even with the Lightning Network Bitcoin will not be able to keep up with the transactions and transacting in it will be extraordinarily expensive.

Currently block fees are 5% of the block reward. In 2024 when the next halvening occurs, either Bitcoin needs to double in price by then or the block fee will have to make up 45% of the gap, which is an increase in almost 10x, from $4.5/transaction to $40. If it fails to do this miners on the margin will stop mining and the security of the network will diminish.

Anyway, as I was saying, it's amusing and baffling observing how people react with such passion and certainty.

Which of those facts would you like a citation for?

You have an axe to grind, friend, and using hyperbole and warped quotations of what I said to take it out on someone whose net worth consists of 99%+ non-bitcoin, and 98% not crypto currency overall, is the wrong target.

By all means, continue grinding your axe if you really got to get it out, it's all very baffling and amusing.

I've no axe to grind with you or anyone else.

I disagree with your bolstering the thesis that you should invest 1% or more of your portfolio in any given long-shot simply because you won't go broke if it went down. That's bad investment advice. Longshots aren't bad, but they should be backed by thesis.

Certainly when there's evidence of rampant market manipulation in your target asset class. That there's plenty of evidence for.

Primarily however, I'm responding to your counter that it's surprising people react with certainty. I'm saying I have evidence to back the claims I make. That's where my certainty comes from. I was offering citations.

Instead of arguing that it makes sense to invest 1% in every investment, what if the argument is that it makes sense to invest 1% in every investment that has outperformed every other investment class over the past 12 years of its existence? Historic performance isn’t the only indicator to consider but it is notable. Given that you have been wrong about it’s performance so consistently would you consider checking your assumptions?

> ... outperformed every other investment class over the past 12 years of its existence?

Because past performance isn't indicative of future performance. The XLF has dramatically outperformed Bitcoin in the last few months hasn't it? Really puts a damper on the "long bitcoin short banks" narrative.

> Given that you have been wrong about it’s performance so consistently would you consider checking your assumptions?

Who says I've been wrong about its performance?

I'm saying it's driven by fraud and manipulation. Frauds go up until they don't. I'm not confident in catching the top before the music stops. I don't think I've ever said the price is guaranteed to go down on any particular time horizon.

I’ll concede that if you are certain Bitcoin or Tether is a fraud that will likely blow up at any time, then no you shouldn’t put any allocation into Bitcoin.

I obviously don’t agree with your assessment but I am intellectually curious enough to want to understand where this conviction comes from.

Edited: to add Tether fraud risk, as I misinterpreted OPs comment to be about Bitcoin when it was actually about Tether.

I don't think Bitcoin is a fraud, after all 1BTC=1BTC. However, its price in USD is largely fictitious. 95% of all Bitcoin trading volume is fake according to Bitwise. [1]

Trading BTC is almost exclusively conducted not against USD but against USDT, on the order of 80%. [2]

Tether is by their own admission (or I should say pie chart) 3% backed by USD. [3] That 65% "commercial paper" would make them the second largest global holder of commercial paper after JP Morgan, but nobody on Wall Street has heard of them. By their own terms of service, they never have to redeem a single one for USD, on any timeline - not for you, not for anyone else - and even if they chose to out of good will, they could redeem it for any "backing" they so choose. [4]

Tether is, by and large, a fraudulent enterprise. [5]

So, my conviction is based on the idea that if $60B worth of dollars (not market cap, dollars) and 80% of trading volume against BTC is these chuck-e-cheese tokens - and they were to suddenly disintegrate, that yes, the market price would utterly collapse.

There are no good players in this space. Even Coinbase, widely regarded as the "best" of the exchanges, had to settle with the CFTC because at one point they allowed 99% of the entire Litecoin trading pair (globally) to exist as wash trading between two bots at Coinbase HQ. [6] That's the best of the best.

tl;dr: The market is overwhelmingly manipulated, wash traded, spoofed, and trading is conducted in a currency that's backed by chewing gum and baling twine.

[1] https://cointelegraph.com/news/bitwise-calls-out-to-sec-95-o...

[2] https://coinlib.io/coin/BTC/Bitcoin

[3] https://davidgerard.co.uk/blockchain/2021/05/13/tether-publi...

[4] https://tether.to/legal/ section (3)

[5] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

[6] https://www.cftc.gov/PressRoom/PressReleases/8369-21

I see your point and have edited my previous comment to reflect that it is Tether fraud risk that was your concern, not Bitcoin per se.

I thank you for the links. I will look into them further.

btw, I think it's important to say I could be totally wrong on what - if any - impact this would have on the price in the future. I'm speculating; this is my thesis for not investing, but everyone has to of course make up their own minds.

> (...) what if the argument is that it makes sense to invest 1% in every investment that has outperformed every other investment class over the past 12 years of its existence?

Pray tell, how do you explain thaf fantastic performance of Bitcoin to those who bought in while it was at 54k and right now they look at the market and see btc at around 30k?

How does losing half the value fare against any conservative investment strategy?

We remind them that Bitcoin is volatile in the short term and then we ask them to zoom out.

We remind them how many times Bitcoin has been declared dead before. We remind them that that anyone who has held Bitcoin as a long term investment has made money.

Even today after the recent dip anyone who held for 12 months is up 300% y/y.

If in doubt zoom out.

It may be possible that Tether is a house of cards, it may not. But my question is, if you’re so sure, why aren’t you actively shorting Tether? It only costs a few percent a year, and you’ll net 97% when it eventually collapses to the 3% assets that you posit.

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