As an investor, why is crypto so hard to value?

not op, but if bitcoin existed 1000 years ago, it would probably have replaced gold as a generic currency.

And while one might argue that the reason that gold is valued today is because of historic reasons, that it has been accepted as something of value almost everywhere for a very long time..

Now, if this wasn't the case, and someone would have proposed today that we should make this metal a currency just because it is limited in supply and very easy to recognize, I would probably feel the same way about gold as I do about bitcoin.

A land deed gives you the right to have people with guns enforce your will on others who would use that land; and limits the amount that those same people with guns would interfere with your abilith to use that land.

Further, in practice, most owned land is near immidietly turned into something that provides direct value. Be it shelter, or widgets.

so, almost correct, but at the same time the exact opposite?

If land has no intrinsic value, what does?

I feel like this time of analogy is the exact type of magical thinking the parent post identified.

> is explaining then how crypto is different from gold besides "some people value gold also because of intrinsic value".

You say this as if having intrinsic value isn't enough?

Very similar arguments can be made about gold. And have been! And the fact they have been wrong until now is not necessarily a good predictor of the future.

In any case, there is one key thing which differentiates gold from crypto - there's only one kind of gold, and there's only a very small number of metals with similar properties to gold - perhaps 8 in total, all of which have been valuable since mankind figured out how to extract and work them, and none of which are exact substitutes for gold. Gold and gold-like metals are scarce!

Crypto is not scarce. Any one coin can be, but even if we, as a society, decided that, say, shiba inu themed crypto coins are our core store of value, there are multiple shiba inu themed coins already extant, and it is trivial to make infinite more. Even if we pick a single coin like Bitcoin (and why would we?), there are currently something like 45 currently active forks, all claiming to be the one true best Bitcoin.

Gold is valuable because it is unique and differentiable. (That is, if you want something like gold, you need to buy some gold, because nothing else is quite like it.) Litecoin is valuable because...?

Agreed. Crypto is risky and volatile, and can go to zero and that makes it difficult for the average person to treat it as a savings vehicle. The distinction in predictability between the two system is kind of subtle:

In bitcoin, the internal system mechanics are highly predictable. But there's no external "Open Market Committee" (e.g FOMC) that will change the market price to hit the targets mandated by its stakeholders.

In dollars, the internal system is becoming more unpredictable, while there are numerous external systems (e.g. bailouts, QEx, etc) which are very predictable: they will act to make sure the economic tradeoffs shield the voters of the system from experiencing pain to the next election cycle.

Neither seems ideal in its present form.

This is a good point - that we trade political risk for technical risk, e.g. will sha256 be broken, will quantum computing break ECC, or will a well funded actor launch a 51% attack or empty block attack on the network. These are the big known-unknowns.

In these cases, ideally a hard fork would be able to maneuver the network out of the way of the technical vulnerability in time.

Less ideally, there's just the fact that crypto protocols are now so diversified in terms of hashing algos, PoW algos, and alternative consensus mechanisms (e.g PoS, zk's, etc), active chains, and governance models, that successfully knocking out the majority of them, nevermind all of them, would be almost impossible. But this is obviously less than ideal in that now you have an even more complex situation: where you are constantly hedging your savings in multiple tokens, and how do you value one versus the other? Simply in its blue-horizon cryptographic development threat model? popularity? ease of use?

>the crypto ecosystem is unable to use force.

I'd argue the crypto ecosystem has been building "soft power" with web3. To the extant one would argue "it's a scam" is directly proportional to the success of its "propaganda" agencies.

We don't need to. It's heavily regulated.

There are this things called "Exchanges" in every airport in the world.

With the US dollar, Euro and some others, the world is your casino (following the comparison) and you can trade all of them. Same with gold and silver (although this are a bit harder to trade).

Hell, try to pay a taxi in Djibouti, Sao Paolo or Islamabad with a BTC or USD and see which they'll accept and which will get you kicked out.

That’s not what intrinsic means.

The simple answer is that if a stock is expected to never pay any dividends, it's intrinsic value is zero.

Note that from shareholders' perspective, paying dividends is economically equivalent to share buyback, plus some tax considerations, so there are exceptions.

You don’t value the cash-flows associated with the share. A share is not an abstract financial product. It is direct ownership of a company.

You value the company and then you can divide the price by the total number of shares if you want. Apart from some rare exceptions like Amazon in its first years, a company which doesn’t generate any cash-flows is soon to be an ex-company.

Dividends muddy the water a bit but you get the general idea.

Of course.

This is the funny thing about Bitcoin. Once you've researched it sufficiently you are compelled to buy some because you understand the fundamentals of its value proposition.

But then critics will point out that you own Bitcoin so you're now clearly biased because you have skin in the game.

I guess you could call it the Bitcoin paradox, or the Catch-22 of Bitcoin?

Once you understand it you buy it, but now no one will listen to you about it because you're "compromised".

There's nothing I can do about that other than to suggest you look into it further if you're curious.

The problem is at ethereum is a science project. I have no guarantees that the thing will even work next year. Proof of Stake is a mistake. Who knows if it will ever be able to change. The chain is too expensive to use. EVM alternatives exist and will eventually out perform it for number tx’s. You can clone ethereum (EVM).

Bitcoin is mature, stable, has a known economic model and will absolutely work perfectly in a year, and beyond. It is cheap to send funds. It cannot be cloned and will be the best, proof of work, forever.

Did you know that 70% of eth was made out of nothing? Back in the day we would call it a Premined scam.

Taproot changes this. Smart contracts are going to be a lot more feasible now.

You don't understand Bitcoin, or Ethereum for that matter.

Ethereum is a product produced by a company. They have an enormous about of control over it. They've changed the token issuance multiple times over its lifetime. Vitalik being a figurehead is also a problem. There's a lot of risk of what happens to the project when Vitalik leaves or dies.

Bitcoin suffers from none of those problems. The issuance has been fixed for 13 years. Any attempts to change important parameters of the consensus rules have failed. The figurehead of the project left years ago when Bitcoin was still small and hasn't been heard from since.

Ethereum and all other alts are products sold by companies.

Bitcoin is simply an open protocol, owned by no one, and yet accessible to anyone. There is no CEO, marketing department, legal team or anything like that. It's just open-source software that people choose to run.

It's similar to email, but instead of sending messages, you can send absolutely scarce "tokens".

It's a subtle difference, but it is vitally important.

> Bitcoin is the most boring coin

Good. Would you really want a new form of money to be "dynamic" and constantly changing? Bitcoin being predictable is a feature. Certainty of issuance so you can't be arbitrarily diluted at the whims of a select few.

> its only valued so much based on speculation and brand recognition

There's a lot more value to Bitcoin than that.

* It's significantly decentralised so it can't be shut down in any practical way

* It can't be easily confisicated if secured correctly. This is important for people living in authoritarian regimes where bank accounts can be easily shut down

* It's permissionless. Anyone can use it, and no one can stop someone from using it

* It's accessible. You just need an internet connection to use the Bitcoin network. Think about what this means for countries with a large portion of unbanked people or currencies that are unstable... yet they have internet and mobile phones

* The Bitcoin network is an always available consumer of energy. This is a game changer for the energy sector because they can recoup lost revenue from excess power

* It's also a non-competitive consumer of stranded energy i.e. energy that can't be transmitted to where people are

You mention brand recognition almost as a bad thing, but network effects are important and powerful... particularly for open networks like Bitcoin.

I got a bit carried away there. My point is that some percentage of people’s valuation of crypto, and similarly, Tesla, and some other green tech plays, is based on the assumption that the entire global economy will transition to their way of doing things. Most crypto enthusiasts hope for (or at least would welcome) the death of the fiat system. Tesla’s valuation eclipsing 10 other carmakers (or whatever it is) basically says “I assume Tesla will be making ~half of all cars globally in the near future”. Alt meat is similar - all of these valuations are based on an assumption of market penetration (and cost reduction!) that would require a massive realignment of supporting infrastructure.

So I figured with all the stocks they are handing out to employees, they would have have a net increase in outstanding shares. And this used to be the case. But in 2018 the number of shares peaked and now they are indeed decreasing.

Yes, actively harmful

Things can have high utility without any actual value. Toothpicks, eating utensils, screwdrivers, etc.

The problem comes when people mistake one for another.

IOW, buying a bunch of screwdrivers isn't a great retirement strategy.

Is this really something that people in the USA spend their days worrying about? Serious question, as it is not part of the law over here in the part of the world where I live. Also, with every crypto transaction recorded on the public ledger and the vast majority of wallets held in exchanges, why wouldn't the police just acquire the crypto too?

There's a difference between utility and value. Plastic forks, knives, and spoons have high utility (in that they help us to eat). They have very little value, and can be purchased at any dollar store.

So the blockchain doesn't have intrinsic value because the crypto currency doesn't have intrinsic value.

Utility, for many use cases, it does have.

Pretty sure the parent was being sarcastic (and provocative).

In real terms it’s worth whatever the next buyer is willing to pay. It annoys me that people cite the run-up over the last decade as evidence of it’s brilliance when it’s nothing of the sort, but I’d just sound like a loon screaming into the wind.

Personally I think it’s worthless. Honestly I suspect Satoshi Nakamoto (if they’re still alive) probably thinks the same; One of the later posts Satoshi made before disappearing was making the point that if it accrued any value at all then it would be useable to transact and therefore viable.

The problem is that if that’s true of Bitcoin, it’s also true of all tokens, meaning the scarcity argument is entirely imaginary - if one token is perceived as too expensive then the perception of value will shift to another that’s viewed as ”cheaper” (and thus more likely to “mooon!”), meaning the supply of tokens taken as a whole is actually infinite and arbitrary, rather than scarce, and the value of the cryptocurrency market as a whole is therefore infinitely and arbitrarily small per unit (i.e. worthless).

But what do I know? I’m just some loon screaming into the wind.

The "Networks behind them" are also worthless, if you mean blockchain.

Consider the oracle problem, the fact that running Hello World requires mining a block, that software contains errors and cannot be patched on the blockchain, the curious absence of real world applications of blockchain after all those years, and the inevitable precedence of the Law in the real world that makes any "the code is the law" ideas moot...

A complicated, hard to understand scheme like blockchain is just the right thing to keep the crypto hype going and to attract more of that money that is looking for investment opportunities in this world of overvalued assets and low-interest rates.

Crypto has “crashed” 50% and more multiple times and has survived so far.

If the value goes down the network decreases difficulty of mining so it is cheaper to mine (remember these things started being worth nothing). This also decreases economic security though, we should find some combination of what security is adequate and that will be represented in the tokens.

Let’s not end up in that sad authoritarian cbdc future, instead we can build and adopt global foss systems like the ones we’ve been building the past decade. Or we could ignore it all, call it a scam, and let it be captured by VCs and governments.

> I can see a (sad) future where we will be left with central bank digital currencies only (CBDC).

And you can take a guess of which cryptocurrencies are going to be the ones powering these CBDCs?

Stellar [0], and XRP [1].

The other useless cryptocurrencies with no other use cases such as the memecoins, meme tokens, etc will wither away.

[0] https://resources.stellar.org/stellar-for-cbdcs

[1] https://ripple.com/insights/ripple-joins-the-digital-pound-f...

Everything that doesn't serve a human basic need, of which there are many. Food is not worthless in itself, nor is shelter, security, human contact, etc.

Extreme subjectivism never fed nobody nor kept them worm. It only made them think they are smart.

This is a horrible misreading of Kantian TI. The idea of "value" is what's worthless in itself, not objects or entities. Yes, everything is worthless in itself, but that says more about "worth" than it does about "everything", and it isn't mutually exclusive with there being things in the world that are required for human life. Value at the bottom end takes its shape from these things, and in the top end, like complex financial derivatives, is far removed from human necessities.

You're missing that we can get really close to things-in-themselves. It's like you got an erection as soon as you read that we were fundamentally separate from things-in-themselves, and just ran with it.

If one assumes the content is sarcastic, it’s trying to point out that hey all these incredible big and successful entities support it so it can’t be worthless.

Problem is that if you’ve been alive awhile you’ve seen situations over and over and over again where things that important institutions valued very highly did in fact turn out to be worthless.

> there's nothing inherent in money that makes it that way

Yes there is. Typically money is legal tender, which means you’re mandated to accept it by a government with large numbers of guns and prison cells.

That’s what for all debts public and private means.

Sure there is fundamental value of an asset. It is at least the present value of the expected income stream generated for the asset over its lifetime. Cryptocurrencies do not have an income stream so they can not have a fundamental value.

If you had a profitable mine, would you sell shares in it?

Mining is an area with a very high riskware ratio. 100 years ago, mines were found by surface prospecting. You mind some ore, be it gold, silver, copper, zinc. and you dig a hole and manually remove the ore. You have seen the old movies with the quintessential bearded prospector. Back in those days a lot of land was state/federal/crown land. You could get a prospectors licence and stake land. This consists of placing a number of wooden stakes in a more or less North-South grid, with you name date and licence number - which was then filed with the relevant government. That gave you the right to exclude others and explore the claims for minerals for 2 years, after which it could be renewed for an additional fee and you also had to file a geologists report on the work you did of a certain minimum value. You could keep doing this and if you had a potential mine, you could ask for a mining lease, and if granted take bulk samples or did a mine - usually by rock blasting in hard rock, but could also be with a grader if you mined aluminum bauxite. about 1 in a 100 surface prospects end up in a mine. Mines can be immensely profitable. A case in point. Foran Mining was 12 cents 2 years ago. (https://foranmining.com/)Since then their copper/zinc/gold mine has drilled and proven 40 million tonnes of ore, and it looks as if it will end up between 60 and 80 million tons. This mine will last for 50-60 years and then it will be a worthless hole in the ground. Once in production in 3 years it will head for $40-50 per share from the current $2.50 So 100 holes = 1 mine. That can be 99 crooks and one good prospector, or even 100 good honest prospectors, of which one was lucky and 99 not so much.

The truth is mines are very profitable, and the trick is to find one. Modern mine discovery is driven by geophysics, since most of the rich surface showings have been found in hard rock areas. Over the next 2-3 years Foran will start producing Copper, Zinc and gold for the next ~~ 60 years and will reward investors well and will pay a cash dividend for ~~60 years...

There is, of course, no simple guide you can follow to learn all about it, that's kind of the point of scams. You have to keep your ear to the ground and follow what's going on.

But, https://archive.md/DfAwG is a pretty good hint among many. And certainly look at what's going on with Tether.

> there's no downstream product to provide that value.

Not true. Ethereum and Solana, for example, provide shared-data and shared-compute services. Eth and Sol are used to pay for these services (and are the only means to pay for these services).

You may not value these services, but there are plenty of people who do, to the tune of anywhere from $10 to even hundreds of dollars per transaction, in the case of Ethereum.

Between vesting grants of tokens at discounted prices, salaries in tokens, and yield farming earnings, the quantity of your tokens increase over time and the any rally in prices amplifies your earnings by orders of magnitude. Linear is O(n) so better than linear is closer to O(nlogn) and less than exponential O(n^2).

Vesting in the crypto space quite frequently is measured in months instead of years. Just industry standard because the lifecycle is so much faster, so it would be hard/impossible to attract talent with longer vesting periods. 3-6 months being common, 9-12 months being tolerable and standard, 18-36 months being the longest I've ever seen.

This is just in comparison to the crypto speculators, who have to put up capital and hope to sell at higher prices. Linear risk model for them.

Not sure what a source would look like. It would require someone doing an analysis of many projects. Just can't think of a person that would care enough to do such an analysis, yet. Maybe a recruiter? There's always the option to just lead with the assumption that this post is grounded in an existing reality, a lot of people earn in crypto and that would inherently have a different risk profile than investing their own money. Significant overlapping similarities to buying a company's shares versus earning a company's stock's.

I mean, cheap and instant still exist on different chains. For BTC and ETH they’re less so, a victim of their don success really.

And the anonymous part, that being less the case nowadays isn’t because of a flaw or oversight on cryptos part. It’s state action

> with the expectation of getting a positive return

With the expectation of increasing the counter.

Exactly my point.