Then again, I also think most tech stocks are just stupid. Especially Tesla, but thankfully I'm not either betting against them. Let's see if I'm proven correct in long run.
If you think about it, many people make several million dollars over their life time but see it as to high of a risk to put 10k into something that could go to zero but it also could go to 100k or even more. That does not make much sense. The question should not be "should I risk the 10k? The question should be "am I in a financial position that allows me to lose 10k?" If the answer is "Yes" then consider doing it, you will not miss the 10k at the end of you life but you will remember what you did with the 100k if it happens.
I see where you're trying to go by framing a loss against lifetime earnings, but I think that could lead some investors to mislead themselves. Someone who is willing to bet 10K on black at the roulette table is almost certainly going to gamble more than once in their lives. The question should be, "am I in a financial position that allows me to lose 10k right now, and can I trust myself to walk away from the table if I do lose?"
I would never encourage anyone to just trow money any anything that could potentially somehow give you more back. Roulette, lottery etc. are all statistically against you and you have zero way to choose clever or otherwise affect the outcome in your favor. Buying something with speculative value is completely different and it certainly is a good idea to actually inform yourself first about what yo buy. If you subjectively think the chance of loosing everything is over 50% I would look for something else after all the goal is to not lose so it should not be a blind throw it should just be something with high risk AND high reward.
I know someone who intentionally bough some rare apple device for like 1.1k. Fully aware that it might be worthless soon or break and loose most of its value. But it had a realist chance to gain value and it did, he sold it for over 10k 5 years later. Thats about +800% a risk/reward ration that does make sense.
The example you provide of purchasing a fragile collectible is similar; almost all collectibles (be they fine art, beanie babies, or NFTs) lose value, so purchasing one is very much a bet.
You could walk into a betting shop and put 10k on all kinds of things that will most likely go to zero but have a finite probability of going to 100k or even more.
Q: How do you suggest determining the odds of success? Most of us can't invest in every 10k opportunity (and even if we did, we might not win out in the long run)
Can you define "obviously"?
Spoiler, but for financial investments, there are no [genuine] odds. That's kind of my point about the efficient markets hypothesis.
For example, Tesla was at $88.60 on January 3, 2020. It's at $728 now (and peaked[?] at $1222-ish in November 2021].
Presumably there were not very many people who, in January 2020, thought Tesla would increase in value, or it wouldn't have been at $88.60 for very long.
I don't think it's about risk, it's that if you hold stocks or crypto or many other kinds of investment, and your holding is worth $x right now, if you're a believer in the efficient markets hypothesis, you have no real idea whether it's going to go up or indeed down in the future.
I bought a house because it's a place for our family to live, not because I belive it's going to appreciate in value. If you buy ten houses, you need to have information - or sheer belief - that your investment is going to pay off.
But gold is also a commodity, and I don't think I've ever heard it called a pyramid scheme.
Source: https://grow.acorns.com/warren-buffett-why-gold-is-an-unprod...
The fair criticism, I suppose, is that the "compelling reasons" a person might pay for a pile of copper are much more numerous than for gold (or bitcoin).
But, OK: think of fine art for a moment... it is also an unproductive asset, the value of which depends wholly on what other people feel like paying, since there is no immediately profitable economic activity in which you can engage with a Monet (unlike the pile of copper). Are you therefore calling fine art a pyramid scheme? I think we are watering down the definition into meaninglessness.
Are there any for-profit museums focused on fine art?
https://en.wikipedia.org/wiki/Louvre#Management,_administrat...
> The Louvre is owned by the French government. Since the 1990s, its management and governnace have been made more independent.[91][92][93][94] Since 2003, the museum has been required to generate funds for projects.[93] By 2006, government funds had dipped from 75 percent of the total budget to 62 percent. Every year, the Louvre now raises as much as it gets from the state, about €122 million. The government pays for operating costs (salaries, safety, and maintenance), while the rest – new wings, refurbishments, acquisitions – is up to the museum to finance.[95] A further €3 million to €5 million a year is raised by the Louvre from exhibitions that it curates for other museums, while the host museum keeps the ticket money.[95] As the Louvre became a point of interest in the book The Da Vinci Code and the 2006 film based on the book, the museum earned $2.5 million by allowing filming in its galleries.[96][97] In 2008, the French government provided $180 million of the Louvre's yearly $350 million budget; the remainder came from private contributions and ticket sales.[92]
COVID bailout:
https://news.artnet.com/art-world/france-museums-rescue-pack...
Gold is used in manufacturing but not as much as it could be, because the price is set much higher by speculation/hoarding. So Buffet’s point is that the price is set not by its productive use but by its unproductive use.
Bitcoin is the same as gold but without the productive use to set a price floor. If the speculative market for gold tanked you’d settle on something like 5-10% IIRC as the imputed value based on manufacturing uses. Bitcoin has zero value for manufacturing uses. Maybe there is a price floor for smart contract usages if the speculative market evaporated but I think it’s much lower than 5%.
I do think there is in fact a "productive use" for cyptocurrency, which is transacting on the dark web. It has been earnestly used as a currency in that context for a very long time... it's just that bitcoin boosters would rather not talk about it.
I strongly agree that dark-web transactions were the largest “productive” component of BTC, but I think the “BTC as payment mechanism” has a much lower equilibrium price than asset-based usages because you essentially buy to make a purchase, and then sell on the other side. So for $1B of transactions in a year you might only need $1M of currency (maybe it’s an order of magnitude higher if you don’t immediately sell your BTC on the receiving side) which would give a price of $0.05/BTC (assuming 21M BTC total). Fermi calculation here, I think this is a lower bound for $1B transactions. The real calc is a bit more involved and I wouldn’t be surprised if it was one or two OOM higher.
As you can see the dark web usecase settles on a much, much lower value for BTC than the current market price. You need $T/yr to be transacting in BTC, or folks to be holding a float in BTC because they are getting paid and plan to pay for things, to get a valuation in the $1000s. Which is fine, but supports the point I made above about the “productive use prices” being a much smaller fraction of current price than even gold’s.
It's relevant because Buffett is prone to talking his book, and while he does walk the talk about fundamentals/cashflow in general, he almost certainly did not make these comments out of some deeply-held principle (he obviously would not have said these things in 1998). He is not actually the kindly grandpa image he is careful to cultivate and his comments are usually calculated. The context in 2011 was discomfort with the new QE policies and concerns about inflation. Buffett was not really concerned with "greater fool" assets in a moral sense so much as convincing his investors that (1) sitting around and hoping for gold to act as an inflation hedge (2) in the case inflation actually manifested was plainly inferior to just owning cashflows that would scale with the value of the dollar anyway.
(He was right, obviously)
> So for $1B of transactions in a year you might only need $1M of currency
I think that's an insane estimate. That's a money velocity of around 300. The US dollar typically has a velocity between 1 and 2. Nor is $1B in transactions anywhere near the reality for dark web activity.
Still, I tend to agree that illegal use cases limited to just ransomware and buying and selling drugs online, while not necessarily a "small" scope of activity, would probably support a fair price only in the hundreds of dollars.
But it's honestly probably graduated to more utility as a potent money laundering tool now that it is broadly recognized and in some ways "legit" in the eyes of regulators. It's just so easy for someone with dirty cash to buy coins and claim they mined them in 2010 and just now discovered the dusty old drive in a desk drawer. It's next to impossible to disprove or prosecute, and best of all it means you only pay capital gains (as opposed to ordinary income, which would be the case for money washed through a cash business). I don't doubt that kind of activity supports a price in the thousands, at a minimum... the UN estimates 2-5% of global GDP is laundered money.
As someone else observed in this thread, the main "value creation" of the fine art market is similarly money laundering and tax avoidance, which is the primary driver behind the facially ridiculous payouts for individual works at auction rather than "artistic passion" or whatever.
What is interesting about all this, though, is that if the speculative value evaporated such that the illegal activity was all that supported bitcoin, it would seem almost certain that regulators would bring down the hammer (at least to the extent that it would not be useful for laundering money anymore), which makes the "intrinsic value" kind of hazy in an ultra-bearish scenario.
Not that I think the speculative value is likely to evaporate entirely... this isn't the first crypto winter by any means, and historically speaking it's right on time (halfway between block halvings).
Connector plating, jewelry, dentistry, optics plating for [james webb].
And yes it is a pyramid, almost all of the value come from the fact that central banks hold most of it and almost never sell to the open market and most of the rest is in jewelry with 2-3 generation turnaround time so essentially removed from the gold market.
Crypto isn’t so much a commodity as a collectible like a stamp or a beanie baby.
But it IS a currency.. It is uses for daily payments and legally considered a currency in multiple countries today. I fully expect that list to balloon up over time.
You're talking about USA in 2022 and not the rest of the world or the future.
For 99.9% of daily cash-equivalent transactions it is significantly clunkier than the new "FinTech" solutions: Venmo, CashApp, Zelle, etc. For purchases, credit cards generally actually offer a kickback so it's not even a contest.
El Salvador gave everyone $30 of free bitcoin. What happened afterward speaks volumes.
These are layers on top of the dollar. I agree they’re a great consumer experience.
Why not equally nice layer on top of bitcoin?
We've spent many years learning exactly what those things are thanks to all this insufferable nonsense. I know more about crypto than practically 90% of the crypto community. I know all the personalities, the history, the fraud, the crime, the grift. I've read countless whitepapers. I've learned about 'traditional' finance.
All because of the brigading army of the insufferable.
1. something (usually raw material or primary good) that can be bought and sold - Bitcoin sort of fits that definition.
2. something (usually raw material or primary good) that can be processed to produce something useful. Bitcoin is not a commodity in that sense, which might be what GP was trying to highlight.
He’s even said he’s propped up by others.
You are being annoyed with people when they’re not reciting the right semantics? Some form of just stick to the script?
The entire internet is full of insufferable bullshit brigading of opinions because that’s what it’s for.
I’ve been online since the 80s for the weird. Now it’s full of insufferable normies.
Maybe it’s outlived it’s usefulness as a social engagement tool.
Not at all, I'm sick and tired of being told to "do my own research" in response to thoughtful and measured criticism by people who clearly have no idea what they're talking about.
Pyramid trap? Pyramid quagmire? IDK, but "scheme" implies something I don't think is there - control.
The phrase is "financial market"
I believe that bitcoin began as a straightforward "pump and dump" scheme, dressed up in a techno-libertarian narrative to appeal to its intended marks, young tech males with disposable income. As the size of the market has grown, I suspect the original cartel holds a smaller percentage of the outstanding supply, but I'll bet it's still enough to move the market deliberately when they choose.
It's trustless, sound money and therefore better than my bullshit fiat.
Edit: I was being overly general with the term "pyramid scheme"
And does paper fiat have intrinsic value?
Bitcoin is trustless money. It's mindblowingly amazing that we now have trustless money. We've never ever had that before. That is the value.
Yes, to the extent that people with guns will enforce its value (as I mentioned above).
> Bitcoin is trustless money. It's mindblowingly amazing that we now have trustless money. We've never ever had that before. That is the value.
You'll have to forgive me if I disagree that "mindblowingly amazing" constitutes "intrinsic value".
100% agree. I did not mean to argue that the value is in the fact that it is amazing. The value is in the trustless money network.
Bitcoin requires you to trust at least three things: Others will exchange it with you. Governments will not make holding/using it illegal. It will not lose it's value overnight. There is absolutely no reason to believe these will continue to be true.
People buy it because they expect the price to go up. The price goes up so more people buy it expecting further gains. The fundamentals arguably don't justify such a high price, and so you have a speculative bubble. Eventually, the bubble will pop and most investors will lose money.
I suspect BTC is a bubble because everything it does can be done better by other things. I also suspect that Lightning is fundamentally insecure. If you analyse the true intentions of the people who use it, there's no sober purpose; they just want it because they expect the price to go up. It's not about helping the developing world; because if it was, then there are better but more boring ways of doing it. Hence, it's a bubble built from speculation.
But similar things can be said about many things, and some commodities are able to sustain their bubbles for decades or centuries. Gold is going strong for millennia, with a price far exceeding its practical value. BTC probably won't last that long, but unless it's disrupted by legislation it might still have decades left in it.
The bitcoin network is extremely valuable. Trustless money is important in a world where all other currencies are created, controlled, and manipulated by governments. We know humans are prone to make poor choices, commit crimes, etc. Especially governments. Why do we allow them to create money when and how they want?
Some* people buy it because they expect the price to go up.
Other people are switching to bitcoin because it is better money than their local currency.
> everything it does can be done better by other things
Like what? Trustless transfer of money governed by a protocol that is highly decentralized and secure.
USD, EUR, GBP and CHF are less volatile. The countries that manage them all have good credit ratings. Compare to BTC which has lost >55% of its value in the last 6 months. And you're calling that a currency?
Using safe fiat, or even gold, would be the "boring" solution because it doesn't go up in value much. If anything, it slowly loses value, but nothing among those 4 beats the >55% / 6mo drop of BTC.
If you're concerned about inflation, a finance expert might give you a "boring" lecture on how to counter it.
Maybe there should be a guide to the "boring" solutions to the problem that crypto supposedly solves in an "exciting" and (for now) lucrative way.
It’s a use case I didn’t consider a decade ago.
If you’re exchanging weapons or illicit drugs (nation state) it can easily be millions.
As a run-of-the-mill software engineer, its a world I only have a passing knowledge on.
Netflix? Alibaba?
You mean "a large enough contingent of shareholders", right?
Netflix has done buybacks in the past but their financials aren’t great right now.
I know there are stocks that don't do either of those things (although rare) but the idea is they will one day in the future. You're still paying now for a piece of future profits. That's very different from a pyramid scheme.
- Donald Trump
Not really but I am sure he is a practitioner of the philosophy. The actual quote is from H. L. Mencken and applies to both money and politics (which might be the same thing:)
No one in this world, so far as I know—and I have searched the records for years, and employed agents to help me—has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby. The mistake that is made always runs the other way. Because the plain people are able to speak and understand, and even, in many cases, to read and write, it is assumed that they have ideas in their heads, and an appetite for more. This assumption is a folly.
According to current (May 2022) regulatory framework in the USA. In other countries it is currently a currency.