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Comment by jpmattia | Hacker News Reader

Note how they measured that the "Vast Majority of People Who Invest in Bitcoin Inevitably Lose Money" is

> the report did assume that a user purchased bitcoin when they downloaded a crypto app.

Look directly at the blockchain, and instead find 49.4% of the addresses were in profit as of the time this article was published: https://www.yahoo.com/now/majority-bitcoin-addresses-now-los...

It looks like "inevitably" is more evitable than inevitable used to be.

[If anyone has a Glassnode subscription, the real-time readout is here: https://studio.glassnode.com/metrics?a=BTC&class=Addresses&m...]

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Most bitcoin investors never move their coins off the exchange and thus don't have a distinct address on the blockchain, so your sampling technique is probably just as flawed as time of app download, if not more so.

> Most bitcoin investors never move their coins off the exchange

Apart from having insider knowledge in how cryptocurrency exchanges operate and their data, how could you possibly know this?

One address on the blockchain can belong to one or more users, just like one user can have one or more addresses on the blockchain, so being able to compare feels impossible even if you had insider knowledge/data.

Because when you buy or sell crypto on a centralized exchange, no actual blockchain transactions take place, it's just shuffling bits in the exchange's local database.

Wait, what? So because trading cryptocurrency on a centralized exchange doesn't involve a blockchain, the conclusion is "Most bitcoin investors never move their coins off the exchange"? I'm missing some vital step in your reasoning here.

Yes that's pretty much the extent of the reasoning and I don't see what's wrong with that.

Bitcoin on a centralized exchange cannot be traded for goods and services until explicitly withdrawn, unlike most brokerage accounts where cash is cash and many will even give you a debit card so you can spend directly from the account. This strongly decouples bitcoin and most other cryptos from the total money supply.

When you're on Binance and you send them one BTC as a block chain transaction, you are receiving one Binance!BTC that does not exist outside of that walled garden.

In that case you "own" a paper bitcoin, which is much the same as not owning one at all. In this case, the "bitcoin" you own doesn't even exist (outside of the exchanges database) so you cannot use this to speculate on actual bitcoin in actual wallets.

Just look at FTX - some 1.8B in BTC liabilities but zero BTC assets

Just because you don't have a bearer bond doesn't mean you haven't invested in bonds. Modern finance isn't about holding an invested asset in your hands.

This splitting hairs over "true" ownership ignores the fact that the original investor analysis done by GP here premised on chain transactions is still semantically wrong.

many exchanges boast user stats and funding stats which don't match a corresponding increase in addresses, we can also corroborate this with the size of the exchange's known hot and cold wallets, and further corroborate this with periods of time later when many users do move funds to distinct addresses outside of exchanges, the difference with what remains on exchange we can (or have to) assume to be distinct users. finally, there have been periods of time when its not worth it to move funds off of exchange because the transaction fees would eat the small amounts that poorer/less capitalized users bought and hold.

that still leaves us with "most".

everyone knows the theoretical issues and incompleteness of this statistics collection - since there is no single public or verifiable stat to use - its pretty new to be a person that chooses assume its more likely that people are having distinct addresses on chain, than assume its more likely they're on an exchange

kind of funny how we go full circle here, but okay. hope that helps your reasoning. this article has no way of making its claims either, so there's really no point of appealing to either authority or bolster any opinion.

What if as part of bankruptcy proceedings, especially for a that business goes under due to fraud (effectively a failure of transparency/oversight), the business's datasets were opened up to regulators or the public domain rather than treating them as business assets to be sold for cheap to the next exploiter. Then one could actually run these kinds of reports on real data, that would otherwise be kept proprietary.

The issue of one's "private" data then becoming part of a public dataset could be alleviated with deidentification, plus a better acceptance that when companies accumulate data about you, it's generally going to get exploited in some way or another.

> Then one could actually run these kinds of reports on real data, that would otherwise be kept proprietary.

Every cryptocurrency exchange would have to go bankrupt before you could make sweeping statements like that if so.

> deidentification

Is consistently proven to be a myth.

It doesn't matter if the "most" statement is correct. Some investors never move their coins off the exchange; therefore, the inference that 49.4% of investors have made money because you can see that in recorded transactions is based on a faulty premise. Unless you're arguing that only a negligible number of exchange users do this, which seems implausible and would also assume facts not in evidence.

> Most bitcoin investors never move their coins off the exchange

I'm curious: What is your source for this statistic?

For comparison: There were about 40M non-zero addresses earlier this year. See eg https://news.bitcoin.com/number-of-addresses-holding-btc-tap... [The current number is on Glassnode: https://studio.glassnode.com/metrics?%3Bm=blockchain.UtxoLos...]

FTX is one of the larger exchanges, and FTX bankruptcy headlines say they "may have 1 million creditors". See eg reuters.com/technology/ftx-officials-contact-with-us-regulators-filing-2022-11-15/

Edit: I'm trying to figure out if someone has actual stats or whether the statement is just intuitively guessing. There are so many bitcoin stats out there, it's hard to keep track of it all.

> There were about 40M non-zero addresses earlier this year.

An exchange, when depositing or withdrawing to a user or another exchange, uses a ton of address, sometimes leaving behind very small amounts. Same with users. I'm sure 75% of non-zero address have very, very little BTC in them.

Exchanges batch transactions specifically to avoid tons of transactions using ton's of addresses is perfectly fine however the address space is very very large.

>> Most bitcoin investors never move their coins off the exchange

>I'm curious: What is your source for this statistic?

They have no reason to.

Unless the investor is specifically working on some HFT arbitrage scheme between exchanges, then they don't even need to move crypto out of the exchange.

Also given the complexity of rolling your own wallet, it's just a risk that's not worth it when KYC exchanges are relatively stable.

If you haven't moved coins off the exchange you aren't a bitcoin investor.

This reads like a no-true-scotsman. If you exchange USD for bitcoin assets with the intent to sell later at a higher price, you're semantically a bitcoin investor.

If the website ftx said you had thee bitcoins three weeks ago, how many bitcoins did you have?

Choosing (poorly) to invest with the wrong tools is still investing.

I agree that my post reads like the no-true-scottsman fallacy, but I think I may be onto something. Compare the very similar phrases "You aren't a real stock investor unless you get your shares in physical paper" and "You aren't a real real estate investor if you buy the brooklyn bridge from a guy on a streetcorner in Harlem." The overwhelmingly common experience of "stock investors" that actually don't own the paper stock is that they are able to sell at market value when they decide to (although its not perfect, see trading halts etc.) I'd argue that the paper stock claim is a real no-true-scottsman. The overwhelmingly common experience of brooklyn bridge buyers is that they are not able to later sell the brooklyn bridge at market value- they did not succesfully invest in real estate. Buying "bitcoin" and trusting the exchange to hold it for you? Hard to say what the odds are but they don't seem good lately

Even a real estate deed or a stock certificate is just a piece of paper, though. At the end of the day, unless your investment is something you can physically hold in your hand, you're trusting that your claim on it will be honored.

"You aren't a real real estate investor if you buy the brooklyn bridge from a guy on a streetcorner in Harlem" is true because the claim on the bridge was never credible, not because you never physically took possession of the bridge itself. You could argue that the exchange's IOU was never credible, but that's different from saying that any BTC-based IOU is made of lies.

"If you haven't received delivery on your crude oil futures contracts, you aren't a petroleum investor."

If you do not move your coins off an exchange to a wallet you alone control, then the coins were never yours to start with. All you owned is a kind of IOU for some coins that could vanish at any time. See MtGox, FTX.

I think this misses the point

are they really bitcoin investors if they don't have bitcoins? they gave money to an exchange for a promise, and those promises get broken a lot ...

Their investment/"investment" is still in relation to bitcoin. It doesn't seem entirely incongruous to call it "investing in bitcoin".

If I buy some shares in a company that does things with [X], I think it makes sense to say that by doing so I'm "investing in [X]", even if I don't e.g. have the necessary license needed to directly own any [X].

If I make a bet on the Cowboys winning a game, am I invested in the Cowboys, or merely dependent on them? Did my bet have any effect on the Cowboys, even indirectly, in the way that buing a share of stock does?

I’m almost tempted to say that in that case you “are invested in them/their success”, but possibly “haven’t invested in them”?

Sure, one could and does say that, I'm just making a claim that we have to differentiate this better, not for being terminological pedants but because all the crashes of centralized exchanges will be used to regulate decentralized crypto while only allowing of centralized exchanges ...

> Look directly at the blockchain, and instead find 49.4% of the addresses were in profit

But those addresses probably include most of the estimated 20% (or more) of Bitcoins that are lost (because they were usually lost when Bitcoin was less valuable).

In those cases the address hasn't lost money, but the person lost it all.

And this also doesn’t take into account CO2 emissions from mining, manufacturing mining rigs, building and discarding mining infrastructure.

That seems largely irrelevant to the topic at hand (whether or not a majority of those who purchase Bitcoin are in the red).

Externalities matter. The report is showing people (and thus society) doing badly on average, and society overall is doing even worse because of the additional external costs.

> Externalities matter

Sure, agree. But I don't think that's the topic here, the general harm/good done by cryptocurrencies, the submission is talking exclusively about profits or the lack of them rather.

If I invest 100 USD in Facebook and the stock gains double its value, I now have profits, no matter how bad Facebook is for the world.

You’ll have unrealized gain. If, at the same time, some foreign government was sponsoring Facebook to dismantle the democracy, and successfully achieved that, overall, you might be worse off.

No, it is relevant. The switch to proof-of-stake is a recent one, there was plenty of CO2 emitted by mining ETH. And there is still infrastructure that supports it. These are negative externalities, just like the negative externalities of crypto fraud, black markets and money laundering.

And it seems there isn’t much to show on the good side, for all these negative externalities.

It's not relevant to the topic at hand, which is whether or not most investors have lost money on Bitcoin for a very specific definition of "lost money". We can't talk about all things at all times. The discussion about Bitcoin's environmental impact can happen elsewhere.

> Look directly at the blockchain, and instead find 49.4% of the addresses were in profit

Every trade has two sides, and transactions cost fees.

Realized profit? Or is the current value just above the value of the purchase date? I would believe the latter, as the value is still quite high.

However, realizing the profit is a different thing. That will work only for a few who invested early and deinvest early. Basically, btc is a pyramid scheme, the only difference to other pyramid schemes is that this fact is not obfuscated. Every investor knows that he is buying a fundamentally worthless good, but is hoping that someone else will eventually pay him a higher price.

That works well until the market is saturated and no one is willing to buy btc any more. Then, the price collapses.

Thus: even if most investors today have made profit, that simply means that the bottom of the pyramid has not been reached. At that point, most investors will have made loss.

> Look directly at the blockchain, and instead find 49.4% of the addresses were in profit as of the time this article was published

Someone can (and should) have multiple addresses. And most retail investors will actually keep the bitcoins in an exchange in order to not lose an obscene amount of money to fees when trading. So there isn't an 1:1 correspondence between addresses and people.

The headline is a pre-supposing statement, that relies on a false notion that people are all using bitcoin as an 'investment' rather than for other reasons such as a currency. Only a fool is using most currencies as an investment, except perhaps as part of some hedging scheme.

Bitcoin as represented in the white paper was never portrayed as an investment vehicle.

The disinflationary emission set it up to be a speculation vehicle. For use as a currency, a fixed block subsidy, i.e. linear emission would have been far preferable.

The overwhelming majority of people with Bitcoin are speculators.

It's fairly useless as far as currencies go. It literally fails at the first requirement: it's not a reliable store of value.

For most cases I would not consider it the best option. However I have used bitcoin codebase based coins for transactions where the time-span was short enough that it was a reliable store of value. Reliable store of value really depends on how long you intend to hold it. Dollars are a terrible store of value over 100 years and decent over 2 years. Several crypto coins are a bad store of value over 1 week but a decent one over a couple hours.

There are certain circumstances where I think it may make sense for someone to pick an alternative currency; I'm not arguing it is superior to the rest of them.

> However I have used bitcoin codebase based coins for transactions where the time-span was short enough that it was a reliable store of value.

> Several crypto coins are a bad store of value over 1 week but a decent one over a couple hours.

What kind of (real world) transaction would need to rely on a cryptocurrency for value stability over a couple of hours time-span that wouldn't be served by fiat currency, which provides the same stability guarantees over that same time-span?

Buying drugs and other illegal things online

International transfer is a good use, as is irrevocable payment for purchased goods.

There is also a strong real world value in countries where local currency is less stable and secure than crypto. Not all places have access to USD or foreign currency.

There are interesting examples coming out of Argentina. Imagine living in a country where year over year inflation is ~100% and the government may periodically seize assets in your bank account.

> International transfer is a good use

I think it could make a useful underlying tool to enable this but to be used directly by end user customers it'd be a tough sell.

I've used Wise to transfer USD <-> CAD, if they use crypto to enable that (I don't think they do, but I guess they could), I couldn't really care less.

I don't think your run of the mill consumer is going to want to use crypto to do the same thing. With smaller amounts the difference in cost is probably negligible, with larger amounts you could theoretically save more to make the effort worth it, but you have higher pressure to have more "traditional" assurances that nothing goes wrong.

> International transfer is a good use, as is irrevocable payment for purchased goods.

In what ways do cash bank transfers not work for international transfers or irrevocable payments?

International wire transfers can take 1 to 5 days, and Banks can seize or reverse the funds.

> and Banks can seize or reverse the funds.

Why would they do that? I've never had that happen to me when I send an international transfer.

But it's always been for innocuous things like "reimburse relative for vacation rental expenses"

I had a domestic wire temporarily seized for 2 days because a bank wanted to KYC me a second time, even though I'd already KYC to open the account.

Yes I was made whole but it was unpleasant and I happily would have eaten the ~.30 of litecoin transaction fees and 0.1% crypto exchange fee to avoid that. Not to mention the wire cost me $15 in the first place and not everyone has ready access to a bank with free wires.

I had a 100k wire held for 30+days. It was in the middle of escrow and I had to borrow 100k so that the purchase didn't fall apart.

> I had a 100k wire held for 30+days.

Depending on which country it is going to, that seems like an amount large enough to legitimately trip over some checks. In the US itself, last I heard all domestic transfers over 10k get reported.

I dont particularly care about what is reported. What I care about is being able to move my money when I need to. In this specific instance, it was a domestic transfer.

Getting locked out of your own money can cause major damage. I'm lucky that I was able to dig up another 100k. Someone else could have lost their 50k and be liable for hundreds of thousands more in liability to the seller.

Something like Wise works most of the time but if you have a cousin in Papau New Guinea in the jungle with a cellphone and no bank account IDK how the hell you would send them large value in under an hour without losing your shirt. Maybe there is something and if so I'm interested in what it is (know someone else there with lots of money who really trusts you?).

In any case ACH can be clawed back and it is my understanding in some exceptional circumstance a wire can too. The point never was crypto is always superior, it may be conventional is better 99.9% of the time but that 0.1% means a use case remains.

That's the first requirement of currency? I feel like you might have made that up. It seems to me that the general character of a currency is that it is a widely-accepted medium of exchange. There are loads of currencies around the world that serve their purpose without being an even slightly good store of value. The Turkish Lira, for example, has lost 90% of its value against the Dollar in 15 years, yet it is still the going currency in that country.

Edit: after reading my comment I realized it might not be clear that bitcoin is astonishingly bad at imitating currency. Almost without exception trading it for goods and services is impossible.

I like to say a currency: should be a store of value, could be a unit of account, and must be a medium of exchange.

I use Bitcoin as a currency all the time. It is cash for the internet. If used correctly, it is the only reliable way to buy things online without giving a central company like Visa or Mastercard a log of everything you buy and where you buy it.

If you dollar cost average your acquisition of Bitcoin it smooths out the conversion risk and if anything the value against USD goes reliably up over a 3+ year window.

Currencies, as the name hints, are used to transmit value, not hold it beyond the short term.

The great thing about Bitcoin is that it’s whatever the holder wants it to be, and nothing they don’t want it to be, while at the same time being the opposite of that to someone else, depending on what argument their trying to make and whether or not they’ve personally lost money.

Anytime someone speaks crypto to me now I feel like Adam Sandler floating past Clint Howard’s window in Little Nicky: I don’t want to be part of this, they don’t want me to be part of this, and all I can do is wish them luck while they tell me they don’t need it.

I personally lost a couple dollars on litecoin but saved 10s of dollars in transaction fees by not using a credit card. So the fact I lost money, technically, doesn't mean I didn't come out ahead versus the alternatives.

I had to work out in my head there how many transactions you’d need to make to have saved 10s of dollars on credit card fees, and then whether or not that was worth the hassle, let alone the loss of purchase protection.

It was not.

> The great thing about Bitcoin is that it’s whatever the holder wants it to be, and nothing they don’t want it to be

If someone bought Bitcoin a year ago and wanted it to be a store of value, it is certainly not "whatever the holder wants it to be" for that person

If someone bought US Dollars($) a year ago and wanted it to be a store of value, it is certainly not "whatever the holder wants it to be" for that person.

A lot of currencies are not a good store of value the last 18 months.

Strange, US dollars seem to be as good at making both my mortgage payment, and paying my taxes this year as they were last.

They also seem to be a lot better at buying Bitcoin and Euros and S&P500, but a bit worse at buying lettuce.

No currency seems to be better at buying lettuce this year, though, perhaps the problem here is that there is a shortage of goods and labour...

> Only a fool is using most currencies as an investment, except perhaps as part of some hedging scheme.

Only a fool uses a currency that's experienced 5000% deflation?

Bitcoin is a long failed currency, I can't believe there are people still trying to push that notion.

Volatility is one thing, but deflation to a nonsensical degree means that using it as a way to pay for goods and services is heavily discouraged because of things like... having your $20 pizza be worth $165,000 if you had just not bought it.

I have used btc as a hedge against my government and the uncontrolled judicial system, and it has been phenomenally successful. Not everyone lives an upper-middle class existence with good rule of law.

So you used bitcoin for speculation.

You're making my point. It's not functioning as a currency anymore, it's an investment vehicle.

It'd be like if Forex was the main way that dollars got moved.

This is actually exactly backward. What the paper is trying to quantify is how many people are trying to use bitcoin as an investment, versus how many are trying to use it as a currency or other financial tool (the whole thing about how many of the investors are underwater is a small point of the paper that Gizmodo is fixating on because of Gizmodo's preexisting hatred of crypto).

What the paper finds (and we can certainly quibble with any paper) is evidence that the majority of people who bought Bitcoin in the 2015-2022 period did so in patterns that suggest that they're interested in an investment asset, not in a currency.

An address is not a person.

How many of those wallets are lost forever?

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