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Comment by misja111 | Hacker News Reader

Can anybody perhaps share some insight of what kind of investment opportunity BitCoin represents, except for pure gambling?

I have been working in finance for many years, and I've learnt that various types of instruments correlate with specific market properties. E.g., generally speaking, share value tends to go up when interest rate drops, option prices go up when volatility rises, gold price goes up when there's a lot of uncertainty because it's seen as a safe haven, etc. But which kind of market property favors or disfavors BitCoin as an investment?

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It’s deflationary by design so if you can keep hold of them safely and people think they have value it will increase.

Raw economic demand seems to come from things like paying for ransomware and avoiding currency controls.

The fluctuations however are gambling, but one could argue the value of most shares in the US are the same.

> It’s deflationary by design

How is that so? I know that the maximum nr of BitCoins is limited and that generating new ones is designed to become more difficult over time. But how does that make them deflationary? I would say that as long as the supply of BitCoins will increase, however slightly, BitCoins are in principle inflationary? The only reason for its value going up would be that demand increases more than BitCoin supply, but increasing demand is in no way guaranteed by design.

Lose a key and the coin is removed from circulation.

We don’t even know how many coins actually exist at the moment, for example this guy’s — https://www.bbc.com/news/uk-wales-55658942

Or with the wiping of the keys shown in big bang theory for example.

While there continues to be steady demand powering things like ransomware, and we know the supply of bitcoin reduces every day, we don’t know the current size of supply or the rate of reduction.

This is a common trope people like to throw around, but for all practical intents and purposes it's not actually true. Each Bitcoin is divided into 100 million Satoshis. At current market price, this means you can divide each Bitcoin up into slices 0.05 cents thin. There is no scarcity, at least not for any reasonable time frame in our lifetime. Add to that the fact that many brokers today offer fractional shares on a lot of securities already and you can probably see where I'm going with this. You will always be able to buy however small of a fraction of a Bitcoin that you want.

I can "divide" a single $100 bill into 100 $1 bills.

By your "logic" $1 is just as valuable as $100.

This misses the point. There is a scarce amount of Microsoft shares, but we don't talk about the scarcity of the shares driving the price, because that's not the reason that the stock has traded upwards. You can have scarcity on all kinds of resources - hell, this comment is scarce, it's one of a kind - but that doesn't mean it drives any kind of demand. All of this is econ 101.

> There is a scarce amount of Microsoft shares […]

New shares can be issued at any time.

And a bitcoin can be divided at any time to create a transaction. The limit on total coins is irrelevant when they can be divided almost infinitely.

But division is not the same as addition.

If MS issues new shares, they will increase the total amount of shares. If you divide one BTC into smaller parts, it doesn't mean that the total amount of BTC has increased.

The deflationary by design is a fallacy.

It will lead to old investors becoming richer and richer but also for new investors to stop investing because the spread is going to become to big.

And deflationary by design doesn't protect bitcoin by collapsing and it will happen alone through the reward halfing in no time.

Bitcoin is deflationary in the sense that the supply is fixed at 21 million. And because people also loose access to their Bitcoin wallet, the actual supply will slowly decrease.

That's just a fact of how technology works. It's better phrased as "supply of Bitcoin is fixed".

As to your other arguments: I don't really get the connecting logic or even the point your making.

What is the "spread" that will stop new people from buying Bitcoin?

Can you explain the "Tom got very rich on Bitcoin and therefore I won't buy it today even though the price goes up because reasons..." logic?

Also what does reward halving have to do with the price of Bitcoin? The mining business will eventually end but as long as Bitcoin price goes 2x by each halving, the mining is is just as profitable.

Of course Bitcoin price can collapse. It already did a couple of times. But it also recovered and then some each time.

Given that prices of anything are driven by supply and demand, supply is fixed, the only question worth asking about Bitcoin is: will the demand go up? If demand goes up, the price goes up. And vice versa.

Bitcoin supply is fixed, the denominator is not.

If i invested into bitcoin 10 years ago, my $1000 are now worth (i don't want to calculate it) like $1000000.

So if someone else now wants to invest into bitcoin today, they have to accept that the old people have a tremendes financial advantage to this. The spread is a lot.

And no its not the same as investing into a company.

This will lead to rich people not investing into bitcoins because their return value is getting smaller and smaller.

Because the new bitcoin numbers are getting less and less through halfing, this effect gets stronger and stronger.

Bitcoin is hard limited on how much bitcoin exists while the normal fiat world creates new money based on humans and work capacity we have through a complex system. Bitcoin has not solved this problem. You can't lent bitcoins, create value and return this amount as an addition to the whole amount of bitcoins to represent this value.

The supply is not fixed, it reduces every day when people lose their keys, hence its deflationary

Sure if we want to account for that, but that makes the effect, i mentioned, even stronger and faster.

The same reason art or collector's cards or rare stamps hold value. There's nothing inherently valuable or productive about any of these asset classes. None of them will ever generate dividends. The appreciation of them is purely subjective, and if that social illusion broke down then they'd go to $0. But they have enough social proof and staying power, and enough people who are interested in the aesthetic or community, that the belief in them as a store of value has become a self-fulfilling prophecy. It's more of a social phenomenon than anything to do with finance or economics.

There's also the utility explanation (or the bet that it will be useful in the future), which is probably another part of it.

> Can anybody perhaps share some insight of what kind of investment opportunity BitCoin represents, except for pure gambling?

Bitcoin is a commodity (like gold): the only play you have is on price.

If it goes up, you make money; if it goes down, you lose money (unless you short it).

It is not like gold...

I can hold gold. I can exchange it in a post war economy without internet. the industry actually consumes gold.

Read "Broken Money" by Lyn Alden.

So just two days ago the market crashed because apparently a yen carry trade unwound.

Japan had a 0% interest rate for very long time. That made yen weak against other currencies. So people were borrowing Yen and investing in better performing assets. That's leverage.

Japan raised interest rate every so slightly which made Yen jump comparatively to other currencies which meant all those people who over-leveraged had paper losses, margin calls and had to emergency sell other assets hence the market crash.

There's a lot of "gambling" in financial markets. There's a lot of "gambling" in business.

You can't eat gold. Buying gold is a gamble that the value of gold will go up in the future.

You can't eat a Picasso. Buying a Picasso is a gamble that the value of paintings by dead people will go up in the future.

A business loan is a gamble that you can build a business that generates a profit.

A mortgage is a gamble that the value of the house will go up and value of the dollar will go down. In deflation people with mortgages will be screwed.

I could go on. I don't get why people think that singling out Bitcoin as speculative asset is some sort of "end of discussion" revelation. Ultimately, even the safe, cash flow generating S&P 500 can permanently crash given a black swan event.

As someone in finance you should know that the fundamental law driving prices of assets is supply and demand.

The supply of Bitcoin is fixed. There will never be more land in Manhattan and there will never be more than 21 million Bitcoins.

So the only question you should be asking yourself is: will there be more demand for Bitcoin in the future?

And as of today the answer is: hell yeah.

First US Bitcoin ETFs were approved this year. They generated inflows of over 30 billion USD to Bitcoin market cap. They were the most successful ETFs EVER.

That was followed by ETFs in other countries and there are even more.

And we're just at the beginning. Pension funds, banks, hedge funds, companies and other large holders of financial assets only begun converting some of those assets into Bitcoin. Barely wetting their beaks. Sips will follow, heavy drinking will follow.

Some countries began buying Bitcoin as banking reserves, similar to how they buy gold. There are talks about US doing so.

All this might change so in that sense buying Bitcoin is a gamble but for the next few years the prognosis is clear: up and to the right.

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