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Comment by crazygringo | Hacker News Reader

It's interesting to think about whether the word "bubble" even has any conceptual meaning when applied to crypto.

A bubble means prices are historically high relative to fundamentals -- that the part of the price explained by speculation is much higher than usual.

But crypto has no fundamentals. Its price is determined entirely by speculation. It doesn't pay dividends or interest that you can model a price on.

So the idea of an "inflating crypto bubble" seems conceptually incoherent. Sure you can say that crypto is only bubble, but that doesn't really add any information. The bubble can't be "inflating" since there's no ratio to a non-bubble version.

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> Sure you can say that crypto is only bubble, but that doesn't really add any information. The bubble can't be "inflating" since there's no ratio to a non-bubble version.

The core point is that there is (essentially^[1]) nothing keeping the price up besides speculator interest. That means the price can collapse catastrophically. Saying crypto is a bubble is useful because it has the defining traits and dangers of a bubble.

[1]: The big exception here is that a lot of the price is also kept afloat by the absolutely ridiculous amount of financial fraud in this ecosystem. Most of the "dollars" chasing Bitcoin are fake, and it's still unclear how insolvent the big stablecoins are.

The little exception is that there is a minimum floor; Cryptocurrencies have some utility as a payment system, which would give them some value. But the market rate for consumer payments is effectively if not literally zero, well below the amounts required to operate the mining/staking systems these currencies require.

> Saying crypto is a bubble is useful because it has the defining traits and dangers of a bubble.

The original meaning of the word "bubble" (in the 1700s) was as a synonym for "scam".

(It now generally means over-inflated prices, which then 'pop' / deflate.)

Similarly if a giant out-of-control wildfire threatens to become 10x as big, it's incoherent to call that a "terrible natural disaster." It was already a terrible natural disaster. We're not adding any information (except that little factor of 10, and this isn't math class).

Irony notice: This comment contains irony.

I think it was already obvious that your comment was all based on irony, and adding an irony notice that only mention further its irony doesn’t add any information. I would even say that wouldn’t be for meta-auto-derision, adding so much hints about irony included, this might have ruined the whole irony through a pale copy of comics of repetition.

Notice: https://www.youtube.com/watch?v=35IG66H7vLE

I think I agree. But unfortunately internet.

I’m not sure I agree with that definition of bubble.

I think it’s more like “an investment whose cash inflows are primarily driven by a feedback loop of higher prices and greater investment” — that is, investors’ motivations are detached from any NPV-like evaluation of the investment.

We really only know it’s a bubble after it pops. Before that it’s maybe less prejudicial to call it a speculative market.

"We really only know it’s a bubble after it pops."

This is the quintessential "we're in a bubble" red flag. (If you haven't lived through a bubble as an adult yet, you may be tempted to disagree. No judgement. I've been there.)

I think you are confusing pricing and valuation.

Anything can be priced and the price can be modeled.

Crypto valuation is what doesn't make sense because it is not a cash producing asset.

I don't know though if the price of crypto is more ridiculous than the price of an original Francis Bacon painting or a PSA 10 Michael Jordan rookie card.

The main issue for me with crypto is we haven't had a recession that was more than a blip since the bitcoin white paper. The price of Francis Bacon and Michael Jordan have been through some tough economic times. We will see how crypto does. Not something I want to find out with my own money.

But crypto has no fundamentals. Its price is determined entirely by speculation."

I am not sure. Bitcoin mining has costs. So you can assign a price to this.

Gold mining has costs. Gold has some applications in industry and health, but mostly it is used as a "storage" of wealth and for jewelry.

Speculation significantly influences the price of gold. But, as you say, it has many practical uses beyond wealth storage and jewelry.

Bitcoin, or any cryptocurrency, is built on the ashes of burnt electrons. The cost of burnt electrons to make a Bitcoin is slightly variable as the blockchain puzzle gets harder and new minting engines come online. Therefore, the cost of Bitcoin should not fluctuate as it does. This leads me to the conclusion that price fluctuations are solely driven by speculation.

I believe the same principle applies to stocks. A stock's fundamental value is the sum of all the company's assets divided by the number of shares. Every price variation is a psychological projection of fear or desire. It has nothing to do with reality.

The expectation of a x percent increase in the market over time is similarly based on projections rather than reality. Yet, we base our retirement funding on such insubstantial speculation.

Many people think of the stock and cryptocurrency markets as casinos. I think of them more like three-card Monte. You play, you get fleeced.

Having costs doesn't mean something has any fundamental value. You can go in private where nobody can see you and burn some money, that has a cost but no benefit, not even as performance art. Destroying something of value does not necessarily create something of value.

There's a kind of value along the lines of the amount people want to invest in crypto divided by the number of coins. It's a bit vague but it's why in bitcoin crashes the price drops to say $16k in the last one rather than $0.

Crypto has one big fat fundamental: no bonds have been emitted in the good name of the US of A to reimburse debt in crypto. This is in opposition to some other currencies floating around the system. Stealth hyperinflation is one big superpower.

Stealth hyperinflation is an oxymoron: if you have hyperinflation, everybody knows about it due to prices changing every single day.

this is the fundamental of gold price going up(relatively, dollar price going down)

the difference is, central banks are buying golds, but not bitcoins

FFS. Yes the point is though why should any one coin be more valuable than another. It's pure speculation.

why? network effect

What's the network effect of dogecoin again? What about cumrocket?

The purpose bitcoin holds is the same as gold, if it were impossible to mine more gold.

Gold isn't a good investment, simply because gold miners keep making more, devaluing your holdings.

Bitcoins promise is that that cannot happen.

Naive person thinks bitcoin is finite. However realist realizes its been forked before and there's no guarantee it won't happen again, hence its not fixed. https://en.wikipedia.org/wiki/List_of_bitcoin_forks#Intended...

A prerequisite for a successful fork is community buy-in.

> A prerequisite for a successful fork is community buy-in.

Or a nation state that can outspend you on compute (or seize your compute for "national security" reasons).

That wouldn't make for a successful fork, but it's likely to destroy the entire system outright.

And new cryptos appear all the time. Ñ

Cryptocurrency is not at all finite - people keep minting new tokens for new pump and dump schemes all the time.

Gold is not meant for investment; it is meant for storing value. The key factor that distinguishes gold from Bitcoin is that it is used and reserved by sovereign nations. The only path through which Bitcoin could replace gold is if sovereign nations use and reserve it.

When you buy gold, you are exchanging currency; when you buy Bitcoin, you are buying merchandise. It’s no different from buying limited-edition gorilla images.

the world is formed by a society, not by a block chain

btw

> because gold miners keep making more, devaluing your holdings.

do we live in the same world?

> The key factor that distinguishes gold from Bitcoin is that it is used and reserved by sovereign nations.

The US government holds ~200,000 bitcoins. Market value: $20,981,980,000

The US government holds 261,498,926 troy oz of gold. Market value: $11,041,059,957

So the US already has more 'value' in bitcoin than gold.

> The US government holds 261,498,926 troy oz of gold. Market value: $11,041,059,957

I think you may have gotten the wrong row when you looked up gold prices to calculate that value. That value divided by that quantity gives $37.88/oz. Prices that low have not been seen since around 1970.

Today's price is around $2800/oz, giving a value of $732,196,992,800.

i'm really really doubt about the numbers

by what i know, the US reserves the most golds in the world, could be even more if you count IMF's also

but, once if the US reserve more btc than golds and use it for exchanges, surely and fastly, btc will become the new dollar, as soon as the US is still the hegemony

At least presently, it trades mire correlated to all risk assets rather than a safety asset like gold.

Capped supply is overrated: https://john-tromp.medium.com/a-case-for-using-soft-total-su...

I don’t understand. There’s a finite amount of both gold and bitcoin right?

No, Bitcoin was designed to have a finite supply of approximately 21 million coins, after which the mined Bitcoin would be all there ever is in circulation*.

This makes it a deflationary currency: your holdings should** become worth more over time due to the limited supply: as more people enter the market there are few coins to buy due to more people holding them and due to those that are inaccessible due to lost keys.

So, in the early days, the people running Bitcoin miners originally earnt money both on the fees on the few transactions but also on minting new coins. The algorithm was designed such that "miners" would transition to earning revenue entirely on transaction fees once all the Bitcoin had been mined, by which point the economy should be up and running. In both cases this encourages them to actually run the proof-of-work nodes that provide the distributed ledger.

* assuming there is no successful change to the algorithm, which would require concensus by those running the nodes.

** this assumes people want to buy it – that a better investment vehicle has not materialised – and that Bitcoin has not been outlawed or had cripling taxes applied to it.

https://crypto.bi/deflationary/

there is a finite amount of gold, but we don't know exactly how much that is, we could potentially find several big gold veins tomorrow and crash the gold market.

There is a finite amount of Bitcoin, and the amount of Bitcoin that will be injected into the market is deterministic by algorithm.

(Note that there are several old bitcoin wallets with "dead" bitcoins that could one day suddenly become active, which I suspect would have the same effect as finding a new goldmine)

But there are lower bounds on how much you can split gold. Part of its value is as a tangible stored value. Nobody will store 0.00001 ounce of gold because you’d be in danger of accidentally inhaling it.

The numerator for Bitcoin has an upper limit, but the denominator does not; it is functionally infinitely divisible with no loss of value. This doesn’t negate the argument, but mitigates it some.

What you are saying is just objectively wrong, Bitcoin has a lower limit for it's denominator, it even has a fancy name: "one satoshi"

> But crypto has no fundamentals. Its price is determined entirely by speculation. It doesn't pay dividends or interest that you can model a price on.

This is just wrong. Ethereum for instance is fully self supporting in that the network collects enough in fees to pay its stakers without having to mint new coins over time.

This means Ethereum has income and pays out dividends, which means it has fundamentals as you can measure its income and money going out.

It most certainly has fundamentals in this regard. I encourage you to take a deeper dive into crypto if you think there is no fundamentals for all coins

How can you possibly say it has no fundamentals?

Here are some use cases that give it a non-zero value:

It competes with Western Union for money transfers.

It provides ways to transfer money to places and for things the US government doesn't approve of.

Those are uses.

They aren't fundamentals, e.g.:

https://en.wikipedia.org/wiki/Fundamental_analysis

Money transfers aren't setting the value of crypto. They don't meaningfully affect the supply and demand, since the goal of a transfer is generally to hold the crypto for as short of a period as possible, to minimize price fluctuation risk -- so supply and demand are balanced without changing the price.

> It provides ways to transfer money to places and for things the US government doesn't approve of.

You can just say “facilitates crime”, it’s easier and isn’t doublespeak

That’s circular. Those use cases only work if it has value. If they’re the only reason it has value in the first place then it’s a house of cards.

The fundamental of crypto currencies is that it's a ledger of information rather than money. It's an indisputable, infinitely replicated, zero-trust community project that will continue to exist even if every government in the world attempts to kill it at the exact same time. As long as a mesh network can exist so can crypto ledgers.

If you holding that data means something, that's a whole other question though.

There is a high chance that the critical mass will just Fidel away.

And yes we could easily destroy Bitcoin on a pure gov level.

Bitcoin can continue operating with very little amount of people, it will obviously lose all relevance, but we're talking about fundamentals here.

Fundamentaly it should not loose its core values to still count as being here.

Otherwise some bytes of my website are potentially stored on some tapes in a mountain.

This belief that governments couldn't simply eg tax crypto gains at 100% or otherwise ban exchanges is just a fairy tale.

I mean, there's nothing physically stopping someone driving on the wrong side of the road but laws punish people who do.

This is just engineers believing the world runs on technical possibilities not legal consensus.

Then why are criminal enterprises still running relatively freely across the world?

Come on, you can think of a better straw man than that.

It's pretty relevant here considering XMR was pretty much blacklisted from exchanges and majority of it's activity is criminal in nature. Yet here it is with millions of market cap being completely unbothered by any kind of regulatory changes.

The ledger is probably going to be completely useless if some US-China war separates the network and US has a bunch of mined blocks that Chinas doesn't and vice-versa.

The network just splits in that case, then there's two 'bitcoin' chains. Double-spend problem exists, but it's unlikely to happen as even a single link (yes one, singular link) is enough to keep the network in sync.

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