Bitcoin Bubble Makes Dot-Com Look Rational
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This is obviously wrong because holding gold doesn't entitle the bearer to a portion of those mining costs, same with Bitcoin.
The reality is that gold cannot be objectively valued because it doesn't have an objective value (beyond its industrial use, which accounts for less than 10% of its actual current price).
As a society, we collectively agree that gold is worth something because we agree that it is worth something.
With Bitcoin, we are doing the same. But if we had centuries to consolidate our appreciation of gold, we are compressing price discovery for Bitcoin in just a few years.
Interestingly, Bitcoin offers several improvements over gold (being digital, lightweight, cheap to move, proven limited supply). It also has drawbacks.
Lastly: the author's contention that you can take value away from Bitcoin by just copying its code is misguided. It would be akin to saying that you can replicate Facebook's valuation by copying its codebase. Facebook's value comes from its network. The same happens with Bitcoin, since its fundamental properties (censorship-resistance, security) are functions of network size and node-dispersion.
I am simply pointing out that networks are valued with reference to their size, not on whether their code base is unique.
Bitcoin and Facebook are two examples of this principle.
I'm not sure "price discovery" is really what we're doing at the moment.
The consensus is that P/E is not a good valuation metric for high growth companies.
I would rather use comparable multiples, DCF or sum of the parts for this type of exercise.
The principle being that you will benefit from stock appreciation rather than dividend payout.
e.g.:
https://www.investors.com/how-to-invest/investors-corner/ign...
https://seekingalpha.com/article/4035706-p-e-ratio-good-metr...
Bitcoin is said to be consuming as much power a some countries, and still rising fast, while the amount of transactions is comically low compared to the power consumption.
Bitcoin in its current state can never be a thing to actually buy something with. I don't see any other long-term use for bitcoin than just making a couple of bucks before it eventually crashes down like the Hindenburg.
I'm not saying that all cryptocoins will suffer that fate, but I truly believe bitcoin specifically will.
It might continue rising for years or decades. But it is not usable as a real currency, so it will always remain a useless waste of resources.
There might be a replacement cryptocoin that will actually be useful in the future, but it won't be bitcoin. Bitcoin will be the thing that started the "future", but it will not be the thing that remained the future.
If bitcoin collapse you are totally on you own while your neighbors that never invested in bitcoin remain totally unharmed by this virtual event.
If you "trust" the bitcoin network, and think that someone may accept bitcoin in exchange for something that you want, it looks pretty similar (obviously not comparable in scale yet)
That is actually the very definition of most currencies currently in use [1]. Money is actually just a promise that someone will provide you goods or services in exchange for it sometime in the future, it has no intrinsic worth. Also, paper money isn't tied to anything [2] either, let alone the "digital" money we have in the banks.
[1] https://en.wikipedia.org/wiki/Fiat_money [2] https://en.wikipedia.org/wiki/Nixon_shock
Though I agree that there is a lot less "backing" of Bitcoin in that sense, nothing protects you from losing everything if something goes wrong.
https://www.theguardian.com/world/2013/mar/30/bank-of-cyprus...
Bitcoin is backed by optimism.
So, like art?
Of course we will have to wait and see yet again, because "the market can remain irrational longer than you can remain solvent."
Same song different drummer.
Gold mining is mostly strip mining tons of ore, spraying it with cyanide, collecting the runoff, and refining that. Then you pack up and leave before someone makes you clean up.
A very rough estimate: World wide Bitcoin mining operation spends per year around 60% as much electricity as all of USA's bank offices: https://news.ycombinator.com/item?id=15615601
With Bitcoin mining there is a high incentive to actually use renewable energy sources and could be physically outsourced to places where building green power plants is otherwise not practical due to the limits of creating a power grid to make such a power plant profitable.
Maybe when the price stops rising no one feels any desire to buy it anymore and people are left holding worthless numbers.
I don't know whether governments will buy Bitcoin, but I wouldn't consider it unlikely that some country decides to use crypto as a replacement to their fiat currency -- either the government of a developed nation does it, or the people just decide that their local money isn't worth the paper it's printed on, and decide to use some sort of cryptocurrency.
I know this sounds crazy, and I would've called it a ridiculous notion if someone told me this 5 years ago, but I don't consider it too unlikely anymore. It has grown on me.
Due to quantitative easing, money just isn't worth much anymore and asset prices have gone up a lot across the board. Just look at the recent acquisition of a painting by Leonardo da Vinci: $450m. That could not have happened 20 years ago.
BTC would really need the support of a developed government, but those governments aren't eager to give up control of their currency.
I don't think Bitcoin is a currency anyway.
Building a crypto banking service that can be controlled through a phone (e.g. in Africa) should have tremendous value given the very high inflation in some countries there.
What do people use BTC for other than speculation?
Or: for the majority of people, holding hold, recognizing gold, and exchanging gold is not possible. You need experts for that, and they all take commissions. And sometimes scam you.
The crypto space, which seems to be shaping into an entirely new asset class, has a $300bn valuation. That's less than the value of Facebook.
The only reason why people are shouting bubble is because people were able to get in from the start, when these coins were 10 cents on the dollar. But when Facebook IPOed after 10ish years, it had a valuation of $50bn. But early angel investors also got in at 10 cents on the dollar.
It could eventually become a bubble, but I don't think think we're even nearly there yet.
Of the potential 21m Bitcoin in existence, 4m are assumed to have been permanently lose. 16m have been mined. That leaves 1m coins left to be acquired in the future.
If you take the example of oil -- once the price of a barrel goes over a certain threshold price, you'll go and explore new wells that were previously not profitable. And you will eventually get more supply after a while. That's just not the case with Bitcoin (and probably Ethereum after next year).
You can't suggest with a straight face that all the speculation in bitcoin is because of its potential and not because people see the price going up and decide they're going to buy with intent to sell too.
And there you have my coarse investment target (probably adjusted for inflation or M2) around which I'll exit
I built a site to calculate how far we are away from that target and what any portfolio would be worth by then (cryptoport.net)
At the moment it feels like a parent warning a child - at some point you have to decide to step back and let them learn the painful lesson for themselves
A better way to calculate this fake P/E ratio would be to look at the total USD volume of Bitcoin transactions and take 2% of that as the "earnings" logic being that if a coin were a credit card like company their earnings would be 2% of thier transaction volume. Still a bit of a contrived metric but at least related to the economic activity taking place.
What kind of logic is that? Holding bitcoin doesn't give you any earnings. In fact, you need to spend electricity and equipment if you want to collect those fees.
Apples and Oranges.
Well, holding USD gives you inflation (i.e., negative interest).
Holding BTC doesn't (assuming the 21 mn are already priced in).
Holding 1 USD will give you 1 USD after 1 year.
Holding 1 Bitcoin will give you 1 Bitcoin after 1 year.
You are confusing the unit you are holding with the value "vs" another unit. That depends on the market and the external factors (like inflation, interest rates, etc...)
But holding 1 Unit will always give you 1 Unit of whatever you are holding.
Yes, you have the same amount but no it doesn't purchase as much as it did one year ago. Units of accounting only make sense within a context of other units of account.
A dollar by itself is just a piece of paper if you cannot buy an amount of wheat, water or square meters with it.
And by that measure the dollar is losing value vs a bitcoin.
When you hold 1 Stock, at the end of the year you get a dividend. You divide the dividend by the stock to get the P/E ratio.
That's not the same with USD or BTC. Its value fluctuates but it generates no income on its own.
A better parallel is gold, which is a store of value that produces nothing of value for its owners, but is valuable because the supply is limited and there's a collective belief that this shiny metal is worth much more than its practical uses.
Bitcoin is going up because of those same properties. If supply ever becomes unlimited (say, there's a critical bug found), or its investors lose faith, it will crash.
An investment is when you work to receive something you don't want, but that you think other people will want in the future so that you can exchange it for things you do want. If you work for money then you do investment. By working for money you are betting that when you need food at the end of the week the shopkeeper will take your money.
Investing in other things is no different. You make a bet that people in the future will want to trade the thing you buy for things that you want at that point. For example, you could buy a small amount of gold every month and when you are ready to retire buy an annuity with the gold. That's if anyone actually wants the gold in 30 year's time. If they don't then you'll have to eat the gold.
People often say that cash is a bad investment, but actually it's really great as long as you plan to spend it soon. What they mean is it's not a good long term investment, of course. But cash stays valuable because unlike other things you can exchange it for things you want almost immediately. Bitcoin is now not like cash because of the high transaction fees. So it now competes with things like gold. So you have to ask yourself: what do you think will still be valuable in 10, 20, 30 years time? Gold? Bitcoin? If Bitcoin isn't a yes for enough people, then it's a bubble.
There are businesses being run on and around public blockchains and the cryptoeconomic incentives will ensure the perpetuation of the network. As long as there is value in maintaining public blockchains, their tokens (BTC, BCH, ETH, etc) will hold monetary value.
I think the logical fallacy that’s occuring right now with critics of bitcoin’s price rise is that all bubbles has dramatic price rises (Pets.com, endless bullshit dot com IPOs, housing bubble) but not all dramatic price rises are bubbles (currency collapses)
Because bitcoin is measurable scarcity one can provable show it’s a good store of wealth.
OTOH, the ICO binge is an apt analogy for the IPO craze of the 90s. Investors are buying up securities with no viable business model expecting returns which isn’t going to happen on software that anyone can copy and run themselves. It doesn’t take a $200 million raise for a few engineers to build an MVP. It does take $200 million to run a successful Ponzi scheme (ICOs are probably not scarce and are therefore improper stores of wealth)
What makes Bitcoin special?
If you create a company and copy Facebook's code, the resulting company will not be worth as much as Facebook.
Why? Because much of Facebooks' valuation derives from its network.
Bitcoin is the same.
https://fork.lol/pow/difficulty
Bitcoin is 7X scarcer than bcash.
what? dude that's some serious misinformation you're spreading here
Anyone can fork the codebase, or even the blockchain, or one of the many other blockchains out there. There is absolutely nothing provable about BTC as a store of wealth.
The amount of leaves produced by the cherry tree in my back garden during its expected lifetime is limited too, that doesn't make them a provable store of wealth.
Let's rewrite the above as follows:
>Anyone can copy Facebook's model, or even its code, or one of the many other social networks out there. There is absolutely nothing provable about facebook as a good social network.
That's a false analogy. You can rewrite it that way if you like, but it doesn't actually show anything.
The OP claimed that "one can provable show it’s a good store of wealth."
That's more akin to saying that facebook will provably continue to be the top social network. You can't prove that, and much like with cryptocurrencies it depends on what else comes along, how facebook continues to perform and whether people lose interest in the whole area of social networking (or cryptocurrency).
BTC has been around a few years. Saying "It has scarcity therefore I can prove it's a good store of wealth" is bollocks, sorry. Lots of things have scarcity.
I actually agree with you on the most part, you really can't prove that Bitcoin is a good store of wealth.
I am making an educated guess that a cryptographically secure way to transfer value for very cheap is probably here to stay, but it's far from provable.
In fact, if it were provable, it would become a very crowded trade and the returns would drop to zero immediately. The fact that it's unknown allows for potential greater returns (and greater losses if people who agree with me are wrong).
Facebook is not just a code or just a network. ICQ had a network. MSN Messenger had a network. Heck Google actually has a network.
But without providing value, a network is not worth a thing.
This may be true for some idealists, but most people view Bitcoin as an investment and haven't "exited" the USD ecosystem anymore than if they'd bought shares or bonds.
I reckon there would be a lot of sellers if the price went to $1000.
I think you may have this backwards. Your example currencies all tanked against USD. BTC is appreciating, heavily, against USD.
> so they’re clearly exiting the USD ecosystem
Sorry, are you suggesting that there's currently a run on USD? Because I'm pretty sure there isn't.
What you have here is pretty standard speculation in the price of BTC. I don't think you can read a lot more into it.
> Because bitcoin is measurable scarcity one can provable show it’s a good store of wealth
One can't, provably, do anything of the sort. It might prove to be a good store of wealth but neither its scarcity nor its current price gymnastics are indicators one way or the other.
You don't understand how Bitcoin and Proof of Work works. The block hash in the following block is a measure of how scarce or rare it was to produce the bitcoins that were minted in this block: https://insight.bitpay.com/block/0000000000000000002c8fe4629... If you don't understand how scarcity works in a blockchain, the rest of your points are pretty suspect.
>Your example currencies all tanked against USD. BTC is appreciating, heavily, against USD.
Yes currencies have tanked against each all throughout history, whichever is the weakest tanks the first. Quantitative easing and other forms of inflation executed by the Federal Reserve.
>are you suggesting that there's currently a run on USD? Because I'm pretty sure there isn't.
Yes literally this is what the BTCUSD price plot is showing you. Wake up. the ZWDUSD looks the same. People dump bad money. They are dumping USD for something that doesn't inflate away their value.
> Yes literally this is what the BTCUSD price plot is showing you. the ZWDUSD looks the same.
So you're equating the current performance of USD with ZWD? Wow, ok. I've changed my mind. I'm more than happy to sell you those pictures in exchange for just a few thousand of those worthless US dollars.
I find this an incredible shame. Bitcoin is a very interesting experiment and we have learnt a lot. It's by no means perfect but the major limitations are fairly easy to see and, I think, could have been rectified. I have a horrible feeling that the ignorance that seems to have surrounded it will not only kill it but make the whole idea toxic.
Scarcity is literally the only thing that makes goods valuable in a capitalist society. This is basic econ 101. Gold is more valuable than air because it is scarce and hard to produce (mining is the only way to generate it). If you think that an entity, that your children can at their will generate in any quantity is scarce, it means you're confusing uniqueness and scarcity.
If you're certain that bitcoin is doomed to fail, you certainly should be shorting it or selling calls / buying puts above spot price. Are you? You're a fraudster if you advocate a position for which you have no downside exposure in case you're wrong (Doctors who advocate patients to take drugs they haven't assessed the side effects are morally bankrupt).
Feel free to remember this thread in 10 years.
Here my reasoning:
1) BTC takes too long to make a transaction ( 2,5 hours) which make me kinda doubt the use case.
2) the enterprise is adopting the blockchain, which is irrelevant to bitcoin. If they would do crypto, they will create their own coin.
3) the guy further in the street is also buying crypto ( not in IT). Which for me, is a sign of a bubble. He knows nothing about the tech. It won't ever be used for the original porpose at this valuation.
4) First time adopters are going out now @ 10 k., check out reddit: https://www.reddit.com/r/Bitcoin/
5) The HODL meme is currently blocking the bubble to burst. Some people are willing to HODL even when 75% fades away. PS. Banks won't adopt the HODL meme :)
I have second doubts though, it truelly is an amazing tech.
But bitcoin for me is something like art or gold (scarce, durable) easily, securely transferable to anyone on the planet within less than a day without the need for any third party.
That's bound to be worth something.
Holding them doesn't mean you get the transaction fees, and increasing transaction fees would lower the 'P/E' but make bitcoins obviously worse to have or use.
The second part looks like nothing to say, backed by a lot of non sensical numbers, but I'm not a native english speaker and also generally don't read nor like economic "analysis", so I may be wrong
I don't see any plausible justification for this assumption, in fact it seems like it is trivially disproved. The US dollar has no transaction fees, so it's price-to-transaction-fee ratio is infinite. This whole article is based on a false premise.
Absurdly idiotic analogy, as holding the underlying is in no way related to the revenues that miners earn.
https://bitinfocharts.com/comparison/transactions-btc-eth-bc...
Anyone see a trend...
https://bitinfocharts.com/comparison/transactions-btc-eth-bc...
Could now blacklisted Oligarchs who were previously using western financial institutions to launder their money now be using Bitcoin instead?
That way you get new "clean" coins.
Rumor has it that they’re using those tethers to buy btc on their own exchange and manipulate the price.
Once people realize those tethers are worthless and they can’t withdraw dollars, they’ll start using them to buy btc at any price and withdraw them on the exchange causing a massive run up in btc price as they make a run on the bank. It’s not really an increase in btc price but hyperinflation of tethers.
Didn't they just recently say they're not backed 1-1 by USD?
Cryptocrruencies (for me) are meant to be used, exchanged, a good metric to value a cryptocrruencie should be the 'cash flow (? exchange of money per unit of time)'.
Bitcoin is actually inefficient with its high transaction fees.
This is probably one of the only the downside of crowd moderation. This would be an interesting phenomenon to investigate if someone have access to HN logs.
The cheque is worthless by itself.
Tulip reference - check