S&P Dow Jones Indices to launch cryptocurrency indexes in 2021
reuters.com
reuters.com
What a time to be alive. No wonder the S&P 500 CAPE ratio is beyond the 1929 high. No one has any idea of what the intrinsic value is of anything.
Investing in companies that don’t make a profit, investing in companies whose investment returns are below real inflation, investing in SPACs that don’t expose financials.
You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.
What a time to be alive. No wonder the M2 money supply is at an all time high. No one has any idea of what the intrinsic value is of anything.
I don't have strong opinions on fiat vs crypto, primarily because it seems like a boring question. Whatever currency is the future, currency isn't the present or the future of investments, productive assets are.
Scare quotes used because a ton of the price of those assets now reflects a monetary premium. I.e. a portion of the price of a house is its value for living or renting out in a given area, but a lot of it is its value as a scarce asset that is somewhat resistant to inflation.
Needless to say, this is not a great allocation of resources and is an incredibly inefficient way for saving to work.
So you’re suggesting this is a bad thing? And the alternative of hoarding unproductive assets is preferable?
> houses...a lot of it is its value as a scarce asset that is somewhat resistant to inflation.
The reason houses are expensive has nothing to do with being resistant to inflation. They get expensive when the supply of the land they sit on gets used up relative to the number of people who want to live in a given area.
Houses in rural Kentucky aren’t expensive at all, because nobody wants to live there. That’s the main factor driving prices, not some inflation hedge. If the only reason people bought houses was to hedge inflation, they’d be better off buying stocks which are even more productive and produce returns above inflation.
> this is not a great allocation of resources and is an incredibly inefficient way for saving to work.
After reading this, I could not be more confused.
So you’re saying that, the inflation mechanics of fiat is bad because it encourages people to invest in productive businesses and build useful real estate? And it’d be more efficient for society if everybody kept a useless stash of gold bars in their basement and took no risk?
How would this make less people want to live in SF and houses suddenly cheaper?
The end result is an enormous asset bubble as their only solution is to print money to prevent any actual deflation from happening as that would implode the financial system.
Pretty clever trick but it’s only a random accident of the financialized systems that make modern life possible. It’s like how all the pandemic chaos only increased corporate profits and government power.
It’s just endless consistent accidents that never benefit 95% of people.
Could it be that all this worry about printing money really doesn't matter?
We are in an era where saving does not exist, where interest rates are negative.
The value of US currency is backed, whether you like it or not, by US's military might. Very much not nothing
You have it backwards. The military is an instrument in protecting the US dollar's dominance, control and influence as a reserve currency.
I'm pro crypto, but this is ridiculous.
No intrinsic value? I can spend my dollars anywhere in the world with no input or reliance on any other entity. They might be the most valuable asset on the planet.
USD in paper form can also be burned for warmth, or used to write on. In coin form, it has the same intrinsic value as the metal.
However once you have them, you get rid of them. Good assets don't lose value over time. https://www.statista.com/statistics/1032048/value-us-dollar-...
- Medium of exchange
- Store of value
Fiat currency has utility for both. If crypto was more widely accepted by merchants (thereby satisfying bullet point #1) then this certainly changes the game. But it's not.
Comparing both in their current capacities is disingenuous.
It is at the whims of whoever decides the interest rate.
Which is precisely what makes it a fiat currency - its value is determined by a government entity.
> A US Government 10 yr bond currently yields 0.91%, and has been falling consecutively since its peak in 1981.
You know there are other fiat currencies right?
> not sure how you determined there is much utility in using it for saving.
"store of value" doesn't mean simply saving, it means the asset doesn't depreciate. The alternative to a fiat currency is to hold your goods as is and barter them, which relative to a fiat currency is a bad idea. Your cow eventually dies, your milk eventually soils, your tree eventually dies, etc. etc. In other words those assets all eventually depreciate to zero.
Bitcoin is interesting because it's possibly the biggest actual wealth destructor from all tradeable assets. Companies can have large losses on paper, but how much of that is actual wealth destruction, and how much just redistribution to new owners? I suspect the fraction that's actually gone in the physical sense is very small, allowing wealth to slosh around for a long time. Bitcoin's proof of work is designed to actually destroy wealth in the physical sense - transformed into waste heat and devices designed to do nothing else. This means that it's eventually certain to be outcompeted even by redistribution-type loss schemes, as groups that stay away from bitcoin completely are going to be increasingly wealthier relatively to groups that buy into it.
In the short term it may not look like it, but what's happening is social redistribution of power away from people that think bitcoin is a great idea.
https://www.goldbroker.com/media/image/cms/media/images/glob...
Would Gold become a net destructor if jewellery demand declined for some reason?
While I'm definitely not a fan of crypto currency and wouldn't seriously consider investing a single Euro into this mess, it's certainly misguided to simply laugh at it being "not real", because a lot of important things are. Obviously the gp makes some other important points.
Also, stocks don't really produce cash flow either - A dividend drops the price of each stock by the equivelent amount. So if you get a 3% dividend a year, the stock price is dropping by the same amount.
I will say, it is easier to quantify that Apple/Google/other company is in an industry and makes things, and has revenue/expense to look at and thats why they are worth xyz today. I can't explain why bitcoin goes up or down. (other than whale buys a bunch, so the sheep follow)
I don’t know where the concept of dividends dropping the value of a company came from, but from a transactional point of view it doesn’t make sense. Sure, there are more earnings that have not been retained for increasing future earnings, but the value does not drop correspondingly. That’s just not how companies are valued.
3% of earnings going to shareholders just does not at all mean the company drops by 3% in value. Companies are valued in a number of different ways, but not one of them is based on a 1:1 proportion of earnings. Earnings multiples, yes, but what you’re suggesting is companies drop equivalent to being valued at a P/E ratio of 1.
A company making 1 billion in earnings is not worth 1 billion dollars. Certainly not a majority of the time, at least.
I am well aware of this myth, but not from where it originates. Yes, certainly cash on hand drops which affects valuations, but not by as much as you’re suggesting.
I don’t understand your comment about stocks not producing cash flow. You’re buying part of a company. You’re not buying the certificate.
But this is not what's being claimed. Dividends are measured relative to stock price, not earnings. And a 3% dividend - that is, a per-share dividend equal to 3% of the share price - absolutely does cause the price to decrease by 3%.
It's pretty clear why this must be the case - it's one of the weakest possible forms of the efficient-markets hypothesis. If it wasn't the case, people would buy (sell) the stock just before the dividend and sell (buy) just after for a nearly guaranteed profit.
Because of transaction costs there is in practice a zone where they should neither raise nor give dividends.
Close to the optimum a dollar in dividend will change the value of the company by approximately one dollar.
Well, there's taxes for example.
Here is the reason the stock price drops by the dividend amount.
Dividends are issued to the person holding the stock at the date the dividend is issued.
This means it is possible to buy the stock one day before the dividend issue date, hold the stock for another day which then entitles you to the dividend and then sell the stock the following day.
So you can hold the stock for just three days yet still get the dividend and the price drop accounts for this possibility.
If the price did not drop that would effectively equate to free money, as you could take out a three day loan to get the dividend and the interest on that loan would be way less than the dividend amount.
As such it is capital market forces that is causing the share price to drop.
Is that any different than a stock though? You can’t spend stocks, they don’t produce cash flow (ignoring dividends), and their value is what other’s are buying and selling it for.
Just as I can offer to sell my share for $10,000 despite it trading at $100, I can do the same with Bitcoin. There’s a reason some people call Bitcoin an “investment.”
Now, before anyone thinks I’m advocating Bitcoin, I’m not. I’m just pointing out the similarities to the stock market.
Say you have a drywall company in town. You and the owner are good friends and the owner wants to retire but doesn’t have a family member who is interested in the enterprise. He seeks out buyers. You mention to him you’re interested but you have to ask yourself how much you’re willing to pay for the business, its fleet, tools, leads and customer database, current lease agreements, employees, etc.
Someone has to value that, because it intrinsically has value. It’s not worthless. You can’t rebuild a multimillion dollar business over night.
So it turns out if you have this entity that produces cash flow, it’s worth something. So how much are you willing to pay for each dollar of earnings? At the end of the day, that’s what a business produces for its owners.
If you invest in large companies on the public stock market, it's about the same as investing in cryptocurrency.
1. If companies don’t care what they’re valued at, it makes M&A infeasible. A business could never be sold.
2. Selling equity is done to raise cash. If no one cares what the business is valued at, equity is worthless, and 1. is infeasible.
I used to think that, but then I saw what happened to TSLA this year. I don't think that these markets are as different as you think they are.
But Bitcoin was designed to be a currency. Certainly the software is worth something. Or maybe nothing really. Look at other FOSS.
As far as a currency goes though? I don’t want my currency to fluctuate.
The idea of bargaining with an employer or client to pay me “more” this week versus last because the value of the currency dropped 11% is ridiculous.
Bitcoin is dead on arrival because it’s design doesn’t evade the central banking problem. A currency cannot have a limited supply when value as a production of labor is not limited.
Whatever drives the value of shares it's not voting rights.
Well, this is a bit of an unfair premise :) the whole point of equity is that it is a claim on a company's future profits, and companies return profits either via directly via dividends or indirectly via buybacks (which push up the value of existing stockowner's holdings). It's easy to forget this in startup land, where most companies are unprofitable and thus have no profits to distribute.
When you invest in stocks it is sort of like giving a loan to a corporation so that they can spend your money on growth, to create more profits, which allows them to become more valuable. That is why stocks are expected to continually grow in value over time.
Bitcoin might be many things, like a store of value, transaction network, etc., but it is not really a long term investment vehicle except maybe as an inflation hedge.
Nobody is claiming that stocks will replace fiat currency, though. In fact, it makes no sense.
- Picking the right businesses to invest in
- Investing in Crypto(used to be easier than it is now)
- Convincing shmucks to invest in the wrong business
- Investing in index funds
ROI if executed successfully(highest to lowest) - Starting the right business
- Convincing shmucks to invest in the wrong business
- Investing in Crypto
- Picking the right businesses to invest in
- Investing in index funds
strategic money making popularity scores
Don't try this at home. Very few people do this well. Those that do make a lot of money.
- Picking the right businesses to invest in
- Starting the right business
The "Dominant Strategy" of the market right now
- Convincing shmucks to invest in the wrong business
If you know what you're doing
- Investing in Crypto
What shmucks should do
- Investing in index funds
Well yeah, starting a business is literally the riskiest thing you can do with a wad of cash. Much riskier than cryptocurrencies, riskier than most casinos. Of course it's going to have higher potential upside, but 75% of companies go completely broke within their first 15 years.
Demand is not only coming from people falling for the "greater sucker" theory. You're either ill informed on the topic or being dishonest.
This is a fantasy put forth by Bitcoin enthusiasts that's not supported by the facts. The average cost of a bitcoin transaction is currently ~$7.5USD[1]; nobody in the unbanked world is spending the cost of 1-2 Nokias to make day-to-day purchases.
> Another example is how it is providing a way for people in hyper-inflationary economies like Venezuela to store value.
This isn't true. Zelle's ability to store actual USD make it the preferred means for storing digital currency safely in Venezuela right now[2]:
"Ecoanalítica, a local consulting firm, estimates that 17% of transactions at retail establishments in Caracas go through [Zelle] and that other Venezuelan cities are seeing similar usage levels. The actual figure may be larger, considering the data do not include smaller shops."
Accusing others of being ill informed or dishonest while yourself pushing forth maximalist narratives that aren't grounded in reality is a bit rich.
[1] https://ycharts.com/indicators/bitcoin_average_transaction_f.... [2] https://www.bloomberg.com/amp/news/features/2020-11-11/zelle...
> You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.
Yes, this incredibly vague statement is almost tautologically true. You can definitely think of a business that will make more money than some cherry-picked example of an investment that lost money. Bravo.
Crypto businesses are very lucrative so don’t be too busy asking why when you should be asking how
The law of large numbers, in this case—the speculative experiment of seeking returns from assets that do not produce value, will iron this out. History does not repeat, but it rhymes often enough for those who know the tune to sing along.
For starters, you should probably start over on whatever you think you know about the tulips. Primarily its relation to tulip derivatives and the spot market of tulips, and the government's role in the dutch derivatives market at that time. And secondly, the length of that asset price distortion, compared to the crypto markets.
Of all the endless knowledge that humanity produces, you have to ask yourself whether or not there’s meaning in pursuing topics endlessly.
They’re flowers. This isn’t a discussion about some ECON 500-level course topic.
There’s an academic argument to be had about whether or not the accounts of the event are credible, but that’s not what we’re talking about here.
Do you have any examples of a bubble which
- lasted more than 5 years - recovered from previous drops in value of more than 50 %?
What kind of evidence would convince you that bitcoin were different from these past bubbles?
Plus the Lindy effect. If it's lasted 10 yrs, it's likely to last another 10.
You refuted yourself in the second paragraph. I suspect that crazy cash and financial instruments are crowding out the value of business investment.
You can spend it.
> does not produce cash flow,
Neither commodities nor currencies produce cash flow. People still reasonably invest in both.
> and whose values are determined by other shmucks buying it from previous shmucks.
The value of every other asset in existence is also determined by this process.
TL;DR A lot of investors buy high and sell low. We're seeing that now with crypto as well as US stocks.
Right. Small businesses are just killing it these days.
I take its value that its supply doesn't unexpectedly increase by a single entity's decision but controlled and doesn't also need the help of another entity to transfer.
Not sure if you call that intrinsic value but there is value.
It underpins major perspectives on investment, monetary and gov policy, and individual agency. It is infuriating, but it has worked spectacularly for a long time and has just enough truth in it to keep people building castles in the air.
re intrinsic value - i think that intrinsic value is a fiction. there is always a market value. i don't know what the hell "intrinsic" value is and how useful can it be.
Tether's total valuation is $19.4 billion. It's a drop in the bucket.
> Research by John M. Griffin and Amin Shams in 2018 suggests that trading associated with increases in the amount of tether and associated trading at the Bitfinex exchange account for about half of the price increase in bitcoin in late 2017.[29][11][23]
https://en.m.wikipedia.org/wiki/Tether_(cryptocurrency)
:)
In the past, ethereum was also highly automated trading.
Anyway, the reason you buy it is so you don't need to manage the security.
Both Binance and Circle Pay ended United States operations causing my friends to either move their Bitcoin or they didn't and had it sold at 3k/coin and can get it from their states "lost money".
Start a business, build a product. If you have excess cash by all means invest in crypto assets and startups.
How is any cryptocurrency even considered an investment vehicle? I would classify myself as Boglehead and I believe in the fundamentals of investing in stocks because in all it's technicality (and given the buy-and-hold strategy), you are investing in a business by owning a part of it which naturally means that you will and do get the returns on it, both in terms of profits (dividends) and and value growth (appreciation of the stock value). And conventional wisdom of lending also applies to bonds.
That being said, again, why would cryptocurrency ever be considered as a good investment vehicle? Isn't it analogous to me investing my money in buying USD or the British Pound (or a well diversified currency ETF), something I don't see a lot of value in as well.
Here is how it'll work
- in 2021, an improvement to the Ethereum network known as EIP-1559 will launch, causing a portion of all new transaction fees to be burned/destroyed, which is effectively a "stock buyback" for ETH. This will be the first time that ETH holders receive any kind of "earnings per share". But, it's not enough:
- EIP-1559 alone is not enough for ETH to be a profitable investment from a cashflow perspective. The problem is that Ethereum's proof of work mining is extremely expensive, like Bitcoin's. Ethereum will run at a "net loss" until proof of work is discontinued.
- two days ago, the Ethereum v2 "beacon chain" launched after years of research and effort. This "beacon chain" is currently not used for any ethereum transactions and won't be for two years. Here is a 3rd party UI for exploring the beacon chain https://beaconcha.in/
- in 2022, the main ethereum blockchain will merge with the new ethereum v2 beacon chain and proof of work mining will go away forever. The new system, proof of stake, is dramatically less expensive. It's so cheap that it's effectively free.
- in 2022, with proof of stake fully live, ethereum's transaction fees will effectively accrue to ETH holders and there will be no material expenses to offset this income. The result is that ETH will become a real investment vehicle from a cashflow perspective.
Learn more https://ethereum.org/en/eth2/#roadmap
That is how Ethereum works. Validators get returns from Ethereum by holding shares, i.e. ETH. Validators, after EIP-1559, will be paid with newly minted ETH and anything over the base burn fee. (Currently there is no mandatory burning of fees.)
To stake in ETH 2.0 a stand alone validator needs 32 ETH (~$20,000). It reminds me of Outback's business model of requiring managers to buy in as stake holders (https://hbr.org/2005/09/a-stake-in-the-business).
This is before all the crazy features that can be built on top of eth-as-programmatic-money, such as lending. https://defipulse.com/
It sounds like investing in Visa...but an infinitely worse, less profitable version of Visa with 100000X smaller dividend payouts.
Before then (1931 for the pound and 1933 for the dollar, though they maintained de-facto parity with gold until 1971), dollars and pounds were considered good investments. That's why we had bank runs: people thought their money would be safer under their mattress, and preferred to own physical currency rather than numbers in a bank's ledger. The only reason holding USD is a bad investment is because inflation is basically guaranteed: you know that a dollar will be worth less tomorrow than it will be today, because the authorities that control the dollar say so. Not so with Bitcoin: the total supply is fixed at 21M, forever, and there's no central authority with the power to change that.
[0] https://en.bitcoin.it/wiki/Economic_majority
[1] https://bitcoin.stackexchange.com/questions/3945/how-could-t...
It is not appreciating because fiat money is being devalued. That can account for -- at max -- 20% of the price increase.
It's appreciating because of speculation.
And, of course, they could freely choose to make Bitcoin2 have a trillion tokens instead of 21M, or whatever number they want.
But as TFA indicates, there are over 500 other crypto coins. When anyone can create a new one they become irrelevant.
With cryptocurrency, you're right they're not an "investment" in the traditional sense. Right now more of a long-term gamble.
In my opinion the value is in the network and the ability to move money instantly (or at very least faster than traditional methods), securely, to anywhere in the world for a fraction of a cent. That ability alone is valuable and hasn't existed until now.
There are other arguments along the lines of deflationary vs. inflationary, anonymous vs. private, irreversibility of transactions (no charge-backs) that are good or bad depending on your views, but in general crypto represents a brand-new "investment" (or gamble if you like) for this generation.
The different cryptocurrencies that various teams are building follow different philosophies, but I think the space in general is pretty interesting.
I spent some time working in a relatively-unknown but high volume clearing bank.
Banks can and do move billions instantly, and have done so for years through SWIFT and ACH. It takes literal seconds for a confirmation to pass through different clearing networks around the world.
Even today, we're seeing banks improve their correspondence networks with each other.
For example, you could have a Transferwise Account where you receive USD and convert to GBP.
If you wanted to move that to a Monzo account, you can do so instantly as Transferwise and Monzo have accounts either with each other or in the same institution.
The bank debits and credits each counterparty immediately.
At the end of the day, it nets its position, then sends its report to the central bank, netting positions between other participants.
Looking at crypto from the outside, I really don't see the added value based on existing infrastructure.
It seems more like a proof of concept rather than a viable long-term asset.
I actually think that the nation states really missed out when they didn't mint their own cryptocurrency that has the same value as their physical money. If they controlled a currency completely, they could tax every transaction! Surprised they didn't jump on this.
Talking about value, isn't blockchain / crypto analogous to a medium that enables moving money quickly? If yes, internet would be similar in some sense (we have instant local money transfers these days) but we don't have anything that tracks internet as an investment.
Coming back to it, I can rationalize myself investing in a money transfer business that is build on blockchain (think Transferwise that uses a mix of technology and banking agreements) and generates some revenue for me. But if that middleman can be removed, I cannot suddenly start considering that piece of technology, an investment.
Storing of value is not just "hoarding", useless activity. It is an important ingredient in making many of the business processes and just things work in general. It is a very impotant function. And thus if we have tools that make that function work well, - they will be valueable.
And as it turns out, there aren't that many things that work well as a store of value. It's not like you can take any thing or instrument or contract or whatever else, and make it work as a store of value. In some sense, the ability to act as a store of value is scarce in itself. We already have some instruments, like gold, properties, land, etc. Stocks and ETFs and such are also kinda a store of value, but have a lot problems (but also other functions besides just storing the value). So yes, we welcome another way to store value, this market is by no means saturated as it turns out. Gold has it's own problems.
A 10 year old asset that has wild price fluctuations is a "store of value"? By what measure?
Gold is a physical thing that is scarce and has real uses other than being treated as 'money'. We have only mined a cube with 28 meter sides of gold from the dawn of time! It's useful- that's why it has value.
If it wasn't useful (pretty for jewelry and an essential industry product) then it would be fairly worthless.
You say crypto is scarce? The scarcity is artificial, and you can create an infinite number of crypto currencies...
Everyone is investing in bitcoin on the promise that its going to be so much more useful than dollars, in the hopes that they will make a lot of... dollars? Do you see the contradiction? If they think it's going to be so much better than dollars what are they going to do with their long term investment dollars if, in the long run, bitcoin surpasses them?
Don't use economics terms to explain the usefulness of bitcoin when economics itself disagrees.
You're not alone if you feel that cryptocurrency doesn't make sense as an investment vehicle, but the HN community will make you feel crazy for not seeing what a great thinking this is an incredible new opportunity and "things are different this time!"
There is no better indication of a bubble then people telling you that you're the crazy one for questioning it. I remember people telling me I was crazy for not buying a house in 2007, and crazy for not trading tech stocks in 1999.
I'm not sure that's a good indicator with so many counter examples: the internet, large touch screen phones, Cloud in the earlier days, etc.
We truly have no idea what the future if Cryptocurrencies are.
The HN community is strongly hostile to crypto. Few people here like the downvotes when they speak positively about crypto, although I keep taking them!
Bitcoin's total capitalization today is $200 billion. The total value of the dollar is harder to measure and depends on what you count as money or just money-like. But M3 is $20 trillion, and add in short-term T-bills and money markets and it's substantially higher. So in this scenario, it's possible for BTC to rise from $20,000 to $1,000,000+ or higher.
Given that, I think it's prudent to allocate 1-2% of your overall net worth to crypto exposure. Especially because we expect it to out-perform in high-inflation/low-growth environments, which is the worst environment for traditional 60/40 portfolios.
I'd say it should be called a speculative vehicle. The word speculative carries a negative connotation, so financial companies won't make money off of bitcoin trades, so hence the name investment vehicle. It's as manipulative as the name almond milk, which is not really milk.
Except that is not technically true. Unless buying stocks purely for dividends, you are investing in a secondary market of shares and the "value" you're talking about is the expected value the other secondary market participants will appraise the stock for, independent of the company's operations. There is only a directional correlation because there is a tacit assumption between the investors to equivocate between the two. If you look at the historical trends of P/E of S&P composite price index, prices have gone way more up than the actual earnings.[1] so there is an element of wishful self-deception here.
Consider this; bitcoin might one day build enough track record to prove itself a good enough investment for a large amount of people, and then the stock market will have to seriously compete with this non-derivative instrument for investment money of those people, which will reduce the price of stocks in aggregate, independent of the "value" of underlying company performances.
If you take that into account, crypto-or-not a currency is simply another instrument which we bet for the future expected value for gains. In fact, while the value of traditional currencies are backed by their purchasing power performance in a given market, crypto currencies theoretically don't have that limit because it has unlimited supranational reach.
Mind you, US stock markets have at most one century of roughly-comparable historical data, and that is just not enough sample size to make 30-50 year assumptions (speaking for retirement buy-and-hold strategies).
[1] https://en.wikipedia.org/wiki/Stock_market#/media/File:IE_Re...
I see Bitcoin as a store of value. Keeping some of my assets in Bitcoin keeps some of my assets out of the hands of governments and banks and will not be affected by devaluation. There's no risk of a bail-in [0] for example.
I don't invest all my assets in Bitcoin, currently perhaps 10% of my net worth. I do feel Bitcoin will rise to 100.000 USD in the next few years and possibly even 1.000.000 USD in 10+ years, my aim is to gain a total of at least 3 BTC or so in the next year. I just hope Bitcoin doesn't rise too quick in value in that time period, since I can only afford to buy for maybe 1.000 USD per month.
I might sell a bit of my Bitcoin assets after my total Bitcoin asset value reach around 500.000 USD, since at that point I should be able to take things slow. At that point I would diversify a bit more into ETFs or stocks.
Perhaps this video [1] by Raoul Pal can give you some insight in my point of view, as I agree with him on most points.
---
[0]: https://www.forbes.com/sites/nathanlewis/2013/05/03/the-cypr...
The most likely success story for crypto is it will be only for banks while regular people will be banned from owning it. There is simply no way a government will allow irreversibly hackable assets in the wild. There are no limits to the damage entities can do with anonymous GDP-scale wealth.
I would also point out that the market expectation clearly isn't aligned with currencies being 'in trouble' - very low inflation in general right now.
You're right that crypto currencies are not like equities. It's an investment vehicle in a similar way that gold is considered an investment vehicle.
>why would cryptocurrency ever be considered as a good investment vehicle
That's another question. I don't think it's a good investment vehicle.
Ethereum’s ETH token, for example, is an asset that will appreciate if demand of the Ethereum network increases for real-world business applications (not just financial payments). That makes it much more like investing in a limited resource (ex: oil) that will go up in value.
It’s still speculating, but most stock investments are close enough to speculation that you can’t really tell the difference.
Doesn't that tell you all you need to know?
There is a decade old meme of getting stock market gurus to comment about crypto and their sycophants repeating their predictably abysmal view of something outside of their wheelhouse.
Commodities traders never had an issue and volatility is also not an issue in that market. There are no “permabulls” in commodities outside of a few rare metals, and trading in those markets primarily factors in seasonal and cyclical supply and demand.
Buy and hold works ok in some crypto assets. But the permabulls that never traded anything else, and the stock market investors that keep a stock certificate their grandma gave them 20 years ago should just not be in this market.
You are conflating “good” investment vehicle with “valid” investment vehicle, where its a mixture of whether being a permabull works alongside whether enough institutions that you respect have said positive things. make your own choices about what you want to trade.
Where I get stuck, and maybe someone could help me here-- generally, you don't have to try to hard to imagine a future with cryptocurrency being more useful then it is today. That is, it is more valuable. BUT, why should that mean that its price should be higher? It's like looking at the pithy saying, "price is not value" in reverse.
some examples to explain what i'm saying, not necessarily what i think will happen per se
bitcoin replaces, or at least augments, gold as a "store of value inflation hedge" - in theory it should be a great inflation hedge. there are a limited number of bitcoin, 21 million max, but we keep printing trillions and trillions of new dollars. gold also doesn't do anything productive, it just sits there and acts as a hedge on inflation.
in this scenario, the market cap of gold is something like 8 trillion. if bitcoin takes some of this job, it's market cap must get a lot bigger. functionally, we have 8 trillion "dollars" of wealth that are currently stored in gold. if we wanted to "store" 8 trillion "dollars" of wealth in bitcoin, we can't currently. the entire market cap of bitcoin is only a few hundred billion. For it to be an inflation hedge on the scale of gold, the price has to rise tremendously.
this same calculation can be done for whatever potential usefulness you come up with. Like if you think it can replace the USD as a reserve currency for setting international oil trades, the market cap of bitcoin has to get exponentially bigger just to handle the scale of those markets.
now, i don't think it's likely to become the world's reserve currency, certainly not anytime soon, but if it were you can see where it would have to have more value to be able to do so. I do think it is a great inflation hedge, and I think lots of money managers are going to start recommending to client to put 1-3-5% of their portfolios into bitcoin as a hedge. That's happening right now. IF that goes mainstream, the market cap of bitcoin HAS to go up significantly to handle all that new demand, given that the supply is capped.
Yet, a somewhat sizeable category of people still invest in gold ...
Could it be that the definition of "investment vehicle" is broader that what you may have willingly restricted yourself to?
I have no idea where this thinking comes from that it's novel other than people are sold on the hype of the concept without thinking about the concept from a different angle.
If we did "Bitcoin by hand" and threw out increasingly large numbers, and whoever could figure out its factors would be awarded a ticket, and lets say there's only 100 million tickets, what would be the difference?
That it can't be counterfeited? That the central bank can't print more tickets? That's it? Wow, OK. You know, the counterfeiting issue isn't one that modern economies face in significant portion anymore. And if you wanted to prevent the printing of money, you could just ask your local representative to advocate for the US to go back to the gold standard.
Except it doesn't work anymore. So why would it work in software?
It seems lots of well known financial people are getting on board right now. It seems like a ponzi to me but those people aren't dumb.
A Ponzi Scheme relies on a central authority, BTC by definition has none.
Maybe you were trying to say "market manipulation" or "securities fraud?"
If you believe that more and more payments will be handled through it, its value will go up, thus making it a good investment.
If you take Bitcoin, there's a small pool of total Bitcoin and that's guaranteed by the technology. Each new coin costs real money to mine, due to needing physical compute resource to do so, and it gets harder and harder overtime. That means as more and more people transact in Bitcoin, the demand for Bitcoins will go up, thus your Bitcoins are going to be worth more.
Similarly for Ethereum2, there's not a fixed maximum, but there are set rates and limits that affect how much new Ether per year will be added. So there's some guarantees that there's a restricted supply. So again, if you believe that more and more people will rely on its network to transact, the demand for Ether will go up, thus its value.
Let's say you and I agree that a day's wages is worth 30 or so units of my currency--well pick any value, it doesn't matter for this example. And yet the currency keeps growing in value week over week. Should I not be paying you less and less over time? If the currency increases in value 7% in a month, should I not decrease your pay proportionally?
And are you really going to negotiate that day-to-day, week-to-week, month-to-month, year-to-year? What if the value drops significantly in the middle of the day? What do I pay you at the end of the week?
After all, the value of the currency is going up. I didn't decide the value of your labor was going up. It's staying the same.
This argument of technology + limited supply is fallacious. If the technology is so useful the coin can just be cloned with more supply. The technology itself doesn't force me to participate in a limited supply market in order to get the benefits.
If demand for fees in the ethereum economy outpaces supply, the price is likely to rise.
Aside: If I issue equity in my company, I'd do it directly on a decentralized network like Ethereum > IPO. I'd prefer to not have an underwriter like goldman sachs take 3%+ & manipulate retail investors.
ETH's fundamental value is that it's the only form of payment accepted to use the eth network. It can and does have secondary value as a medium of exchange but that's what's at the bottom and the reason you need ETH opposed to something else.
There's only 4 main assets classes:
1) Equity valuations are at all time highs by nearly every objective measure out there
2) Fixed income is really vulnerable to the onslaught of inflation that looks ever more likely with all the MMT that's been going on.
3) Real Estate is a possibility but not scalable and not tax efficient and takes a great deal of skill and time to execute properly. (not counting REITs and other real estate ETFs)
4) All that leaves is commodities: Gold and Bitcoin.
By the time you know what you're buying, it's priced in. When everyone agrees that some opportunity is amazing, they also agree the vehicle that provides it (shares, bonds, coins, whatever) has got to be expensive. At least more expensive than when it was just ideas.
New fiat currency is constantly being created and all assets are competing for the biggest possible chunk of that new money.
The reason why crypto is doing well comes down to a contrast between monetary abundance and scarcity. Some people in this world have access to an essentially infinite supply of fiat currency at 0 risk... So fiat currency is not worth anything to these people; so if these people start buying some scarce resource, they will quickly realize that it will drive up the price of that resource ad infinitum. The only other variable is how hard people HODL the asset.
If enough of these people buy up the same scarce resource, the growth of that scarce resource will outpace that of all other scarce resources.
Bitcoin is a speculative bet that it will become a popular global currency. The idea is eventually you will be able to use the bitcoin as currency once it scales up.
Bitcoin was originally worthless, now it's ~19k a coin. Anybody that bought or mined a large amount of coins back in the day and held on to them, is now rich, so a pretty good investment. The same forces that acted on bitcoin and brought it from worthless to 19k are still acting on it now.
Doesn't seem like it's very difficult to understand why bitcoin is considered an investment vehicle.
There are certainly good arguments for why may or may not be a poor investment vehicle or not the right one for a particular strategy, but arguments of whether it is one are moot.
Who knows what it will be used for, but it will be used.
And you certainly don't "own" it by owning Bitcoin. You can go download the software and own it.
If you are a boglehead, just stick to no-load, low fee diversified funds. It's the smart way to go for most people. If cryptos are worth investing in, eventually you'll get cryptocurrency exposure via the funds you own or maybe a dedicated crypto fund through vanguard or whomever. I wouldn't take any investment advice on a social media platform.
In this sea of non-sense economic reality, Bitcoin actually makes lots of sense.
BTC isn't very good as a currency but acts as a deflationary asset over time (i.e. there is a fixed amount that can exist).
I, personally, hold BTC as part of my portfolio simply because of it's ensured existence and massive upside potential.
I wouldn't put a terrible amount of my net worth into it, but a small fraction may serve you well in the future.
Short story. Had the chance to invest 300k in 2012 (~$10 per coin). Didn't pull the trigger. Too much net worth. However, I should have used ~10k (maybe a little more). Wouldn't be nearly as worried about $ as I am today if I was just a little more conservative on investing up front.
The cool thing about bitcoin is that this is a shared decision made by everyone.
Ok, technically, it is made by the groups contributing the majority of compute power to the network. And technically, central governments can be representative of everyone and therefor enable that same shared decision making but that's kind of a bigger discussion.
The point is, changing the network to "add more" BTC is probably much more likely than breakthrough replicator technology that can turn hydrogen atoms into gold atoms.
It would be, if those were hard (non-inflationary) monies.
In a hypothetical future equilibrium where Bitcoin is a world reserve asset, buying Bitcoin is approximately isomorphic to buying spoos or other wide-market indices.
How is any negative-yielding bond even considered an investment vehicle? I would classify myself as a Boglehead and I believe in the fundamentals of investing in bonds because it all its technicality (and given the buy-and-hold strategy), you are indirectly lending to a government by buying its bonds, which naturally means that you will and do get returns on it, both in terms of the interest (coupon payments) and value growth (further decline in those bond yields).
That being said, again, why would negative yield bonds ever be considered a good investment vehicle? Isn't it analogous to me investing in my money in a depreciating car, which will only lose value unless the car happens to have a random spurt of high demand that lets me unload it at a profit?
So, it's a speculative "investment". I suppose whether it's an "investment" depends on your definition of "investment".
2) Many crypto protocols are already capital assets that generate income streams. These income streams can be discounted to the present just like the income streams of companies. Examples: - Ethereum (ETH): It has multiple use cases such as collateral and gas for execution (think oil) both of which contribute to it's value as usage grows, but it's also a capital asset that can be staked and used to validate transactions to generate an income stream. This is not much different than real estate or farm land being used as a productive asset to generate returns. - MakerDAO: Protocol that generates a stablecoin (DAI) backed by debt based collateral (think mortgages against homes). The interest from minting DAI is repaid to unlock the collateral and burns (think stock buybacks) MKR. - Yearn.finance: Protocol that takes stablecoin (crypto pegged to USD) assets and generates returns across decentralized money markets. Returns have been averaging between 10%-35% APR depending on the pool and strategy.
Finally consider the current macro environment. Stocks generate a stream of future income based in USD and fiat currencies. In 2020, the central banks of the major currencies have not only increased currency supply by over 50% (FED balance sheet in march was 4.3T, today 7.2T) but worked with top level governments to hand out the new printed money directly to consumers which is now money that will be hard to pull back out of the economy and they did it while GDP and economic activity has been stifled.
So a larger amount of currency backed by a smaller amount of economic activity is a depreciating asset. If the return on equity of your profitable companies is smaller rate than the depreciation of the currency you have a negative real return.
In order to prevent this companies may start to transact in a currency that has a deterministic monetary policy and can not be changed by the whims of a select few bureaucrats. As the most stable and longest running crypto network, Bitcoin stands to be such an asset. See Micro strategy (MSTR) and Square (SQ) moving treasury reserves into Bitcoin.
The way you value Bitcoin is you estimate the amount of global GDP (140 Trillion) that will shift to transacting in it and then divide that by the velocity of money or how often it changes hands. This will tell you how large a marketcap it will have in order to support that level of economic activity.
So for example if 1% of global GDP is transacted in Bitcoin and it's velocity becomes something like USD (1.5x) or the Euro, let call it a velocity of 2 then: 140 * 1% / 2 = $700 Billion marketcap.
https://ycharts.com/companies/ETHE/discount_or_premium_to_na...
Aside: Seems covid is accelerating understanding & adoption of crypto.
I remember when I couldn't perform a wire transfer for a full week back in March '20 - at one of the most reputable banks globally. I lost money due to this. Never again.
Can you explain this in more detail?
In Swift it's common to specify a routing/intermediary entity which usually is a bigger bank or a branch in NYC/London to work around this mess. And surprise, you get terrible FX rates and magic fees on both ends. One transaction this year across my own accounts took 4 business days and cost ~$40, within the same continent across two top 10 banks. Now I do everything with TransferWise and it's much better. Hopefully soon I'll just use crypto. It's my own hard earned money, damnit. Fingers crossed.
The NAV of the fund is $100. A premium of 100% means that the fund is trading at $200.
This means that there is an arbitrage opportunity: https://medium.com/amber-group/grayscale-gbtc-and-ethe-arbit...
Offers a bit more explanation than the parent link.
> Grayscale Ethereum Trust is solely and passively invested in Ethereum, enabling investors to gain exposure to ETH in the form of a security while avoiding the challenges of buying, storing, and safekeeping ETH directly.
Launced in 2018[0], it was shut down just a couple of months later[1].
From the articles at the time, it seems that the major reason for the shut down was that the market was going down, and all investors saw losses (because it was 2018 in crypto). Maybe they will resurrect this idea now that the market is going up.
[0]: https://blog.coinbase.com/coinbase-index-fund-is-open-for-in... [1]: https://www.coindesk.com/coinbase-confirms-shutdown-of-crypt...
It may be a step toward a future index fund designed to track the index, the way SPY tracks the S&P 500 and DIA tracks the Dow Jones Industrial Average. But for now, it's only an index.
Also, index options enjoy the same better taxation that futures contracts do, as they are both Section 1256 contracts. Where no matter how long the trade is, 60% of the profits are taxed at long term capital gains rates and the other 40% are taxed at short term capital gains rates.
Gotta read between the lines :) This is a great step for what could be a wildly popular product.
And I might be guilty of being elitist, but I rarely, if ever, see founders with A+ tier credentials (Ivy league education, FAANG/Investment banking/Mckinsey et al) starting crypto businesses.
Most coins are also like penny stocks - the trading volume is so low that a single whale can cause big shifts in valuation, making pump and dump schemes extremely easy.
Look at the founders of crypto companies from top-tier VCs like a16z: https://a16z.com/crypto/#vertical-landing-portfolio
For example, short term btc futures are often trading at 30% annualized basis over spot. By taking on zero risk (except for exchange risk), you can easily capture somewhere between a 20 and 30 percent annualized return.
It's just too easy, and many professional crypto trading firms are making in excess of 25% per month with low net crypto delta
I wouldn't discount exchange risk too much...
Unless you have have insider information or get incredibly lucky, day trading crypto is a near certain way to lose money.
I know you said "most coins" and I think your statement is true, that the bottom 90% are shit coins, but the coins that everyone knows trade at higher volume than many popular stock tickers.
Why do you think people need credentials to create a startup if they have a good idea?
They don't. But good credentials are a signal in a crowded field where most projects are just whitepapers.
They might not matter in the startup world where you usually launch with at least an MVP. But in the crypto world, most new coins are just whitepapers. You at least need to know that the founders have the technical knowhow to bring the whitepaper to life.
[1]https://www.piedao.org/ [2]https://www.investopedia.com/news/daos-and-potential-ownerle...
This is all I needed to know. The markets are complete fiction these days. We are awash in bullshit investments with zero underlying value.
Its a little late, being the year 2020, to just notice that there are hundreds (and thousands) of digital assets with markets and communities, to validate your preexisting opinion
About a half decade late
and 1,984 dead scam coins
We've done about 100M in transactions. Some of the indices we built were a top 20 by market cap (10% cap), top 30 by squared root market cap.
If you guys want to check it out: https://www.hodlbot.io
- Does re-balancing create a taxable event? If so, given a bunch of these cryptos trade in BTC pairs, do you generate all the documents necessary to file taxes?
- What do you feel about the top 10 currencies changing so rapidly over time? I think every month (or maybe two) the top 10 list significantly changes. Doesn't that accumulate a lot of trading activity and fees? Given the volatility, is there any point to holding the top 10 instead of just holding solid / consistent cryptos like BTC and ETH?
if the rebalancing involves selling something, then yes you have to pay capital gains on it. The only way to avoid this is wrapping your trading activity in a ETF.
* In a loop i,j,k are the indices. Matrices have indices too.
* Databases have indexes. The things at the back of books are indexes.
Indices are things that represent a position in something. Indexes are the things — the literal “objects” or mappings or trackers.
Edit: interestingly, the title of the article uses the English, while the body uses the Latin (although in one case that’s because it’s from a name).
Edit2: Relatedly, I had a "shower thought" that even the most pedantic Latinophiles say "albums" instead of "alba". Although I also know a Latinophile who reluctantly used "alba" for a folder on his music app -- but that was only because "albums" was a reserved word.
This is a tangent to the article, but along these lines people love correcting “octopuses” as “octopi”, but “octopus” isn’t a Latin word, it’s Greek, so the “-i” ending isn’t correct.
That doesn't stop people from writing "virii," however. Both "octopi [1]" and "virii" are examples of linguistic hypercorrection [2], in which a speaker misapplies a known linguistic rule that seems to fit, but does not. Neither of these examples are attested in the source language the word derives from; people literally use them just to sound smart, most of the time.
Other examples are using "whom" in places where the correct word would be "who," not using a preposition to end a sentence or clause with [3], and to not split infinitives [4].
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[0]: https://en.wiktionary.org/wiki/virus#Etymology
[1]: https://en.wikipedia.org/wiki/Hypercorrection
[2]: I kinda like "octopodes" myself, but that may just be me.
[3]: Winston Churchill is frequently quoted saying something like "this is the kind of nonsense up with which I will not put." This is most likely apocryphal. See https://quoteinvestigator.com/2012/07/04/churchill-prepositi...
[4]: My favorite origin theory for this one is basically "you couldn't do it in Latin, so don't do it in English." Early grammarians frequently took inspiration from Latin, because its grammar was already well-codified, mostly due to it being a dead-ish language. See https://en.wikipedia.org/wiki/Split_infinitive#The_argument_...
It seems a lot like the difference between "vertices" and "nodes" in a graph. Go to the math department, and you'll hear people talking about vertices. Walk down the hall to the CS department, and it's all nodes, all the time.
I have no idea why this is, but I suspect some kind of cultural thing. Maybe the CS term and the math term originated independently? Kind of like how you talk about machine learning in CS, but a good portion of ML would actually be classified as statistics by the math and stats departments.
- horrible fees - slow transaction - risk of total loss (by loosing wallet, or exchange getting hacked) - no regulation
With the Bitcoin ETF I would be getting the following benefits
- lower trading fees on stock market compared to stock exchange - fast transactions - no risk of total loss, since ETF shares are protected (at least in Europe by UCITT) - the state standards and controlling mechanisms apply to ETF providers
Strongly agree that the best bucket is going to be composed of a vast majority of bitcoin and ethereum.
I don't believe crypto is on the whole in a bubble right now but the fact that Bitcoin Cash has a market cap of >$5B is one of the biggest things that makes me question that.
Been happily banking with my local credit union ever since. Try moving to a CU!
The Winklevoss Bitcoin ETF, years in the making, appears to be stalled as do the other Bitcoin ETFs.
We're definitely in an accelerated-transition period w/ an uptick in inequality, if that's what you mean.
So the markets are totally decoupled from the economy. Reality is gonna hit that someday and then, only then, will we see the panic go through Congress once again as they pass all kinds of amazing bills that while they do in the name of helping the little guy, it mostly provides protection to all these zombie corporations that need another dose of easy money to stay alive. So we throw away all this capital and keep the transfer wealth program alive that sucks the future out of the younger generations to keep the shareholders happy.
Socialize the losses, privatize the profits. It feels like we're about to reach a tipping point. The number of scammers, grifters, conmen is too damn high, even the president is one. What's happening?
I think all added its gonna be bad.
https://www.bloomberg.com/professional/product/indices/bloom...
That said, investment companies will frequently launch funds that track some index. So the investment products like what you're describing may follower.
It's not clear to me from the press release whether S&P Dow Jones are doing that here, or if they're planning to have a flagship index that lots of fund managers will be trying to track or beat.
As long as Tether continues to exist, any cryptocurrency USD prices should be taken with a spoonful of salt.
The only question is: "has the market priced this in, so the current price is a floor and we're waiting for USDT to fall away", or "has the market not priced this in and a major shock will happen when that shoe drops?"
But I think we could be seeing a situation in the next 5 or 10 years when the market cap of bitcoin grows somewhere between 10 and 50 fold.
Is it a coincidence that the two fastest growing assets are owned by people who share a common history?
Mark Zuckerberg is the biggest shareholder in Facebook and the Winklevoss twins are the biggest Bitcoin investors... That's no coincidence. It's all about social connections. Your social proximity to Mark Zuckerberg and Winklevoss twins determines your future success 100%. Everything else doesn't matter. If that sounds ridiculous, that's because it is. It's a giant financial pyramid scheme.
In any pyramid scheme, those closest to the originator of the scheme make the most money... The difference in this case is that they can keep printing money forever so the scheme doesn't ever need to collapse.
The sooner we realize this, the sooner we will be able to fix the monetary system and go back to normal.
The people with money do what they can to keep propping things up because they are the ones that massively gain on it. They can afford to keep risking and risking, cashing out when it's convenient and if they take a hit? Oh well, I lost 50%.. or 500m. But you know what? I still have 500 million fucking dollars! As opposed to the normal people in which a 50% loss is devastating.
It is such insanity how much money the people pulling the strings have. And they have convinced people "hey throw all your money into our gambling pot of doom!"