# One early investor's story about Bitcoin and criticism of Brendan's absolutist position



## elacsaplau (11 Dec 2017)

Hi Brendan,

*Firstly, BTC is an ultra-high risk investment. This post is not a recommendation to buy BTC especially at current prices. The investment guru that I respect the most is Jack Bogle who believes it is a bubble.*

There are so many threads on bitcoin now that I’m not sure which one to post in.

Taking all the threads and posts together (arguably, all inter-related anyway), I am a little taken aback with some of your comments and with what I feel is the adoption of an unjustifiably absolute position. I also believe that you have unfairly misrepresented me and others at various times during these discussions. I believe that I am not alone in having such thoughts - as other posters have tried to pass on a similar messages.

Previously, I have attempted employ humour to help present alternate views – so this time I think I will take a more direct approach. There are many comments that I feel are just too extreme. I have decided to choose to examine one of them in detail in order to illustrate this point rather than more briefly address multiple points. So let’s take the following example:



Brendan Burgess said:


> It's astonishing that clever, rational people could be holding onto something worthless when they could sell them for $15,000.  They will read back on this forum and wonder what were they thinking.



As I have explained I was in early on the bitcoin phenomenon. This was somewhat fortuitous as, at the time, I was based abroad and was looking for things to do in the evenings. One group I latched onto was that of the local bitcoiners.

Again, as mentioned earlier, I am probably not quite as evangelical about cryptos as many. This does not mean that I wasn't (and am not) hugely impressed by many of the bitcoiners that I have met, nor does it mean that I not enthusiastic about the vision.

My background is in finance and my primary, original interests were to both understand the thinking behind it and also consider it as a *satellite investment play *(with all that that entails.) I enjoy working out risk and reward and trying to calculate / guesstimate what "plays" look worthwhile. You can take it that I had visibility of the enthusiasm and momentum behind bitcoin as well as a significant awareness of its many inherent risks.

It's just a fact that many early BTC adopters ended up with a lot of bitcoins. *My goal was to develop a selling strategy that was designed to maximise my return. *

If I sought your advice 2 or 3 years ago - let's say at the time that Fpalb first posted on AAM about BTC, my understanding is that the strategy you would have offered would have been to sell immediately. I took a different view which, in very simple terms, involved:
- holding for some time or until certain milestones were reached; and
- then selling progressively at various intervals/milestones.

This strategy was informed by my personal experience of the dot.com bubble and research into how best to maximise returns during bubbles.

As an aside, based on my research, I believe that had your accountant friend from the original post of one of the other threads -
https://www.askaboutmoney.com/threads/bitcoin-is-a-clearly-identifiable-economic-bubble.206146/  - adopted a similar strategy, then there is, at the very least, a reasonable chance that he would have fared better than characterised. *This dot.com example is relevant as, in my opinion, the scenario which you outlined is framed in rather stark black and white terms when, clearly, there are a lot more colours around than that.*

Returning to my approach, it is very possible that this strategy will mean that if/when the burst arrives, that I will end up with some coins leftover. I do not know what residual value these coins will have or indeed whether the next "crash" in BTC will prove fatal or not.

In adopting the strategy, (which, incidentally, is regularly but not over-regularly reviewed) I accept this risk as I know that it is unrealistic for me to believe that I can get all decisions right. The essence of this strategy is that one seeks to avoid the twin potential misfortunes of selling too late or (and significantly) too early when the stated goal is, as mentioned, to maximise returns.

My sales proceeds to date in selling c. 80% of my coins has been many multiples higher than if I had sold all my shares altogether at market prices of, say 12,18, 24 or 36 months ago, i.e. the multiple changes depending on what date is used.

Let’s assume for now that BTC is indeed a bubble - the standard way is viewing bubbles is broadly as per the graphic on the link below.
[broken link removed]

All I have tried to do is to maximise my return by selling progressively during the mania phase. Of course, it is very difficult to know when different stages in this cycle are reached (in real time).

The sense I'm getting from the quote highlighted at the outset is that I am being reckless, silly. However, I have seen nothing in the various posts from you that leads me to believe that had you engaged in this debate a few years ago, that you would have written something along the lines of:

*It's astonishing that clever, rational people could be holding onto something worthless when they could sell them for $200. They will read back on this forum and wonder what were they thinking.*

In my personal case, had I done so I would not have benefited from extraordinary, literally life-changing, gains. Accordingly, it is simply a fact that my strategy has been more financially beneficial than your strategy would have been in this case. Obviously, a certain amount of luck has been involved – however, the precise extent of this is very difficult to quantify.

I'm not even looking for you to say something like my strategy is equally or more effective as yours. What happened to me does not mean that my strategy was right *but - and here is the key point –* *it does not absolutely mean that I was/am wrong either as you have stated so many times.* I'm just a little tired of being told that I'm flat out wrong without qualification or equivocation – especially since I have spent much time considering and studying this phenomenon and when I could quite reasonably and robustly adopt the polar opposite view in relation to this particular scenario.

I think pretty much all bitcoiners recognise that there are very substantial risks with bitcoin. In my opinion, even the current price reflects the low probability of ultimate “complete” success but I don’t have time to elaborate on this now. (It is also at least possible that BTC achieves some “intermediate” level of success – again beyond the scope of this post.)

So whilst there is a high probability that you are right in much about what you say about BTC - it is not certain and indeed some of your points are less probable than others. So, it’s the repeated presentation of things as certain (when they are not), the unabated selectivity and the outright dismissal of alternate views that I find disappointing – especially given the general complexity of the subject. *To me, this approach discourages rather than encourages debate.*

*AAM does an awful lot of good work* – however, in my opinion, there are occasions when comments are unnecessarily absolute which I personally find off-putting. Of course, this is a hard-hitting post but I have seen others try give you the same message in the various BTC related threads with seemingly little impact.

Please don’t delete this post. It has taken time to write. It should also be kept for posterity. Apologies for the tough love.


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## Bronte (11 Dec 2017)

Elacspau you say at this stage you've made life changing gains.  Is that money banked?  If Bitcoin collapsed tomorrow would you be up?


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## elacsaplau (11 Dec 2017)

Hi Bronte,


elacsaplau said:


> My sales proceeds to date in selling c. 80% of my coins has been many multiples higher than if I had sold all my shares altogether at market prices of, say 12,18, 24 or 36 months ago, i.e. the multiple changes depending on what date is used.



Yes - like in The Weakest Link, money has been banked!!

I'm now playing Deal or No Deal on the remaining coins! This is a challenging judgement call and poses a whole pile of additional questions!


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## Bronte (11 Dec 2017)

Can you put figures on it Elacsaplau.  I'd find it easier to understand.  As would others no doubt. You've said life changing so I presume you are talking mega bucks. If you prefer not to divulge true figures, just lob a couple of zeros off to give us an idea. 

I don't have any doubt that those who bought in early and sold and banked will be fine.  They are making money on the backs of those who are idiots who don't have a clue what they are doing and are gripped by the frenzy.  I'm not saying there is anything wrong with that as it's up to people to play. But playing with fire is a risk.  And that's people's choice.


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## elacsaplau (11 Dec 2017)

Hi Bronte,

I might reply later - I need to switch off AAM for now - I've already spent too long on AAM this morning - my post earlier just kept growing - for now, need to focus on what I'm paid "hard currency" to do!


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## Bronte (11 Dec 2017)

Ok that would be great. Very interesting.  Looking forward to it.


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## Duke of Marmalade (11 Dec 2017)

_Bronte _don't be too upset that you have missed the boat, _elac _hasn't given up the day job
_elac _joins others on this forum in condemning the _Boss' _absolutist position. This is pure semantics; would they prefer that he said "next to worthless" instead of "worthless".

In fact _elac's _"confession" highlights the very essence of this bubble.  Notice that (s)he had no interest whatsoever in BTC's "intrinsic" merits (decentralised universal medium of exchange); after all (s)he has only retained a small portion of the BTC (s)he bought with the "strategy".  According to Investopedia (a supporter of BTC) transaction costs today for a cup of coffee are over €20.  So BTC has completely lost its way to being a universal medium of exchange.  Its only use now is as a playground for the likes of _elac _to see who can get in and out at a profit before the bubble bursts.

Must mention tulips.  Look up Tulipmania on Wiki.  I know we think of this as belonging to some medieval primitive age but the comparisons with the BTC bubble are quite striking - it finished up the only people trading in tulips were _elac _style speculators.  It took one month for a tulip bulb to fall from being worth 10 times the average annual wage to being worthless (sorry, next to worthless).


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## fpalb (11 Dec 2017)

The bitcoin price rise has as much in common with Tulips as it does with Facebook, Google or Tesla shares going from 0 to a lot within a decade. If your only metric for comparison is "it went up a lot". None of those (including tulips) are really good as direct comparisons of course.


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## Dan Murray (11 Dec 2017)

Duke of Marmalade said:


> _...._after all (s)he has only retained a small portion of the BTC (s)he bought with the "strategy".



This is a great example of the entrenchment that Elac highlighted. Previously, he was criticised for retaining bitcoins - what's implied here is a criticism for not holding enough. What to do? As others have said, it seems no matter what anyone says regarding the absolutism adopted by certain posters will not be acknowledged by those self-same posters.


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## Duke of Marmalade (11 Dec 2017)

fpalb said:


> The bitcoin price rise has as much in common with Tulips as it does with Facebook, Google or Tesla shares going from 0 to a lot within a decade. If your only metric for comparison is "it went up a lot". None of those (including tulips) are really good as direct comparisons of course.


The comparison I would make is that over 99% of traders in BTC and in Tulips were _elac _type speculators, interested only in the price and ignoring any underlying financial analysis.  Yes there may be a lot of speculative activity in Facebook etc.  but it is underpinned by financial analysis of the future earnings power of these entities.  That analysis may of itself be speculative but it at least recognises that the price must ultimately be backed by some real worth.  The`closest I have seen to such an analysis of BTC was on Investopedia.  There it posited that BTC would ultimately account for 15% of world demand for money as a medium of exchange and store of value.  That was 15% of a very big number. Divide by 21M and there you go, in this analysis BTC is worth more that 100,000 dollars.  I am sure there were some financial analysis underlying the Tulip price, I wonder were they as wild as this.


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## Duke of Marmalade (11 Dec 2017)

Dan Murray said:


> This is a great example of the entrenchment that Elac highlighted. Previously, he was criticised for retaining bitcoins - what's implied here is a criticism for not holding enough. What to do?


I don't know why I rise to your gambits _elac _was absolutely right to dump those BTC and that is entirely consistent with my belief that they are (next to) worthless.  But it also highlights that _elac _also believes that  they are intrinsically (next to) worthless.


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## fpalb (11 Dec 2017)

Duke of Marmalade said:


> The comparison I would make is that over 99% of traders in BTC and in Tulips were _elac _type speculators, interested only in the price and ignoring any underlying financial analysis.  Yes there may be a lot of speculative activity in Facebook etc.  but it is underpinned by financial analysis of the future earnings power of these entities.  That analysis may of itself be speculative but it at least recognises that the price must ultimately be backed by some real worth.  The`closest I have seen to such an analysis of BTC was on Investopedia.  There it posited that BTC would ultimately account for 15% of world demand for money as a medium of exchange and store of value.  That was 15% of a very big number. Divide by 21M and there you go, in this analysis BTC is worth more that 100,000 dollars.


Exactly! Since it is scarce bitcoin will always have value since if there is demand for it to be used as money (medium of exchange and/or store of value). One weird aspect to this is that speculators such as Elac are using it as a store of value and creating demand by the speculation, so it's kind of circular. The speculators are users. The naysayers will say that it must collapse entirely because speculation cannot continue indefinitely, but gold has shown us that it basically can as long as the integrity of what is being speculated on remains and it remains scarce (tulips fail this constraint). 
The wikipedia page for gold says "The world consumption of new gold produced is about 50% in jewelry, 40% in investments, and 10% in industry." So 40% of golds value is speculation, i.e. people who do not want to use gold for jewelry or industry. How long can that speculation go on? Or do you believe gold will lose 40% of it's value tomorrow?



Duke of Marmalade said:


> I am sure there were some financial analysis underlying the Tulip price, I wonder were they as wild as this.


I tried to understand why, and could not find much other than some hybrid tulips had rare patterns/colours and people were treasuring them as art/staus-symbols/toys for the rich. The question I ask is if I had been around then, would be I be holding Tulip futures as I now hold bitcoin, and I find no reasons why I would. Though I accept that many people buying bitcoin only because it's going up would be. Elac would you have?


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## Brendan Burgess (11 Dec 2017)

Hi elacsaplau

There are not many issues I take absolutist positions on, but there are some:

Planet Earth is round, not flat 

Creationism is nonsense 

Bitcoin is worthless
It's pretty pointless discussing these issues with fanatics who believe otherwise.  It's faith and not reason.  Or it's a false premise followed by some very clever reasoning. But the basic premise is false, so everything which follows is also false.

I have seen people taking huge bets on individual stocks and making huge gains. I told them at the  time that they were wrong, but they now claim I was wrong.

I have seen people borrowing to invest in speculative ventures and I told them that they were crazy. They made money so they said I was wrong.

You took a crazy gamble (depending, of course, on how much money you paid) and it has paid off brilliantly so far. That does not mean that it was correct. If you had asked me back then, I would have told you it was overpriced. It was. It still is.

Bitcoin will return to zero or close to zero. I don't know whether it will have any residual value or not. But if you have €200,000 worth of Bitcoin now, they will be worth less than €200 and probably zero in time.

Not sure what else there is to say, to be honest.

Bad decisions can result in huge gains. Good decisions can result in losses. 

You seem to think that it is a bubble at the current price of $15,000. Then why not sell them all and buy back in when they are back down to whatever value you think that they should have e.g. $1,000? 

Holding onto something which you think is in a bubble makes no sense.  

Brendan


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## Duke of Marmalade (11 Dec 2017)

Well _elac _far from being deleted your post has attained the rare honour of being promoted to being a thread


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## Merowig (11 Dec 2017)

People also made profits from the tulip crisis - you have to enter the market early and leave it before it crashes.
How many transactions did you had in bitcoins btw? Or you just bought them in order to sell?

Someone else already mentioned Newton and how he lost his fortune during a bubble:
https://cdn.sovereignman.com/wp-content/uploads/2013/12/20131210-image.jpg

On the long run Bitcoin has as much value as a buying the citizenship or a Duke title of the Principilty of Sealand.


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## Duke of Marmalade (11 Dec 2017)

_fpalb _referring to earlier post.  If there is *both *scarcity and demand then of course there is a price greater than zero.  We accept the (artificial) scarcity of BTC, so what will be its ultimate demand?  Its current demand is overwhelmingly speculative so we must try and picture a day were the price is so stable that all the speculators are gone and the only demand is for its use as a medium of exchange and as a store of value.  I agree with JR that the only residual demand on this score will be underground, those who cannot operate safely with fiat currencies.  I do agree with the Investopedia methodology.  We are then left speculating as to the ultimate percentage of monetary use occupied by BTC.  15% = a price of $100,000.  I think the demand will be negligible.  You obviously think it will be significant enough.  There is really little further room for debate between us two - we agree the basis for its ultimate value but we have entirely different speculations as to a key parameter - ultimate demand.

On 40% of gold holdings being speculative, we may again be into a semantic debate.  I would split this investment aspect into three components (1) store of value (2) hedge against melt down (3) speculative.  Monetary assets are also dominated by the "store of value" aspect as opposed to medium of exchange.  Gold of course has something which the currencies (fiat or crypto) don't have, intrinsic value in the colloquial sense of that word as either jewellery or industrial use.


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## Firefly (11 Dec 2017)

fpalb said:


> The wikipedia page for gold says "The world consumption of new gold produced is about 50% in jewelry, 40% in investments, and 10% in industry." So 40% of golds value is speculation, i.e. people who do not want to use gold for jewelry or industry



Hi fpalb,

I am very interested in your posts, however, I'm not sure I would agree with you there. Most people who invest in gold do so as a store of wealth (especially) in uncertain times rather, than speculating on whether it will surge in price as bitcoin has. There are surely speculator in gold but I would imagine they are in the minority. The opposite is true of bitcoin I would imagine...the majority investing now are just trying to turn a quick profit.

Firefly.


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## Brendan Burgess (11 Dec 2017)

fpalb said:


> "The world consumption of new gold produced is about 50% in jewelry, 40% in investments, and 10% in industry." So 40% of golds value is speculation, i.e. people who do not want to use gold for jewelry or industry. How long can that speculation go on? Or do you believe gold will lose 40% of it's value tomorrow?



fp

People speculate in agricultural commodities, metals and oil. But these have fundamental values determined by supply and demand.  Sure, some market traders might push the price up beyond its fundamental value, but it won't go on like that forever.  I don't know if gold is overvalued or not - I have never liked gold as an investment. 

If all the speculators pull out of gold, it might halve in value from its current position. (But that is a very unlikely scenario that they would all pull out.)

But Bitcoin has no fundamental value. So the loss will be 100% as soon as the confidence bursts. 

Brendan


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## fpalb (11 Dec 2017)

Firefly said:


> Most people who invest in gold do so as a store of wealth (especially) in uncertain times rather, than speculating on whether it will surge in price as bitcoin has. There are surely speculator in gold but I would imagine they are in the minority. The opposite is true of bitcoin I would imagine...the majority investing now are just trying to turn a quick profit.


I do not use the term speculate in a derogatory way, only to say that someone buying it is only doing so with the intention of later selling it to someone else, I believe this is a common usage of the term. So saying that one speculates on gold or bitcoin, is using it as a store of wealth, or plans to sell it to a greater fool are all the same thing, it's just semantics. One distinction you can make is the time frame, i.e short term speculation vs long term speculation.

i.e. wikipedia says "*Speculation* is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable at a future date."


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## fpalb (11 Dec 2017)

Brendan Burgess said:


> But Bitcoin has no fundamental value.



Still not getting it. The fundamental value is that the bitcoin network a system that fulfills the functions of money, and bitcoins are required to use that system. For example, the fundamental value is that it's only way you can donate to wikileaks. It's the only way you can hold money in multiple geographical locations simultaneously without counter-party risk etc etc. If you don't understand all of the things that bitcoin can do that other monetary systems can't you need to return to studying the technical aspects of it further. Whether or not you personally have any use for bitcoin is irrelevant.


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## elacsaplau (11 Dec 2017)

Hi Brendan,

I dealt with a single element of a very broad subject and even that took me ages to do.

In a post where I was giving out about being misrepresented, I didn't think that that post itself would also be misrepresented.

Here's an example - this is my only reference to BTC's valuation/price - i.e. this is what I actually said:



elacsaplau said:


> In my opinion, even the current price reflects the low probability of ultimate “complete” success *but I don’t have time to elaborate on this now*. (It is also at least possible that BTC achieves some “intermediate” level of success – *again beyond the scope of this post*.)



So in two sentences, I said twice that I simply I don't have time to get into BTC's pricing now.

This then somehow gets interpreted as:



Duke of Marmalade said:


> ......_elac _was absolutely right to dump those BTC and that is entirely consistent with my belief that they are (next to) worthless.  *But it also highlights that elac also believes that  they are intrinsically (next to) worthless.*



I just did not say this and it's not my belief.



Brendan Burgess said:


> Not sure what else there is to say, to be honest.



Me neither. Our points of agreement are probably greater than our differences. Let's just leave it at that.


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## noproblem (11 Dec 2017)

I know what Brendan is saying but there's an awful lot of people trading all the same. I'd really love to know who's in on this? Are the big boys of the trading world creating a "sting" scenario in the market place? See below;

11 Dec 2017 12:12
Bitcoin futures eased back from an initial surge of almost 22% to trade 13% higher today, in an eagerly awaited US market debut that backers hope will confer greater legitimacy on the cryptocurrency and lead to its wider use.
Bitcoin futures were already offered on some unregulated cryptocurrency exchanges outside the US.
But the Chicago-based Cboe Global Markets' launch marked the first time investors could get exposure to the market via a mainstream regulated exchange.
The debut on Sunday night may have caused an early outage of the Cboe website. The exchange said that due to heavy traffic, the site "may be temporarily unavailable".
The one-month bitcoin contract opened trade at $15,460, dipped briefly before rising to a high of $18,700 and then slipped again.
The one-month future was up 13% in early afternoon trade from the open at $17,450, around $1,000 higher than the "spot" bitcoin price - the price at which bitcoin is currently being bought and sold.
The two-month contract was trading at $18,880, while the three-month contract was changing hands at $19,040.
In just over 12 hours after the launch, 2,780 contracts had been traded, meaning around $48.5m had been notionally invested.
That compares with daily trading volumes of more than $20 billion across all cryptocurrencies, according to trade website Coinmarketcap.
Just 13 trades of the two-month contracts had been traded.
Analysts said that it will take time for derivative volumes to build up, but eventually if they prove to be a significant percentage of the global trade, they should in theory help stabilise things.


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## Brendan Burgess (11 Dec 2017)

Hi Elacs - I have absolutely no idea what this means:

"In my opinion, even the current price reflects the low probability of ultimate “complete” success *but I don’t have time to elaborate on this now*."

Can you say in plain English what you think the value of Bitcoin is today and what value, or range of values, will it have in 12 months' time? 

Then you are less likely to be misquoted.

Brendan


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## Brendan Burgess (11 Dec 2017)

noproblem said:


> I'd really love to know who's in on this?



An article in the FT at the weekend said that there were a lot of Asian buyers.  I have no idea if that is correct or not. I don't know if we can ever tell who is buying? 

Brendan


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## fpalb (11 Dec 2017)

You can look at the volume of various exchanges around the world. Ones that primarily service customers within their own country can give some idea. There has apparently been a lot of buying in Japan and South Korea in recent months.

Another way to get a good idea of adoption in various countries is to look at this data from localbitcoins.com which is an exchange that allows people to trade peer-to-peer, and thus is not limited to a single geographical location in any way:

https://coin.dance/volume/localbitcoins

The CEO of coinbase in the US said they have 8 times the number of customers that they had in June. the last hard figure I saw from them was over 13 million total.


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## Firefly (11 Dec 2017)

fpalb said:


> I do not use the term speculate in a derogatory way, only to say that someone buying it is only doing so with the intention of later selling it to someone else, I believe this is a common usage of the term. So saying that one speculates on gold or bitcoin, is using it as a store of wealth, or plans to sell it to a greater fool are all the same thing, it's just semantics. _One distinction you can make is the time frame, i.e short term speculation vs long term speculation._



I agree and should have included this in my post. In my opinion, speculating is buying something with the expectation or hope that its value increases (a lot) in the short term. I would think most bitcoin purchases are for this reason at the moment. In contrast, investing (in my book) is buying something with the expectation of it increasing in price over the medium to longer-term. 

A lot of people buy gold or art to simply store wealth in uncertain times. They are not too concerned with it gaining in value (although that's always nice) but the key concern being that their wealth is preserved. Perhaps Bitcoin will ultimately fall into this category too who knows. 

One thing I have an issue with though is the recent explosion in the price of bitcoin. Either some new feature / functionality has been uncovered or that it was (mysteriously) completely under-valued until now. Of course, the other reason is that it's a bubble. 

I know next to nothing about bitcoin but I have a feeling this is will in a Reeling Back the Years in years to come...


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## fpalb (11 Dec 2017)

Firefly said:


> I agree and should have included this in my post. In my opinion, speculating is buying something with the expectation or hope that its value increases (a lot) in the short term. I would think most bitcoin purchases are for this reason at the moment. In contrast, investing (in my book) is buying something with the expectation of it increasing in price over the medium to longer-term.


I agree that a lot of people speculating on bitcoin right now are in doing it for the short term, especially compared to something like gold.



Firefly said:


> A lot of people buy gold or art to simply store wealth in uncertain times. They are not too concerned with it gaining in value (although that's always nice) but the key concern being that their wealth is preserved. Perhaps Bitcoin will ultimately fall into this category too who knows.


It already does fall into that category in places like Venezuela and Argentina for at least some people. There have been first hand reports by people in the bitcoin community that live in these countries. A key aspect of this is that with bitcoin is easier to get around border controls. I guess the majority would still prefer plain old US dollars though, even over gold. 



Firefly said:


> One thing I have an issue with though is the recent explosion in the price of bitcoin. Either some new feature / functionality has been uncovered or that it was (mysteriously) completely under-valued until now. Of course, the other reason is that it's a bubble.


I think it was undervalued at $200, I think it might be short term overvalued now. I would be surprised it ever went under $1000 again without having failed to function as it does now, or having been replaced by something better.



Firefly said:


> I know next to nothing about bitcoin but I have a feeling this is will in a Reeling Back the Years in years to come...


One way or the other it will.


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## Brendan Burgess (11 Dec 2017)

fpalb said:


> I think it was undervalued at $200, I think it might be short term overvalued now.



What is the basis for your valuation?  Sorry for pressing you on this. But there should be some methodology to arrive at a value of €x.

What does "short term overvalued" mean? That it's not worth $15,000 yet, but will be at some stage in the future?



fpalb said:


> I would be surprised it ever went under $1000 again without having failed to function as it does now, or having been replaced by something better.



They are two significant caveats.

It could well fail to function as it does now.

It could well be replaced by any other crytpo currency. 

But it could continue to function as it does now and it does not need to be replaced by some other cryptocurrency to fall to its true value of zero. 

Brendan


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## Firefly (11 Dec 2017)

fpalb said:


> It already does fall into that category in places like *Venezuela* and Argentina for at least some people. There have been first hand reports by people in the bitcoin community that live in these countries. A key aspect of this is that with bitcoin is easier to get around border controls.



I can't blame them. Decades socialism will result in that sure enough!

I have a feeling that bitcoin will still be around in years to come and wouldn't be surprised if it itself was linked to the price of gold, either the same value per ounce or a multiple / fraction of it.

There's a part of me that would like to take a punt (and that's all it would be), but the inevitable "chat" we'd end up having at home just wouldn't be worth it!!


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## fpalb (11 Dec 2017)

Brendan Burgess said:


> What is the basis for your valuation?  Sorry for pressing you on this. But there should be some methodology to arrive at a value of €x.
> 
> What does "short term overvalued" mean? That it's not worth $15,000 yet, but will be at some stage in the future?


I don't have a formal methodology, so these are numbers off the top of my head, based on years of looking at price action, and sentiment among traders about what they consider cheap or expensive. Completely my own opinion, so everyone should treat it only as that.



Brendan Burgess said:


> It could well fail to function as it does now.


Yeah, could take a while to consider all of the ways. Maybe enough governments intervening to drive it underground, maybe a bug though I expect any bug would only lead to short term disruption and would be fixed unless it's some kind of general failure of cryptography in which case the world has bigger problems than bitcoin to worry about.



Brendan Burgess said:


> It could well be replaced by any other crytpo currency.


Even if it happens, it won't happen happen overnight. I don't consider it a risk to holding bitcoins, because I'll be able to exchange bitcoins for whatever the better alternative is if the time comes. Ethereum is the only thing that ever came close so far, and it took months.



Brendan Burgess said:


> But it could continue to function as it does now and it does not need to be replaced by some other cryptocurrency to fall to its true value of zero.


I disagree, again just my educated opinion of course.


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## fpalb (11 Dec 2017)

Brendan Burgess said:


> What does "short term overvalued" mean? That it's not worth $15,000 yet, but will be at some stage in the future?


Yes, or perhaps more accurately that demand cannot currently sustain a value of 15k but may do so in the future. I think the transaction capacity needs to drastically improve to support users at the levels we're seeing now.

I honestly never thought much beyond 10k until recently, that had been my ballpark of the likely upside target.


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## cremeegg (11 Dec 2017)

There are two reasons to buy bitcoin. Because you hope to sell it later for a higher price or because you can use it as a medium of exchange. 

I posed the question on another thread if Bitcoin is actually used as a medium of exchange. The answer would seem to rarely if ever.

The hope to sell later at a higher price has two possible bases, finding a greater fool, always worth a punt, but not really much for rational discussion.

The other possibility is that Bitcoin will become established as a new form of money. If it does it will be radically different from any previous type of money. It seems to me that many of bitcoins supporters do not understand the nature of money. The idea that a currency is controlled by a government or a central bank is often portrayed as a bad thing, whereas that is exactly what gives a currency its value. 

A Euro is worth something because the law requires creditors to accept Euro in settlement of debt. This will never happen with bitcoin as no solvent central bank will ever allow something it cannot control to become its currency.

Brendan raises the question elsewhere of all currencies collapsing simultaneously, but this could only happen as a result of some major catastrophe. Tins of beans will be the only currency then.


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## noproblem (11 Dec 2017)

fpalb,
Why is 10k your ballpark target, it could just as easily be €1, so why not €1,000,000.00? How can anyone value nothing? It's a bit like someone opening a jar in Ireland, closing it again, then selling it as pure Irish Air. As long as you don't open the lid you'll have the air inside but it's value????????????


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## fpalb (11 Dec 2017)

cremeegg said:


> It seems to me that many of bitcoins supporters do not understand the nature of money.


It's funny because I think the same exact same thing about many people who don't get bitcoin.



cremeegg said:


> The idea that a currency is controlled by a government or a central bank is often portrayed as a bad thing, whereas that is exactly what gives a currency its value.


Government currencies are only a subset of money, and gold which is the longest surviving money has been around longer than all of them. As wikipedia says: "Money is historically an emergent market phenomenon establishing a commodity money, but nearly all contemporary money systems are based on fiat money."
The question of why the nature of money has changed is important.



cremeegg said:


> A Euro is worth something because the law requires creditors to accept Euro in settlement of debt. This will never happen with bitcoin as no solvent central bank will ever allow something it cannot control to become its currency.


Correct, bitcoin relies on better fulfilling the functions of money than its competitors to achieve adoption, rather than coercion. It is an emergent market phenomenon.


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## Dan Murray (11 Dec 2017)

Jeepers Noproblem,

Is this your variation of Schrodinger's cat?


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## noproblem (11 Dec 2017)

Meow!


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## Duke of Marmalade (11 Dec 2017)

cremeegg said:


> There are two reasons to buy bitcoin. Because you hope to sell it later for a higher price or because you can use it as a medium of exchange.
> 
> I posed the question on another thread if Bitcoin is actually used as a medium of exchange. The answer would seem to rarely if ever.
> 
> ...


I agree with most of that _cremeegg_.  But of course there are notorious instances of fiat currencies losing their value (Weimar, Zimbabwe, Argentina, Russia, Israel, everywhere in the mid part of the last century).

It requires more than simply insisting that suppliers accept the currency; it crucially requires management of the price level.  Governments are in prime position to achieve that.  The monetary supply these days is delegated to Central Banks who are given mandates.  But where governments also have a key role in setting the price level is that they are massive economic agents in their own right.  They set the prices of the services they supply and will accept the fiat currency in paying for these services (through taxes of course but in many other ways).

The fiat currency is by far the most efficient medium of exchange.  In fact, so far as I can make out, BTC, on the rare occasion that it does act as a medium of exchange for goods and services, is first exchanged for a fiat currency.

As a store of value the fiat currency relies on confidence that the price level will be reasonably stable - a 2% inflation is conventionally regarded as the optimal target to strike a balance between conferring store of value versus hoarding.  With these wild swings BTC is a hopeless store of value (I know _fpalb _disagrees with me here but I think that is a semantic difference).

So, repeating myself, if BTC is almost negligible as a medium of exchange for goods and services and is hopeless as a store of value then the only thing underpinning the price is the speculative motive.  That reminds me of tulips


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## cremeegg (11 Dec 2017)

fpalb said:


> "Money is historically an emergent market phenomenon establishing a commodity money



My understanding of this is that as economies developed or "emerged", barter as a means of exchange became too cumbersome and so commodity money developed. That is a standardised unit of something that had value of itself. Salt as an example.



fpalb said:


> nearly all contemporary money systems are based on fiat money."



Indeed. And my understanding of that development is that as trade developed further commodity money also became cumbersome and so fiat currency was developed. This is money which while worthless of itself, just a bit of paper, has value because the law supports it. The law, a government or its central bank, says that it must be accepted in payment of debt and taxes. Without that legal support a €50 note is just a piece of paper. This legal support is all that gives fiat money its value. Bitcoin has no such support.

The central bank control of fiat money does of course mean that the central bank can manipulate the value of its currency, by printing more, by raising interest rates. This control by the central bank is limited by the need to maintain confidence. Print too much money and your tax receipts will be devalued. Some people think this CB control is a bad thing. (I do not agree but that is another argument. Actually the Duke develops this point above, our posts crossed).

Bitcoin has no such CB control, I have yet to see any explanation why this is a good thing, beyond a general dislike of government interference.


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## landlord (11 Dec 2017)

Brendan Burgess said:


> Bitcoin will return to zero or close to zero. I don't know whether it will have any residual value or not. But if you have €200,000 worth of Bitcoin now, they will be worth less than €200 and probably zero in time.



Finally at least an acknowledgment 
of a dim shade of grey on what was a rigidly black and white argument.


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## Bronte (11 Dec 2017)

Duke you know well I'm not sorry to have missed any boat. As regards Tuilips. I've a nearer comparison.   When the Celtic tiger was rising I used to come back to Ireland in wonder at how Ireland was and how I'd lost out. How everybody was suddenly rich. I posted on here about various instances of it. Some of you might remember my post about wandering into a furniture store to be hit by sign for credit. Thus Bitcoin reminds me of that madness.

Another, my sibling told me I'd missed the boat and they would be millionaires in a couple of years. 10 hard years later I see the pain that madness brought.

Elac will be fine if he has banked. He seems to be in it for pure speculation. He will make money on the later idiots. As long as he doesn't go back in with his winnings. I await his figures on life changing banking.


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## Firefly (11 Dec 2017)

Bronte said:


> Duke you know well I'm not sorry to have missed any boat. As regards Tuilips. I've a nearer comparison.   When the Celtic tiger was rising I used to come back to Ireland in wonder at how Ireland was and how I'd lost out. How everybody was suddenly rich. I posted on here about various instances of it. Some of you might remember my post about wandering into a furniture store to be hit by sign for credit. Thus bit on reminds me of that madness.
> 
> Another, my sibling told me I'd missed the boat and they would be millionaires in a couple of years. 10 hard years later I see the pain that madness brought.
> 
> Elac will be fine if has banked. He seems to be in it for pure speculation. He will make money on the later idiots. As long as he doesn't go back in with his winnings. I await his figures on life changing banking.



A friend of mine told me he was going to retire in a year's time. That was about 6 months before everything went wallop. Mortgaged up to his neck and a difficult decade has ensued. 

I don't know anyone who has borrowed to invest in bitcoin however so the collateral damage if there is a bubble shouldn't be too bad.


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## Bronte (11 Dec 2017)

Indeed Firefly. And I just noticed something. Bitcoin. Big con.

You could borrow to invest in Eircom. I did. Easiest money I ever made and first and last time I bought shares.


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## fpalb (11 Dec 2017)

cremeegg said:


> My understanding of this is that as economies developed or "emerged", barter as a means of exchange became too cumbersome and so commodity money developed. That is a standardised unit of something that had value of itself. Salt as an example.


There is a theory that barter was never that common, which makes sense as it's quite impractical. Small communities would simply remember the debt as you or I might do with friends. When trading with other more distant communities they may have bartered. Correct noting that it's cumbersome, and commodity money as well as other types of money emerged. Salt is an example of a commodity one, people also used things like sea shells and Rai Stones are one of the weirder ones: https://en.wikipedia.org/wiki/Rai_stones

So some had intrinsic value like salt, and some didn't like sea shells or rai stones. Why did some prosper more than others? and why did gold emerge as unanimous winner above all the others? Think about it.



cremeegg said:


> Indeed. And my understanding of that development is that as trade developed further commodity money also became cumbersome and so fiat currency was developed.


This is a really interesting point, because people (with a little coercion) were willing to no longer use gold (which has intrinsic value) and instead use something more practical (which did not have intrinsic value).



cremeegg said:


> This is money which while worthless of itself, just a bit of paper, has value because the law supports it. The law, a government or its central bank, says that it must be accepted in payment of debt and taxes. Without that legal support a €50 note is just a piece of paper. This legal support is all that gives fiat money its value. Bitcoin has no such support.


Another interesting point. Is it due to the legal support? or is it forced demand via forbidding competing monetary systems? or is it forced demand due to only accepting taxes in it? or is it that fiat has no in-built scarcity so a government is required to ensure that scarcity? 
Maybe a combination.



cremeegg said:


> The central bank control of fiat money does of course mean that the central bank can manipulate the value of its currency, by printing more, by raising interest rates. This control by the central bank is limited by the need to maintain confidence. Print too much money and your tax receipts will be devalued. Some people think this CB control is a bad thing. (I do not agree but that is another argument. Actually the Duke develops this point above, our posts crossed).


Sometimes it just goes down anyway right? Sterling took a big dive after the Brexit vote, is there anything their central bank could have done to prevent it?



cremeegg said:


> Bitcoin has no such CB control, I have yet to see any explanation why this is a good thing, beyond a general dislike of government interference.


You say that as if general dislike of government interference is not enough?


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