Key Post Bitcoin is a clearly identifiable economic bubble

seamless said:
Many Blockchain practitioners (myself included) spend a lot of time trying to separate the cryptocurrency Blockchain *applications* from the underlying Blockchain technology stacks.
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And in your opinion is bitcoin worthless or does it have value?
 
'Bubbles' are not economic phenomena like inflation, unemployment, demand and supply, income and expenditure, etc. There is no standard way of measuring bubbles, and, as far as I am aware, no standard model you could apply to e.g. 'dot.com' stocks, Irish property prices, tulips, uranium, etc. when they exhibit extreme price movements to determine ex ante if they are in 'bubble territory'. Just because you have an extreme price movement does not mean an asset is in bubble territory, as, in the real world, returns are not normally distributed. Also, in the aftermath of bubbles, the 'explanation' is usually of a non-economic nature, e.g. the banks 'lost control of themselves', market participants exhibited ' irrational exuberence', there was a lack of alternative investment opportunities, etc. If this were the case, i.e. if there were a standard explanation for what causes price bubbles, bubbles could be controlled but each bubble just gets its own ex post facto explanation. So I think bubbles are really pricing, or more correctly, mispricing phenomena. Also, not all extreme price moveemtns are regarded as bubbles. Recently a painting by Mary Swanzy, 'The Storm', sold for 100,000 EUR, despite a guide price of 25,000 EUR, but nobody suggested this was the start of a potential bubble in modern Irish art.

Before looking at the price of Bitcoin, I think a rational investor would look at his / her current portfolio to determine if (a) Bitcoin is an asset class and if so, (b) does it provide a diversification benefit, or (c) lower overall portfolio risk. I doubt Bitcoin is an asset class, as it does not represent a claim on future returns of a productive asset, i.e there are no Bitcoin earnings, dividends, roll yields, etc. At present, I think it's more like investing in paintings - there is no income return, you are betting on a bigger fool to buy them from you, and there is little or no diversification effect. So why would you buy them and not e.g. a painting, which at least you can look at, show off to your friends, etc.?

So I think Mr Burgess is correct. Bitcoin has at no intrinsic value, only price, but is it expensive? The only value Bitcoin has, at present, is the price others place on it. As the price is volatile it's a poor store of value. It's not a widely accepted medium of exchange (unless you are buying illegal things). Next year Bitcoin futures will be available, but against what are you hedging? It's very difficult to see this as anything other than speculation.

As for investing in blockchain technology itself, it's basically a chunk of asymetric cryptography. Baltimore Technologies were experts in this and they are not around today.
 
PMU said:
'So why would you buy them and not e.g. a painting, which at least you can look at, show off to your friends, etc.?
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Because bitcoins are easier to store securely (if you know what you're doing), they can be divided - you can't sell half a painting. They're more portable and you can sell them and have money in your bank account easily any day you choose without even leaving your house. Those practical benefits for many people (me included) outweigh the utility of being able to display a painting to friends.

Again, the argument here for bitcoin is that if someone wants to buy "something" to act as a monetary store of value without counterparty risk, they typically will rate things on the properties that make something useful as money - durability, fungibility, verifiability, portability, divisibility etc. Gold used to be the thing that had the best combination of these properties while also being finitely scarce and decentralised. Now it has a digital competitor.

If you think bitcoin is nonsense or worthless or that nobody will want it because it's digital and not tangible, you should really think long and hard about why you've been wrong for 9 years and counting now.
 
Merowig said:
Bitcoin is not the new Gold:
Analysis from January of Bitcoin vs Gold Volatility:
https://seekingalpha.com/article/4055077-bitcoin-vs-gold-volatilities-correlation
Bitcoin is more than 5 times as volatile as Gold....
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It's impossible to grow from nothing to something without volatility. I'm perfectly happy with any volatility where the upside is greater than the downside in the long term, the interim is just noise. The volaitlity is reducing as it grows though, which is to be expected. If bitcoin eventually reaches the value of gold, it might be no more volatile than gold currently is.

Having said all that, I will say, if you've a mortgage deposit you want to keep safe before you plan to use it early next year, bitcoin would be a terrible idea, as a short term store of value for money you can't afford to lose it's way too volatile and risky, especially with how quickly it has risen this year.

Merowig said:
Gold can be used as well in Art, Electronics, etc...
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Personally, I have no use for any of the industrial uses of gold, if I owned some it would sit in a safe until i wanted to sell it.
 
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Bitcoin's ultimate value will be very close to zero. It will maybe retain some value for those who want to transact outside commercial norms, criminals for example. It might have an aesthetic attraction for those like B/S who seem to drool over the marvels of Blockchain technology but surely a tiny piece of Bitcoin would satisfy this craving.

I have read the founding essays on Bitcoin and they certainly were not promoting it as a store of value or as an investment. It was a means of transacting outside the traditional banking system. The exclusive intent of its founders was as a medium of exchange. As I have said before it will never be allowed by the Central Banks to become meaningful in this regard as it would undermine monetary policy. The CBs keep a watch on Bitcoin but to date see no threat to the mainstream monetary activity. If it ever were to pose such a threat it would be criminalised in much the same way as counterfeiting.

I have read articles by say Investopedia which attempt to assess the ultimate value of Bitcoin. They posit that its final resting place will be at 15% of the demand for a medium of exchange and a store of value. They then divide this enormous number by this magical 21m Bitcoin limit to get, guess what, a ginormous ultimate value. They do warn that some of their assumptions might not prove correct.

This Bitcoin nonsense is doomed.
 

While the original whitepaper seems to support what you're saying and is even titled "Bitcoin: A Peer-to-Peer Electronic Cash System", the idea of bitcoin being digital gold was very much rooted in the design, for example the "mining" concept was designed to mimic the mining of gold. Also the very front-loaded distribution of coins, the absolutely finite supply, and extreme sudden decreases in mining reward every four years could have been been done differently if the intent was not to have the volatile bubble-like growth spurts we've seen.

Most of all, how about this quote from Satoshi himself on 2010-08-27:

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: - boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose and one special, magical property: - can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I'm using the word scarce here to only mean limited potential supply)​
 
ant dee said:
You forget that bitcoin requires no permission.
How could the central banks stop it?
Simply criminalising did not stop alcohol in the prohibition, did not stop drugs, did not stop USD being sold on the black market in Venezuela etc.
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Yes but the fantastical projected values of Bitcoin are based on it being a significant part of our monetary system. Criminalising it hugely reduces its value as a medium of exchange. Criminalising alcohol probably even increased its attraction. Drugs have intrinsic value. USD certainly had intrinsic value for Venezuelans.
 
A huge part of this argument is the limited supply. My fingerprints have limited supply. In any case the failure of the gold standard proved the inadequacy of a limited monetary supply to service an ever growing economy.

BTW when will we know that Bitcoin is worth more than gold? Gold is valued at c.€30 per gram. A €50 note weighs .92 grams so by that measure is worth more than gold. What is the equivalent criterion for Bitcoin?
 

good comparison between bitcoin and modern art, it only has value because someone else "maybe an art expert" says it is. Maybe modern art is the ultimate century old bubble and in the future modern paintings today being exchanged for millions might be essentially worth little in the future. Future generations might regard us as bonkers to pay so much money for something a child could paint
 
Duke of Marmalade said:
BTW when will we know that Bitcoin is worth more than gold? Gold is valued at c.€30 per gram. A €50 note weighs .92 grams so by that measure is worth more than gold. What is the equivalent criterion for Bitcoin?
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One of the limitations of gold is that we don't know its total supply, but it's apparently estimated the total value of all above ground gold (about 5.8 billion ounces) is roughly $7.5 trillion. There are just over 16.7 million bitcoins, at $11,500 each that a total worth of roughly $200 billion. So bitcoin is currently worth about 2.6% of what gold is. The purely monetary value of gold (i.e. excluding the value due to industrial uses) is generally estimated to be at least half the value of gold, so bitcoin is at about 5% of that.

I'll add that for all the arguments I've been giving for bitcoin having a non-zero value, I can say that today I had a shoeshine boy moment, as a friend who is not involved in either tech or financial industries mentioned he's been hearing hype about bitcoin lately from peers, first time I've ever heard peep from him about it.
 
Duke of Marmalade said:
Bitcoin's ultimate value will be very close to zero. It will maybe retain some value for those who want to transact outside commercial norms, criminals for example
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So you believe it has value?

If bitcoin returns to near zero then criminals will not be interested, they will revert to whichever currency holds most value like they always do, US Dollar, Euro, Sterling etc.

Duke of Marmalade said:
. It might have an aesthetic attraction for those like B/S who seem to drool over the marvels of Blockchain technology but surely a tiny piece of Bitcoin would satisfy this craving.
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I have a tiny bit of bitcoin. I didn't buy it for an investment. I bought it because I first heard about bitcoin when it was €80. I dismissed it out of hand. Kept on hearing about it, and hearing, and hearing. Decided I would look into it, read about it, ask about it etc.
In the end, in order to try understand it I bought some - when it was at €2,500.
I'm certainly not 'drooling' over it, otherwise I would buy heavily into it.
But as far as technological innovation goes, it would appear at this juncture, it does hold an advancement on our current monetary system.

Duke of Marmalade said:
I have read the founding essays on Bitcoin and they certainly were not promoting it as a store of value or as an investment. It was a means of transacting outside the traditional banking system.
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Yes, and therein lies its value. What price you place that at is pure speculation, but value it has.

Duke of Marmalade said:
As I have said before it will never be allowed by the Central Banks to become meaningful in this regard as it would undermine monetary policy.
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And again, it's value resides in central banks not being in control.

Duke of Marmalade said:
The CBs keep a watch on Bitcoin but to date see no threat to the mainstream monetary activity. If it ever were to pose such a threat it would be criminalised in much the same way as counterfeiting.
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How do you criminalize it? It is effectively nothing more than an electronically transmitted email with a coded signature.

Duke of Marmalade said:
have read articles by say Investopedia which attempt to assess the ultimate value of Bitcoin.
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There are numerous articles for and against bitcoin. Don't limit yourself to one single source.
 
Duke of Marmalade said:
In any case the failure of the gold standard proved the inadequacy of a limited monetary supply to service an ever growing economy.
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Arguably, the gold standard proved inadequate to maintaining the US dollar as the world's reserve currency on a perpetual basis.
 

You could make that argument for any asset. If you take two three-bed homes built to the same standard, same material, same builder, is there any reason why the market price would differ?
Perhaps location? Local amenities? Perhaps one overlooks the ocean, the other a rubbish dump?
The ESRI, or some other like-minded economic think tank estimates property prices to rise by 20% over the next year. Surely anyone who can afford to take on this gamble...eh, sorry, investment, would be bonkers not to do so?
In the end, what the value of property is basically what someone is prepared to pay for it.
 
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TheBigShort said:
....There are numerous articles for and against bitcoin. Don't limit yourself to one single source.
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Hey TBS (great movie by the way),

In fairness to the Duke, he is being consistent in his views about Bitcoin. He was similarly adamant about the inevitable demise of said crypto back in Feb 2015 when Fpalb first attempted to discuss Bitcoin. So, if the Duke was right then, he is obviously even more right now. Then again, for those old enough to remember, there might be a bit of "Platini's not a great player" in all of this. Time, that old master, will tell.

As I write BTC is quoted at around $11,000. Back in Feb 2015, it was just over €200 (or 2% of its current price). The fact the price has increased fifty times since then is well.....a fact. Fpalb has said that he believed back then that buying BTC was "an asymmetric bet" (in his favour). To this hardened punter, it certainly looks like he got that call right.

Price matters. As Hamlet confidently predicted to Horatio (in advance of his duel with Laertes).......I shall win at the odds!
 
Dan I feel sure I would have called the Tulip thing early doors. But of course in the short term I would have got that wrong and probably been burned at the stake. All the same from the funeral pyre I would still scream that BTC is worthless.
 
Duke of Marmalade said:
Dan I feel sure I would have called the Tulip thing early doors. But of course in the short term I would have got that wrong and probably been burned at the stake. All the same from the funeral pyre I would still scream that BTC is worthless.
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I think perhaps confusion arises over whether Bitcoin has any value at all, or some value and what price is placed on that value (if any), and that discussions become intertwined between the two.

There are some who say Bitcoin has no real value, that it is actually worth zero.
Others, like me, believe it holds some value. What price to place on that value is pure speculation.
It's possible for Bitcoin to return to €1 or even less, for sure, but I would hazard that that will only occur if any of the three circumstances that I outlined earlier emerge.
Is it possible that Bitcoin become mainstream and start to displace fiat currencies? Possibly, but that will depend on confidence and becoming mainstream and I would agree it is far from achieving that yet.
On the other hand, it's price surge would indicate that there are heavy volumes being traded, and generally in one direction - buy.
Of course, criminals looking for an avenue to launder ill-gotten gains can use Bitcoin as a cover for their criminal wealth, perhaps the reason for the price surge?
On the yet another hand, if Bitcoin is not easily spent, if it has no real retail presence, then what good is it for anyone, let alone criminals (who presumably got involved in criminality to obtain greater wealth and to be able to buy stuff)?
And if criminals are laundering large sums of cash in Bitcoin (driving up the price) then presumably the objective would then be to sell bitcoin (driving down the price) in order to obtain hard currency and be able to buy stuff?
 
PMU said:
As for investing in blockchain technology itself, it's basically a chunk of asymetric cryptography. Baltimore Technologies were experts in this and they are not around today.
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Whereas other crypto technology companies like Versign and RSA are thriving and others such as Thawte exited at a huge premium.

The demise of Baltimore was not down to lack of market demand IMHO but that's a whole other thread...
 
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