Key Post Bitcoin is a clearly identifiable economic bubble

I have no doubt that the technology has its uses. But as someone remarked on another thread. Credit card technology and credit cards have been a remarkable boon to money transmission but the credit card per se has little intrinsic value.

The Venezualan example makes me even more skeptical of the intrinsic value of Bitcoin. The V example is using the benefits of cryptocurrency (and as I said there are some) but it recognises that intrinsic value is needed and this is provided by the backing of very real assets.

My guess is that the vast majority of BTC purchases are speculative, a speculation which on balance has been spectacularly successful. But a price which is almost entirely underpinned by the speculation that that price will rise with negligible intrinsic value can't possibly be long term sustainable and must be destined to crash and burn. I wouldn't dare speculate as to when this reality dawns.

Just looking at some Bitcoin charts, two things strike me.

About 1% of the total existing bitcoin is traded every day. (150k of 16m mined) That suggests that most of the people holding bitcoin paid over $4,000. They are not making mind boggling returns just yet. Or perhaps an indication that the smart money is taking profit.

The value on the CEX exchange is about $500 greater than on the other exchanges which are all about the same. Why no arbitrage or am I missing something.

To bring a slightly different view to things... we do a lot of translation work, some of it for a venture capital firm which will remain nameless. From what we see, such firms are getting involved in renting out "rigs" (for want of a better word) for doing bitcoin mining on others' behalf. Maybe those firms know something we don't know, but they're just beginning to dip their toe in the water now. They're clearly gambling on the bubble not bursting any time soon.

TheBigShort said:

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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I disagree. Individual asset classes have unique return generating processes different from other asset classes, for e.g. the return on property, i.e. income from providing a service (i.e. accommodation) to a single client, is different from that of a business, e.g. generating earnings by meeting multiple clients' business or personal needs. And these returns can be appropriately discounted to estimate the asset's value. You are not dependent on the opinion of an 'expert' as to the approximate value of the asset, they way you may be for a painting. Painting have no return generating processes and neither does bitcoin. So they cannot be valued the same way as other asset classes. Neither are they currently traded by future contracts, like currencies, commodities, etc., which can be a source of uncorrelated alpha and diversification. The price of a currency is related to the demand for the goods and services, and ultimately, long dated government bonds denominated in that currency. But there are no government bonds denominated solely in bitcoin; and the goods / service denominated only in bitcoin appear to be illegal. I still think most 'investment' in bitcoin is speculation. Most retail investors don't invest in currencies. Friends First for example has a currency fund, so why would you invest in only bitcoins when you can invest in a fund that covers multiple currencies and multiple trading strategies? What edge does bitcoin give you? When you invest in bitcoin you take on bitcoin-specific beta risk, so for the price at which it currently trades, are you adequately compensated for taking on that risk? Otherwise you are speculating.

PMU said:

Individual asset classes have unique return generating processes different from other asset classes, for e.g. the return on property, i.e. income from providing a service (i.e. accommodation) to a single client, is different from that of a business, e.g. generating earnings by meeting multiple clients' business or personal needs. And these returns can be

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Don't disagree with you.

PMU said:

You are not dependent on the opinion of an 'expert' as to the approximate value of the asset, they way you may be for a painting

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True, but by and large we are dependent on a price guide one way or other. Be it an auctioneer, or tv advertising, or the price tag on a pair of trousers. The price is displayed, we decide if we wish to pay.

PMU said:

I still think most 'investment' in bitcoin is speculation.

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Absolutely. My point is that all 'investment' is speculation, to a lesser or greater degree. Bitcoin is highly speculative right now. I have no idea if it is worth more or less than what is being traded.

PMU said:

Friends First for example has a currency fund, so why would you invest in only bitcoins when you can invest in a fund that covers multiple currencies and multiple trading strategies?

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Because those currencies are subject to manipulation and central bank interference. Fine, if it pays off for you, bummer if you lose out - there is nothing you can do.

PMU said:

What edge does bitcoin give you?

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It isn't in the control of any particular group. So for instance, I won't wake up to the announcement that the government has decided to devalue my currency.

PMU said:

Otherwise you are speculating.

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All investment is speculation. The degree of speculation is measured by risk. The level of risk varies from one asset to another.
Bitcoin, I would agree is high risk, highly speculative.

You are your own price guide. Has something value for you? Yes or no. The price displayed is an offer - as you said you accept it or not. In some circumstances / situations you can haggle. Sometimes I see real bargains or something completely overpriced - I know something has a higher value then the price displayed or a lower value than the price displayed.


You also clearly don't know what speculation/investment means. https://www.investopedia.com/terms/s/speculation.asp
It is not the same as investment, but can be hard to differentiate sometimes.
I am going with that definition and not with your lay one...

Firstly, well done to all in debating this issue on this and the many related threads. (In ways, the multiplicity of threads is alarming in the Fitzgerald Kennedy sense!). Possibly inappropriate to single out any single poster but nonetheless, I think Fpalb deserves recognition for both his many informed contributions as well as his unerring courtesy.

As I have said in almost all of my posts, I don't know where this is all going to end up and when the music will stop. What I do know is that it's not always a good idea to treat highly probable as certain and highly improbable as impossible.

What I believe is highly probable is that BTC will not be the same price this time next year. If you consider this last statement and do a SWOT analysis, this presents many OTs - and arguably, especially Ts.

At this stage, not only do I not know when the music will stop, I don't even know when the music will have a sustained slow down. I continue to sell (at various milestones) and continue to hold. Reading all the posts about the folly of BTC (on this and other forums) has actually help ease the seller's remorse I feel when I think of the opportunity cost my premature selling has cost me to date.

Regarding my remaining holdings, I get it that many will scream at me to sell and to sell now but people have been telling me this for about 5 years - to me it's always been about a calculated risk. (As I mentioned in earlier posts, this was originally just a "satellite" investment play. I believe that point is significant in this context. I also believe that I have been very lucky but I believe it's not all luck as some might characterise.)

Since this thread appeared 10 days ago, BTC is up over 50% (at the time of writing!!) - I do not wish to read too much into that other than to observe that when it fell by 20% in one of the intervening days, much was made of that decline. Understandably, there is a lot of confirmation bias in threads of this nature. Super-ultra volatility is simply a given with BTC (........in the immediate future at least!)

Anyways, need to get back to the day job now, so all this is by way of introduction to a recurring thought that I've been having in relation to BTC..............This time it's different.


















Ok - I'm kidding! The actual thought is that..........I know it might well be wrong to continue to hold BTC. It's really weird , though, to be continuously rewarded for doing the wrong thing. And so, I should recant. I must recant. I will recant......someday.

All the while, however, complete recantation is difficult because:

"And yet it moves" or "Albeit it does move" (Italian: E pur si muove or Eppur si muove [epˈpur si ˈmwɔːve]) is a phrase attributed to the Italian mathematician, physicist and philosopher Galileo Galilei (1564–1642) in 1633 after being forced to recant his claims that the Earth moves around the immovable Sun rather than the converse during the Galileo affair.

I just like the phrase - it keeps resonating with me - that's all!

Merowig said:

I know something has a higher value then the price displayed or a lower value than the price displayed.

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You believe that you 'know something has a higher value than the price displayed or a lower value than the price displayed'. In most instances, on a day to day basis, where products on sale have very little price fluctuation, you will be spot on most of the time. Where a product that has a lot of price fluctuation, it gets somewhat trickier. You may still believe it is worth more than the current asking price so you make an investment in the product. Even if the price is dropping like a stone in front of your eyes, you may still believe it is worth more. This is speculation.

Merowig said:

You also clearly don't know what speculation/investment means. https://www.investopedia.com/terms/s/speculation.asp
It is not the same as investment, but can be hard to differentiate sometimes.
I am going with that definition and not with your lay one...

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By all means use whatever definition you want. I am not hear to lecture or pontificate, I am here to give my opinion. That opinion is that all investment is speculation, but depending on the investment the level of speculation is determined by risk. Bitcoin is clearly a high-risk speculation.

elacsaplau said:

I think Fpalb deserves recognition for both his many informed contributions as well as his unerring courtesy.

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Totally agree - even if I still cant figure out what it all means, it seems reassuring that someone seems to know what it all means, affording credibility that bitcoin has value (if not necessarily determining what is its appropriate value - €1 or less or €12,000 or more)?

totally agree with the comment, "this time it' different". Hmmm now where did I hear that said before.

Merowig said:

You are your own price guide. Has something value for you? Yes or no.

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Not when it comes to a commodity/fiction/ponzi scheme/mirage.

You and I might value a painting differently. I might not like it and so would not be prepared to pay anything for it. You might decided it's worth €10k. You are not wrong - we just value and price it differently.

We might disagree on the value of Ryanair shares. But the market will determine the price.

You might think that Bitcoin is worth $12,000 - but you are wrong. It's worth nothing. For a certain period of time, you may be able to sell them at this price or even a higher price. But eventually it has to reach its true market value which is zero.

Brendan

Brendan Burgess said:

But eventually it has to reach its true market value which is zero.

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and those last onto the pyramid will suffer the fall!

elacsaplau said:

Ok - I'm kidding! The actual thought is that..........I know it might well be wrong to continue to hold BTC. It's really weird , though, to be continuously rewarded for doing the wrong thing. And so, I should recant. I must recant. I will recant......someday.

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Obviously you are a clever and informed person to have gotten aboard with bitcoin so early, it does take skill to recognize what will be the next big thing. But Isaac Newton lost all his fortune in the south sea bubble. He actually identified it early as an opportunity then as a bubble and sold his shares "profiting handsomly". Then he watched as the shares soared to 3 times the price he sold them at and jumped back in again only to lose all his money. He famously said “I can calculate the movement of stars, but not the madness of men.”

If someone offered to underwrite the entire potential $12k loss for me, I still don't think I could bring myself to put it into Bitcoin ....

While I'm interested in Bitcoin as a concept, there's no way in hell that I'd recommend that anyone stay in it at this point (even if I didn't like the person in question ).

Brendan Burgess said:

You might think that Bitcoin is worth $12,000 - but you are wrong. It's worth nothing.

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Simple test: I give you a Bitcoin. Because you say it is worth nothing, you do nothing. Really? Mightn't cross you mind to sell it? Not tempted in the slightest?

I think we can all agree that investments, from the clearly flaky to the seemingly sound can crash in value. But surely something is worth what someone is prepared to pay for it?

My point is that it is clearly not worth nothing.

I don't doubt that anything that rises in price as fast as bitcoin is rising is going to take a hard fall at some point.
I am also highly skeptical about the apparent origins, the anonymous satoshi...whatever his name.
But I'm listening to a new York banker at the moment, pointing out, that central banks across the world have effectively devalued their own currencies through unprecedented levels of QE. Property prices, bond prices, US stock markets, high-end art paintings, vintage cars, are, according to him, clearly in bubbles too.
It's hard not disagree.
The point is, that bitcoin is simply another option to place all of this QE money printing.
But why bitcoin, and not...say, bottled air? Is it because bitcoin does actually have some value, unlike bottled air?
What that value is anybody's guess.

TheBigShort said:

But why bitcoin, and not...say, bottled air? Is it because bitcoin does actually have some value, unlike bottled air?
What that value is anybody's guess.

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Try buying, storing, transporting or selling 10 million worth of bottled air. Would each of those tasks be easier or more difficult than with bitcoin? Try this same comparison with other things and it might make sense why people choose bitcoin.

I'm going to attempt to make a balanced comment on the bubble aspect.

Firstly, the current price is now at $14k on gdax which is large regulated US exchange. It was $12k earlier today, and it was in $8k range a week ago. It's really moving fast. All of the previous growth spurts have ended in a blow-off top after going vertical blasting through new all-time highs like this, and it corrected a significant percentage after all of those. Either history is repeating, or 'this time it's different' and institutional money is flowing in in large amounts for the first time in anticipation for the CME futures launching this week. In any case I wouldn't be recommending anyone to buy right now.

Secondly, I think anyone that thinks cryptocurrency is going to zero is vastly underestimating the community. For many people this isn't just an 'investment', a gamble or a currency. For some it's a technical breakthrough that blew people's minds to the extent that they were so obsessed with it they quit their jobs to work on crypto-related stuff (I may do this soon). It's a hobby, it's a soap opera, it's something people trade full-time, it's an ideology, a movement - people are mad about 2008, they're pissed off at the legacy banking industry, bitcoin is OURS.

Look at the size of the https://bitcointalk.org/ forum: 25,839,375 Posts in 858,097 Topics by 1,374,347 Members and that's just one forum. If you look at reddit, the bitcoin subreddit has more subscribers than the investing one.

I listened to a podcast interviewing the guy who runs the great https://www.mrmoneymustache.com/ website and he described his readers as a cult, before saying that he didn't mean that in a derogatory way and likened it to the cult of Apple users who made that the biggest company in the world and emphasisied how powerful that can be. The hardcore Bitcoin users are absolutely a cult in this sense. I think there are defintely some hype stocks like Tesla that have a cult like following as well but I don't think anything comes close to bitcoin in this regard.

When the price is lower than it is now, the weak hands and those along for the ride will sell, but don't be surprised if there are still plenty of people looking to buy 'cheap coins'.

Brendan Burgess said:

With Bitcoin, the expectation of loss is 100%.

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Brendan Burgess said:

People who buy Bitcoin do not have the gift of determining its value. It's worthless. You will only gain money if the greater fool progression continues. When it stops, you will lose all your money.

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Brendan Burgess said:

Bitcoin has no intrinsic value. It is just set by the greater fool principle. If you believe it's worth $8,000 and you are prepared to pay $8,000, then it's worth that today. But, in time, it will be worth zero.

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Brendan as the founder of askaboutmoney.com and a role model for others using it I was surprised (putting it mildly) by these posts. I am going to choose my words carefully and diplomatically so as not to fuel a potential riot.
Firstly Brendan you have contributed far more to my personal financial knowledge than I will ever be able to reciprocate and I thank you for that, however in this case taking such an extreme view is counter-productive to what I believe is your attempt at warning fellow members of a serious bubble.
If you had argued that Bitcoin had negligible uses and negligible ability to store value (or words to that effect), I would of had more respect for your argument.
By calling something worthless you are saying that it has absolutely “ZERO” value or use both TODAY and even with improvement TOMORROW.
You are saying there is no grey area here only black or white.
You are rejecting every single use and benefit other posters have mentioned and you are also saying that those respected advocates of Bitcoin such as Bill gates, Richard Brandson and others, who see value in bitcoin are 100% wrong.

https://youtu.be/GQaUYuAY0Pw

Would you be prepared to bet a large sum of your money on your statement that Bitcoin will fall to “zero” in five years? (Purely hypothetical question).
In five years if 1 Bitcoin is worth €0.00000000001, mathematically speaking you will be wrong. My point is I believe your choice of wording needs consideration.
Can you really put your hand on your heart and say:

1. I fully understand all the cryptography behind Bitcoin and I am 100% certain that there is neither any value in it now, nor will there be any in the future. And...
2. Categorically state with 100% certainty it will fall to ZERO.

I see Bitcoin as having some limited value in its current state, but grossly underperforming in terms of its transactional value. So I would agree that until the technology catches up with the hype, we are in bubble territory.
I am selling down to my original seed capital, partly because of the valid concerns expressed by those on here posting REASONABLE arguments for the "Bursting Bitcoin bubble" theory.
I will still maintain a holding of the significant profit i have made in Bitcoin and other alt coins as I am speculating on the future potential of this asset class. I also see the cryptos as a platform or springboard for related blockchain technologies and would also like to reinvest some profits into these new and innovative industries.

Maybe the bit coin bubble will get enormous before it bursts, it actually might be the first proper bubble of the internet era. The dot com bubble grew throughout the late 90s and burst in early 2000s but this actually happened in the pre internet era as most people were not on the internet which was the reason for it bursting paradoxically. With smartphones in everyone s hands from Nigeria to Pyongyang the reach of this thing could be huge and devastating when it bursts.