Prove Me Wrong: Cryptocurrencies are NOT good investments

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Cartographer
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Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Cartographer »

EDITED TO ADD: Why do we need another cryptocurrency thread? Well, most of them quickly derail into a debate about whether or not cryptocurrencies have "value." My central claim here is that value is s necessary but not sufficient condition for cryptocurrencies to be a good investment. While there are plausible arguments about the value of cryptocurrencies, I have yet to see any convincing argument that that implies they will be a good investment.


ORIGINAL POST:

Summary: even you if believe cryptocurrencies have utility/are the future/whatever, this does *not* mean owning a cryptocurrency is a good investment. Just as companies come and go, most likely so too will any specific cryptocurrency. But unlike companies, cryptocurrencies are inherently unproductive assets with no intrinsic value outside their networks. This means that once they go, the net returns to investors in aggregate will be exactly 0 (minus fees and taxes). Therefore, cryptocurrencies are *not* good investments, despite any value they may or may not have.


Now I'll dive into the argument. Please note that I'll address several possible objections to my argument at the end of the post; if at all possible read through them before posting any objection.

Let me start by recalling the fact that most companies on the S&P 500 don't last there forever. In fact, over 80% of the original companies are no longer on the list. Companies have come and gone, some even completed folding. And yet, the index has increased many-fold since inception. More generally and reaching back even further, the dominant companies and industries keep changing over time, and yet the stock marked keeps going up. Bezos thinks Amazon won't exist in 100 years, and yet Amazon has a market cap well over $1T. How is it possible that so many companies eventually fail or decline, and yet we still make money by investing in them?

The answer is dividends (or mathematically equivalently, buybacks). Even if a company eventually goes under, the hope is that over its lifespan, it returns tons of money to the investors, far more than the initial investment. Note that, without dividends (or stock buybacks) everything else about investing in a stock is just money flowing from one investor to another, so the total return to investors in total would be zero (minus taxes and fees).

Much of the same can be said for some other investments, such as bonds or rental properties. But the key point is that these are all *productive* assets, producing dividends/interest/rent checks/whatever. Such payouts, or the hope of such payouts, are what ultimately dictate their price.

Now let's compare the above to cryptocurrencies. Cryptocurrencies are inherently unproductive. There is no dividend, no interest, no rent payment to be received for your investment. When you buy a bitcoin or whatever from someone, your only hope of making a profit is to sell it to someone else for a greater amount. But eventually, we should expect that bitcoin and any other cryptocurrency will likely fail (even if cryptocurrencies as a whole remain). Once it does, the total returns to all investors will be exactly zero, just like with a stock that doesn't pay dividends (or engage in buybacks). Sure, some will have made tons of money, but for every dollar made another dollar was lost. So owning cryptocurrency as a long-term investment is like a game of hot potato: the music eventually stops, and someone will lose their life savings.

Note that none of the above means cryptocurrencies are not useful. Maybe they are, maybe they aren't. Maybe they are the future. Who knows. My car is also useful. It doesn't mean I think of it as an investment. This also says nothing about whether companies in the cryptocurrency space are good investments, it just says that the object itself is not.



Now, I will attempt to address some potential objections:

(1) "Dividends make up only a small part of the S&P 500 returns, the rest is capital appreciation!" This is true, but you have to ask yourself why there is capital appreciation. The answer is risk: when a company first starts out, it is very risky to invest in it. To compensate for that risk, investors demand a discount, to pay less than the future dividend payouts. As time goes on, it becomes clearer that the company will succeed, and so the risk will be lower. As a result, as time goes on, investors are willing to pay more for the now-less-risky asset, and the market price increases. But they are only willing to pay more because of the ultimate dividend payout (even if they will not be the ultimate recipients because they, too, sell before that happens). But the price is still ultimately driven by the expected future dividend payouts; if there were never any profits to be returned, no one would pay a dime for the company.


(2) "Bitcoin has a first-mover advantage, and *will* be around forever!" First, I see no reason to assume any particular cryptocurrency will last forever, while most companies do not. Eventually someone will make a better product. Moreover, unlike a company, it is trivial to produce a second bitcoin: just copy the code. The only thing keeping bitcoin or any other cryptocurrency off the ground is network effects. But network effects are fleeting. Remember MySpace?


(3) "Cryptocurrencies ARE productive! I can earn X% interest on my holdings!" You have to ask yourself: if an account is paying above-market interest, where is the money coming from? Why would the account provider not just borrow USD at a lower rate, and use it to purchase whatever coin, rather than borrow the coin from you. Perhaps they are just diluting the currency, in which case the real interest rate is 0%. Or perhaps they are paying that much to borrow the currency from you because they expect the currency to be cheaper in the future when they have to pay it back. Any interest rate above the prevailing rate must come with some risk.

Plus, just because you need to have your asset in a cryptocurrency to earn the interest, doesn't mean the cryptocurrency itself is a good investment. That's like saying the Kyrgyzstani som is a good investment, since the interest rates in Kyrgyzstan are close to 10%.


(4) "Cryptocurrencies aren't like stocks. They are digital gold!" Gold is used as an inflation hedge, and is not meant to be a source of fantastic returns. Cryptocurrency investors seem to want returns beating the stock market. So if gold is the point of comparison, you should expect mild returns.

I'll also point out that gold has an intrinsic value: it looks nice and has some industrial applications. This is the source of gold's value. More generally, you can view all commodities like a stock that only does buybacks (when the commodity is actually sold to be consumed), which are mathematically equivalent to dividends. Cryptocurrencies, on the other hand, have no such intrinsic value outside their network.


(5) "Anything you've said may be true in the long run. But this is a one-time opportunity to get in before everyone adapts them and they go up more!" Here's the thing. Cryptocurrency "adoption" doesn't necessarily mean the price goes up. If you use cryptocurrency for some transaction, you only need to tie up your money for the length of the transaction. Outside the duration of the transaction, you could just convert back to fiat. So yes, cryptocurrency adoption probably puts some lower-bound on the market-cap of the currency. But I think the current price is far higher than that lower bound, and instead is being driven by speculation. After all, last I checked something like 40% of bitcoin is being held by HODLers, and I suspect much of the reset is being used by active traders.

And if by "adoption", you mean that more and more people will be investing in it: well, what happens when everyone finally invests in cryptocurrencies. If increased investing is the source of cryptocurrency gains, then at this point the price would plateau. But then investors will leave since it's not worth the risk for 0 returns. The price then plummets. To the extend that investors are rational, then, they would've anticipated the decline and avoided investing at the top in the first place, meaning the actual top occurs before this point. But then you can proceed by induction to conclude that no rational investor would ever buy in the first place.

Perhaps you can argue that cryptocurrency returns are fueled solely by irrationality (I suspect this is in large part the case). But isn't it irrational to invest in something so irrational?
Last edited by Cartographer on Mon Apr 26, 2021 3:36 pm, edited 1 time in total.
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tradri
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by tradri »

I think very few people would disagree with you, since we are on the Bogleheads forum. :wink:
FIBoston
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by FIBoston »

I'll bite:

In all but 2 years of its existence Bitcoin has been the single highest returning of the widely held assets (equities, bonds, cash, RE, gold/silver, art etc.) you could own and cumulatively over the entire decade, its returns were 10x higher than the second-highest returning asset.

"Past performance does not guarantee future returns." Yes, but, an entire decade of such massive outperformance should lead even the most conservative investor to put a small amount of their capital into Bitcoin, and probably Ethereum too.

"Bitcoin provides no intrinsic benefit." If everything was valued by its usefulness we would scoff at gold. Value is determined by human sentiment. If people see Bitcoin as a valuable inflation hedge due to its scarcity and decentralized nature then adoption will continue. Right now, very few countries or governments hold Bitcoin on their balance sheets. If all SP500 companies plus the G7 countries put just 1% of their balance sheets into Bitcoin, the price will continue to rise at a pace far greater than any other asset available to investors.

Personally, I don't care if people think it's a sound investment or not. I'm not a libertarian who believes all taxation is theft and is therefore only willing to put their wealth into Bitcoin in the hopes that it will somehow be inaccessible to their government, nor am I so beholden to my investing rules that I wouldn't be willing to adjust for an asset that I think still has a lot of room to grow. I own a small amount of Bitcoin and a small amount of Ethereum. They did not cost me much to acquire relative to the rest of my net worth, and if they grow to where I optimistically think they could in the next 2-5 years ($600k BTC/$20k ETH) then I will be able to buy a house with my BTC/ETH holdings and be able to put the cash I'm saving for a downpayment into $VT. If that doesn't happen, so be it. They aren't my primary plan, or even my back up plan, but they could be my golden ticket. That's how I view crypto.
oldfort
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by oldfort »

FIBoston wrote: Mon Apr 26, 2021 1:30 pm "Bitcoin provides no intrinsic benefit." If everything was valued by its usefulness we would scoff at gold. Value is determined by human sentiment.
Most gold, not sitting in Central Bank vaults, goes into jewelry/art work/industrial uses.
txhill
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by txhill »

I doubt that this forum really needs yet another crypto thread (even though I love it), but I guess I will bite first.
Cartographer wrote: Mon Apr 26, 2021 1:13 pm Now let's compare the above to cryptocurrencies. Cryptocurrencies are inherently unproductive. There is no dividend, no interest, no rent payment to be received for your investment. When you buy a bitcoin or whatever from someone, your only hope of making a profit is to sell it to someone else for a greater amount. But eventually, we should expect that bitcoin and any other cryptocurrency will likely fail (even if cryptocurrencies as a whole remain). Once it does, the total returns to all investors will be exactly zero, just like with a stock that doesn't pay dividends (or engage in buybacks). Sure, some will have made tons of money, but for every dollar made another dollar was lost. So owning cryptocurrency as a long-term investment is like a game of hot potato: the music eventually stops, and someone will lose their life savings.
I disagree. I am right now earning 6% on some of my Bitcoin through lending. Bitcoin is an asset, just like a piece of land that you can rent out, or a stack of cash that I could lend out (i.e., bonds). Real estate doesn't inherently pay dividends, nor does cash--and their value is intrinsically speculative (you believe that land will be worth more over time, just as you believe the government won't print too much money in the future). But you generate a return with them nonetheless. Most people don't do this with bitcoin because they'd rather just keep it self-custodied for maximum security; getting an extra 6% return when compared to the 200% per year price appreciation it has historically provided makes the risk-reward proposition seem not worth it. But once the price stabilizes and custody solutions become more trustworthy, we will see a lot more fixed income investors using bitcoin (and we'll see the presently high % yield drop as well).

I should also add that some cryptos, including Ethereum 2.0, have other yield-generation mechanisms as well such as staking (i.e., committing capital to the network in order to validate transactions and thereby earning fees on transactions).
Now, I will attempt to address some potential objections:

(1) "Dividends make up only a small part of the S&P 500 returns, the rest is capital appreciation!" This is true, but you have to ask yourself why there is capital appreciation. The answer is risk: when a company first starts out, it is very risky to invest in it. To compensate for that risk, investors demand a discount, to pay less than the future dividend payouts. As time goes on, it becomes clearer that the company will succeed, and so the risk will be lower. As a result, as time goes on, investors are willing to pay more for the now-less-risky asset, and the market price increases. But they are only willing to pay more because of the ultimate dividend payout (even if they will not be the ultimate recipients because they, too, sell before that happens). But the price is still ultimately driven by the expected future dividend payouts; if there were never any profits to be returned, no one would pay a dime for the company.
I think you are sort of right but you have to understand that while some investors focus on dividend payouts, the more common approach these days for growth companies is to use what some might call a terminal valuation model. That kind of model justifies high valuations for growth companies that are not paying huge dividends any time soon. Remember how many value investors railed on Amazon because it traded at 800 price/earnings ratio for a decade? Do you think they were right?
(2) "Bitcoin has a first-mover advantage, and *will* be around forever!" First, I see no reason to assume any particular cryptocurrency will last forever, while most companies do not. Eventually someone will make a better product. Moreover, unlike a company, it is trivial to produce a second bitcoin: just copy the code. The only thing keeping bitcoin or any other cryptocurrency off the ground is network effects. But network effects are fleeting. Remember MySpace?
It's fair to debate whether bitcoin will succeed with its store of value narrative. But network effects are not trivial, and there are plenty of network effects that are not fleeting. Yes, MySpace is a counterexample, but there's no reason to think Bitcoin is more like MySpace than any other successful network effect. Whether bitcoin or ethereum or some other crypto wins, I guess we won't know for a time to come. But it seems to me that undoubtedly something will replace gold as a store of value because going from analog to digital is inevitable--and whatever does will be worth a tremendous amount in the future.
(3) "Cryptocurrencies ARE productive! I can earn X% interest on my holdings!" You have to ask yourself: if an account is paying above-market interest, where is the money coming from? Why would the account provider not just borrow USD at a lower rate, and use it to purchase whatever coin, rather than borrow the coin from you. Perhaps they are just diluting the currency, in which case the real interest rate is 0%. Or perhaps they are paying that much to borrow the currency from you because they expect the currency to be cheaper in the future when they have to pay it back. Any interest rate above the prevailing rate must come with some risk.
I noted above that staking is a productive method of earning a yield. As for lending to earn %, the people paying a high % to borrow generally are market makers and traders. There is risk involved as you might expect.
Plus, just because you need to have your asset in a cryptocurrency to earn the interest, doesn't mean the cryptocurrency itself is a good investment. That's like saying the Kyrgyzstani som is a good investment, since the interest rates in Kyrgyzstan are close to 10%.
I am not sure I understand what you are saying here.
(4) "Cryptocurrencies aren't like stocks. They are digital gold!" Gold is used as an inflation hedge, and is not meant to be a source of fantastic returns. Cryptocurrency investors seem to want returns beating the stock market. So if gold is the point of comparison, you should expect mild returns.

I'll also point out that gold has an intrinsic value: it looks nice and has some industrial applications. This is the source of gold's value. More generally, you can view all commodities like a stock that only does buybacks (when the commodity is actually sold to be consumed), which are mathematically equivalent to dividends. Cryptocurrencies, on the other hand, have no such intrinsic value outside their network.
Bitcoin is the main store of value crypto; most others seek to prove themselves as platforms for decentralized applications. For bitcoin, it has value because it is not correlated with other asset classes, it's durable, portable, and it has a known and capped supply--and importantly it is easily tradeable, divisible, and fungible. It does everything gold as an investment does but better. Note that most of gold's value is speculative and not useful for industrial application. And even if gold's value as jewelry is not replaced (maybe it really does look better than silver and it's not just expensive?), there is a multitrillion dollar store of value market that could be disrupted.
(5) "Anything you've said may be true in the long run. But this is a one-time opportunity to get in before everyone adapts them and they go up more!" Here's the thing. Cryptocurrency "adoption" doesn't necessarily mean the price goes up. If you use cryptocurrency for some transaction, you only need to tie up your money for the length of the transaction. Outside the duration of the transaction, you could just convert back to fiat. So yes, cryptocurrency adoption probably puts some lower-bound on the market-cap of the currency. But I think the current price is far higher than that lower bound, and instead is being driven by speculation. After all, last I checked something like 40% of bitcoin is being held by HODLers, and I suspect much of the reset is being used by active traders.

And if by "adoption", you mean that more and more people will be investing in it: well, what happens when everyone finally invests in cryptocurrencies. If increased investing is the source of cryptocurrency gains, then at this point the price would plateau. But then investors will leave since it's not worth the risk for 0 returns. The price then plummets. To the extend that investors are rational, then, they would've anticipated the decline and avoided investing at the top in the first place, meaning the actual top occurs before this point. But then you can proceed by induction to conclude that no rational investor would ever buy in the first place.

Perhaps you can argue that cryptocurrency returns are fueled solely by irrationality (I suspect this is in large part the case). But isn't it irrational to invest in something so irrational?
I guess we'll just have to see. Once Bitcoin reached $1 trillion it really drew a lot of attention from institutional investors. If it gets much larger I think many larger institutional investors will have to buy some just to make sure they are properly diversified with respect to a new asset class. But we'll see I guess?
FIBoston
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by FIBoston »

oldfort wrote: Mon Apr 26, 2021 1:37 pm
FIBoston wrote: Mon Apr 26, 2021 1:30 pm "Bitcoin provides no intrinsic benefit." If everything was valued by its usefulness we would scoff at gold. Value is determined by human sentiment.
Most gold, not sitting in Central Bank vaults, goes into jewelry/art work/industrial uses.
Very true. My point is more that if we were valuing raw materials on their usefulness, gold would be nowhere near the top relative to others such as aluminum, steel or copper. I probably should have made that clearer.
Gadget
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Gadget »

My Bitcoin is being lent out to institutions and short sellers for about 6%. Sure, added risk, but all crypto is a risk.

ETH is yielding 8% for those staking. There is no staking risk, the ETH network is paying you a return for helping to validate and secure the network for an extended period of time. The rate will drop as more people become validators, but I would argue this is kind of like a crypto bond or dividend payment. Google "proof of stake" for why it pays to help secure the network by offering up a personal stake in the network. While staking has little risk, I admit the value of ETH could go to zero if it fails, or some competitor zooms past them in adoption. So there is lots of risk, but the yield from staking is very low risk by itself.

A lot of your points are valid. But I find it hard to ignore the fact that crypto has outperformed every asset class for a decade. It's too volatile for someone near retirement (probably most of this board). If you are prone to panic sell VTI in a downturn, you probably shouldn't be in crypto. But I think younger investors can take a chance on smaller allocations to crypto. So far, they've been proven right for a decade.
ThankYouJack
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by ThankYouJack »

Cartographer wrote: Mon Apr 26, 2021 1:13 pm
Much of the same can be said for some other investments, such as bonds or rental properties. But the key point is that these are all *productive* assets, producing dividends/interest/rent checks/whatever. Such payouts, or the hope of such payouts, are what ultimately dictate their price.

Now let's compare the above to cryptocurrencies. Cryptocurrencies are inherently unproductive. There is no dividend, no interest, no rent payment to be received for your investment. When you buy a bitcoin or whatever from someone, your only hope of making a profit is to sell it to someone else for a greater amount. But eventually, we should expect that bitcoin and any other cryptocurrency will likely fail (even if cryptocurrencies as a whole remain). Once it does, the total returns to all investors will be exactly zero, just like with a stock that doesn't pay dividends (or engage in buybacks). Sure, some will have made tons of money, but for every dollar made another dollar was lost. So owning cryptocurrency as a long-term investment is like a game of hot potato: the music eventually stops, and someone will lose their life savings.

Note that none of the above means cryptocurrencies are not useful. Maybe they are, maybe they aren't. Maybe they are the future. Who knows. My car is also useful. It doesn't mean I think of it as an investment. This also says nothing about whether companies in the cryptocurrency space are good investments, it just says that the object itself is not.
There's a lot of emphasis on productive assets, but I don't think investments have to produce anything. Whether it's a stock fund, bond fund or real estate, cars, art, cryptocurrency whatever else...doesn't it come down to supply and demand? What will demand for Bitcoin be like in the next decade - that's the trillion dollar question. My gut tells me it will decrease, but I also felt that way when Bitcoin hit $1,000 :oops:
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Cartographer
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Cartographer »

tradri wrote: Mon Apr 26, 2021 1:21 pm I think very few people would disagree with you, since we are on the Bogleheads forum. :wink:
And yet, there are several vocal users who are always promoting cryptocurrencies, and numerous others genuinely considering investing
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Cartographer
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Cartographer »

FIBoston wrote: Mon Apr 26, 2021 1:30 pm I'll bite:

In all but 2 years of its existence Bitcoin has been the single highest returning of the widely held assets (equities, bonds, cash, RE, gold/silver, art etc.) you could own and cumulatively over the entire decade, its returns were 10x higher than the second-highest returning asset.

"Past performance does not guarantee future returns." Yes, but, an entire decade of such massive outperformance should lead even the most conservative investor to put a small amount of their capital into Bitcoin, and probably Ethereum too.

"Bitcoin provides no intrinsic benefit." If everything was valued by its usefulness we would scoff at gold. Value is determined by human sentiment. If people see Bitcoin as a valuable inflation hedge due to its scarcity and decentralized nature then adoption will continue. Right now, very few countries or governments hold Bitcoin on their balance sheets. If all SP500 companies plus the G7 countries put just 1% of their balance sheets into Bitcoin, the price will continue to rise at a pace far greater than any other asset available to investors.
You cannot compare a single asset to broad asset classes. Individual companies have seen meteoric rises in the past, but that doesn't make stock picking a good idea.

Also, I never said bitcoin (or other cryptocurrencies) offer no intrinsic benefit. But the question is how that benefit translates to investment returns. Since the entire gain of a cryptocurrency investment is due to someone else paying more, the sum total return to all investors will always be 0. So the game cannot go on forever. Once the mania dies down and rationality kicks in, investors will realize that if it cannot go on forever, it cannot go on at all. This is because, if it stops being a good investment at time T, then investors will leave at time T and the price will drop. But then it actually became a bad investment at time T-1. Rinse and repeat.

Contrast this to stocks, where along they way a stock is producing dividends. The total return to all investors is positive, even if the stock goes to zero. So it can actually be the case that the stock was *never* a bad investment, even if it eventually went to zero.
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Cartographer
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Cartographer »

txhill wrote: Mon Apr 26, 2021 1:38 pm I think you are sort of right but you have to understand that while some investors focus on dividend payouts, the more common approach these days for growth companies is to use what some might call a terminal valuation model. That kind of model justifies high valuations for growth companies that are not paying huge dividends any time soon. Remember how many value investors railed on Amazon because it traded at 800 price/earnings ratio for a decade? Do you think they were right?
As I said in the OP, just because a company isn't paying out dividends *today*, doesn't mean it is or is not a good investment. But if a company were expected to *never* pay out a dividend, it's value would be identically 0. The only reason people buy company stock is for the promise of a dividend payout, or the promise that someone else will buy it from them for the dividend payout, or the promise that someone else will buy it from someone else who will buy if from them, etc. But it always ends with someone getting that dividend payout (or buybacks, whatever).

It's fair to debate whether bitcoin will succeed with its store of value narrative. But network effects are not trivial, and there are plenty of network effects that are not fleeting. Yes, MySpace is a counterexample, but there's no reason to think Bitcoin is more like MySpace than any other successful network effect. Whether bitcoin or ethereum or some other crypto wins, I guess we won't know for a time to come. But it seems to me that undoubtedly something will replace gold as a store of value because going from analog to digital is inevitable--and whatever does will be worth a tremendous amount in the future.
But again, the problem is that if bitcoin or etherium go to zero, the net return to investors is exactly 0. And I think it's clear that they eventually *will* go to zero. Something better will come along and replace them. Once that happens, whomever is left holding bitcoin or etherium will be wiped out. With stocks, on the other hand, you hopefully got dividends all the way.

I noted above that staking is a productive method of earning a yield. As for lending to earn %, the people paying a high % to borrow generally are market makers and traders. There is risk involved as you might expect.
Whether it's staking or earning interest, the net outflows of the currency are exactly 0. So if you are getting paid x%, where is the money coming from? If money is being printed, then it will devalue the currency. If it is coming from someone else, why are they selling?
mikep
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by mikep »

10 years ago it was all about owning commodities/CCFs for their diversification benefits even though they earn zero real return, don't hear about those anymore. This time it's crypto, in 10 years it will be something else.

Stocks and bonds are always there, however.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Crypto currencies are not good or bad investments.

They're just not investments at all because they have no IRR.

They're speculation.

Are they worse than other speculation?

From a stats POV, Bitcoin, at least, seems to be an 'unfair bet' at this stage of the game.

For new Bitcoin buyers to get the gains enjoyed by early adopters, we get into economically preposterous scenarios.

Example:

For Bitcoin to keep growing at 70% CAGR, 10 years from now you need to have a Bitcoin market cap that is about 2x the GDP of the entire planet.
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txhill
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by txhill »

Cartographer wrote: Mon Apr 26, 2021 4:03 pm As I said in the OP, just because a company isn't paying out dividends *today*, doesn't mean it is or is not a good investment. But if a company were expected to *never* pay out a dividend, it's value would be identically 0. The only reason people buy company stock is for the promise of a dividend payout, or the promise that someone else will buy it from them for the dividend payout, or the promise that someone else will buy it from someone else who will buy if from them, etc. But it always ends with someone getting that dividend payout (or buybacks, whatever).
. . .
But again, the problem is that if bitcoin or etherium go to zero, the net return to investors is exactly 0. And I think it's clear that they eventually *will* go to zero. Something better will come along and replace them. Once that happens, whomever is left holding bitcoin or etherium will be wiped out. With stocks, on the other hand, you hopefully got dividends all the way.
. . .
Whether it's staking or earning interest, the net outflows of the currency are exactly 0. So if you are getting paid x%, where is the money coming from? If money is being printed, then it will devalue the currency. If it is coming from someone else, why are they selling?
This is not true. For example, for staking, you are providing a service by validating transactions. Like getting paid for running a tollpike on the toll road. I guess the toll operators aren't increasing the amount of money in the system, they're receiving it from people who want to use the road (just as people want to use Ethereum to run applications). Or how Amazon charges applications for using AWS. I guess they're not literally creating money out of thin air, but if that's your only criterion for an investable asset then you're ruling out a ton of possible industries (banking, for example).
watchnerd wrote: Mon Apr 26, 2021 4:16 pm They're just not investments at all because they have no IRR.

They're speculation.

Are they worse than other speculation?

From a stats POV, Bitcoin, at least, seems to be an 'unfair bet' at this stage of the game.

For new Bitcoin buyers to get the gains enjoyed by early adopters, we get into economically preposterous scenarios.

Example:

For Bitcoin to keep growing at 70% CAGR, 10 years from now you need to have a Bitcoin market cap that is about 2x the GDP of the entire planet.
For the same reasons stated above, this is not a good way of looking at cryptocurrencies generally. Bitcoin has the same IRR as the dollar (well, maybe higher since the dollar has negative IRR); you can earn a yield from it just as you would from a bond, by lending it out. Other cryptos, specifically Ethereum, provide a platform for use through applications. After ETH 2.0 is out, ETH (the coin) will gather value if staked on the network to validate transactions (see above explanation, like running a toll road or running AWS).

While I personally believe that Bitcoin isn't going much further than the market cap for gold (although I think it can go further just because going from analog to digital typically not only replaces the analog version but also increases the addressable market), I think it can cover a lot of fixed income investments as well which makes it have a fairly large upside from here. But there is a cap; Bitcoin can only go so far. It won't replace money as some maximalists seem to believe.

But cryptocurrencies generally have a total addressable market of the entire financial system. Most of the value will be retained by central bank digital currencies and essentially what amounts to traditional finance--not much of a change to status quo there. But if even a small percentage of it flows through the Ethereum network or other cryptos, the upside is tremendous from here. But crypto will take over the system (or so I believe) simply because it does what traditional finance does except more securely and more quickly. Even if wealth remains largely in the hands of whoever already has it, even a slight transfer of that wealth to early adopters of things like Ether--the risk-reward seems very skewed at this time.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

txhill wrote: Mon Apr 26, 2021 4:33 pm
For the same reasons stated above, this is not a good way of looking at cryptocurrencies generally. Bitcoin has the same IRR as the dollar (well, maybe higher since the dollar has negative IRR); you can earn a yield from it just as you would from a bond, by lending it out.
Right.

So extrapolating past Bitcoin CAGR into the future doesn't make sense if Bitcoin actually becomes a true currency.

Even it becomes the same size as gold, the forward returns will be less than the past.

(or similar, but shorter lived)
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by KlangFool »

OP,

An investment has to pass my "Sleep For 5 Years" rule.

Something can be an investment if I can go to sleep for 5 years and do nothing about it, and it will be fine. Cryptocurrency do not pass my "Sleep For 5 Years" rule. I am not confident that whatever cryptocurrency that I buy will be around in 5 years. Hence, it is not an investment for me.

As far as I can tell, you are speculating or gambling if you buy crytocurrency.

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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

KlangFool wrote: Mon Apr 26, 2021 4:54 pm OP,

An investment has to pass my "Sleep For 5 Years" rule.

Something can be an investment if I can go to sleep for 5 years and do nothing about it, and it will be fine. Cryptocurrency do not pass my "Sleep For 5 Years" rule. I am not confident that whatever cryptocurrency that I buy will be around in 5 years. Hence, it is not an investment for me.

As far as I can tell, you are speculating or gambling if you buy crytocurrency.

KlangFool
Yes, definitely speculation.

I enjoy playing games of chance, betting on sports, etc.

What I find interesting about Bitcoin, specifically, is that the math seems to be inherently rigged against new bettors.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Gadget »

KlangFool wrote: Mon Apr 26, 2021 4:54 pm OP,

An investment has to pass my "Sleep For 5 Years" rule.

Something can be an investment if I can go to sleep for 5 years and do nothing about it, and it will be fine. Cryptocurrency do not pass my "Sleep For 5 Years" rule. I am not confident that whatever cryptocurrency that I buy will be around in 5 years. Hence, it is not an investment for me.

As far as I can tell, you are speculating or gambling if you buy crytocurrency.

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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by MinnGuyInvesting »

I can't prove you wrong.

I can't prove anything is a good investment.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by junior »

Gadget wrote: Mon Apr 26, 2021 5:11 pm
If you bought bitcoin 5 years ago and fell asleep, you'd wake up a very rich man...
Anybody old enough to have lived through the dot com bubble should know this is poor reasoning.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

MinnGuyInvesting wrote: Mon Apr 26, 2021 5:13 pm
I can't prove anything is a good investment.
You should really work on your fundamental analysis skills, then. ;)
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by MinnGuyInvesting »

watchnerd wrote: Mon Apr 26, 2021 5:19 pm
MinnGuyInvesting wrote: Mon Apr 26, 2021 5:13 pm
I can't prove anything is a good investment.
You should really work on your fundamental analysis skills, then. ;)
There might be correlations, but it's not proof.

I could say lakeshore property is a limited resource thus a good investment.
Not proof.
But maybe not bad advice.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by JonnyDVM »

Some jumped 20% today alone. There is a difference between an investment that is "risky", and one that is "good". A good investment is one that makes money right? That's the whole point. So if I bought AAVE yesterday and today I made 17% on that and sold, that's by definition a good investment since I made money. Is it a good long-term investment? I dunno. That's a point of contention. But you can't tell me people aren't making significant amounts of money. Crypto Bulls would spin around and tell you US bonds are NOT good investments. Hard to argue they are wrong looking at recent returns.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

JonnyDVM wrote: Mon Apr 26, 2021 5:22 pm Some jumped 20% today alone. There is a difference between an investment that is "risky", and one that is "good". A good investment is one that makes money right? That's the whole point.
It needs to have a mechanism to make money into the future and provide internal rate of return on capital in excess of inflation.
JonnyDVM wrote: Mon Apr 26, 2021 5:22 pm tell you US bonds are NOT good investments. Hard to argue they are wrong looking at recent returns.
I don't need to look at recent returns -- that's a trailing indicator, anyway.

Negative real yields tells you that from a forward POV.

Same applies to a 5 YR CD, too.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Astones »

JonnyDVM wrote: Mon Apr 26, 2021 5:22 pm A good investment is one that makes money right?
According to this logic, going to the roulette and betting all you have on the color black is a good investment if you happen to win.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Thesaints »

Cartographer wrote: Mon Apr 26, 2021 1:13 pm ....
The answer is dividends (or mathematically equivalently, buybacks). Even if a company eventually goes under, the hope is that over its lifespan, it returns tons of money to the investors, far more than the initial investment. Note that, without dividends (or stock buybacks) everything else about investing in a stock is just money flowing from one investor to another, so the total return to investors in total would be zero (minus taxes and fees).
This is actually not correct. Stock returns are largely independent on dividends payment. Corporation may in principle stop paying dividends and returns would continue; they would not become zero.
Your second statement is a common misconception. A corporation can expand (or otherwise increase in value) and the stock transaction would not make that a zero sum game.
Imagine you buy a share of Icecream Parlors, Inc., initially consisting of a couple of stores. After some time, IPI has expanded to several stores in every major city. They have not paid a dime of dividends, but your share now represents ownership of something much more valuable than when you bought it.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by jackbeagle »

Cryptocurrencies are meant for you to get in and get out. Of course they're scary as a long term investment. There are people here who won't invest in a fund that doesn't have a 30 year track record. The only one of my funds that's been around that long is FSCSX!

I don't currently HODL any crypto but there are members on the app Blind (www.teamblind.com) who discuss crypto and some who have made lots of money and still have lots of money. Anything that's new and wants your money is going to draw skepticism.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by KlangFool »

Gadget wrote: Mon Apr 26, 2021 5:11 pm
KlangFool wrote: Mon Apr 26, 2021 4:54 pm OP,

An investment has to pass my "Sleep For 5 Years" rule.

Something can be an investment if I can go to sleep for 5 years and do nothing about it, and it will be fine. Cryptocurrency do not pass my "Sleep For 5 Years" rule. I am not confident that whatever cryptocurrency that I buy will be around in 5 years. Hence, it is not an investment for me.

As far as I can tell, you are speculating or gambling if you buy crytocurrency.

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Gadget,

Hindsight is 20/20. Are you confident enough to bet that it will be around in 5 years?

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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Strayshot »

Well, from Oxford Dictionary:

Investment - a thing that is worth buying because it may be profitable or useful in the future.

Speculation - investment in stocks, property, or other ventures in the hope of gain but with the risk of loss.

As you can see, there is little difference between investment and speculation. If an investment is not worth buying and ends up with no use/profit than in hindsight it was speculation.

Only time will tell if crypto was investment or speculation, but it is certainly not useful so all hope is on profit. Someone who bought at $500 and sold at $45000 feels crypto was the best investment in all time. Someone who bought at $30000 and sold at $8000 feels differently.

I’m waiting until everybody is in crypto, including mainstream companies we all own (which unfortunately now includes TSLA). It will be on balance sheets as an asset. Everyone will be talking about it but still nobody will use it because it isn’t useful. Then one day someone will wake up and realize it is total garbage and the world economy will collapse. Or not. If somehow enough people perpetuate increasing value of garbage, it could keep increasing forever. Lots of art has set ever increasing records for decades and no sign of stopping, what an investment!
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by KlangFool »

Folks,

I have no problem with anyone speculating a small amount of money on anything. The only problem that I have is

A) The person doing it has no idea that they are speculating/gambling.

B) The person is speculating/gambling on the amount of money that they cannot afford to lose.

C) They do not have an exit plan. Aka, they do not know when they plan to sell.

D) The usual sad story is someone making good money and start putting more of their portfolio into it. Then, they lose it all.

E) I had made my mistake with Telecom stock in Telecom Bust.

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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by JBTX »

"Good" is a relative term.

"Investment" definition can vary too. If you are like Warren Buffet, he isn't fond of gold either because it generates no income, cash flow or other tangible value, thus he doesn't consider gold an investment. Obviously others disagree.

If we decide to call crypto an investment, I'd say it is a highly speculative investment. For it to return an appropriate risk adjusted return, a lot of things have to happen that have never happened before and we have no clue whether they will happen in the future.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by ososnilknarf »

Gadget wrote: Mon Apr 26, 2021 5:11 pm If you bought bitcoin 5 years ago and fell asleep, you'd wake up a very rich man...
When I hear people say things like this it makes me think they don't understand odds at all. Just because something worked doesn't mean it was a good choice to make. As someone who's played a lot of poker, the analogy is that if you draw to an inside straight with say, 3 to 1 pot odds, and you make your straight, does that mean it was a good bet? No, the outcome has nothing to do with whether it was a smart play.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by bogledogle »

Strayshot wrote: Mon Apr 26, 2021 5:52 pm I’m waiting until everybody is in crypto, including mainstream companies we all own (which unfortunately now includes TSLA). It will be on balance sheets as an asset. Everyone will be talking about it but still nobody will use it because it isn’t useful. Then one day someone will wake up and realize it is total garbage and the world economy will collapse. Or not. If somehow enough people perpetuate increasing value of garbage, it could keep increasing forever. Lots of art has set ever increasing records for decades and no sign of stopping, what an investment!
Word on twitter today is that Tesla dumped all bitcoin and made >100 million. They showed that as profit in last quarter apparently.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by oldfort »

Thesaints wrote: Mon Apr 26, 2021 5:33 pm
Cartographer wrote: Mon Apr 26, 2021 1:13 pm ....
The answer is dividends (or mathematically equivalently, buybacks). Even if a company eventually goes under, the hope is that over its lifespan, it returns tons of money to the investors, far more than the initial investment. Note that, without dividends (or stock buybacks) everything else about investing in a stock is just money flowing from one investor to another, so the total return to investors in total would be zero (minus taxes and fees).
This is actually not correct. Stock returns are largely independent on dividends payment. Corporation may in principle stop paying dividends and returns would continue; they would not become zero.
Your second statement is a common misconception. A corporation can expand (or otherwise increase in value) and the stock transaction would not make that a zero sum game.
Imagine you buy a share of Icecream Parlors, Inc., initially consisting of a couple of stores. After some time, IPI has expanded to several stores in every major city. They have not paid a dime of dividends, but your share now represents ownership of something much more valuable than when you bought it.
Cartographer is right. What happens after IPI goes bankrupt? No company lasts forever. What profit would IPI investors have made over the life of the now bankrupt company?
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by JonnyDVM »

Astones wrote: Mon Apr 26, 2021 5:30 pm
JonnyDVM wrote: Mon Apr 26, 2021 5:22 pm A good investment is one that makes money right?
According to this logic, going to the roulette and betting all you have on the color black is a good investment if you happen to win.
That is false. Gambling with casino games has a known calculable negative expectation as the exact odds are predetermined. Gambling is when you know something has a negative expectation and you put your money in anyway hoping to score enough free drinks and excitement to make it worthwhile.

You cannot tell me that the expected ROI for cryptocurrency is negative and that you know the exact number. It is undertermined. Just as you cannot tell me the exact ROI for an investment in VSAX today. It’s probably positive, but it could well be long term negative and that would be a bad investment because you lost money. We’re all trying to make money investing. Crypto has already made people a fortune, for them that means it was a good investment.

We’re just arguing semantics at this point. Apparently for Bogleheads it doesn’t matter how much an investment returns if it isn’t “smart” enough. Who cares how asinine something is? All that matters to me is that it makes me money. A large investment into Bitcoin a few years ago may have been risky, but it definitely turned out to be good.
Last edited by JonnyDVM on Mon Apr 26, 2021 7:39 pm, edited 2 times in total.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Astones »

Strayshot wrote: Mon Apr 26, 2021 5:52 pm Investment - a thing that is worth buying because it may be profitable or useful in the future.

Speculation - investment in stocks, property, or other ventures in the hope of gain but with the risk of loss.
Putting aside the semantic exercises for a moment, there is a practical definition of investment vs speculation that is usually used, and with practical I simply mean that it's well-known and people tend to understand it when it's used.

According to this practical definition, a investment is something with an intrinsic value, whereas a speculation is a bet over something with no intrinsic value, in the sense that we buy it and we hope that people will pay more for the exact same thing.

Stocks are an investment if we intend to hold them long enough for the underlying company to make profit.
Bonds are an investment because they provide interests.
Buying gold is a speculation.
Buying bitcoins is a speculation.

^ What I just said is not my personal opinion, Bogle made this point in a relatively recent interview (few years ago).
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Strayshot wrote: Mon Apr 26, 2021 5:52 pm Well, from Oxford Dictionary:

Investment - a thing that is worth buying because it may be profitable or useful in the future.

Speculation - investment in stocks, property, or other ventures in the hope of gain but with the risk of loss.

As you can see, there is little difference between investment and speculation. If an investment is not worth buying and ends up with no use/profit than in hindsight it was speculation.

Those are not the definitions used in finance.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by JonnyDVM »

ososnilknarf wrote: Mon Apr 26, 2021 6:07 pm
Gadget wrote: Mon Apr 26, 2021 5:11 pm If you bought bitcoin 5 years ago and fell asleep, you'd wake up a very rich man...
When I hear people say things like this it makes me think they don't understand odds at all. Just because something worked doesn't mean it was a good choice to make. As someone who's played a lot of poker, the analogy is that if you draw to an inside straight with say, 3 to 1 pot odds, and you make your straight, does that mean it was a good bet? No, the outcome has nothing to do with whether it was a smart play.
As a poker player myself, that is true, however you cannot know what the odds of Bitcoin success were. Maybe the investors were drawing to an inside strait, and maybe you were the sucker betting into a full house the whole time.

I never believed in this stuff. Thought it was dumb. Made fun of the crypto believers. It’s impossible to dismiss its success now. I’m sorry but it looks like we were wrong.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Astones wrote: Mon Apr 26, 2021 6:16 pm

Stocks are an investment if we intend to hold them long enough for the underlying company to make profit.
Bonds are an investment because they provide interests.
Buying gold is a speculation.
Buying bitcoins is a speculation.

^ What I just said is not my personal opinion, Bogle made this point in a relatively recent interview (few years ago).

Right -- those are pretty common framing used in finance.

Investments have IRR -- they generate income.

Speculative assets do not; they can generate profit from trading to someone else who pays more than you paid.

My "investable wine" collection, despite the terms used by the industry, is speculation.

That being said...

Speculative plays can make profit.

Stores of value can add diversification to an asset mix.

Gold has a long history as a speculative asset/SOV.

Art can be an incredible SOV.

The world likes having these in the mix.

Crypto fans should embrace it.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by aktx97 »

Crypto, NTFs, etc. just seem like speculative assets. Not long-term investments. People need something to do with all their 2020 money.
Keep calm and stay the course.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by ososnilknarf »

JonnyDVM wrote: Mon Apr 26, 2021 6:20 pm
ososnilknarf wrote: Mon Apr 26, 2021 6:07 pm
Gadget wrote: Mon Apr 26, 2021 5:11 pm If you bought bitcoin 5 years ago and fell asleep, you'd wake up a very rich man...
When I hear people say things like this it makes me think they don't understand odds at all. Just because something worked doesn't mean it was a good choice to make. As someone who's played a lot of poker, the analogy is that if you draw to an inside straight with say, 3 to 1 pot odds, and you make your straight, does that mean it was a good bet? No, the outcome has nothing to do with whether it was a smart play.
As a poker player myself, that is true, however you cannot know what the odds of Bitcoin success were. Maybe the investors were drawing to an inside strait, and maybe you were the sucker betting into a full house the whole time.

I never believed in this stuff. Thought it was dumb. Made fun of the crypto believers. It’s impossible to dismiss its success now. I’m sorry but it looks like we were wrong.
I agree with what you are saying, however, I still maintain that the results are not a valid argument for why it was or was not a smart play.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Beensabu »

Yaaaasss! Preach!

It's an unproductive asset with no real value. As an unproductive asset, there is zero excuse for its detrimental effects on the real world. It is only a store of value as long as it is perceived to be such. The history is short. It's less than a decade. What even is the value that it stores? The mean value of the first 3 years of its existence? The next 4 years of its existence? The last 1 year of its existence? The world could wake up tomorrow and go "yeah, that's not really worth anything" for whatever reason(s) and there's nothing you can do about it. There are no underlying assets.

So it's a currency. Backed by... a ledger that contains proof of all transactions... Okay...

There is a fixed amount of supply available. What happens when we reach it? Oh look! We have a record proving all transactions! Okay. So there's no more to be had? No. And it has no real value? No. Why is it worth anything at all at that point? You think people are suddenly going to go "Oh! All of the Bitcoin has been mined! Let's start using it for actual transactions now! Especially since I don't actually have any. That's a super good replacement for existing currencies." What is wrong with you people?
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by novolog »

I recommend bogleheads NOT purchase bitcoin.

Bitcoin's value increases far too fast, and in an uncomfortably volatile way.

I would recommend some nice treasury bills for the bogleheads.

:wink:
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by sambb »

I dont see how crypto is worse than worldcom, enron, or lehman. Didnt they go bankrupt?, and were from the s&p. Crypto may be hyped, it may not, but i see more and more companies accepting bitcoin for payment. I've seen modern art worth a lot also. Cant understand that but it is in museums. For those that rode the wave, congrats, and who knows.
Last edited by sambb on Mon Apr 26, 2021 7:10 pm, edited 2 times in total.
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by ososnilknarf »

sambb wrote: Mon Apr 26, 2021 7:08 pm I dont see how crypto is worse than worldcom, enron, or lehman. Didnt they go bankrupt?, and were from the s&p. Crypto may be hyped, it may not, but i see more and more companies accepting bitcoin for payment.
Good point! Hear that everyone! Crypto is no worse than Enron!
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by txhill »

I am a little amazed at the stubbornness on display here. Yes, Bitcoin does not itself have an IRR and is a speculative investment. This doesn't mean it is worthless. Your bonds are denominated in dollars that have no IRR either; holding cash or bonds is a speculative bet that the government will not debase the value of the dollar beyond the promised 2% inflation rate. Bitcoin is simply a different mechanism for making that speculative bet, and the more it is adopted the better the foundation for that bet. Yes the dollar has a longer and better track record of less volatility than bitcoin, but past performance is no guarantee of future performance.

And critically, Bitcoin is not the only cryptocurrency. Plenty of others have actual use cases that are IN USE RIGHT NOW even though no one here seems to acknowledge it. You might dispute the wisdom of investing in any particular cryptocurrency because doing so is like picking the companies that would win the internet space ahead of time. Odds are against you. But to say that crypto has no use is like saying what the beloved Paul Krugman said about the internet in the 1990s--that it would have no more impact on society than the fax machine. Don't be like Paul; there's no reason to call everything new a scam. You don't have to invest in it--in fact doing so is unwise for the majority of people here whose personalities and portfolios cannot tolerate the risk/volatility involved with investing in crypto. But don't go around calling all of it a scam (even if some of it absolutely is).

Tough to teach old dogs new tricks I guess. The world is always more nuanced than appears at a glance: crypto is not going to take over the entire world like Bitcoin maximalists say, but neither is it a beanie baby fad. It is real tech that has real use cases, and I imagine no one has completely predicted how it will affect our lives more than 5 years from now.
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watchnerd
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

txhill wrote: Mon Apr 26, 2021 7:12 pm Your bonds are denominated in dollars that have no IRR either; holding cash or bonds is a speculative bet that the government will not debase the value of the dollar beyond the promised 2% inflation rate.
Bonds have IRR.

You're conflating real yield and IRR.

They're two separate things.

And riskier bonds have positive real yield at the moment, even for shorter durations.
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watchnerd
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

sambb wrote: Mon Apr 26, 2021 7:08 pm I dont see how crypto is worse than worldcom, enron, or lehman. Didnt they go bankrupt?, and were from the s&p. Crypto may be hyped, it may not, but i see more and more companies accepting bitcoin for payment. I've seen modern art worth a lot also. Cant understand that but it is in museums. For those that rode the wave, congrats, and who knows.
So, wait....

Are you saying that crypto is like a poorly run business, like Enron?

Or that it's like collectible art, a store of value?

Or that it's a currency?

It can't simultaneously be all of these things.

Unless you mean different crypto currencies will map to different use cases.

In which case, maybe, but then they should each be evaluated individually on their own merits (e.g. Bitcoin as SOV, Eth as currency, etc.), rather than lumping them all together like that.
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txhill
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by txhill »

watchnerd wrote: Mon Apr 26, 2021 7:25 pm
txhill wrote: Mon Apr 26, 2021 7:12 pm Your bonds are denominated in dollars that have no IRR either; holding cash or bonds is a speculative bet that the government will not debase the value of the dollar beyond the promised 2% inflation rate.
Bonds have IRR.

You're conflating real yield and IRR.

They're two separate things.

And riskier bonds have positive real yield at the moment, even for shorter durations.
I mean you can lend Bitcoin for a return. Just like you can lend dollars for return. Only difference is the unit of account.
qwertyjazz
Posts: 1928
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Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by qwertyjazz »

Just because something has not been monetized yet does not make it a bad investment

Let me tell you about some really stupid ideas that no one should ever have invested in

There is a network started by some idiot undergrads in Harvard that connects friends. They have no business model. They have no way to generate revenue.

Or how about this this that only lets you send a few characters. You cannot even send a full email.

I do not know if Bitcoin will succeed. But just because it does not have a known and obvious path to being useful does not make it a bad investment. I personally would not invest in it now. But the only way to know if it will be useful is to wait until it is a mature technology.
G.E. Box "All models are wrong, but some are useful."
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