Schwab's take on bitcoin

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garlandwhizzer
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Schwab's take on bitcoin

Post by garlandwhizzer »

This article discusses the basics of cryptocurrency and Schwab's point of view about whether they should be included in your investment portfolio. Comments?

https://www.schwab.com/resource-center/ ... -portfolio
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Re: Schwab's take on bitcoin

Post by nisiprius »

It seems like a decent overview to me, in terms of explaining what cryptocurrency is for a hypothetical reader who a) who knows very little about it, and b) and is willing to read six pages about it. Their viewpoint on investing is pretty clear:
Should I invest in cryptocurrencies?

Bitcoin and other cryptocurrencies are speculative investments, and we do not currently use or recommend them in Schwab portfolios. Bitcoin doesn’t fit within traditional asset allocation models, as it is neither a traditional commodity, such as gold, nor a traditional currency. Bitcoin’s dramatic rise and fall is driven primarily by supply and demand, not inherent value. Bitcoin doesn’t have earnings or revenues. It doesn’t have a price-to-earnings ratio, price-to-sales ratio, or book value. Traditional value metrics don’t apply, so there are no methods for assessing its value that we endorse or find persuasive beyond the trading value. A dramatic rise, and fall, in price is driven primarily by supply and demand, not valuation...

Cryptocurrency trading is not offered at Schwab....

While some traders may make money on the change in price of bitcoin or other cryptocurrencies, we don’t recommend them currently as an investment in portfolios, due primarily to their lack of characteristics common to other investments or asset classes—including traditional currency or cash—as well as their volatility, security, potential for future regulation and other factors.
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Re: Schwab's take on bitcoin

Post by bikechuck »

Seems like a sensible position. That said, there is nothing wrong with carving out 5% of your investible funds to have fun with and bitcoin can be all or part of that 5%. That said, I have not owned it and likely never will.
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Re: Schwab's take on bitcoin

Post by ohboy! »

nisiprius wrote: Mon Apr 05, 2021 6:07 pm It seems like a decent overview to me, in terms of explaining what cryptocurrency is for a hypothetical reader who a) who knows very little about it, and b) and is willing to read six pages about it. Their viewpoint on investing is pretty clear:
Should I invest in cryptocurrencies?

Bitcoin and other cryptocurrencies are speculative investments, and we do not currently use or recommend them in Schwab portfolios. Bitcoin doesn’t fit within traditional asset allocation models, as it is neither a traditional commodity, such as gold, nor a traditional currency. Bitcoin’s dramatic rise and fall is driven primarily by supply and demand, not inherent value. Bitcoin doesn’t have earnings or revenues. It doesn’t have a price-to-earnings ratio, price-to-sales ratio, or book value. Traditional value metrics don’t apply, so there are no methods for assessing its value that we endorse or find persuasive beyond the trading value. A dramatic rise, and fall, in price is driven primarily by supply and demand, not valuation...

Cryptocurrency trading is not offered at Schwab....

While some traders may make money on the change in price of bitcoin or other cryptocurrencies, we don’t recommend them currently as an investment in portfolios, due primarily to their lack of characteristics common to other investments or asset classes—including traditional currency or cash—as well as their volatility, security, potential for future regulation and other factors.
Their take doesn’t apply to Ethereum at all. I didn’t read the whole article but most of mainstream has such a hard time wrapping their head around Bitcoin they don’t even consider Ethereum. I’m guessing that when Coinbase goes public they will finally add ETH staking shortly after. Ethereum is like Linux, with a token. Linux is the backbone of the web, macOS, and Android, but nobody cares because they don’t need to. The apps built on Ethereum are revolutionary and anyone with a financial sense and an iota of curiosity can see that.
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Re: Schwab's take on bitcoin

Post by SlowMovingInvestor »

ohboy! wrote: Tue Apr 06, 2021 9:00 am Linux is the backbone of the web, macOS, and Android, but nobody cares because they don’t need to.
FWIW, BSD is the backbone of OS X, not Linux.

And what the Linux Foundation is sponsoring for blockchain is actually Hyperledger Fabric (which doesn't have a currency), not Ethereum :twisted:
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Re: Schwab's take on bitcoin

Post by txhill »

ohboy! wrote: Tue Apr 06, 2021 9:00 am
nisiprius wrote: Mon Apr 05, 2021 6:07 pm It seems like a decent overview to me, in terms of explaining what cryptocurrency is for a hypothetical reader who a) who knows very little about it, and b) and is willing to read six pages about it. Their viewpoint on investing is pretty clear:
Should I invest in cryptocurrencies?

Bitcoin and other cryptocurrencies are speculative investments, and we do not currently use or recommend them in Schwab portfolios. Bitcoin doesn’t fit within traditional asset allocation models, as it is neither a traditional commodity, such as gold, nor a traditional currency. Bitcoin’s dramatic rise and fall is driven primarily by supply and demand, not inherent value. Bitcoin doesn’t have earnings or revenues. It doesn’t have a price-to-earnings ratio, price-to-sales ratio, or book value. Traditional value metrics don’t apply, so there are no methods for assessing its value that we endorse or find persuasive beyond the trading value. A dramatic rise, and fall, in price is driven primarily by supply and demand, not valuation...

Cryptocurrency trading is not offered at Schwab....

While some traders may make money on the change in price of bitcoin or other cryptocurrencies, we don’t recommend them currently as an investment in portfolios, due primarily to their lack of characteristics common to other investments or asset classes—including traditional currency or cash—as well as their volatility, security, potential for future regulation and other factors.
Their take doesn’t apply to Ethereum at all. I didn’t read the whole article but most of mainstream has such a hard time wrapping their head around Bitcoin they don’t even consider Ethereum. I’m guessing that when Coinbase goes public they will finally add ETH staking shortly after. Ethereum is like Linux, with a token. Linux is the backbone of the web, macOS, and Android, but nobody cares because they don’t need to. The apps built on Ethereum are revolutionary and anyone with a financial sense and an iota of curiosity can see that.
It seems that Schwab is not paying much attention to the space yet. I am quite bullish on Bitcoin, and I've been speculating a bit with Ethereum, but I completely understand why Schwab would be cautious about recommending new assets. In fact I think Schwab's description of Bitcoin is accurate enough, even if overly dismissive. But I totally agree with you that Schwab should do its homework on other cryptocurrencies. Many of them are intended to provide platforms for decentralized applications more so than to serve as "digital cash." While these other platforms are quite risky--it's unclear who will win the space and also whether such platforms are both scalable and monetizable--but Schwab is doing its investors a serious disservice by not even trying to understand these new developments.
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Re: Schwab's take on bitcoin

Post by ohboy! »

SlowMovingInvestor wrote: Tue Apr 06, 2021 9:10 am
ohboy! wrote: Tue Apr 06, 2021 9:00 am Linux is the backbone of the web, macOS, and Android, but nobody cares because they don’t need to.
FWIW, BSD is the backbone of OS X, not Linux.

And what the Linux Foundation is sponsoring for blockchain is actually Hyperledger Fabric (which doesn't have a currency), not Ethereum :twisted:
Missed my point to make yours which has what relevance? Nobody cares about open-sourced unix but it practically runs our lives. Ethereum has potential to be very similar, but interestingly it has a token and an economic system.
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Re: Schwab's take on bitcoin

Post by watchnerd »

ohboy! wrote: Tue Apr 06, 2021 9:00 am
Their take doesn’t apply to Ethereum at all.
It doesn't?

How does one model the valuation of Ethereum?

What is Ethereum's IRR?

How does Ethereum fit into MVO / MPT methods used for portfolio construction?
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Re: Schwab's take on bitcoin

Post by SlowMovingInvestor »

ohboy! wrote: Tue Apr 06, 2021 9:42 am
SlowMovingInvestor wrote: Tue Apr 06, 2021 9:10 am
ohboy! wrote: Tue Apr 06, 2021 9:00 am Linux is the backbone of the web, macOS, and Android, but nobody cares because they don’t need to.
FWIW, BSD is the backbone of OS X, not Linux.

And what the Linux Foundation is sponsoring for blockchain is actually Hyperledger Fabric (which doesn't have a currency), not Ethereum :twisted:
Missed my point to make yours which has what relevance? Nobody cares about open-sourced unix but it practically runs our lives. Ethereum has potential to be very similar, but interestingly it has a token and an economic system.
Well, there is lots of open source software (not just Linux) which is used in the Internet. I think that Ethereum does have potential, but it's economic system makes it very different. And it is notable that we have open source software that can implement blockchains without an economic system, which may be more suitable for several applications.

The original open source pioneers (Stallman and the FSF) were interested in essentially overthrowing proprietary software. That didn't happen. With the possible exception of Red Hat (and even that sold lots of prop software), we didn't have huge market caps for pure open source companies (not even MySql, which sold for a fairly modest $1B) Ethereum's valuation implies a massive amount of usage, not just potential (and an assumption that scaling and gas issues will be resolved).
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Re: Schwab's take on bitcoin

Post by txhill »

watchnerd wrote: Tue Apr 06, 2021 9:46 am
ohboy! wrote: Tue Apr 06, 2021 9:00 am
Their take doesn’t apply to Ethereum at all.
It doesn't?

How does one model the valuation of Ethereum?

What is Ethereum's IRR?

How does Ethereum fit into MVO / MPT methods used for portfolio construction?
Here is a good writeup by Lyn Alden on an economic analysis for Ethereum. Note that the author, whom I respect greatly, concludes that Ethereum is too risky to invest in given that it is unclear to what extent value will adhere to the platform that Ethereum is building (her analogy to the Concorde at the end might be apt). I myself put a small % into Ethereum but I acknowledge it is very risky--far riskier than Bitcoin, which has a clear use and value as a gold replacement. Ethereum could very well end up being just like email, which is hugely popular and important but basically impossible to monetize. But I really appreciate that Lyn thinks critically about Ethereum and does not just blindly repeat "no IRR" without putting an ounce of effort into the analysis, as Schwab has done.

https://www.lynalden.com/ethereum-analysis/
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Re: Schwab's take on bitcoin

Post by flyfishers83 »

I expect all mainstream financial entities to say the same thing. If there is no reasonably discernible value or no “accepted” value metrics they can’t recommend to clients. If they do, they’re likely to find themselves ensnared in endless litigation and regulatory inquiries if/when there is a correction. Could you imagine if all of Schwab/Fidelity/BofA’s financial advisors were hawking crypto?
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Re: Schwab's take on bitcoin

Post by watchnerd »

txhill wrote: Tue Apr 06, 2021 10:33 am
watchnerd wrote: Tue Apr 06, 2021 9:46 am
ohboy! wrote: Tue Apr 06, 2021 9:00 am
Their take doesn’t apply to Ethereum at all.
It doesn't?

How does one model the valuation of Ethereum?

What is Ethereum's IRR?

How does Ethereum fit into MVO / MPT methods used for portfolio construction?
Here is a good writeup by Lyn Alden on an economic analysis for Ethereum. Note that the author, whom I respect greatly, concludes that Ethereum is too risky to invest in given that it is unclear to what extent value will adhere to the platform that Ethereum is building (her analogy to the Concorde at the end might be apt). I myself put a small % into Ethereum but I acknowledge it is very risky--far riskier than Bitcoin, which has a clear use and value as a gold replacement. Ethereum could very well end up being just like email, which is hugely popular and important but basically impossible to monetize. But I really appreciate that Lyn thinks critically about Ethereum and does not just blindly repeat "no IRR" without putting an ounce of effort into the analysis, as Schwab has done.

https://www.lynalden.com/ethereum-analysis/
It's an interesting read (although I'm already familiar with it, having bought Ethereum a few years ago), but I don't think it answers the questions above.

Schwab is a brokerage, not a VC, hedge fund, or investment bank, so I don't have a problem with the perfunctory nature of the analysis given the business they're in.
Last edited by watchnerd on Tue Apr 06, 2021 12:09 pm, edited 2 times in total.
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Re: Schwab's take on bitcoin

Post by ohboy! »

txhill wrote: Tue Apr 06, 2021 10:33 am
watchnerd wrote: Tue Apr 06, 2021 9:46 am
ohboy! wrote: Tue Apr 06, 2021 9:00 am
Their take doesn’t apply to Ethereum at all.
It doesn't?

How does one model the valuation of Ethereum?

What is Ethereum's IRR?

How does Ethereum fit into MVO / MPT methods used for portfolio construction?
Here is a good writeup by Lyn Alden on an economic analysis for Ethereum. Note that the author, whom I respect greatly, concludes that Ethereum is too risky to invest in given that it is unclear to what extent value will adhere to the platform that Ethereum is building (her analogy to the Concorde at the end might be apt). I myself put a small % into Ethereum but I acknowledge it is very risky--far riskier than Bitcoin, which has a clear use and value as a gold replacement. Ethereum could very well end up being just like email, which is hugely popular and important but basically impossible to monetize. But I really appreciate that Lyn thinks critically about Ethereum and does not just blindly repeat "no IRR" without putting an ounce of effort into the analysis, as Schwab has done.

https://www.lynalden.com/ethereum-analysis/
Value in technology is about users.

https://cryptofees.info/

Look at the fees people are paying to use Ethereum. All of the ones highlighted in pink, they run on Ethereum. The vast majority of crypto developers, who believe in decentralization, are in the Ethereum ecosystem. Ethereum is where the trustless and permissionless financial instruments are being built. Code handles billions of dollars without fault or oversight. Financial instruments that anyone can access.

The improvement to Ethereum that is setup to be added this summer (EIP 1559) wil burn transaction fees, making it deflationary. The merge to proof of stake looks like it will happen within a year. This will reduce the energy usage by 99% and increase. Then sharding to give 100x scaling in addition to Optimism which is set to launch in May and also scale Ethereum by 100x. Today you can use Polygon and make instant transactions for $.00001.

I'd recommend reading a source from someone who isn't a "bitcoin maximalist". That article is equivalent to linking someone who wants to know about MacOS an article from someone who refuses to by Apple and swears Microsoft is the best. Actually Microsoft may be a generous comparison, more like a calculator.

I have equal amounts of BTC and ETH. I know which one is better because I use both regularly, for years. It's not even close. What I don't know is how long the market will take to figure it out.
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Re: Schwab's take on bitcoin

Post by txhill »

ohboy! wrote: Tue Apr 06, 2021 12:01 pm
txhill wrote: Tue Apr 06, 2021 10:33 am
watchnerd wrote: Tue Apr 06, 2021 9:46 am
ohboy! wrote: Tue Apr 06, 2021 9:00 am
Their take doesn’t apply to Ethereum at all.
It doesn't?

How does one model the valuation of Ethereum?

What is Ethereum's IRR?

How does Ethereum fit into MVO / MPT methods used for portfolio construction?
Here is a good writeup by Lyn Alden on an economic analysis for Ethereum. Note that the author, whom I respect greatly, concludes that Ethereum is too risky to invest in given that it is unclear to what extent value will adhere to the platform that Ethereum is building (her analogy to the Concorde at the end might be apt). I myself put a small % into Ethereum but I acknowledge it is very risky--far riskier than Bitcoin, which has a clear use and value as a gold replacement. Ethereum could very well end up being just like email, which is hugely popular and important but basically impossible to monetize. But I really appreciate that Lyn thinks critically about Ethereum and does not just blindly repeat "no IRR" without putting an ounce of effort into the analysis, as Schwab has done.

https://www.lynalden.com/ethereum-analysis/
Value in technology is about users.

https://cryptofees.info/

Look at the fees people are paying to use Ethereum. All of the ones highlighted in pink, they run on Ethereum. The vast majority of crypto developers, who believe in decentralization, are in the Ethereum ecosystem. Ethereum is where the trustless and permissionless financial instruments are being built. Code handles billions of dollars without fault or oversight. Financial instruments that anyone can access.

The improvement to Ethereum that is setup to be added this summer (EIP 1559) wil burn transaction fees, making it deflationary. The merge to proof of stake looks like it will happen within a year. This will reduce the energy usage by 99% and increase. Then sharding to give 100x scaling in addition to Optimism which is set to launch in May and also scale Ethereum by 100x. Today you can use Polygon and make instant transactions for $.00001.

I'd recommend reading a source from someone who isn't a "bitcoin maximalist". That article is equivalent to linking someone who wants to know about MacOS an article from someone who refuses to by Apple and swears Microsoft is the best. Actually Microsoft may be a generous comparison, more like a calculator.

I have equal amounts of BTC and ETH. I know which one is better because I use both regularly, for years. It's not even close. What I don't know is how long the market will take to figure it out.
I agree ETH is promising, but the big issue is this: to scale well, they will need to lower transaction fees. They're taking important steps to help with that. But lowering transaction fees necessarily limits the value adhering to ETH itself (rather than the value in the smart contracts built in the Ethereum ecosystem, which themselves could be very valuable). That balance between scaling up and retaining value in ETH (as opposed to Ethereum generally) is one they are still trying to figure out. So there is serious execution risk there.

Edit--I'd also add that Lyn Alden is not at all a bitcoin maximalist. I like her analysis of all sorts of macroeconomic issues. She just happens to agree that bitcoin has enormous upside potential at this time, with what seems to be very little downside risk.
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Re: Schwab's take on bitcoin

Post by watchnerd »

ohboy! wrote: Tue Apr 06, 2021 12:01 pm
https://cryptofees.info/
The tricky bit will be differentiating profitable businesses built on Ethereum vs the value of Ethereum, itself.

VISA makes a lot of money transacting in dollars, but their business model is a separate issue from the value of the dollar, itself.

Classic early stage investment question is to determine if you're betting on the jockey or the horse.
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Re: Schwab's take on bitcoin

Post by ohboy! »

txhill wrote: Tue Apr 06, 2021 12:14 pm
ohboy! wrote: Tue Apr 06, 2021 12:01 pm
txhill wrote: Tue Apr 06, 2021 10:33 am
watchnerd wrote: Tue Apr 06, 2021 9:46 am
ohboy! wrote: Tue Apr 06, 2021 9:00 am
Their take doesn’t apply to Ethereum at all.
It doesn't?

How does one model the valuation of Ethereum?

What is Ethereum's IRR?

How does Ethereum fit into MVO / MPT methods used for portfolio construction?
Here is a good writeup by Lyn Alden on an economic analysis for Ethereum. Note that the author, whom I respect greatly, concludes that Ethereum is too risky to invest in given that it is unclear to what extent value will adhere to the platform that Ethereum is building (her analogy to the Concorde at the end might be apt). I myself put a small % into Ethereum but I acknowledge it is very risky--far riskier than Bitcoin, which has a clear use and value as a gold replacement. Ethereum could very well end up being just like email, which is hugely popular and important but basically impossible to monetize. But I really appreciate that Lyn thinks critically about Ethereum and does not just blindly repeat "no IRR" without putting an ounce of effort into the analysis, as Schwab has done.

https://www.lynalden.com/ethereum-analysis/
Value in technology is about users.

https://cryptofees.info/

Look at the fees people are paying to use Ethereum. All of the ones highlighted in pink, they run on Ethereum. The vast majority of crypto developers, who believe in decentralization, are in the Ethereum ecosystem. Ethereum is where the trustless and permissionless financial instruments are being built. Code handles billions of dollars without fault or oversight. Financial instruments that anyone can access.

The improvement to Ethereum that is setup to be added this summer (EIP 1559) wil burn transaction fees, making it deflationary. The merge to proof of stake looks like it will happen within a year. This will reduce the energy usage by 99% and increase. Then sharding to give 100x scaling in addition to Optimism which is set to launch in May and also scale Ethereum by 100x. Today you can use Polygon and make instant transactions for $.00001.

I'd recommend reading a source from someone who isn't a "bitcoin maximalist". That article is equivalent to linking someone who wants to know about MacOS an article from someone who refuses to by Apple and swears Microsoft is the best. Actually Microsoft may be a generous comparison, more like a calculator.

I have equal amounts of BTC and ETH. I know which one is better because I use both regularly, for years. It's not even close. What I don't know is how long the market will take to figure it out.
I agree ETH is promising, but the big issue is this: to scale well, they will need to lower transaction fees. They're taking important steps to help with that. But lowering transaction fees necessarily limits the value adhering to ETH itself (rather than the value in the smart contracts built in the Ethereum ecosystem, which themselves could be very valuable). That balance between scaling up and retaining value in ETH (as opposed to Ethereum generally) is one they are still trying to figure out. So there is serious execution risk there.

Edit--I'd also add that Lyn Alden is not at all a bitcoin maximalist. I like her analysis of all sorts of macroeconomic issues. She just happens to agree that bitcoin has enormous upside potential at this time, with what seems to be very little downside risk.
Little downside risk to BTC? She said that?? Im owning for 5 years and disagree strongly. Could go to $5k in 30 days.
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Re: Schwab's take on bitcoin

Post by ohboy! »

watchnerd wrote: Tue Apr 06, 2021 12:22 pm
ohboy! wrote: Tue Apr 06, 2021 12:01 pm
https://cryptofees.info/
The tricky bit will be differentiating profitable businesses built on Ethereum vs the value of Ethereum, itself.

VISA makes a lot of money transacting in dollars, but their business model is a separate issue from the value of the dollar, itself.

Classic early stage investment question is to determine if you're betting on the jockey or the horse.
Early stage investment? ETH is years past that. What investing prowess are you here to prove? You bought Ethereum years ago but your position on it is that your investment vocabulary doesn’t apply to it?

Ethereum is nothing like VISA. But VISA did recently have the news of settling transactions using USDC, on Ethereum.
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Re: Schwab's take on bitcoin

Post by txhill »

ohboy! wrote: Tue Apr 06, 2021 1:40 pm Little downside risk to BTC? She said that?? Im owning for 5 years and disagree strongly. Could go to $5k in 30 days.
What I meant is if you agree with the use case (best store of value) then the upside potential (5x and higher, just looking at the comparable market for gold) compared to the downside (lose 100%) still seems favorable if you think the chances of broad adoption are better than 20% or so, assuming you have a long enough investment time horizon. What I should have said is that I think it still seems to me to be very asymmetric to the upside. I agree that it wouldn't be all too shocking if it dropped drastically in the short term.
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Re: Schwab's take on bitcoin

Post by watchnerd »

ohboy! wrote: Tue Apr 06, 2021 1:45 pm
Early stage investment? ETH is years past that. What investing prowess are you here to prove? You bought Ethereum years ago but your position on it is that your investment vocabulary doesn’t apply to it?

Ethereum is nothing like VISA. But VISA did recently have the news of settling transactions using USDC, on Ethereum.
I'm not sure what the remark about 'investing prowess' is supposed to mean...

But, yes, correct, Ethereum is nothing like Visa.

That's exactly the point.

Ethereum, itself, is not a business.

Open source technologies are not business models.

Businesses can be built on top of them.
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Re: Schwab's take on bitcoin

Post by luckyducky99 »

It would be interesting to read this paper alongside "Commodities -- do they have a place in your portfolio" or "Foreign currency..." but on a cursory search they don't seem to have written those. Because my mental model of bitcoin and cryptos is similar. They don't produce anything but are both the medium of exchange for and the necessary raw material (for lack of a better term) for a new chunk of economic activity.

So they're basically speculative investments that that new blob of economic activity will grow and be profitable. Which it seems like ... they probably will? But who knows.
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Re: Schwab's take on bitcoin

Post by watchnerd »

luckyducky99 wrote: Tue Apr 06, 2021 3:18 pm It would be interesting to read this paper alongside "Commodities -- do they have a place in your portfolio" or "Foreign currency..." but on a cursory search they don't seem to have written those. Because my mental model of bitcoin and cryptos is similar. They don't produce anything but are both the medium of exchange for and the necessary raw material (for lack of a better term) for a new chunk of economic activity.

So they're basically speculative investments that that new blob of economic activity will grow and be profitable. Which it seems like ... they probably will? But who knows.
In which case, I'd personally rather invest in the businesses building on top of crypto than speculate on the crypto assets themselves.

From a capital investment POV, I'd rather invest in Exxon and ADM (I guess, I do, actually, via the stock indices) than speculate on oil or soybean commodities.
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Re: Schwab's take on bitcoin

Post by ohboy! »

watchnerd wrote: Tue Apr 06, 2021 4:20 pm
luckyducky99 wrote: Tue Apr 06, 2021 3:18 pm It would be interesting to read this paper alongside "Commodities -- do they have a place in your portfolio" or "Foreign currency..." but on a cursory search they don't seem to have written those. Because my mental model of bitcoin and cryptos is similar. They don't produce anything but are both the medium of exchange for and the necessary raw material (for lack of a better term) for a new chunk of economic activity.

So they're basically speculative investments that that new blob of economic activity will grow and be profitable. Which it seems like ... they probably will? But who knows.
In which case, I'd personally rather invest in the businesses building on top of crypto than speculate on the crypto assets themselves.

From a capital investment POV, I'd rather invest in Exxon and ADM (I guess, I do, actually, via the stock indices) than speculate on oil or soybean commodities.
It’s a very interesting crossover between “business” and crypto. The biggest “decentralized” app, Uniswap, which does equal volumes to Coinbase, has changed their licensing for their highly anticipated V3. While the code of smart contracts is all publicly visible on the blockchain, they have decided to put a 2 year hold on open-sourcing it. Uniswap also has some VC funding, but since launching their token they have billions in treasury of their own. It’s unclear exactly why they would change the licensensing, because there has been 100 forks of their V2 code and while some have been successful (PancakeSwap, SushiSwap), they haven’t really taken a significant marketshare.

Meanwhile Binance provided a $100M grant to essentially clone Ethereum and runs a much less centralized POS network which has proven to be really successful in attracting users and money. However it does not have the ideology or security that Ethereum offers. The attraction being lower fees and quicker transactions. So to some extent it has already been tested many times as to how users value decentralization, and immutability, and while some are persuaded my lower fees the majority of the money still sits on top of the open-source decentralized players.

To say a technology cannot be both open-source and have a value I believe has already been proven wrong.
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Re: Schwab's take on bitcoin

Post by SlowMovingInvestor »

watchnerd wrote: Tue Apr 06, 2021 4:20 pm In which case, I'd personally rather invest in the businesses building on top of crypto than speculate on the crypto assets themselves.
I want to see if Coinbase's market cap exceeds Schwab (now Schwab + TDAM) after it's IPO :happy

I'm agnostic on Ethereum. There are several nice aspects to their technology. On the other hand, there are also serious inherent limitations that have to be dealt with. And issues such as front-running, to name just one (if frontrunning is bad in the stock/option world, it's potentially much worse in the blockchain world where transactions take much longer and it's not just orders, but entire smart contracts and contract changes that can be front run).

And I don't think the analogy with open source is appropriate - you can use open source in pretty much any application, indeed most open source licenses don't share the FSF ideology of wiping out proprietary software. By contrast, an app largely needs to subscribe to the Ethereum philosophy of non-permissioned distributed consensus to make use of it (with some exceptions).
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Re: Schwab's take on bitcoin

Post by watchnerd »

ohboy! wrote: Tue Apr 06, 2021 4:32 pm
To say a technology cannot be both open-source and have a value I believe has already been proven wrong.
It was proven wrong long before crypto was invented; I spent 15 years in VC-backed open source startups and as entrepreneur in residence.

But the technology and the business models, while sometimes inter-related, are two separate things.

There are countless open source technologies that have never been monetized, despite being widely adopted.

And there are hundreds of companies that have tried to commercialize a given open source technology, but didn't crack the formula to drive both technology adoption and revenue at the same time, so never grew very big.

And there is a smaller, more valuable group, that have done both quite well.
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Re: Schwab's take on bitcoin

Post by watchnerd »

SlowMovingInvestor wrote: Tue Apr 06, 2021 4:46 pm
watchnerd wrote: Tue Apr 06, 2021 4:20 pm In which case, I'd personally rather invest in the businesses building on top of crypto than speculate on the crypto assets themselves.
I want to see if Coinbase's market cap exceeds Schwab (now Schwab + TDAM) after it's IPO :happy
That's kind of a low bar for a sector that's supposed to change the world. :)

Schwab's market cap is only $126B.
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Re: Schwab's take on bitcoin

Post by ohboy! »

watchnerd wrote: Tue Apr 06, 2021 4:57 pm
SlowMovingInvestor wrote: Tue Apr 06, 2021 4:46 pm
watchnerd wrote: Tue Apr 06, 2021 4:20 pm In which case, I'd personally rather invest in the businesses building on top of crypto than speculate on the crypto assets themselves.
I want to see if Coinbase's market cap exceeds Schwab (now Schwab + TDAM) after it's IPO :happy
That's kind of a low bar for a sector that's supposed to change the world. :)

Schwab's market cap is only $126B.
Coinbase is not the sector. Why all the crap comparisons? You cannot downplay a $100B listing valuation. Coinbase accounts for less than 30% of crypto trading volume. Trading is only one aspect of the sector.

Ethereum is valued higher than ATT and Cisco. Higher than Nike, Toyota, and Oracle. Top 50 marketcap in the world. That’s a relative comparison to this conversation. But yeah, probably nothing.
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Re: Schwab's take on bitcoin

Post by watchnerd »

ohboy! wrote: Tue Apr 06, 2021 5:28 pm
Coinbase is not the sector. Why all the crap comparisons? You cannot downplay a $100B listing valuation. Coinbase accounts for less than 30% of crypto trading volume. Trading is only one aspect of the sector.
Dude, chill.

See the smiley face?

That means "I'm teasing".

Schwab isn't the entire sector of financial services, either.


ohboy! wrote: Tue Apr 06, 2021 5:28 pm
Ethereum is valued higher than ATT and Cisco. Higher than Nike, Toyota, and Oracle. Top 50 marketcap in the world. That’s a relative comparison to this conversation. But yeah, probably nothing.
Well, since you talked about bad comparisons...

Ethereum is not a publicly traded company.

If you want to compare Ethereum to something, compare it to other commodities or stores of value.

Gold, FWIW, is $10-11 trillion.
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Re: Schwab's take on bitcoin

Post by txhill »

watchnerd wrote: Tue Apr 06, 2021 5:53 pm Well, since you talked about bad comparisons...

Ethereum is not a publicly traded company.

If you want to compare Ethereum to something, compare it to other commodities or stores of value.

Gold, FWIW, is $10-11 trillion.
It's hard to find a good comparison for Ether because I think Bitcoin will crowd out competitors from the store of value prospect (like how gold dominates the store of value proposition among precious metals). Personally I think Ethereum might end up being more like AWS--a platform on which other more valuable things are built. Still valuable but not necessarily in the trillions of dollars by itself. But I might just not be seeing the full picture yet.
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Re: Schwab's take on bitcoin

Post by watchnerd »

txhill wrote: Tue Apr 06, 2021 6:27 pm
It's hard to find a good comparison for Ether because I think Bitcoin will crowd out competitors from the store of value prospect (like how gold dominates the store of value proposition among precious metals). Personally I think Ethereum might end up being more like AWS--a platform on which other more valuable things are built. Still valuable but not necessarily in the trillions of dollars by itself. But I might just not be seeing the full picture yet.
Which is another reason why it's hard to establish a valuation for Eth.

If Bitcoin wins the crypto SOV war, then you're left with Ethereum as an open source crypto transaction network, but the value of that isn't in the market cap of the coin supply but in the monetization of the transactions, which could then be shared across multiple competing businesses.

Including big financial services firms that already exist. In which case, Ethereum network revenue just becomes a line item on the earnings statements for Citi / Goldman / Visa / etc.
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Re: Schwab's take on bitcoin

Post by HomerJ »

ohboy! wrote: Tue Apr 06, 2021 9:00 am The apps built on Ethereum are revolutionary
Like what?
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Schwab's take on bitcoin

Post by Bama12 »

I think it's the new Gold.
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Re: Schwab's take on bitcoin

Post by Trader Joe »

garlandwhizzer wrote: Mon Apr 05, 2021 5:55 pm This article discusses the basics of cryptocurrency and Schwab's point of view about whether they should be included in your investment portfolio. Comments?

https://www.schwab.com/resource-center/ ... -portfolio
Are you planning to add Bitcoin to your portfolio through Schwab?

If so, what percentage of your total portfolio?
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Re: Schwab's take on bitcoin

Post by txhill »

watchnerd wrote: Tue Apr 06, 2021 6:31 pm
txhill wrote: Tue Apr 06, 2021 6:27 pm
It's hard to find a good comparison for Ether because I think Bitcoin will crowd out competitors from the store of value prospect (like how gold dominates the store of value proposition among precious metals). Personally I think Ethereum might end up being more like AWS--a platform on which other more valuable things are built. Still valuable but not necessarily in the trillions of dollars by itself. But I might just not be seeing the full picture yet.
Which is another reason why it's hard to claim a valuation for Eth.

If Bitcoin wins the crypto SOV war, then you're left with Ethereum as an open source transaction network, but the value of that isn't in the market cap of the coin supply but in the monetization of the transactions, which could then be shared across multiple competing businesses.
Yes, I agree. There are a lot of "ifs" with ETH, which is why I have a much smaller allocation to it than Bitcoin, but I am willing to ride it out over the coming year to see whether/how they solve their scaling and monetization issues.
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Re: Schwab's take on bitcoin

Post by HomerJ »

watchnerd wrote: Tue Apr 06, 2021 12:22 pm
ohboy! wrote: Tue Apr 06, 2021 12:01 pm
https://cryptofees.info/
The tricky bit will be differentiating profitable businesses built on Ethereum vs the value of Ethereum, itself.

VISA makes a lot of money transacting in dollars, but their business model is a separate issue from the value of the dollar, itself.

Classic early stage investment question is to determine if you're betting on the jockey or the horse.
Right... It may be like trying to invest in TCP/IP back in the day.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Schwab's take on bitcoin

Post by watchnerd »

HomerJ wrote: Tue Apr 06, 2021 6:44 pm
watchnerd wrote: Tue Apr 06, 2021 12:22 pm
ohboy! wrote: Tue Apr 06, 2021 12:01 pm
https://cryptofees.info/
The tricky bit will be differentiating profitable businesses built on Ethereum vs the value of Ethereum, itself.

VISA makes a lot of money transacting in dollars, but their business model is a separate issue from the value of the dollar, itself.

Classic early stage investment question is to determine if you're betting on the jockey or the horse.
Right... It may be like trying to invest in TCP/IP back in the day.
That's a good analogy.

TCP/IP vs 3Com / Cisco

Linux vs Red Hat

etc. etc.
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Re: Schwab's take on bitcoin

Post by ohboy! »

HomerJ wrote: Tue Apr 06, 2021 6:38 pm
ohboy! wrote: Tue Apr 06, 2021 9:00 am The apps built on Ethereum are revolutionary
Like what?
Automated market maker as a smart contract
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Re: Schwab's take on bitcoin

Post by dsasdg »

ohboy! wrote: Tue Apr 06, 2021 9:00 am
nisiprius wrote: Mon Apr 05, 2021 6:07 pm It seems like a decent overview to me, in terms of explaining what cryptocurrency is for a hypothetical reader who a) who knows very little about it, and b) and is willing to read six pages about it. Their viewpoint on investing is pretty clear:
Should I invest in cryptocurrencies?

Bitcoin and other cryptocurrencies are speculative investments, and we do not currently use or recommend them in Schwab portfolios. Bitcoin doesn’t fit within traditional asset allocation models, as it is neither a traditional commodity, such as gold, nor a traditional currency. Bitcoin’s dramatic rise and fall is driven primarily by supply and demand, not inherent value. Bitcoin doesn’t have earnings or revenues. It doesn’t have a price-to-earnings ratio, price-to-sales ratio, or book value. Traditional value metrics don’t apply, so there are no methods for assessing its value that we endorse or find persuasive beyond the trading value. A dramatic rise, and fall, in price is driven primarily by supply and demand, not valuation...

Cryptocurrency trading is not offered at Schwab....

While some traders may make money on the change in price of bitcoin or other cryptocurrencies, we don’t recommend them currently as an investment in portfolios, due primarily to their lack of characteristics common to other investments or asset classes—including traditional currency or cash—as well as their volatility, security, potential for future regulation and other factors.
Their take doesn’t apply to Ethereum at all. I didn’t read the whole article but most of mainstream has such a hard time wrapping their head around Bitcoin they don’t even consider Ethereum. I’m guessing that when Coinbase goes public they will finally add ETH staking shortly after. Ethereum is like Linux, with a token. Linux is the backbone of the web, macOS, and Android, but nobody cares because they don’t need to. The apps built on Ethereum are revolutionary and anyone with a financial sense and an iota of curiosity can see that.
Defi is better for your argument.
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Re: Schwab's take on bitcoin

Post by dsasdg »

ohboy! wrote: Tue Apr 06, 2021 1:40 pm
txhill wrote: Tue Apr 06, 2021 12:14 pm
ohboy! wrote: Tue Apr 06, 2021 12:01 pm
txhill wrote: Tue Apr 06, 2021 10:33 am
watchnerd wrote: Tue Apr 06, 2021 9:46 am

It doesn't?

How does one model the valuation of Ethereum?

What is Ethereum's IRR?

How does Ethereum fit into MVO / MPT methods used for portfolio construction?
Here is a good writeup by Lyn Alden on an economic analysis for Ethereum. Note that the author, whom I respect greatly, concludes that Ethereum is too risky to invest in given that it is unclear to what extent value will adhere to the platform that Ethereum is building (her analogy to the Concorde at the end might be apt). I myself put a small % into Ethereum but I acknowledge it is very risky--far riskier than Bitcoin, which has a clear use and value as a gold replacement. Ethereum could very well end up being just like email, which is hugely popular and important but basically impossible to monetize. But I really appreciate that Lyn thinks critically about Ethereum and does not just blindly repeat "no IRR" without putting an ounce of effort into the analysis, as Schwab has done.

https://www.lynalden.com/ethereum-analysis/
Value in technology is about users.

https://cryptofees.info/

Look at the fees people are paying to use Ethereum. All of the ones highlighted in pink, they run on Ethereum. The vast majority of crypto developers, who believe in decentralization, are in the Ethereum ecosystem. Ethereum is where the trustless and permissionless financial instruments are being built. Code handles billions of dollars without fault or oversight. Financial instruments that anyone can access.

The improvement to Ethereum that is setup to be added this summer (EIP 1559) wil burn transaction fees, making it deflationary. The merge to proof of stake looks like it will happen within a year. This will reduce the energy usage by 99% and increase. Then sharding to give 100x scaling in addition to Optimism which is set to launch in May and also scale Ethereum by 100x. Today you can use Polygon and make instant transactions for $.00001.

I'd recommend reading a source from someone who isn't a "bitcoin maximalist". That article is equivalent to linking someone who wants to know about MacOS an article from someone who refuses to by Apple and swears Microsoft is the best. Actually Microsoft may be a generous comparison, more like a calculator.

I have equal amounts of BTC and ETH. I know which one is better because I use both regularly, for years. It's not even close. What I don't know is how long the market will take to figure it out.
I agree ETH is promising, but the big issue is this: to scale well, they will need to lower transaction fees. They're taking important steps to help with that. But lowering transaction fees necessarily limits the value adhering to ETH itself (rather than the value in the smart contracts built in the Ethereum ecosystem, which themselves could be very valuable). That balance between scaling up and retaining value in ETH (as opposed to Ethereum generally) is one they are still trying to figure out. So there is serious execution risk there.

Edit--I'd also add that Lyn Alden is not at all a bitcoin maximalist. I like her analysis of all sorts of macroeconomic issues. She just happens to agree that bitcoin has enormous upside potential at this time, with what seems to be very little downside risk.
Little downside risk to BTC? She said that?? Im owning for 5 years and disagree strongly. Could go to $5k in 30 days.
*15k
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Re: Schwab's take on bitcoin

Post by watchnerd »

Bama12 wrote: Tue Apr 06, 2021 6:39 pm I think it's the new Gold.
I don't buy gold, either.

I guess I might own shares of companies that make money off of gold in the total market index?

I once was a limited partner in an oil pipeline, but I never bought oil itself.
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Re: Schwab's take on bitcoin

Post by HanSolo »

Bama12 wrote: Tue Apr 06, 2021 6:39 pm I think it's the new Gold.
Yes, I agree that bitcoin can serve a similar purpose as gold in the mind of the buyer... the advantage being you don't have to deal with any pesky, cumbersome metal!

As I said in another thread:
HanSolo wrote: Tue Mar 16, 2021 2:22 am Bitcoin is like owning gold without the gold.
Cheers...
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Re: Schwab's take on bitcoin

Post by Bama12 »

HanSolo wrote: Tue Apr 06, 2021 10:27 pm
Bama12 wrote: Tue Apr 06, 2021 6:39 pm I think it's the new Gold.
Yes, I agree that bitcoin can serve a similar purpose as gold in the mind of the buyer... the advantage being you don't have to deal with any pesky, cumbersome metal!

As I said in another thread:
HanSolo wrote: Tue Mar 16, 2021 2:22 am Bitcoin is like owning gold without the gold.
Cheers...
and It will be worth more :)
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Re: Schwab's take on bitcoin

Post by TropikThunder »

ohboy! wrote: Tue Apr 06, 2021 5:28 pm Why all the crap comparisons?
Why are crypto enthusiasts so defensive? Why do you care if random people on a discussion board disagree with you? Does it cost you money if I think you’re spouting nonsense? You sound like a sales rep mad that the customer won’t buy your stuff (so maybe it does cost you money ......).
txhill wrote: Tue Apr 06, 2021 6:27 pm But I might just not be seeing the full picture yet.
Your humility is refreshing.
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Re: Schwab's take on bitcoin

Post by HomerJ »

ohboy! wrote: Tue Apr 06, 2021 6:59 pm
HomerJ wrote: Tue Apr 06, 2021 6:38 pm
ohboy! wrote: Tue Apr 06, 2021 9:00 am The apps built on Ethereum are revolutionary
Like what?
Automated market maker as a smart contract
What does this "revolutionize"?
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Schwab's take on bitcoin

Post by bitdocmd »

watchnerd wrote: Tue Apr 06, 2021 7:21 pm
Bama12 wrote: Tue Apr 06, 2021 6:39 pm I think it's the new Gold.
I don't buy gold, either.

I guess I might own shares of companies that make money off of gold in the total market index?

I once was a limited partner in an oil pipeline, but I never bought oil itself.
Taking delivery of that oil would have sucked.
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Re: Schwab's take on bitcoin

Post by HanSolo »

Bama12 wrote: Wed Apr 07, 2021 12:35 am
HanSolo wrote: Tue Apr 06, 2021 10:27 pm
Bama12 wrote: Tue Apr 06, 2021 6:39 pm I think it's the new Gold.
Yes, I agree that bitcoin can serve a similar purpose as gold in the mind of the buyer... the advantage being you don't have to deal with any pesky, cumbersome metal!

As I said in another thread:
HanSolo wrote: Tue Mar 16, 2021 2:22 am Bitcoin is like owning gold without the gold.
Cheers...
and It will be worth more :)
"It" = bitcoin, or gold? And worth more than what? And by how much? And when?
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