Prove Me Wrong: Cryptocurrencies are NOT good investments

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
txhill
Posts: 392
Joined: Tue Mar 16, 2021 12:27 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by txhill »

watchnerd wrote: Mon May 03, 2021 6:20 pm
txhill wrote: Mon May 03, 2021 6:12 pm

Maybe I misunderstood or recalled incorrectly, in which case sorry. I thought you argued that crypto in general--not bitcoin specifically--cannot be an investment because it has no IRR and is more like a collectible (and the IRS taxes collectibles at a different rate than stocks so therefore not an investment, which led us down a long and dark rabbit hole). Maybe we were talking past each other, or your view has adapted?
This one of the reasons I think this thread is dumb.

It lumps all crypto together.

When you stake Ethereum, you've now created an instrument, the stake, that generates IRR.

Ethereum, just sitting there, doesn't.

Same thing for cash. If it sits there, it has no IRR. If I loan it out, and get interest back, the loan now has IRR.
Ok yes agreed.
ballons
Posts: 649
Joined: Sun Aug 18, 2019 3:05 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by ballons »

langlands wrote: Mon May 03, 2021 3:20 pm There is a lot of straw-manning going on in this thread. Yes, if you think fiat is dead and then convert all your crypto gains back into fiat, you're hypocritical.

The vast majority of crypto investors don't think crypto and USD are involved in a fight to the death. There is a lot of talk of BTC eating into gold's market cap or ethereum eating into the fintech market cap. You don't need particularly strong ideological views to think that either of these scenarios are plausible. So you put in a chunk of your portfolio into crypto as a risky bet hoping it will 10x. If it works out, you reassess and perhaps roll some gains back into a more Boglehead type portfolio. This is no different than what many VC's do. It's not hypocritical to sell your shares in a startup when you've hit a massive payday, even if you think the company still has a bright future ahead.

Also, the vast majority of those investing in anything, including on this forum, are "greedy people" attempting to accumulate fiat cash as quickly as possible within their risk tolerance.
How do you know you are "rich" with crypto without fiat conversion? I don't see people claiming their crypto coins are worth say 100oz of gold.
Bogleheads.org
Investing Advice Inspired by Jack Bogle
Where does Jack Bogle say anything about risking 10% of your portfolio on highly speculative bubbles in an attempt to market time them like VC?
almostretired1965
Posts: 296
Joined: Mon Nov 13, 2017 2:02 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by almostretired1965 »

While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal. It is a fact that ALL of the money that is being made today is based on speculation. Now, might there be something coming that will prove me wrong, sure ........, but as far as I can see, it is mostly if not entirely based on a hope and a prayer. Now you can make a lot of money speculating, IF you know when to get out and are not the guy left holding the bag, but I'm not a professional trader ......

A
qwertyjazz wrote: Mon Apr 26, 2021 7:34 pm 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.
langlands
Posts: 1009
Joined: Wed Apr 03, 2019 10:05 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by langlands »

ballons wrote: Mon May 03, 2021 6:30 pm
langlands wrote: Mon May 03, 2021 3:20 pm There is a lot of straw-manning going on in this thread. Yes, if you think fiat is dead and then convert all your crypto gains back into fiat, you're hypocritical.

The vast majority of crypto investors don't think crypto and USD are involved in a fight to the death. There is a lot of talk of BTC eating into gold's market cap or ethereum eating into the fintech market cap. You don't need particularly strong ideological views to think that either of these scenarios are plausible. So you put in a chunk of your portfolio into crypto as a risky bet hoping it will 10x. If it works out, you reassess and perhaps roll some gains back into a more Boglehead type portfolio. This is no different than what many VC's do. It's not hypocritical to sell your shares in a startup when you've hit a massive payday, even if you think the company still has a bright future ahead.

Also, the vast majority of those investing in anything, including on this forum, are "greedy people" attempting to accumulate fiat cash as quickly as possible within their risk tolerance.
How do you know you are "rich" with crypto without fiat conversion? I don't see people claiming their crypto coins are worth say 100oz of gold.
Bogleheads.org
Investing Advice Inspired by Jack Bogle
Where does Jack Bogle say anything about risking 10% of your portfolio on highly speculative bubbles in an attempt to market time them like VC?
Yes, you know you are rich by measuring in terms of fiat. I don't think I said otherwise.

Admittedly, I wouldn't describe myself as a Boglehead. I think his investment philosophy is a great default for the vast majority of people, but I've developed my own investing style that works for me.
Hustlinghustling
Posts: 287
Joined: Mon Jul 25, 2016 12:09 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Hustlinghustling »

almostretired1965 wrote: Mon May 03, 2021 6:40 pm While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal.
Even with this framework, this usecase is not nefarious in parts of the world where the govt itself is the more “criminal” actor and crypto enables some measure of freedom for those under them. Irrespective of political views, that has a lot of value even though for an American, it is not applicable nor easily understood.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Hustlinghustling wrote: Mon May 03, 2021 6:58 pm
almostretired1965 wrote: Mon May 03, 2021 6:40 pm While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal.
Even with this framework, this usecase is not nefarious in parts of the world where the govt itself is the more “criminal” actor and crypto enables some measure of freedom for those under them. Irrespective of political views, that has a lot of value even though for an American, it is not applicable nor easily understood.
I agree it has value for pathological currency regimes.

The trick is how that avoids the same problems that crop up in those situations with existing black / grey market economies.

Yes, you can buy essential goods in Venezuela with USD on the black / gray market, but there is hefty mark up.

If I'm a baby formula smuggler in Venezuela, I'm not sure the mark up (my profit margin) is going to be much less if you pay me in crypto.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Williams57
Posts: 111
Joined: Tue Jan 21, 2020 11:16 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Williams57 »

watchnerd wrote: Mon May 03, 2021 7:05 pm
Hustlinghustling wrote: Mon May 03, 2021 6:58 pm
almostretired1965 wrote: Mon May 03, 2021 6:40 pm While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal.
Even with this framework, this usecase is not nefarious in parts of the world where the govt itself is the more “criminal” actor and crypto enables some measure of freedom for those under them. Irrespective of political views, that has a lot of value even though for an American, it is not applicable nor easily understood.
I agree it has value for pathological currency regimes.

The trick is how that avoids the same problems that crop up in those situations with existing black / grey market economies.

Yes, you can buy essential goods in Venezuela with USD on the black / gray market, but there is hefty mark up.

If I'm a baby formula smuggler in Venezuela, I'm not sure the mark up (my profit margin) is going to be much less if you pay me in crypto.
I also agree. And the "criminal governments" are where the majority of the world's population lives. Depends on your metrics of what's "criminal", but this is my opinion.

As for "black/grey markets" - maybe and hopefully crypto will force centralized governments to reduce fees, legalize what can be legalized (except for human and organ trafficking, that's where I draw the line). And here lies the power of crypto. Central banks are no longer an organized gang monopoly.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Williams57 wrote: Mon May 03, 2021 7:15 pm As for "black/grey markets" - maybe and hopefully crypto will force centralized governments to reduce fees, legalize what can be legalized (except for human and organ trafficking, that's where I draw the line). And here lies the power of crypto. Central banks are no longer an organized gang monopoly.
You lost me on this one.

Are you saying crypto will lead to the legalization / decriminalization of vice industries (recreational drugs, prostitution)?

We already have countries with legalized prostitution and (some) recreational drugs with fiat money.

I don't see the connection.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Hustlinghustling
Posts: 287
Joined: Mon Jul 25, 2016 12:09 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Hustlinghustling »

watchnerd wrote: Mon May 03, 2021 7:05 pm
Hustlinghustling wrote: Mon May 03, 2021 6:58 pm
almostretired1965 wrote: Mon May 03, 2021 6:40 pm While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal.
Even with this framework, this usecase is not nefarious in parts of the world where the govt itself is the more “criminal” actor and crypto enables some measure of freedom for those under them. Irrespective of political views, that has a lot of value even though for an American, it is not applicable nor easily understood.
I agree it has value for pathological currency regimes.

The trick is how that avoids the same problems that crop up in those situations with existing black / grey market economies.

Yes, you can buy essential goods in Venezuela with USD on the black / gray market, but there is hefty mark up.

If I'm a baby formula smuggler in Venezuela, I'm not sure the mark up (my profit margin) is going to be much less if you pay me in crypto.
probably not that different as USD cash, but another option to the mix and still better than the alternative

just as recent example, in Hong Kong, some have had their bank accounts and assets frozen for supporting democracy protests there (probably the expected position of many Americans?). not giving an opinion on the issue, but crypto provides alternatives and has obvious value here

not to mention capital controls circumvention for wealthy chinese has propped up prices the world over for “IRR producing” assets like real estate. but also “speculative” assets like art, watches, fine wine/whisky, and industries such as gambling and insurance have had a HUGE spikes to their business as a channel for getting money out of the country. crypto is another tool in that box ... to dismiss this aspect as no value would be also missing the vast sums this massive capital outlfow has brought into all those other industries and perhaps should similarly discount this demand in valuing those companies, to be consistent
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Hustlinghustling wrote: Mon May 03, 2021 7:29 pm
watchnerd wrote: Mon May 03, 2021 7:05 pm
Hustlinghustling wrote: Mon May 03, 2021 6:58 pm
almostretired1965 wrote: Mon May 03, 2021 6:40 pm While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal.
Even with this framework, this usecase is not nefarious in parts of the world where the govt itself is the more “criminal” actor and crypto enables some measure of freedom for those under them. Irrespective of political views, that has a lot of value even though for an American, it is not applicable nor easily understood.
I agree it has value for pathological currency regimes.

The trick is how that avoids the same problems that crop up in those situations with existing black / grey market economies.

Yes, you can buy essential goods in Venezuela with USD on the black / gray market, but there is hefty mark up.

If I'm a baby formula smuggler in Venezuela, I'm not sure the mark up (my profit margin) is going to be much less if you pay me in crypto.
probably not that different as USD cash, but another option to the mix and still better than the alternative

just as recent example, in Hong Kong, some have had their bank accounts and assets frozen for supporting democracy protests there (probably the expected position of many Americans?). not giving an opinion on the issue, but crypto provides alternatives and has obvious value here

not to mention capital controls circumvention for wealthy chinese has propped up prices the world over for “IRR producing” assets like real estate. but also “speculative” assets like art, watches, fine wine/whisky, and industries such as gambling and insurance have had a HUGE spikes to their business as a channel for getting money out of the country. crypto is another tool in that box ... to dismiss this aspect as no value would be also missing the vast sums of money this massive capital influx has brought into all those other industries and perhaps should similarly discount this demand in valuing those companies, to be consistent
???

I said...right up there ^^^ ...."I agree it has value for pathological currency regimes".
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Williams57
Posts: 111
Joined: Tue Jan 21, 2020 11:16 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Williams57 »

watchnerd wrote: Mon May 03, 2021 7:25 pm
Williams57 wrote: Mon May 03, 2021 7:15 pm As for "black/grey markets" - maybe and hopefully crypto will force centralized governments to reduce fees, legalize what can be legalized (except for human and organ trafficking, that's where I draw the line). And here lies the power of crypto. Central banks are no longer an organized gang monopoly.
You lost me on this one.

Are you saying crypto will lead to the legalization / decriminalization of vice industries (recreational drugs, prostitution)?

We already have countries with legalized prostitution and (some) recreational drugs with fiat money.

I don't see the connection.
People always found and find ways to get what they want. Crypto may make it safer and more decentralized (small businesses, not cartels, etc), even though this is probably a tiny portion of its applications, even currently. There are a lot of social factors to it, but I can see how crypto would contribute to a shift. I am pro legalization and see it as a pro. Central governments don't like being left out of happenings, so they will legalize and regulate. Currently central and local criminal governments benefit from illegal trade.
txhill
Posts: 392
Joined: Tue Mar 16, 2021 12:27 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by txhill »

watchnerd wrote: Mon May 03, 2021 7:05 pm
Hustlinghustling wrote: Mon May 03, 2021 6:58 pm
almostretired1965 wrote: Mon May 03, 2021 6:40 pm While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal.
Even with this framework, this usecase is not nefarious in parts of the world where the govt itself is the more “criminal” actor and crypto enables some measure of freedom for those under them. Irrespective of political views, that has a lot of value even though for an American, it is not applicable nor easily understood.
I agree it has value for pathological currency regimes.

The trick is how that avoids the same problems that crop up in those situations with existing black / grey market economies.

Yes, you can buy essential goods in Venezuela with USD on the black / gray market, but there is hefty mark up.

If I'm a baby formula smuggler in Venezuela, I'm not sure the mark up (my profit margin) is going to be much less if you pay me in crypto.
Agree generally, but even a total currency collapse / black market smuggling isn't necessary to get folks looking elsewhere. Dutch banks announced they were charging a negative interest rate on deposits:
https://www.nasdaq.com/articles/danske- ... 2021-04-26 Spain did something similar back in 2014 when it was struggling.

That's the sort of thing that gets people looking for other options, and some will turn to crypto as a solution to their distrust of fiat.
Hustlinghustling
Posts: 287
Joined: Mon Jul 25, 2016 12:09 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Hustlinghustling »

watchnerd wrote: Mon May 03, 2021 7:36 pm
Hustlinghustling wrote: Mon May 03, 2021 7:29 pm
watchnerd wrote: Mon May 03, 2021 7:05 pm
Hustlinghustling wrote: Mon May 03, 2021 6:58 pm
almostretired1965 wrote: Mon May 03, 2021 6:40 pm While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal.
Even with this framework, this usecase is not nefarious in parts of the world where the govt itself is the more “criminal” actor and crypto enables some measure of freedom for those under them. Irrespective of political views, that has a lot of value even though for an American, it is not applicable nor easily understood.
I agree it has value for pathological currency regimes.

The trick is how that avoids the same problems that crop up in those situations with existing black / grey market economies.

Yes, you can buy essential goods in Venezuela with USD on the black / gray market, but there is hefty mark up.

If I'm a baby formula smuggler in Venezuela, I'm not sure the mark up (my profit margin) is going to be much less if you pay me in crypto.
probably not that different as USD cash, but another option to the mix and still better than the alternative

just as recent example, in Hong Kong, some have had their bank accounts and assets frozen for supporting democracy protests there (probably the expected position of many Americans?). not giving an opinion on the issue, but crypto provides alternatives and has obvious value here

not to mention capital controls circumvention for wealthy chinese has propped up prices the world over for “IRR producing” assets like real estate. but also “speculative” assets like art, watches, fine wine/whisky, and industries such as gambling and insurance have had a HUGE spikes to their business as a channel for getting money out of the country. crypto is another tool in that box ... to dismiss this aspect as no value would be also missing the vast sums of money this massive capital influx has brought into all those other industries and perhaps should similarly discount this demand in valuing those companies, to be consistent
???

I said...right up there ^^^ ...."I agree it has value for pathological currency regimes".
Sorry, a general comment for the "no value" crowd. That while it may be "no value" to the average American currently, it may simply be a vantage point issue and not seeing significant price drivers occurring outside our bias
bck63
Posts: 1527
Joined: Fri Sep 28, 2018 4:59 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by bck63 »

langlands wrote: Mon May 03, 2021 6:53 pm Admittedly, I wouldn't describe myself as a Boglehead. I think his investment philosophy is a great default for the vast majority of people, but I've developed my own investing style that works for me.
And the odds are overwhelming that over the long haul you will underperform the market.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Williams57 wrote: Mon May 03, 2021 7:38 pm People always found and find ways to get what they want. Crypto may make it safer and more decentralized (small businesses, not cartels, etc), even though this is probably a tiny portion of its applications, even currently. There are a lot of social factors to it, but I can see how crypto would contribute to a shift. I am pro legalization and see it as a pro. Central governments don't like being left out of happenings, so they will legalize and regulate. Currently central and local criminal governments benefit from illegal trade.
I'm still not following.

Cocaine is a controlled substance in the USA.

This allows drug cartels to make extreme profit in producing it, smuggling it into the US, and selling it at a very high markup.

Crypto might make money flow easier for them, but how does the existence of crypto lead to cocaine being legalized?


(which, by the way, the drug cartels would hate, as it would destroy their profit margin)
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Williams57
Posts: 111
Joined: Tue Jan 21, 2020 11:16 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Williams57 »

Hustlinghustling wrote: Mon May 03, 2021 7:40 pm
watchnerd wrote: Mon May 03, 2021 7:36 pm
Hustlinghustling wrote: Mon May 03, 2021 7:29 pm
watchnerd wrote: Mon May 03, 2021 7:05 pm
Hustlinghustling wrote: Mon May 03, 2021 6:58 pm
Even with this framework, this usecase is not nefarious in parts of the world where the govt itself is the more “criminal” actor and crypto enables some measure of freedom for those under them. Irrespective of political views, that has a lot of value even though for an American, it is not applicable nor easily understood.
I agree it has value for pathological currency regimes.

The trick is how that avoids the same problems that crop up in those situations with existing black / grey market economies.

Yes, you can buy essential goods in Venezuela with USD on the black / gray market, but there is hefty mark up.

If I'm a baby formula smuggler in Venezuela, I'm not sure the mark up (my profit margin) is going to be much less if you pay me in crypto.
probably not that different as USD cash, but another option to the mix and still better than the alternative

just as recent example, in Hong Kong, some have had their bank accounts and assets frozen for supporting democracy protests there (probably the expected position of many Americans?). not giving an opinion on the issue, but crypto provides alternatives and has obvious value here

not to mention capital controls circumvention for wealthy chinese has propped up prices the world over for “IRR producing” assets like real estate. but also “speculative” assets like art, watches, fine wine/whisky, and industries such as gambling and insurance have had a HUGE spikes to their business as a channel for getting money out of the country. crypto is another tool in that box ... to dismiss this aspect as no value would be also missing the vast sums of money this massive capital influx has brought into all those other industries and perhaps should similarly discount this demand in valuing those companies, to be consistent
???

I said...right up there ^^^ ...."I agree it has value for pathological currency regimes".
Sorry, a general comment for the "no value" crowd. That while it may be "no value" to the average American currently, it may simply be a vantage point issue and not seeing significant price drivers occurring outside our bias


Yep. Imagine being a grown woman with no opportunity or right to open a bank account. Or being a persecuted sexual minority. Or a discriminated ethnic minority. Et etc. The criminal government does not want to protect their rights nor their assets.
Last edited by Williams57 on Mon May 03, 2021 7:53 pm, edited 1 time in total.
Williams57
Posts: 111
Joined: Tue Jan 21, 2020 11:16 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Williams57 »

watchnerd wrote: Mon May 03, 2021 7:44 pm
Williams57 wrote: Mon May 03, 2021 7:38 pm People always found and find ways to get what they want. Crypto may make it safer and more decentralized (small businesses, not cartels, etc), even though this is probably a tiny portion of its applications, even currently. There are a lot of social factors to it, but I can see how crypto would contribute to a shift. I am pro legalization and see it as a pro. Central governments don't like being left out of happenings, so they will legalize and regulate. Currently central and local criminal governments benefit from illegal trade.
I'm still not following.

Cocaine is a controlled substance in the USA.

This allows drug cartels to make extreme profit in producing it, smuggling it into the US, and selling it at a very high markup.

Crypto might make money flow easier for them, but how does the existence of crypto lead to cocaine being legalized?


(which, by the way, the drug cartels would hate, as it would destroy their profit margin)
Average Joe (or Mohammed, or whoever) figures out how to make cocaine at home. He is otherwise unemployed. He makes and sells it peer to peer. Cartels don't like it. They ask the criminal government to legalize it so they can regulate it. I know this is a gross simplification, but this is how I see it.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Williams57 wrote: Mon May 03, 2021 7:49 pm Average Joe (or Mohammed, or whoever) figures out how to make cocaine at home. He is otherwise unemployed. He makes and sells it peer to peer. Cartels don't like it. They ask the criminal government to legalize it so they can regulate it. I know this is a gross simplification, but this is how I see it.
How is Joe / Mohammed growing coca leaves at home if he lives in USA?

It grows in the Andes.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Williams57
Posts: 111
Joined: Tue Jan 21, 2020 11:16 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Williams57 »

watchnerd wrote: Mon May 03, 2021 7:54 pm
Williams57 wrote: Mon May 03, 2021 7:49 pm Average Joe (or Mohammed, or whoever) figures out how to make cocaine at home. He is otherwise unemployed. He makes and sells it peer to peer. Cartels don't like it. They ask the criminal government to legalize it so they can regulate it. I know this is a gross simplification, but this is how I see it.
How is Joe / Mohammed growing coca leaves at home if he lives in USA?

It grows in the Andes.
I'm not an expert on drug production lol. Let's replace with something synthetic. The above is an example, not specific to a certain drug or any other item. Whatever is considered illegal by that government. Anyway, crypto is about giving power to the people, or, at least, more power than before. What people do with it, is well, up to them.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Williams57 wrote: Mon May 03, 2021 7:59 pm I'm not an expert on drug production lol. Let's replace with something synthetic. The above is an example, not specific to a certain drug or any other item. Whatever is considered illegal by that government.
Okay, let's take meth. You can cook it at home with ingredients found in the USA.

So I'm a small time meth cook and I sell a little on the side, but my main distribution channel is with the Hells Angels, who have a distribution network that can move a lot of product.

Why does crypto lead to meth being legalized?
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Williams57
Posts: 111
Joined: Tue Jan 21, 2020 11:16 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Williams57 »

watchnerd wrote: Mon May 03, 2021 8:05 pm
Williams57 wrote: Mon May 03, 2021 7:59 pm I'm not an expert on drug production lol. Let's replace with something synthetic. The above is an example, not specific to a certain drug or any other item. Whatever is considered illegal by that government.
Okay, let's take meth. You can cook it at home with ingredients found in the USA.

So I'm a small time meth cook and I sell a little on the side, but my main distribution channel is with the Hells Angels, who have a distribution network that can move a lot of product.

Why does crypto lead to meth being legalized?
This is specific to US. Currently there is push to federally legalize cannabis in the US. For many reasons. One big reason being letting banks finally do business with them without them fearing consequences. To be fair crypto is not the only place where this money is being kept currently. They'll probably add some type of federal tax to it too.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Williams57 wrote: Mon May 03, 2021 8:27 pm

This is specific to US. Currently there is push to federally legalize cannabis in the US. For many reasons. One big reason being letting banks finally do business with them without them fearing consequences. To be fair crypto is not the only place where this money is being kept currently.
Well, I live in WA, where cannabis is legal and taxed by the state government.

You don't need crypto to solve the problem.

You just need to change the Federal law to allow banks to do business with cannabis dispensaries.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Williams57
Posts: 111
Joined: Tue Jan 21, 2020 11:16 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Williams57 »

watchnerd wrote: Mon May 03, 2021 8:30 pm
Williams57 wrote: Mon May 03, 2021 8:27 pm

This is specific to US. Currently there is push to federally legalize cannabis in the US. For many reasons. One big reason being letting banks finally do business with them without them fearing consequences. To be fair crypto is not the only place where this money is being kept currently.
Well, I live in WA, where cannabis is legal and taxed by the state government.

You don't need crypto to solve the problem.

You just need to change the Federal law to allow banks to do business with cannabis dispensaries.
In my state where it's been legal crypto and real estate seem to be popular places to store cannabis money. Because it's still illegal federally. I say it's the federal government that's missing out.
flyfishers83
Posts: 120
Joined: Fri Jun 07, 2019 6:08 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by flyfishers83 »

I’ve changed my mind. Crypto is a great investment. Just logged into my paypal account to pay my bill for recycling pickup and saw an offer for $25 with a $25 crypto purchase. Figure I’ll quadruple my money and take my wife out to dinner.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Williams57 wrote: Mon May 03, 2021 8:38 pm

In my state where it's been legal crypto and real estate seem to be popular places to store cannabis money. Because it's still illegal federally. I say it's the federal government that's missing out.
But using crypto doesn't solve the legal status at all.

The Federal government could legalize all cannabis revenue flows and the problem gets solved, regardless of technology.

Conversely, using crypto doesn't make it legal to transfer money generated in the sale of something that government thinks is a controlled substance.

A legal status issue is best dealt with using a legislative remedy.

The Fed government is missing out (on tax revenue), but that was true before crypto was ever invented.
Last edited by watchnerd on Mon May 03, 2021 9:16 pm, edited 1 time in total.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
User avatar
Beensabu
Posts: 725
Joined: Sun Aug 14, 2016 3:22 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Beensabu »

Stop.

Just stop.

It's over.

Nothing you think or say makes any difference.

It doesn't matter anymore. It mattered 4 years ago. Not anymore.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."
langlands
Posts: 1009
Joined: Wed Apr 03, 2019 10:05 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by langlands »

Beensabu wrote: Mon May 03, 2021 9:16 pm Stop.

Just stop.

It's over.

Nothing you think or say makes any difference.

It doesn't matter anymore. It mattered 4 years ago. Not anymore.
No idea what this means, but it's oddly poignant.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

langlands wrote: Mon May 03, 2021 9:29 pm
Beensabu wrote: Mon May 03, 2021 9:16 pm Stop.

Just stop.

It's over.

Nothing you think or say makes any difference.

It doesn't matter anymore. It mattered 4 years ago. Not anymore.
No idea what this means, but it's oddly poignant.
It should have been a line at the end of 'Casablanca'.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
typical.investor
Posts: 2599
Joined: Mon Jun 11, 2018 3:17 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by typical.investor »

Beensabu wrote: Mon May 03, 2021 9:16 pm Stop.

Just stop.

It's over.

Nothing you think or say makes any difference.

It doesn't matter anymore. It mattered 4 years ago. Not anymore.
The Bernie Madoff scam went on for decades before collapsing. Are you saying crypto is safe now?

I'm still trying to wrap my head around BTC and ETH transaction costs inflating to the moon. Neither BTC or ETH are viable as payment systems so we see ETH being the first to move to PoS which is untried, untested and unknown.

What is decided?
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

typical.investor wrote: Mon May 03, 2021 9:37 pm What is decided?
That eventually quantum, or other advances in computing, will be able to crack any cryptographic currency made in the first 20 years of the 21st century.

Gold may have the last laugh as a store of value 100 years from now.
.
.
.
.
.
(unless all those asteroids finally get mined and space gold makes it all collapse in price)
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
User avatar
Beensabu
Posts: 725
Joined: Sun Aug 14, 2016 3:22 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Beensabu »

typical.investor wrote: Mon May 03, 2021 9:37 pm
Beensabu wrote: Mon May 03, 2021 9:16 pm Stop.

Just stop.

It's over.

Nothing you think or say makes any difference.

It doesn't matter anymore. It mattered 4 years ago. Not anymore.
The Bernie Madoff scam went on for decades before collapsing. Are you saying crypto is safe now?

I'm still trying to wrap my head around BTC and ETH transaction costs inflating to the moon. Neither BTC or ETH are viable as payment systems so we see ETH being the first to move to PoS which is untried, untested and unknown.

What is decided?
A concept was introduced. Somebody decided to go with it. A play was made. It caught on. It picked up steam. It spawned a plethora of copycats. People bought it. People bought them. Merchants adapted. Payment systems are adapting. Governments are auctioning seized cryptocurrency. That is acceptance. Acceptance is all you need to make a belief real enough to matter.

The play was successful. One of them will win out in the next crisis (probably not the over inflated one). And the world will change. Most likely for the worse. I think it's too much to expect there to be some utopian vision at the root of it all. Roots seek sustenance above all.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."
qwertyjazz
Posts: 1923
Joined: Tue Feb 23, 2016 4:24 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by qwertyjazz »

almostretired1965 wrote: Mon May 03, 2021 6:40 pm While I don't completely disagree with you, I have yet to see a really plausible story for an important problem that crypto can solve unless you are a criminal. It is a fact that ALL of the money that is being made today is based on speculation. Now, might there be something coming that will prove me wrong, sure ........, but as far as I can see, it is mostly if not entirely based on a hope and a prayer. Now you can make a lot of money speculating, IF you know when to get out and are not the guy left holding the bag, but I'm not a professional trader ......

A
qwertyjazz wrote: Mon Apr 26, 2021 7:34 pm 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.
I have not invested in Bitcoin. I find it far too risky to invest in an early technology that has not found a use yet. I just disagree with not calling it an investment.
G.E. Box "All models are wrong, but some are useful."
Hustlinghustling
Posts: 287
Joined: Mon Jul 25, 2016 12:09 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Hustlinghustling »

Williams57 wrote: Mon May 03, 2021 7:46 pm
Hustlinghustling wrote: Mon May 03, 2021 7:40 pm
watchnerd wrote: Mon May 03, 2021 7:36 pm
Hustlinghustling wrote: Mon May 03, 2021 7:29 pm
watchnerd wrote: Mon May 03, 2021 7:05 pm

I agree it has value for pathological currency regimes.

The trick is how that avoids the same problems that crop up in those situations with existing black / grey market economies.

Yes, you can buy essential goods in Venezuela with USD on the black / gray market, but there is hefty mark up.

If I'm a baby formula smuggler in Venezuela, I'm not sure the mark up (my profit margin) is going to be much less if you pay me in crypto.
probably not that different as USD cash, but another option to the mix and still better than the alternative

just as recent example, in Hong Kong, some have had their bank accounts and assets frozen for supporting democracy protests there (probably the expected position of many Americans?). not giving an opinion on the issue, but crypto provides alternatives and has obvious value here

not to mention capital controls circumvention for wealthy chinese has propped up prices the world over for “IRR producing” assets like real estate. but also “speculative” assets like art, watches, fine wine/whisky, and industries such as gambling and insurance have had a HUGE spikes to their business as a channel for getting money out of the country. crypto is another tool in that box ... to dismiss this aspect as no value would be also missing the vast sums of money this massive capital influx has brought into all those other industries and perhaps should similarly discount this demand in valuing those companies, to be consistent
???

I said...right up there ^^^ ...."I agree it has value for pathological currency regimes".
Sorry, a general comment for the "no value" crowd. That while it may be "no value" to the average American currently, it may simply be a vantage point issue and not seeing significant price drivers occurring outside our bias


Yep. Imagine being a grown woman with no opportunity or right to open a bank account. Or being a persecuted sexual minority. Or a discriminated ethnic minority. Et etc. The criminal government does not want to protect their rights nor their assets.
I’m not making a political point but simply illustrating with a thought experiment here.

Imagine the Biden administration were chase down and freeze the assets and bank accounts for everyone they found at the capitol riots.

Or if Trump did the same for those with Black Lives Matter

This kind of stuff happens elsewhere and certainly then, people would be less inclined to say “crypto only has value for criminals”
Last edited by Hustlinghustling on Mon May 03, 2021 11:57 pm, edited 1 time in total.
bogledogle
Posts: 515
Joined: Wed May 07, 2014 4:34 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by bogledogle »

watchnerd wrote: Mon May 03, 2021 9:40 pm
typical.investor wrote: Mon May 03, 2021 9:37 pm What is decided?
That eventually quantum, or other advances in computing, will be able to crack any cryptographic currency made in the first 20 years of the 21st century.

Gold may have the last laugh as a store of value 100 years from now.
.
.
.
.
.
(unless all those asteroids finally get mined and space gold makes it all collapse in price)
or if someone figures out alchemy soon enough :happy
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Hustlinghustling wrote: Mon May 03, 2021 11:48 pm

I’m not making a political point but simply illustrating with a thought experiment here.

Imagine the Biden administration were chase down and freeze the assets and bank accounts for everyone they found at the capitol riots.

Or if Trump did the same for participants of Black Lives Matter demonstrations

This kind of stuff happens elsewhere and certainly then, people would be less inclined to say “crypto only has value for criminals”

If a / any government wants you bad enough to freeze your assets, you're screwed no matter what.

Having crypto isn't going to save you. Good luck getting to your wallet when they seize your phone.

They'll just bag you up to jail and give you your lawyer call. Or not, in some regimes.

And you could get the same benefit from a pile of gold coins buried in your back yard.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Hustlinghustling
Posts: 287
Joined: Mon Jul 25, 2016 12:09 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Hustlinghustling »

watchnerd wrote: Mon May 03, 2021 11:57 pm
Hustlinghustling wrote: Mon May 03, 2021 11:48 pm

I’m not making a political point but simply illustrating with a thought experiment here.

Imagine the Biden administration were chase down and freeze the assets and bank accounts for everyone they found at the capitol riots.

Or if Trump did the same for participants of Black Lives Matter demonstrations

This kind of stuff happens elsewhere and certainly then, people would be less inclined to say “crypto only has value for criminals”

If a / any government wants you bad enough to freeze your assets, you're screwed no matter what.

Having crypto isn't going to save you. Good luck getting to your wallet when they seize your phone.

They'll just bag you up to jail and give you your lawyer call. Or not, in some regimes.

And you could get the same benefit from a pile of gold coins buried in your back yard.
Well that's precisely the premise being tested. And not all governments are created equal. But also why the main risk to this space will always be political.
Not to mention those gold coins would be mighty heavy and noticeable carrying across a border.
Last edited by Hustlinghustling on Tue May 04, 2021 12:07 am, edited 1 time in total.
txhill
Posts: 392
Joined: Tue Mar 16, 2021 12:27 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by txhill »

Hustlinghustling wrote: Tue May 04, 2021 12:05 am
watchnerd wrote: Mon May 03, 2021 11:57 pm
Hustlinghustling wrote: Mon May 03, 2021 11:48 pm

I’m not making a political point but simply illustrating with a thought experiment here.

Imagine the Biden administration were chase down and freeze the assets and bank accounts for everyone they found at the capitol riots.

Or if Trump did the same for participants of Black Lives Matter demonstrations

This kind of stuff happens elsewhere and certainly then, people would be less inclined to say “crypto only has value for criminals”

If a / any government wants you bad enough to freeze your assets, you're screwed no matter what.

Having crypto isn't going to save you. Good luck getting to your wallet when they seize your phone.

They'll just bag you up to jail and give you your lawyer call. Or not, in some regimes.

And you could get the same benefit from a pile of gold coins buried in your back yard.
Well that's precisely the premise being tested. And not all governments are created equal.
Not to mention those gold coins would be mighty heavy and noticeable carrying across a border.
Yeah I tend to think crypto is far more portable than gold. Just memorize 12 words and recreate the wallet once you've gotten across the border.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Hustlinghustling wrote: Tue May 04, 2021 12:05 am
Well that's precisely the premise being tested. And not all governments are created equal. But also why the main risk to this space will always be political.
Not to mention those gold coins would be mighty heavy and noticeable carrying across a border.
Oh, I have time to run away to another country?

And how is it that crypto prevents me from getting caught at the airport or border crossing after the authorities tell the airport and border security people I'm a flight risk?
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Hustlinghustling
Posts: 287
Joined: Mon Jul 25, 2016 12:09 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Hustlinghustling »

watchnerd wrote: Tue May 04, 2021 12:13 am
Hustlinghustling wrote: Tue May 04, 2021 12:05 am
Well that's precisely the premise being tested. And not all governments are created equal. But also why the main risk to this space will always be political.
Not to mention those gold coins would be mighty heavy and noticeable carrying across a border.
Oh, I have time to run away to another country?

And how is it that crypto prevents me from getting caught at the airport or border crossing after the authorities tell the airport and border security people I'm a flight risk?
Are we writing a screenplay now? Regardless, give it a bit more thought if you're not seeing any usefulness but the point is made and I'm not going to do a play by play. But this disconnect to an American's day to day life is also why I think there is a lot of misunderstanding to crypto demand globally.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

Hustlinghustling wrote: Tue May 04, 2021 12:17 am
Are we writing a screenplay now? Regardless, give it a bit more thought if you're not seeing any usefulness but the point is made and I'm not going to do a play by play. But this disconnect to an American's day to day life is also why I think there is a lot of misunderstanding to crypto demand globally.
I'm just not buying the idea that crypto is going to save anyone's butt if they really want you.

It could be plenty useful for all sorts of less extreme scenarios.

But if they really want to black van you, they will.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Hustlinghustling
Posts: 287
Joined: Mon Jul 25, 2016 12:09 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Hustlinghustling »

watchnerd wrote: Tue May 04, 2021 12:22 am
It could be plenty useful for all sorts of less extreme scenarios.
Yes, like Chinese capital flight. Which has propped up many other sectors too.
Prahasaurus
Posts: 845
Joined: Fri Mar 29, 2019 1:02 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Prahasaurus »

OohLaLa wrote: Mon May 03, 2021 2:13 pm I take a lot from Praha's posts, but there is one recurring thing that bothers me: the statements about 10-20% interest from lending on Aave being equal in safety to bonds. I think it's extremely misleading. The risks are numerous:
- the collateral that is being touted as a safety mechanism is of low quality, as it's extremely volatile. In fact, Aave seem to recognize this and frame their operation as one in "overcollateralization". It can cause default with a simple drawdown in the value of the coin used as collateral. It can also allow for excessive leverage, if the collateral appreciates and unlocks further margin.
- the borrower's financial health is strictly unknown, unlike that of bonds or loans at traditional institutions. There is no KYC to assess the viability of a loan.
- there is an insurance pool at Aave (small, IMO, at 275 million or so) but I am not sure if it covers massive defaults (house of cards situation).

....

Oh, crypto is going to get the %#%! regulated out of it. One can't live in La-La-Land thinking this will stay the same forever. It's just a question of time, as governments are slow to take comprehensive measures (complete framework instead of precisions here and there), relative to any tech and practical developments.

....

Why would I pay 10% for a loan, all while putting collateral higher than the principal, when I can just get 2.5% without collateral at a trusted bank? The idea that it's all poor, unbanked people or people with poor credit, who can't access normal loans, is just an assumption. There is zero proof to this, and, seeing the prohibitive fees, I would posit that the bulk is speculators increasing their bets.
1 - Types of collateral accepted by Aave vary, from wBTC (basically Bitcoin, but the "wrapped" version that is ERC-20 compliant and hence works on the Ethereum network), ETH, USDC (dollar stable coin), USDT (the infamous Tether we heard so much about here at one time, now all is quiet), sUSD (Synthetix's synthetic USD), REN, the AAVE token itself, etc. The collateralization ratio you need to maintain varies by asset. So for more speculative assets, your ratio is higher. They measure and adjust this regularly. See here for data on riskiness of each asset (and hence collaterilzation requirements) from February: https://docs.aave.com/risk/asset-risk/risks-per-asset

And this makes sense, right? If I use USDC as collateral (a trusted stablecoin linked 1:1 to the US dollar), then my collaterilzation ratio should not be as high as if I used wBTC, as Bitcoin is more volatile. And this is how the algorithm works. Also, I can combine different assets as collateral when depositing at AAVE. So if I have wBTC, ETH, and USDC there, I can use all as collateral.

Also note that borrowers are (typically) not idiots. They do not borrow at the minimum required collateralization ratio. They typically give themselves an additional buffer to avoid liquidation. Especially if they are using more volatile assets as collateral. While that does not eliminate the risk, it minimizes it. Remember, liquidations are immediate and severe, there are no phone calls to the manager... And nobody wants to "top up" their collateral, as that requires time, stress, additional fees, etc.

2 - The borrower's financial health is irrelevant at Aave, that's the point. Either he or she has the collateral or not. How many times in traditional finance have we seen a total meltdown because banks lent money to people en mass that did not deserve it? Often using fraud to justify the loans (remember the mortgage crisis?). And then of course the Fed jumps in to save the system (read: save the banks and rich lenders).

3 - Aave's safety module (what you refer to as the "insurance pool") is much greater than 275 million USD. As of today, it holds close to 2 billion USD, out of 16 billion USD in value locked in Aave smart contracts: https://app.aave.com/staking. I have all of my AAVE staked and earning interest (paid in AAVE tokens) within this module.

4 - Crypto and DeFi are a regulator's dream, once they begin to understand it. Gone are the days of auditors showing up 3 months or 1 year later to verify what the CEO and BOD are saying. In crypto world, you can follow all transactions in real time. Protocols can even be designed to confirm to regulation natively, and this can be regularly audited (the software, which is all open source).

I have no doubt that this will be an attack vector, as JP Morgan and others desperately try to hold off DeFi from destroying their business. And I have no doubt regulators are paid shills and will be saying the most ridiculous things against DeFi through ignorance. That is definitely a takeaway I have from this board. But that's ok, I'm patient. If the US decides to take a very aggressive stance against crypto, other countries will move forward and drive innovation. It's no surprise China is moving very fast to have their own digital currency, they see where this is all going. If the US tries to censor crypto, they will simply miss out.

As an aside, I do love the Schadenfreude around regulation. Those that have been screaming "Tether!" or "Chinese miners!" or "Mt Gox!" or whatever for years are now secretly hoping regulators will stop the rise of crypto through censorship.

5 - Why would you take a loan at Aave and pay 18% when you can get 2.5% from you bank? Is this a serious question? Wait until I tell you about the credit card industry, and the amount of interest they charge for short term loans! Added bonus to Aave: you have the money now, no KYC... And Aave services the crypto space. Now that space is fairly isolated from traditional finance. But those borders will start to become more and more porous in the future.

The typical Aave borrower is speculating on crypto. But as an Aave lender, what do I care? So long as I'm making 8-10% or so on my USDC deposits, they can do whatever they want (note: it's 9.84% as I write this, will likely be much more or much less tomorrow, it's variable, after all). If you think speculating on crypto is not sustainable, let me introduce you to our traditional financial system....

Why take out a USDC loan at 18% using ETH as collateral when you can just sell your ETH and use that to buy more crypto with zero leverage? Obviously because participants believe the price of ETH will rise in the coming days/weeks/months, and do not want to sell it. There are also tax implications, etc. Are these rates sustainable in a bear market? Probably not. Will they fall below what I'm getting from my money market account at Vanguard? Highly doubtful.

The primary risk is smart contract risk. Aave is one of the oldest protocols with a top notch team of developers, their software is open sourced and hence I believe the risk is minimal. Not zero! But minimal. If you disagree, don't put your money there, nobody is forcing you. It's just more options for consumers, why would anyone be against that? So strange...

Bottom line is this: I'm making 8-10% on my USD deposits right now! I have seen these types of returns over the past 6 months or so on dollar deposits. Rates are set by supply and demand. If demand diminishes and rates plummet, I will reevaluate. I can remove my USDC anytime, takes about 2 minutes. I don't need to call the manager, I don't need to explain why I'm moving 6 figures out of my account, I don't need to wait "3 working days," or whatever.

By the way, I'm also curious how the bond market in crypto will play out. And it's something I believe every open-minded Boglehead should follow closely, as it will provide more options to Bogleheads in the future (you agree more options are a good thing, right?). The project I'm monitoring closely is BarnBridge ($BOND): https://barnbridge.com

But this space is just too new now, I would not commit significant money at this time. I'm comfortable with Aave because of its history, I would need to see the same from newer projects like BarnBridge.

I also expect to see under collateralized loans hit DeFi eventually. But this will likely require partnerships with traditional finance. Again, my vision for this space is traditional and "crypto" apps start to blend, similar to what we saw with the development of the internet ("brick and mortar" versus "internet" companies, a distinction now that makes little sense).

Of course I don't know how it will all play out, but I do know crypto will be a major part of our financial system in the future, and my money is allocated accordingly. Just like it was hard to see how the internet would develop in the early 90's, but eventually it consumed everything. Who thought in the early 90's that all of our telephony or gaming or "TV" would be consumed over the internet? Same for crypto. I'm sure had this Bogleheads forum existed in the early 90's, most would be posting about how Amazon is so over valued, and only a "fool" would wait 2-3 days to receive a book when you could just drive 10 minutes to your local mall and purchase that book right away...
Asset Allocation: VT
User avatar
HomerJ
Posts: 16414
Joined: Fri Jun 06, 2008 12:50 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by HomerJ »

Prahasaurus wrote: Tue May 04, 2021 1:08 am4 - Crypto and DeFi are a regulator's dream, once they begin to understand it. Gone are the days of auditors showing up 3 months or 1 year later to verify what the CEO and BOD are saying. In crypto world, you can follow all transactions in real time. Protocols can even be designed to confirm to regulation natively, and this can be regularly audited (the software, which is all open source).
This is the first thing you've said that could be useful, if it's done right. That's interesting.
5 - Why would you take a loan at Aave and pay 18% when you can get 2.5% from you bank? Is this a serious question? Wait until I tell you about the credit card industry, and the amount of interest they charge for short term loans!
Yes, it's a serious question because YOU brought up loans for cars and houses. No one is putting down $50,000 collateral in bitcoin to take out a 18% loan to buy a $25,000 car when they can get a 2.5% loan from the bank with no collateral.
The typical Aave borrower is speculating on crypto.
Precisely.
But as an Aave lender, what do I care? So long as I'm making 8-10% or so on my USDC deposits, they can do whatever they want.

Why take out a USDC loan at 18% using ETH as collateral when you can just sell your ETH and use that to buy more crypto with zero leverage? Obviously because participants believe the price of ETH will rise in the coming days/weeks/months, and do not want to sell it. There are also tax implications, etc. Are these rates sustainable in a bear market? Probably not. Will they fall below what I'm getting from my money market account at Vanguard? Highly doubtful.
Here, you've completely lost track of the real risk. You care as a lender because if bitcoin (or whatever) crashes fast enough, there will be margin calls as AAVE liquidates collateral, which will cause the price to crash faster, which will cause more margin calls, which will cause the price to crash even faster and so on.

You absolutely could lose principal. You might even lose everything you have at AAVE. The fact the people are taking loans to buy even more crypto absolutely should concern you. Leverage on top of leverage. That never ends well in a crash. It's not drop 50%, then come back in a few years, it's drop 50%, and you lose 100% because people were betting more than they actually had.

And right now, that's all the crypto world is. No normal finance yet. Right now, it's just a giant trading game with a ton of risk.

Maybe it will all work, maybe it will continue to grow into normal finance and actually be useful to normal people. Ethereum has some possible uses.

But you act like the biggest risk is that your interest payments might get smaller. No, the real risk is you might lose all your money.
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.”
Hustlinghustling
Posts: 287
Joined: Mon Jul 25, 2016 12:09 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Hustlinghustling »

HomerJ wrote: Tue May 04, 2021 2:24 am
You absolutely could lose principal. You might even lose everything you have at AAVE. The fact the people are taking loans to buy even more crypto absolutely should concern you. Leverage on top of leverage.
Many are in fact borrowing to go SHORT on a specific crypto, as expected for any actively traded market. Big part of the demand driving such high interest rates is because borrowing is essential to get the short exposure. The overcollateralized structure mirrors the institutional stock lending market for equity short selling
Last edited by Hustlinghustling on Tue May 04, 2021 4:28 am, edited 1 time in total.
Prahasaurus
Posts: 845
Joined: Fri Mar 29, 2019 1:02 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Prahasaurus »

HomerJ wrote: Tue May 04, 2021 2:24 am Here, you've completely lost track of the real risk. You care as a lender because if bitcoin (or whatever) crashes fast enough, there will be margin calls as AAVE liquidates collateral, which will cause the price to crash faster, which will cause more margin calls, which will cause the price to crash even faster and so on.

You absolutely could lose principal. You might even lose everything you have at AAVE...
70% of my crypto portfolio is in two assets: ETH and BTC. All of my BTC is in a hardware wallet. All but 32 of my ETH are in a hardware wallet. The 32 ETH are locked in a validator, earning interest. I will eventually lock another 32 ETH in a validator, making that total 64, and I suppose that does increase the risk slightly (although I believe the risk is negligible). But the rest are quite safe, with the only risk being standard price risk (the price of BTC or ETH could fall, obviously). However, as a long term investor, I'm not too worried about short term price fluctuations. And I have zero debt and cash in a traditional bank to cover expenses for 2 years or so.

Only around 5% of my crypto portfolio is in $AAVE. Another 5% or so is earning interest at AAVE (mainly in USDC). So that risk is manageable. The remaining 20% of my portfolio is in small and mid cap projects. I've been cutting back on some positions and moving that to cash, not reinvesting. I will continue to move to cash throughout 2021 as the situation dictates. Some of that will end up in USDC at AAVE, more will end up at Vanguard to go into my standard portfolio.

You can't say I've "completely lost track of the real risk" without seeing the big picture. Of course having a large % of my total portfolio in crypto is risky without a doubt, I just strongly believe the reward justifies that risk. Time will tell.
Asset Allocation: VT
Gadget
Posts: 700
Joined: Fri Mar 17, 2017 1:38 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Gadget »

HomerJ wrote: Tue May 04, 2021 2:24 am
Prahasaurus wrote: Tue May 04, 2021 1:08 am4 - Crypto and DeFi are a regulator's dream, once they begin to understand it. Gone are the days of auditors showing up 3 months or 1 year later to verify what the CEO and BOD are saying. In crypto world, you can follow all transactions in real time. Protocols can even be designed to confirm to regulation natively, and this can be regularly audited (the software, which is all open source).
This is the first thing you've said that could be useful, if it's done right. That's interesting.
Not just regulators. Places like the FBI.

People keep saying crypto is only useful for illegal purposes. But when something is on the blockchain, it's there forever.

When the FBI took down the silk road people on BTC, there were 2 dirty agents if I remember the story correctly. I can't find the article, but the lead federal investigator had a fascinating interview on the topic. The BTC blockchain not only helped them track all the silk road assets for the people they arrested, but helped catch 2 dirty Feds. She said in her interview that when they first started investigating, it seemed like something impossible and out of a movie script. But since all transactions on the blockchain are permanent, they were eventually able to catch the dirty feds too in the midst of their giant silk road crackdown. And she said all of this was only possible because of the blockchain.

Granted, there is crypto like Monero that is supposedly truly anonymous. I'm guessing it's what today's smarter criminals use. The FBI probably prefers everyone thinks BTC and ETH, etc are anonymous too. Companies like Palantir are already working with the government to catch tax cheats in crypto for the IRS, and who knows what else.
User avatar
HomerJ
Posts: 16414
Joined: Fri Jun 06, 2008 12:50 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by HomerJ »

Prahasaurus wrote: Tue May 04, 2021 4:20 am
HomerJ wrote: Tue May 04, 2021 2:24 am Here, you've completely lost track of the real risk. You care as a lender because if bitcoin (or whatever) crashes fast enough, there will be margin calls as AAVE liquidates collateral, which will cause the price to crash faster, which will cause more margin calls, which will cause the price to crash even faster and so on.

You absolutely could lose principal. You might even lose everything you have at AAVE...
70% of my crypto portfolio is in two assets: ETH and BTC. All of my BTC is in a hardware wallet. All but 32 of my ETH are in a hardware wallet. The 32 ETH are locked in a validator, earning interest. I will eventually lock another 32 ETH in a validator, making that total 64, and I suppose that does increase the risk slightly (although I believe the risk is negligible). But the rest are quite safe, with the only risk being standard price risk (the price of BTC or ETH could fall, obviously). However, as a long term investor, I'm not too worried about short term price fluctuations. And I have zero debt and cash in a traditional bank to cover expenses for 2 years or so.

Only around 5% of my crypto portfolio is in $AAVE. Another 5% or so is earning interest at AAVE (mainly in USDC). So that risk is manageable. The remaining 20% of my portfolio is in small and mid cap projects. I've been cutting back on some positions and moving that to cash, not reinvesting. I will continue to move to cash throughout 2021 as the situation dictates. Some of that will end up in USDC at AAVE, more will end up at Vanguard to go into my standard portfolio.

You can't say I've "completely lost track of the real risk" without seeing the big picture. Of course having a large % of my total portfolio in crypto is risky without a doubt, I just strongly believe the reward justifies that risk. Time will tell.
I wasn't talking about your personal allocation or your personal risk.

I was talking about your continual representation of lending money to others speculating on crypto as being low-risk, which is false.

This is very similar to the housing crash and near financial panic of 2008, where lenders "didn't care" what the borrowers did with the money, even if they bought houses they couldn't afford, because the borrowers assumed the housing market would only keep going up.

Exactly like crypto speculators. It all keeps working as long as prices always go up.
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.”
langlands
Posts: 1009
Joined: Wed Apr 03, 2019 10:05 pm

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by langlands »

Prahasaurus wrote: Tue May 04, 2021 4:20 am
HomerJ wrote: Tue May 04, 2021 2:24 am Here, you've completely lost track of the real risk. You care as a lender because if bitcoin (or whatever) crashes fast enough, there will be margin calls as AAVE liquidates collateral, which will cause the price to crash faster, which will cause more margin calls, which will cause the price to crash even faster and so on.

You absolutely could lose principal. You might even lose everything you have at AAVE...
70% of my crypto portfolio is in two assets: ETH and BTC. All of my BTC is in a hardware wallet. All but 32 of my ETH are in a hardware wallet. The 32 ETH are locked in a validator, earning interest. I will eventually lock another 32 ETH in a validator, making that total 64, and I suppose that does increase the risk slightly (although I believe the risk is negligible). But the rest are quite safe, with the only risk being standard price risk (the price of BTC or ETH could fall, obviously). However, as a long term investor, I'm not too worried about short term price fluctuations. And I have zero debt and cash in a traditional bank to cover expenses for 2 years or so.

Only around 5% of my crypto portfolio is in $AAVE. Another 5% or so is earning interest at AAVE (mainly in USDC). So that risk is manageable. The remaining 20% of my portfolio is in small and mid cap projects. I've been cutting back on some positions and moving that to cash, not reinvesting. I will continue to move to cash throughout 2021 as the situation dictates. Some of that will end up in USDC at AAVE, more will end up at Vanguard to go into my standard portfolio.

You can't say I've "completely lost track of the real risk" without seeing the big picture. Of course having a large % of my total portfolio in crypto is risky without a doubt, I just strongly believe the reward justifies that risk. Time will tell.
Honestly, you should have emphasized more that you only had 32 ETH (which I presume is a rather small portion of your portfolio) staked and only 5% earning interest at AAVE. With the way you present DeFi lending, a naive investor might have taken you at face value and put all his crypto assets on AAVE for that easy 20% APY.

Thanks for giving us a fuller picture of how your crypto assets are actually allocated though.
User avatar
watchnerd
Posts: 8259
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by watchnerd »

langlands wrote: Tue May 04, 2021 11:12 am

Thanks for giving us a fuller picture of how your crypto assets are actually allocated though.
I should disclose, too.

Philosophically, my goal is to hold crypto at global market weight. I'm probably overweight right now, actually. And it's not nicely indexed. It's ugly.

I have ~1% in Ethereum.

I have a few grand in Litecoin leftover from a purchase circa 2018 that I should clean up at some point.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% Alts || LMP TIPS/STRIPS || RSU + ESPP
Prahasaurus
Posts: 845
Joined: Fri Mar 29, 2019 1:02 am

Re: Prove Me Wrong: Cryptocurrencies are NOT good investments

Post by Prahasaurus »

langlands wrote: Tue May 04, 2021 11:12 am
Prahasaurus wrote: Tue May 04, 2021 4:20 am
HomerJ wrote: Tue May 04, 2021 2:24 am Here, you've completely lost track of the real risk. You care as a lender because if bitcoin (or whatever) crashes fast enough, there will be margin calls as AAVE liquidates collateral, which will cause the price to crash faster, which will cause more margin calls, which will cause the price to crash even faster and so on.

You absolutely could lose principal. You might even lose everything you have at AAVE...
70% of my crypto portfolio is in two assets: ETH and BTC. All of my BTC is in a hardware wallet. All but 32 of my ETH are in a hardware wallet. The 32 ETH are locked in a validator, earning interest. I will eventually lock another 32 ETH in a validator, making that total 64, and I suppose that does increase the risk slightly (although I believe the risk is negligible). But the rest are quite safe, with the only risk being standard price risk (the price of BTC or ETH could fall, obviously). However, as a long term investor, I'm not too worried about short term price fluctuations. And I have zero debt and cash in a traditional bank to cover expenses for 2 years or so.

Only around 5% of my crypto portfolio is in $AAVE. Another 5% or so is earning interest at AAVE (mainly in USDC). So that risk is manageable. The remaining 20% of my portfolio is in small and mid cap projects. I've been cutting back on some positions and moving that to cash, not reinvesting. I will continue to move to cash throughout 2021 as the situation dictates. Some of that will end up in USDC at AAVE, more will end up at Vanguard to go into my standard portfolio.

You can't say I've "completely lost track of the real risk" without seeing the big picture. Of course having a large % of my total portfolio in crypto is risky without a doubt, I just strongly believe the reward justifies that risk. Time will tell.
Honestly, you should have emphasized more that you only had 32 ETH (which I presume is a rather small portion of your portfolio) staked and only 5% earning interest at AAVE. With the way you present DeFi lending, a naive investor might have taken you at face value and put all his crypto assets on AAVE for that easy 20% APY.

Thanks for giving us a fuller picture of how your crypto assets are actually allocated though.
43% ETH
27% BTC
7% USDC (basically cash)
23% other, almost all Ethereum based apps like AAVE, UNI, REN, SNX, etc.

I have a small % of my ETH locked in a validator.

I will say almost all of the "other" and my USDC is being put to work in DeFi, e.g. I provide liquidity, stake, run nodes, etc. But the vast majority of my crypto holdings are sitting idle for now.

One of the reasons, btw, is capital gains. I don't want any issues until I've held my BTC and ETH for at least 1 year, as I made a lot of my purchases from early 2020 through around July/August. Just "wrapping" BTC to wBTC is a grey area, with some saying it's a taxable event ("wBTC is not BTC!") and others disagreeing ("You have simply moved your asset - the same asset - from one network to another, it's not a taxable event if you move shares in Apple from one brokerage to another, and this is similar!" etc.) . I don't want to bother, I'm playing it safe and waiting. After July or so, I will be much more active in DeFi with my ETH and BTC.
Asset Allocation: VT
Post Reply