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>"Serious investing consists of buying things because the price is attractive relative to intrinsic value," he wrote. "Speculation, on the other hand, occurs wh

by apk-d 9y ago

>"Serious investing consists of buying things because the price is attractive relative to intrinsic value," he wrote. "Speculation, on the other hand, occurs when people buy something without any consideration of its underlying value or the appropriateness of its price." So basically, every currency is a pyramid scheme.

eterm 9y ago
No, not really. Most currencies have a value which can be tied to real-world value at the most reductionist via which governments accept it for tax and the stability of those governments. Bitcoin is different, not just because of the lack of government backing but also because the way it is structured meant the earlier people got into it the more bitcoins they got. (Fundamentally because mining rewards reduce over time). But that's irrelevant to fact you've missed the point of his quote, that most people buying other currencies are doing it with purpose (such as hedging) and considering their value, whereas people buying bitcoins are doing it for speculative reasons and aren't making a judgement on where they think the price of bitcoin ought to be.
- StavrosK 9y ago
  I think the price of bitcoin is hugely, immensely overvalued (because you can buy things with it at even fewer stores now than a few years ago). That doesn't mean I don't think it will be twice as overvalued in the future.
  - eterm 9y ago
    I'm not sure it is overvalued, at least in the medium term. Ransomware forces people to buy bitcoin while at the same time making the bitcoins spent unspendable (because spending them will get you caught). If you controlled all bitcoin, the way to make money with ransomware is selling your legitimate coins to people who need to buy them to fulfil their ransoms. Each ransom paid decreases the bitcoin in circulation which further puts pressure on the price. Eventually the pool of legitimate bitcoin will be tiny, but ransoms will still get paid, so the ransom demands will be smaller and smaller in bitcoin denomination. If we assume the ransoms that people are willing to pay is steady in dollar value then that will push the price of bitcoin up. There is tremendous inflationary pressure on a fragile bitcoin eco-system. It can withstand high inflation because no-one has their salaries or bills in bitcoin. Where does deflationary pressure come from? It will have bubble cycles that will bubble and pop but overall even as it gets less popular by users, the actual price can rise and rise if the currency circulates slower and slower. The last few bag-holders might have huge paper wealth before they realise there's no one left to actually buy their coins. I don't think it's a legitimate investment though, it's still a pyramid scheme by it's nature (Satoshi still owns a large proportion of all coins) and even without that investing in bitcoin is investing in cyber-terrorism and funding criminals. (Unlike the "if you download MP3s you're funding terror" bullshit this one is actually closer to the truth).
    - TeMPOraL 9y ago
      I don't understand one thing in your argument: > Ransomware forces people to buy bitcoin while at the same time making the bitcoins spent unspendable (because spending them will get you caught). There must be a way to "launder" those bitcoins, because otherwise, as a criminal, why would I want to get ransom in coins that I can't later spend on anything?
- cm2187 9y ago
  A currency has value because you can force any shop keeper to accept it as payment against some good, and in certain cases you can convert it against gold. The minute commerce doesn't accept the currency for payments and the central bank won't convert it for gold, it has become worthless, irrespective of how hard it is to make copies of the bank note. And keeping in mind very few people hold much currency. Usually you hold a deposit account, i.e. you lent to your bank. It is a low risk/low yield investment.
oculusthrift 9y ago
some currencies have the full faith and credit of the worlds most powerful government backing them. some have banana republics. And some have some fat nerd assuring you its cryptographically secure when half of the investors had their money stolen through mt gox or a hard fork of their currency.
watty 9y ago
But most currency has a set (or slowly changing) value - a dollar is a dollar. Millions of people aren't going out and buying dollar bills in hopes that more people go out and buy dollar bills so that the value quadruples.
- rsynnott 9y ago
  There are people who try to make money via currency trading, but it's very much speculation, not investment.
torbjorn 9y ago
Early adopters of technologies, platforms and financial products tend to benefit more than later adopters. Is everything a pyramid scheme? (Assuming the product or platform succeeds rather than fails)
panglott 9y ago
Government-issued currencies have an underlying value in that the government requires you to discharge your tax obligations in them. Everybody has to pay taxes. Since you have to have some, they make a fine currency as well. Moreover, because the government keeps printing currency, inflation encourages people to spend or invest it rather than hoard it. Bitcoin is deflationary, so it's better to hoard it rather than spend it.
Clubber 9y ago
The US federal government requires every business to accept US currency in all denominations. Thats why when people drop a pile of pennies on the counter, the clerk doesn't tell them to go to hell. That, in and of itself creates legitimacy of green paper rectangles with numbers on them. The concerning thing about bitcoin, and any cryptocurrency is that by nature, the larger it gets (as in total outstanding coins), the more difficult it is to create more currency through reconciliation. With traditional currencies, it's relatively easy to print money. Printing money is done mainly to keep an agreed upon healthy inflation rate of around 2%. Why this is important is when deflation happens, loans are no longer attractive because it's always better to wait because items increase in value relative to the currency. In other words, why would I borrow $1000 today when that same loan amount would buy $2000 worth of stuff next week. When people stop borrowing, it has nasty economic implications. (Money Multiplier effect and all that). That's probably a horrible explanation by me, but the short version is crypto, since it's harder to create over time leads to a natural deflation that increases over time. FWIW: I don't know a whole lot about crypto, but the things mentioned are concerning to me. I mean it might be a good time to follow the herd so to speak, as long as you know there will probably come a time when the herd runs off a cliff.
- MichaelBurge 9y ago
  > Thats why when people drop a pile of pennies on the counter, the clerk doesn't tell them to go to hell. You actually can do that. It's only "legal tender for all debts", meaning that a restaurant would be required to accept the pennies after providing service, but my local bus line(that takes payment upfront) won't let you on if you try to give them pennies. https://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx https://www.treasury.gov/resource-center/faqs/Currency/Pages... And every ecommerce site out there doesn't allow USD, but only a derivative currency convertible to USD on-demand with complex rules attached.
  - nerdponx 9y ago
    And every ecommerce site out there doesn't allow USD, but only a derivative currency convertible to USD on-demand with complex rules attached. Never heard of this. Care to elaborate? Are you just talking about PayPal?
BenoitEssiambre 9y ago
In a way, this is true which makes currencies having bad monetary policy a danger to the economy. But well managed government currencies are designed to curtail the "ponzi" aspect to them. They do this by insuring the currency loses value with time which prevents hoarding and by varying the supply and interest rates to make sure the currency is never too strong a competitor to real business investment. You don't want create a too compelling intrinsically valueless alternative to investment into real production and real economic activity because this jams the real investment markets. Currencies that are not designed to lose value over time can never be stable. Intrinsically worthless tokens engineered to have better than market risk adjusted, liquidity adjusted, real returns compared to real productive investment will always be unstable and fluctuate increasingly wildly as they get more popular. This is a result of physical limits of production. As people hoard worthless tokens, their price increases which causes more people to hoard them instead of investing in real businesses with real production capacity. This eventually causes production capacity to drop. That's right, when enough people do it, token hoarding displaces investment in businesses and factories and lowers global production capacity. This means token hoarding causes a drop in things available to buy with these tokens. Eventually there will be people who want to buy real things with their stock of tokens. The tokens will be chasing fewer goods which means prices for stuff will rise (tokens will lose value). This might happen suddenly when people with large stockpiles of tokens notice that value is dropping and that there are tons of other tokens waiting on the sideline to make it drop even further. Hoarders might rush to get rid of their stockpile all at the same time before they're worthless which will cause their fall to worthlessness. This drop will bring the tokens closer to their natural intrinsic value of zero. The cycle can then start again, such is aggregate economics. The 1920s and 1930s suffered from this type of cycle but with gold tied currencies instead of cryptocoins. It happened to a lesser extent in 2007 when western world central banks failed to keep inflation rates high enough. It's important for the world's sake to not let deflationary currencies become too popular. When savings or financial promises are insufficiently tied to future production or to accumulation of real goods, there will be disappointment when a lot of people try to exchange them for real stuff. That is true for crypto currencies as well as government currencies (that is why the system is designed to make banks invest people's money in real businesses and minimize the proportion of money that is stockpiled idly).

by apk-d 9y ago

eterm 9y ago

No, not really. Most currencies have a value which can be tied to real-world value at the most reductionist via which governments accept it for tax and the stability of those governments. Bitcoin is different, not just because of the lack of government backing but also because the way it is structured meant the earlier people got into it the more bitcoins they got. (Fundamentally because mining rewards reduce over time). But that's irrelevant to fact you've missed the point of his quote, that most people buying other currencies are doing it with purpose (such as hedging) and considering their value, whereas people buying bitcoins are doing it for speculative reasons and aren't making a judgement on where they think the price of bitcoin ought to be.

StavrosK 9y ago
I think the price of bitcoin is hugely, immensely overvalued (because you can buy things with it at even fewer stores now than a few years ago). That doesn't mean I don't think it will be twice as overvalued in the future.
- eterm 9y ago
  I'm not sure it is overvalued, at least in the medium term. Ransomware forces people to buy bitcoin while at the same time making the bitcoins spent unspendable (because spending them will get you caught). If you controlled all bitcoin, the way to make money with ransomware is selling your legitimate coins to people who need to buy them to fulfil their ransoms. Each ransom paid decreases the bitcoin in circulation which further puts pressure on the price. Eventually the pool of legitimate bitcoin will be tiny, but ransoms will still get paid, so the ransom demands will be smaller and smaller in bitcoin denomination. If we assume the ransoms that people are willing to pay is steady in dollar value then that will push the price of bitcoin up. There is tremendous inflationary pressure on a fragile bitcoin eco-system. It can withstand high inflation because no-one has their salaries or bills in bitcoin. Where does deflationary pressure come from? It will have bubble cycles that will bubble and pop but overall even as it gets less popular by users, the actual price can rise and rise if the currency circulates slower and slower. The last few bag-holders might have huge paper wealth before they realise there's no one left to actually buy their coins. I don't think it's a legitimate investment though, it's still a pyramid scheme by it's nature (Satoshi still owns a large proportion of all coins) and even without that investing in bitcoin is investing in cyber-terrorism and funding criminals. (Unlike the "if you download MP3s you're funding terror" bullshit this one is actually closer to the truth).
  - TeMPOraL 9y ago
    I don't understand one thing in your argument: > Ransomware forces people to buy bitcoin while at the same time making the bitcoins spent unspendable (because spending them will get you caught). There must be a way to "launder" those bitcoins, because otherwise, as a criminal, why would I want to get ransom in coins that I can't later spend on anything?
cm2187 9y ago
A currency has value because you can force any shop keeper to accept it as payment against some good, and in certain cases you can convert it against gold. The minute commerce doesn't accept the currency for payments and the central bank won't convert it for gold, it has become worthless, irrespective of how hard it is to make copies of the bank note. And keeping in mind very few people hold much currency. Usually you hold a deposit account, i.e. you lent to your bank. It is a low risk/low yield investment.

oculusthrift 9y ago

some currencies have the full faith and credit of the worlds most powerful government backing them. some have banana republics. And some have some fat nerd assuring you its cryptographically secure when half of the investors had their money stolen through mt gox or a hard fork of their currency.

watty 9y ago

But most currency has a set (or slowly changing) value - a dollar is a dollar. Millions of people aren't going out and buying dollar bills in hopes that more people go out and buy dollar bills so that the value quadruples.

rsynnott 9y ago
There are people who try to make money via currency trading, but it's very much speculation, not investment.

torbjorn 9y ago

Early adopters of technologies, platforms and financial products tend to benefit more than later adopters. Is everything a pyramid scheme? (Assuming the product or platform succeeds rather than fails)

panglott 9y ago

Government-issued currencies have an underlying value in that the government requires you to discharge your tax obligations in them. Everybody has to pay taxes. Since you have to have some, they make a fine currency as well. Moreover, because the government keeps printing currency, inflation encourages people to spend or invest it rather than hoard it. Bitcoin is deflationary, so it's better to hoard it rather than spend it.

Clubber 9y ago

The US federal government requires every business to accept US currency in all denominations. Thats why when people drop a pile of pennies on the counter, the clerk doesn't tell them to go to hell. That, in and of itself creates legitimacy of green paper rectangles with numbers on them. The concerning thing about bitcoin, and any cryptocurrency is that by nature, the larger it gets (as in total outstanding coins), the more difficult it is to create more currency through reconciliation. With traditional currencies, it's relatively easy to print money. Printing money is done mainly to keep an agreed upon healthy inflation rate of around 2%. Why this is important is when deflation happens, loans are no longer attractive because it's always better to wait because items increase in value relative to the currency. In other words, why would I borrow $1000 today when that same loan amount would buy $2000 worth of stuff next week. When people stop borrowing, it has nasty economic implications. (Money Multiplier effect and all that). That's probably a horrible explanation by me, but the short version is crypto, since it's harder to create over time leads to a natural deflation that increases over time. FWIW: I don't know a whole lot about crypto, but the things mentioned are concerning to me. I mean it might be a good time to follow the herd so to speak, as long as you know there will probably come a time when the herd runs off a cliff.

MichaelBurge 9y ago
> Thats why when people drop a pile of pennies on the counter, the clerk doesn't tell them to go to hell. You actually can do that. It's only "legal tender for all debts", meaning that a restaurant would be required to accept the pennies after providing service, but my local bus line(that takes payment upfront) won't let you on if you try to give them pennies. https://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx https://www.treasury.gov/resource-center/faqs/Currency/Pages... And every ecommerce site out there doesn't allow USD, but only a derivative currency convertible to USD on-demand with complex rules attached.
- nerdponx 9y ago
  And every ecommerce site out there doesn't allow USD, but only a derivative currency convertible to USD on-demand with complex rules attached. Never heard of this. Care to elaborate? Are you just talking about PayPal?

BenoitEssiambre 9y ago

In a way, this is true which makes currencies having bad monetary policy a danger to the economy. But well managed government currencies are designed to curtail the "ponzi" aspect to them. They do this by insuring the currency loses value with time which prevents hoarding and by varying the supply and interest rates to make sure the currency is never too strong a competitor to real business investment. You don't want create a too compelling intrinsically valueless alternative to investment into real production and real economic activity because this jams the real investment markets. Currencies that are not designed to lose value over time can never be stable. Intrinsically worthless tokens engineered to have better than market risk adjusted, liquidity adjusted, real returns compared to real productive investment will always be unstable and fluctuate increasingly wildly as they get more popular. This is a result of physical limits of production. As people hoard worthless tokens, their price increases which causes more people to hoard them instead of investing in real businesses with real production capacity. This eventually causes production capacity to drop. That's right, when enough people do it, token hoarding displaces investment in businesses and factories and lowers global production capacity. This means token hoarding causes a drop in things available to buy with these tokens. Eventually there will be people who want to buy real things with their stock of tokens. The tokens will be chasing fewer goods which means prices for stuff will rise (tokens will lose value). This might happen suddenly when people with large stockpiles of tokens notice that value is dropping and that there are tons of other tokens waiting on the sideline to make it drop even further. Hoarders might rush to get rid of their stockpile all at the same time before they're worthless which will cause their fall to worthlessness. This drop will bring the tokens closer to their natural intrinsic value of zero. The cycle can then start again, such is aggregate economics. The 1920s and 1930s suffered from this type of cycle but with gold tied currencies instead of cryptocoins. It happened to a lesser extent in 2007 when western world central banks failed to keep inflation rates high enough. It's important for the world's sake to not let deflationary currencies become too popular. When savings or financial promises are insufficiently tied to future production or to accumulation of real goods, there will be disappointment when a lot of people try to exchange them for real stuff. That is true for crypto currencies as well as government currencies (that is why the system is designed to make banks invest people's money in real businesses and minimize the proportion of money that is stockpiled idly).