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Bitcoin (and other cryptos) do have real uses for which there is real demand. My worry is that the current price has substantially outpaced the support that tho
by cjlars 9y ago
Bitcoin (and other cryptos) do have real uses for which there is real demand. My worry is that the current price has substantially outpaced the support that those uses offer.
Let's go over some of the things that make up bitcoin's price:
-You can make legal retail transactions -- a very small portion of transfers, but legitimate. This is a 'regular money' use.
-Make large 'wire' transfers for less than it would cost through your bank. Totally legitimate and valuable in my opinion. This is a 'Regular money' use.
-There are future expectations of bitcoin expanding the above two points. Supports the 'regular money' points above.
-You can use bitcoin to (illegally) move money out of countries like China, which is now being cracked down on. This is a black market money / money laundering use.
-Use as a speculation instrument. Valuable in a way, but only bullish on net because it is supported by the above services. This can be done with 'regular money', but speculative financial instruments are primarily assets and not regular money.
There are many others, but those are the big ones I know about. The issue is that it appears the price is 80%+ speculation, 15% capital flight, and maybe only 5% of the demand for the asset is based on the traditional 'regular money' uses... What this means is that once the speculative support moves from net positive, to net negative (meaning, once Bitcoin gets a widespread reputation as being a dog) things start to go downhill hard.
Of course my estimates above are very loose, and in the future the expansion of bitcoin into a far larger mainstream uses case could overpower all of them, but either my estimates above need to be off (and they may be) or we need to see large scale adoption of bitcoin for legitimate uses at some point (also a maybe).
- codewithcheese 9y agoThe most important uses in mind are that you can use Bitcoin to hedge against your own currency and as a way to diversify your portfolio in the same way you might hold stocks, bonds, cash and gold.
- nwah1 9y agoYou don't hedge a stable currency with a volatile currency.
- jobeirne 9y agoStable according to whom? Check out all that stability in Venezeula.
- cjlars 9y agoThat's not quite true, the underlying volatility doesn't matter as long as the position sizes (as part of a basket of currencies) are correct and the relationships between the currencies are well understood.
- nnfy 9y agoI dont know why you're being down voted. You can diversify into high and low risk assets. Btc is a valid but high risk asset, with a future that one could at least rationally make a case for.
- nwah1 9y agoHedging is about reducing risk. You can definitely argue that people shouldn't keep all their wealth stashed as dollar bills under their mattress, and that they should diversify. Indeed, absolutely nobody advocates doing that. Everyone says to diversify, except for goldbugs and bitcoin extremists. The question of whether it would be a good idea diversifying in that direction is still unanswered, as there's plenty of real productive assets to invest in that contribute tangible goods and services to the world. When people are in a frenzy bidding up the prices of things that aren't providing goods and services to anyone, then you should worry.
- mrb 9y agoWho said stable? Many fiat currencies are unstable and/or have very high inflation: https://en.wikipedia.org/wiki/List_of_countries_by_inflation_rate https://en.wikipedia.org/wiki/List_of_countries_by_inflation...
- nwah1 9y agoBitcoin has larger price fluctuations than any country on that list, except Venezuela.
- nwah1 9y agoI understand that people are interested in avoiding legal restrictions, although a fully transparent ledger might not be the best way to do that. Can you show some price comparisons for transfers? Your other points are worthless without those two being true.
- cjlars 9y agoWell I think it runs about $5 to prioritize a bitcoin transfer at this point (mentioned elsewhere in the thread). If you want to do a traditional wire, which takes about 2 hours to process, it runs $25 at most financial institutions.
- nwah1 9y agoYou can send money via paypal to friends basically instantly, without any fees. How is that not better in every way?
- cjlars 9y agoWhen you're conducting business?
- nwah1 9y agoFor business you can use checks, but the speed is much worse, obviously, even with Same Day ACH arriving. Paypal seller fees are quite steep, that is true, but I assume mainly that is when they are accepting credit cards. Sometimes that is simply pushed to consumers. Paying your rent by credit card always costs extra, but that is because of the risk of default. But you can always pay your rent online by ACH without a fee.
- aianus 9y agoPayPal charges 2.5%+ if your friend is in a different country using a different currency, if their country is supported at all. And Lord help you if the amount is 'too large' or if they think it's actually a business transaction or if any other of their fraud filters are triggered. It could be 6 months before either of you see that money again.
- deleted 9y ago[deleted]
- basseq 9y agoThe contrarian view is that the blockchain can make transactions and transfers cheaper, faster, and easier to validate in any currency. I don't need bitcoin to do any of that.
- cjlars 9y agoCurious what investment strategy that would lead you to... If your bullish on blockchain but bearish on bitcoin, you're looking at, what, Ripple?
- s3xham 9y agoRipple is chainless. Ripple actually has the potential to scale beyond 10 minute block intervals; the speed of light, potentially a true interplanetary settlement network.
- basseq 9y agoI wasn't thinking in terms of investment strategy, but fair point given the original article. My real answer would channel Buffett and be to not invest in something I don't fully understand (or, more precisely, not invest in something I don't have an advantage in). Forced into a corner, I'd invest in firms who are exploiting the technology, like financial institutions, blue-chip tech companies, or consulting companies who implement same.
- lmm 9y agoBlockchain relies entirely on the value of bitcoin for its functionality. If bitcoin goes to zero, everyone stops mining and blockchain ceases to work.
- gamerDude 9y agoJust to expand on the 'wire' transfers. It can also be used to transfer money overseas without tax.
- cjlars 9y agoThis is what I was trying to get at with the China point. If you're avoiding taxes, you can bet goverments will try to crack down on you. My whole thesis, btw, assumes that legal uses would dominate illegal uses in terms of transactional value.
- stock_toaster 9y agoIn addition to avoiding taxes and enabling easier wealth expatriation, cyrpto-currencies are also apparently being used to avoid international sanctions (eg. North Korea).
- AndrewKemendo 9y agoWhich is a liability. Going around the major governmental funding mechanism is a great way to get attention you don't want.
- moretai 9y agoSorry if this has been pounded to death, but where can people read up on Bitcoin? I heard of that Andreas Antonopoulos, but first impression he feels kind of sales pitchy.
- lmm 9y agoYou've omitted buying drugs and the like from your list. Like it or not that's a substantial use case.
- cjlars 9y agoFair point. I think general black market retail transactions probably should have been added above.
- mrb 9y agoOn that subject, the proportion of black market Bitcoin transactions is decreasing: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2808762 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2808762 «...a third stage marked by a sharp progression away from “sin” and toward legitimate enterprises.»
- nxsynonym 9y agoI don't really understand this argument in general. Let's not pretend that drugs aren't already being bought with regular cash. Bitcoin may make it harder to track who is paying for what, but it's not like it brought on a drug-buying renaissance.
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- celticninja 9y agoI have bought way more drugs with fiat than I have ever done with bitcoin.
- corpMaverick 9y agoGenuinely curious. Given that the hardest part of a kidnapping is retrieving the money. Is it possible that Bitcoin is facilitating that ?
- prostoalex 9y ago> Make large 'wire' transfers for less than it would cost through your bank. Assuming both the sender and the recipient want to use BTC as a store of value. Otherwise there's a commission involved from BTC-to-fiat conversion at both ends of the transaction. Also, banks tend to have a flat fee on wire transfers. Assuming a $25 fee on both the sender and the recipient, sending $51 will likely be more efficient in BTC. But at some point ($5,100? $51,000? $5,100,000?) the wire transfer becomes the preferred choice.
- omarchowdhury 9y agoAlso to be noted is that BTC to fiat adds a significant counterparty risk that isn't really an issue in fiat to fiat transfers (when was the last time a bank ran away with your wire transfer?), and also one of Satoshi's cited reasons for creating Bitcoin in the first place. BTC to fiat adds a redundancy that only makes sense to add to the equation if you're doing something illegal. Otherwise, why not accept a fiat wire transfer in the first place?
- Doxin 9y agoThe important thing here is that illegal isn't the same thing as doing something bad. There's enough regimes out there where you'd want to hide certain spending patterns.
- celticninja 9y agoThere can be a commission at the end or there can be an extra % to be made. When I was buying and selling in BTC if I needed to buy or sell BTC I would trade on localbitcoins, buying at 5-10% under the market rate and selling to the market 5-10% above market rate. Further, while the transfer via the bank is usually a flat fee the bank also make a cut on the exchange rate that they charge the user, so there is a % element to consider on larger transfers.
- danmaz74 9y agoIt's not just about fees; the biggest problem is that the transaction takes time, and by the time your money reaches the other end, the value of the BTC you sent could be very different from when you sent it.