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The optimistic scenario is that Bitcoin becomes a currency like cash or a store of value like gold, in which case it will be valued in the trillions. Somewhat

by s17n 9y ago

The optimistic scenario is that Bitcoin becomes a currency like cash or a store of value like gold, in which case it will be valued in the trillions. Somewhat conservatively let's say that the market cap in these scenarios is $2 trillion USD. At today's ~200B market cap, this implies the market is giving 10 to 1 odds that bitcoin is going to zero. Not sure how any of this is on its face "irrational".

aaavl2821 9y ago
the irrational part is 1) an overestimation of the likelihood of bitcoin becoming worth $2 trillion in a reasonable timeframe (1 in 10 odds of that happening!?) and 2) underweighting the value of large changes in low probability levels: based on the above back of the envelope math, you ascribe 10 to 1 odds of bitcoin failing. the math that supports that is so imprecise as to be almost nonexistent, but the details are important: if the odds of it succeeding were 1%, or 0.1%, would you still invest? what evidence do you have that this number should be 10 to 1 rather than one of the above? have you given any thought to this, or to what probability of failure would make you get out of bitcoin? have you thought through the likelihood that one of the binary scenarios you describe doesnt actually happen, but in fact that a gray area wins out: for example, bitcoin may continue to exist as it does now, as a fringe speculative asset class with vaguely defined but high potential. it may stabilize into the go-to currency for money laundering, funding illegal activities, etc. it may serve as a stable currency for a subset of the digital economy that just likes the libertarian appeal of bitcoin. if you look at where bitcoin is now, and try to draw a straight line to the future, it seems to me that youd intersect one of these scenarios rather. if you havent thought these things through, but still invest, you are being irrational edit: maths
- s17n 9y ago
  If the odds of success are anything less than .1, then buying at the current price is a bad idea. I agree with you that the odds are in fact less than .1 but it's just a guess - if somebody else thinks it's .5, well, who am I to say that they're wrong. Pretty much any investment thesis involves guesswork at some point. That doesn't make investing irrational.

by s17n 9y ago

aaavl2821 9y ago

the irrational part is 1) an overestimation of the likelihood of bitcoin becoming worth $2 trillion in a reasonable timeframe (1 in 10 odds of that happening!?) and 2) underweighting the value of large changes in low probability levels: based on the above back of the envelope math, you ascribe 10 to 1 odds of bitcoin failing. the math that supports that is so imprecise as to be almost nonexistent, but the details are important: if the odds of it succeeding were 1%, or 0.1%, would you still invest? what evidence do you have that this number should be 10 to 1 rather than one of the above? have you given any thought to this, or to what probability of failure would make you get out of bitcoin? have you thought through the likelihood that one of the binary scenarios you describe doesnt actually happen, but in fact that a gray area wins out: for example, bitcoin may continue to exist as it does now, as a fringe speculative asset class with vaguely defined but high potential. it may stabilize into the go-to currency for money laundering, funding illegal activities, etc. it may serve as a stable currency for a subset of the digital economy that just likes the libertarian appeal of bitcoin. if you look at where bitcoin is now, and try to draw a straight line to the future, it seems to me that youd intersect one of these scenarios rather. if you havent thought these things through, but still invest, you are being irrational edit: maths

s17n 9y ago
If the odds of success are anything less than .1, then buying at the current price is a bad idea. I agree with you that the odds are in fact less than .1 but it's just a guess - if somebody else thinks it's .5, well, who am I to say that they're wrong. Pretty much any investment thesis involves guesswork at some point. That doesn't make investing irrational.