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Why you can’t cash out pt 3: Bitcoin is not a Ponzi! It just works like one

44 points by davidgerard 9y ago

gruez 9y ago
title: Why you can’t cash out pt 3: Bitcoin is not a Ponzi! It just works like one but if you're cashing out, doesn't that mean you already made your money? cashing out is completely orthogonal to actually making money. at least your first two posts were at least vaguely related to "cashing out" . >This makes Bitcoin a zero-sum investment >This is, again, why “market cap” is a misleading and useless number. If someone bought a fraction of a bitcoin at $19,000 per BTC, that doesn’t make anyone else a “Bitcoin billionaire” whose bitcoins could be sold at $19,000 each — the total actual money recoverable from the system hasn’t gone up. so basically, just like any asset?
- davidgerard 9y ago
  You shouldn't expect not to be the bag holder; statistically, you will. Most people are simply not going to be able to cash out at anything other than a massive loss, and this is important and worth saying. Perhaps I'm missing something, but I'm failing to see what's unclear about this ... > so basically, just like any asset? The difference being that if you buy all of a stock, you've bought a company, an enterprise that exists. Also, non-penny-stocks tend to have rather fatter order books than any crypto (even Bitcoin). Think of it like this: what was the market cap of Beanie Babies in July 1999? Let's keep it to "investment grade" Beanies, per the jargon Beanie speculators were using. Where did all that value go?? Answer: nowhere, it was illusory.
  - gruez 9y ago
    sorry, asset isn't the right word here. "commodities" (ie. goods) is a better description.
    - davidgerard 9y ago
      Beanie Babies in 1999 are as good an example - I think they're a much more comparable example than any "commodities". If I pay $1000 for a particular Beanie, that doesn't mean someone with 1000 Beanies should expect the book value of their holding can be realised. I'm saying that Bitcoins in a bubble work much the same way. That is, not like "any asset", but like any speculative investment in the mania phase of a huge asset bubble. It feels like you're going out of your way to try not to understand this ...
      - arisAlexis 9y ago
        beanie babies did not include an important innovation. i wonder how people can make this unfortunate comparison
        charlesdm 9y ago
        They haven't done proper research. There are various reasons to like and not to like crypto. Prices might have probably gotten ahead of themselves, but they do have value. Here is one example for store of value: how much wealth is held offshore globally? Around $32tn. Why is this held offshore? The wealthy want money secured abroad that can't be easily seized by any government -- especially if you have interests around the globe. You don't put all of your eggs in one basket. Oh wait, that sort of sounds like a perfect use case for crypto.
        evgen 9y ago
        Do you actually believe that there is some set of bank vaults out there in random islands and offshore principalities that are stuffed full of $32tn in cash and gold? No, the money leaves those offshore locations just as soon as it arrives and returns to places like the US and Europe to be invested in conventional assets that can appreciate in value or return dividends. The money is only secured by the willingness of the offshore entities to hide its ownership, it is not actually in those countries.
        chrisorm 9y ago
- phaser 9y ago
  for me, anyone who understand Bitcoin as "investment" is a sucker. The value of bitcoin is orthogonal to it's function as digital cash system. If Bitcoin drops to 0.001 we can still use it to make transactions in software. My prediction is that atomic swaps and lightning networks will reinforce the position of Bitcoin as a technology tool and crypto "Investors" will have wasted lots of money and time watching stupid graphs and "market caps" when the price adjusts to the real cost of mining and securing the coins.
  - gizmo686 9y ago
    What is the "real" cost of mining? The way Bitcoin is set up, the cost of mining is proportional to the security of the network from a 51% attack. However, there is no force that anchors this cost to the actual level of security needed; so the cost of mining could become arbitrarily high; and all we would have to show for it is an unnecessarily secure network. The block rewards also provide a lower bound for the (Bitcoin denominated) cost of mining and (until they resolve the congestion issues), the auction based transaction fees add to this lower bound.
arisAlexis 9y ago
this is a very misinformed hate article. first of all you can buy a bunch of things with bitcoim even microsoft services. second you can very easily cash out whatever you want unless you are talking of dozens of millions which yes will drive the market down a bit.third it is starting to be recognised as currency in many parts of the world. usa treats it as an asset class too (cboe,cme anyone?). the problem with cryptocurrency is that it created a lot of fanatics against it and that's usually mainly people that hate it that they missed out or sold very early.
- Waterluvian 9y ago
  Links to MS stuff you can buy? I thought the vendors all jumped ship because of volatility and fee costs.
  - arisAlexis 9y ago
    just because you are lazy and negative I did the googling for you https://support.microsoft.com/en-us/help/13942/microsoft-account-add-money-with-bitcoin https://support.microsoft.com/en-us/help/13942/microsoft-acc...
- kls 9y ago
  His same argument hold true for stock, everyone cannot cash out at once. So if it is a siren call for bitcoin, then why not for stocks? If everyone wants to convert from stock X to USD and no one wants to exchange USD to stock X is it not the same issue? How does the fundamentals of stock make it different? The bearish on crypto-currencies will argue that the stock has a fundamental value backed by a company but many market crashes have shown us that in reality that is just faith and that when there is a run to the exists the fundamentals of a stock do not matter. The same could be said for futures but even more so.
  - hartator 9y ago
    You get dividends from stock.
Viliam1234 9y ago
Dude, if I offer to buy your Bitcoins now for 1% of their market price, will you stop writing about how you can't cash them out? I mean, if they have no value, then 1% of the market price is a generous offer you should not refuse.

44 points by davidgerard 9y ago

title: Why you can’t cash out pt 3: Bitcoin is not a Ponzi! It just works like one but if you're cashing out, doesn't that mean you already made your money? cashing out is completely orthogonal to actually making money. at least your first two posts were at least vaguely related to "cashing out" . >This makes Bitcoin a zero-sum investment >This is, again, why “market cap” is a misleading and useless number. If someone bought a fraction of a bitcoin at $19,000 per BTC, that doesn’t make anyone else a “Bitcoin billionaire” whose bitcoins could be sold at $19,000 each — the total actual money recoverable from the system hasn’t gone up. so basically, just like any asset?

davidgerard 9y ago
You shouldn't expect not to be the bag holder; statistically, you will. Most people are simply not going to be able to cash out at anything other than a massive loss, and this is important and worth saying. Perhaps I'm missing something, but I'm failing to see what's unclear about this ... > so basically, just like any asset? The difference being that if you buy all of a stock, you've bought a company, an enterprise that exists. Also, non-penny-stocks tend to have rather fatter order books than any crypto (even Bitcoin). Think of it like this: what was the market cap of Beanie Babies in July 1999? Let's keep it to "investment grade" Beanies, per the jargon Beanie speculators were using. Where did all that value go?? Answer: nowhere, it was illusory.
- gruez 9y ago
  sorry, asset isn't the right word here. "commodities" (ie. goods) is a better description.
  - davidgerard 9y ago
    Beanie Babies in 1999 are as good an example - I think they're a much more comparable example than any "commodities". If I pay $1000 for a particular Beanie, that doesn't mean someone with 1000 Beanies should expect the book value of their holding can be realised. I'm saying that Bitcoins in a bubble work much the same way. That is, not like "any asset", but like any speculative investment in the mania phase of a huge asset bubble. It feels like you're going out of your way to try not to understand this ...
    - arisAlexis 9y ago
      beanie babies did not include an important innovation. i wonder how people can make this unfortunate comparison
      - charlesdm 9y ago
        They haven't done proper research. There are various reasons to like and not to like crypto. Prices might have probably gotten ahead of themselves, but they do have value. Here is one example for store of value: how much wealth is held offshore globally? Around $32tn. Why is this held offshore? The wealthy want money secured abroad that can't be easily seized by any government -- especially if you have interests around the globe. You don't put all of your eggs in one basket. Oh wait, that sort of sounds like a perfect use case for crypto.
        evgen 9y ago
        Do you actually believe that there is some set of bank vaults out there in random islands and offshore principalities that are stuffed full of $32tn in cash and gold? No, the money leaves those offshore locations just as soon as it arrives and returns to places like the US and Europe to be invested in conventional assets that can appreciate in value or return dividends. The money is only secured by the willingness of the offshore entities to hide its ownership, it is not actually in those countries.
      - chrisorm 9y ago
phaser 9y ago
for me, anyone who understand Bitcoin as "investment" is a sucker. The value of bitcoin is orthogonal to it's function as digital cash system. If Bitcoin drops to 0.001 we can still use it to make transactions in software. My prediction is that atomic swaps and lightning networks will reinforce the position of Bitcoin as a technology tool and crypto "Investors" will have wasted lots of money and time watching stupid graphs and "market caps" when the price adjusts to the real cost of mining and securing the coins.
- gizmo686 9y ago
  What is the "real" cost of mining? The way Bitcoin is set up, the cost of mining is proportional to the security of the network from a 51% attack. However, there is no force that anchors this cost to the actual level of security needed; so the cost of mining could become arbitrarily high; and all we would have to show for it is an unnecessarily secure network. The block rewards also provide a lower bound for the (Bitcoin denominated) cost of mining and (until they resolve the congestion issues), the auction based transaction fees add to this lower bound.

arisAlexis 9y ago

this is a very misinformed hate article. first of all you can buy a bunch of things with bitcoim even microsoft services. second you can very easily cash out whatever you want unless you are talking of dozens of millions which yes will drive the market down a bit.third it is starting to be recognised as currency in many parts of the world. usa treats it as an asset class too (cboe,cme anyone?). the problem with cryptocurrency is that it created a lot of fanatics against it and that's usually mainly people that hate it that they missed out or sold very early.

Waterluvian 9y ago
Links to MS stuff you can buy? I thought the vendors all jumped ship because of volatility and fee costs.
- arisAlexis 9y ago
  just because you are lazy and negative I did the googling for you https://support.microsoft.com/en-us/help/13942/microsoft-account-add-money-with-bitcoin https://support.microsoft.com/en-us/help/13942/microsoft-acc...
kls 9y ago
His same argument hold true for stock, everyone cannot cash out at once. So if it is a siren call for bitcoin, then why not for stocks? If everyone wants to convert from stock X to USD and no one wants to exchange USD to stock X is it not the same issue? How does the fundamentals of stock make it different? The bearish on crypto-currencies will argue that the stock has a fundamental value backed by a company but many market crashes have shown us that in reality that is just faith and that when there is a run to the exists the fundamentals of a stock do not matter. The same could be said for futures but even more so.
- hartator 9y ago
  You get dividends from stock.

Viliam1234 9y ago

Dude, if I offer to buy your Bitcoins now for 1% of their market price, will you stop writing about how you can't cash them out? I mean, if they have no value, then 1% of the market price is a generous offer you should not refuse.