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Naive speculators are buying cryptocurrencies on their credit cards without understanding the volatility https://www.bloomberg.com/news/articles/2018-01-11/bitc

Naive speculators are buying cryptocurrencies on their credit cards without understanding the volatility https://www.bloomberg.com/news/articles/2018-01-11/bitcoin-buyers-turn-to-credit-cards-as-fomo-breeds-risk-taking https://www.bloomberg.com/news/articles/2018-01-11/bitcoin-b...

matwood 9y ago
How much I think is key here. I'll try and find the article from late 2017 but it said that most crypto buyers invested ~3k or less. A large portion of BTC is concentrated in fewer than 1k people. What this means is that for most people when crypto crashes, it sucks but will simply be a cool story. This isn't .com or the housing bubble where many people's lives were ruined. Of course with the craze, the stats could have changed over the last few months.
- deleted 9y ago
  [deleted]
- vertex-four 9y ago
  The question is whether people have invested a significant amount of their life savings in bitcoin, not whether they own a significant amount of bitcoin proportional to the total market. For people who have, they may be panicking about how they'll support themselves in their later years, they may have invested in a lifestyle with the expectation that they can pay for it with Bitcoin's growth, and so on and so forth. People's lives may be ruined by this - they've often essentially been scammed into investing in cryptocurrency because they cannot understand the risks. If a financial adviser were promoting bitcoin to most people, it'd be illegal. I don't think it's fair to say this is OK because it won't affect people you know.
  - matwood 9y ago
    The stats were not just people I know. One of the coin sites pulled them together. If 3k is a significant amount of someone's life savings, then they should not have put in BTC. Proportional to the total market is important because it puts into perspective how few people will really be impacted, and if it is something that could spread into the economy as a whole. Found the stats: https://coinspectator.com/news/127996/survey-finds-average-bitcoin-investment-under-3k-most-plan-to-own-less-than-3-years https://coinspectator.com/news/127996/survey-finds-average-b...
    - vertex-four 9y ago
      > If 3k is a significant amount of someone's life savings, then they should not have put in BTC. No, they shouldn't have. But many people don't actually understand what a high-risk market is, and especially not one as volatile as Bitcoin. They've heard their cousin/friend/waiter made a couple thousand bucks off it, done some googling, and found several thousand people saying this is the next big thing, with fancy graphs and miracle use cases and so on and so forth to prove it. Big well-known news sources like Bloomberg talking about it, and how big well-known investment banks are interested in it. This is the end result of what lack of regulation looks like. People get bamboozled - similar to many scams, you might get tricked into losing a couple of hundred bucks and calling it a life lesson, or you might get scammed into losing your life savings and winding up in severe debt. A few people (and it's more than a few) being impacted enough to cause them to be extremely worried about how they'll pay their bills, how they'll afford to keep a roof over their head in their later years, is important. It's maybe not as important to you as widespread economic collapse, but it's nothing to pretend isn't an issue. The comment you were originally replying to wasn't talking about economic collapse - it was talking about the impact on individual people.
    - saalweachter 9y ago
      > If 3k is a significant amount of someone's life savings, then they should not have put in BTC. Is that an appeal to consequences or did you have a different point?
- wslh 9y ago
  Beyond the concentration, there are a lot of millionaries out there. Much more than 1k. I always tell that I know more crypto-millionaries than startup ones.
  - dsacco 9y ago
    And how many members do you know of each, in absolute terms?
    - wslh 9y ago
      What matters is the ratio: 1 to 10 only thinking about the closest ones.
      - dsacco 9y ago
        Sure, but a 1000% higher likelihood is close to meaningless if we’re talking about extremely tiny fractions in absolute terms. For example, a substance that increases your baseline risk of some type of cancer from 0.000003% to 0.00003% is basically imperceptible in a population of 300M people. That’s 90 incidents instead of 9 incidents out of the entire United States. You don’t have to tell me exact figures for how many people you personally know in each category, but my point is that if both figures are sufficiently small in absolute terms then the example is meaningless.
        wslh 9y ago
        Your analysis is wrong. Startups and crypto investments can be seen as bets and a 10x increase in favor of you is a lot. And you are not taking into account the effort factor: startups are hard while storing some cryptoassets works even when you sleep. Not saying this will work forever, just saying that many people found it lucky to enjoy the momentum.
        dsacco 9y ago
        > Your analysis is wrong. Startups and crypto investments can be seen as bets and a 10x increase in favor of you is a lot. So you think a 1000% increase in likelihood to win the lottery is meaningful? I’m not saying a 1000% increase is insignificant relatively speaking. I’m saying that in the absolute context, it can be essentially meaningless. Which circles back to my point: you should add an absolute context to your numbers instead of just saying you know more cryptocurrency millionaires than startup millionaires.
JumpCrisscross 9y ago
> Naive speculators The problem with this characterization is when enough people lose their shirts on leveraged crypto purchases, a problem of individual finances becomes one of collective policy. I'd be careful with dismissing the problem as one contained to the stupid. There was a thread on the front page, earlier, where multiple commentators were equated the odds of a massive and permanent Bitcoin crash with that of a meteor impacting the earth [1]. Multiple people honestly could not imagine how Bitcoin could possibly become absolutely worthless. These are otherwise-reasonable people who, through a combination of misinformation and FOMO, got involved in something over their heads. Korea may be at the point where a 50% sustained drawdown plunges a significant fraction of the population into hardship. That, in turn, could trigger a recession. In case it needs to be said, now is not a good time for the Seoul to plunge into a financial and political crisis. I've gone from finding this Bitcoin fascinating, to being cautiously weary, to being outright dismissive, to becoming worried about systemic risks. [1] https://news.ycombinator.com/item?id=16160346 https://news.ycombinator.com/item?id=16160346
- dahdum 9y ago
  > Korea may already be at the point where a 50% sustained drawdown plunges a significant fraction of the population into hardship. That, in turn, could trigger a recession. That seems unlikely. Something like 2M of 51M people have any crypto there, and only a small fraction would be overextended significantly. Anyone buying a couple months ago would still be up.
  - JumpCrisscross 9y ago
    > Something like 2M of 51M people have any crypto there, and only a small fraction would be overextended significantly How do you know that? For traditional securities, we have margin and prudential lending rules. These systems aren't perfect. But they incorporate lessons from crises past. One of those lessons is about how system risk can grow exponentially unexpectedly quickly.
    - justrobert 9y ago
danibx 9y ago
Not everyone that buys with credit card does so because they don't have money. Many people do this because this is the fastest way to move money to an exchange. Wire transfers to exchanges sometimes wait for weeks before they are confirmed.
- pishpash 9y ago
  No public, known, good investment suddenly becomes a bad investment in a few weeks, unless something terrible happens in between.
  - semi-extrinsic 9y ago
    You must not have held gold in October of 1997. Price had been stable for years, then it dropped 13% in two months on no specific underlying news. There's tons of examples like this.
saas_co_de 9y ago
The same people would probably be recklessly borrowing money to gamble and waste on other worthless crap if bitcoin wasn't around so I don't think bitcoin is really an exceptional thing here. Just a run-of-the-mill scam and run-of-the-mill stupid people. However, those people will be demanding government intervention when their money is gone, so get ready for the regulatory party! Pretty safe to predict that bitcoin will the the Bernie Madoff of this business cycle.
jstarfish 9y ago
Not true, it's a very savvy move. You're gambling with someone else's money-- credit card debt can be discharged in bankruptcy. You don't lose your house or your shirt, and the only real consequence is poor credit for a few years. And if bitcoin goes up? Pay it off, keep the profits...you still win.
- celticninja 9y ago
  In a bankruptcy that was for personal debt such as credit cards surely your house as an asset can be sold in the event of a bankruptcy?
  - Phlarp 9y ago
    Perfect play for the van dwelling SV crowd (or renters anywhere). What are they going to put a lien on when the most expensive thing you own is a macbook pro?
  - jstarfish 9y ago
    Not if it's your primary residence. Your summer home or a rental property, sure.
    - celticninja 9y ago
      Where is this? In the UK and from what I could see in the US it would be included.
      - jstarfish 9y ago
        The US, through the provisions of the bankruptcy homestead exemption. Though having just looked into it again, they only allow you to retain up to a certain amount of equity in your primary residence-- anything more than that (or other properties you own) is considered an asset that can be leveraged to pay back your debts, as you suggest. So someone with a cheap house or little equity could still Bain Capital themselves with Bitcoin, declare bankruptcy and start over while avoiding homelessness. But if you're 90% of the way through a half-million-dollar mortgage then yeah you'll have a lien placed on the property. http://www.alllaw.com/articles/nolo/bankruptcy/homestead-exemption.html http://www.alllaw.com/articles/nolo/bankruptcy/homestead-exe...
celticninja 9y ago
I took out a loan to buy bitcoin. I got a $10k loan in 2013, the loan was paid off in 2015. I have taken out considerably more in profit than I invested and still have most of my bitcoins. Prior to that I had bought bitcoin when it was very cheap ($3-$5) and sold it because I needed money to buy a house, once the house purchase was completed I took out the loan to buy back in. Also, at least here in the UK it is possible to arrange credit card debt to be 0% so not every investor who uses a loan or credit card to purchase btc is naive.

matwood 9y ago

How much I think is key here. I'll try and find the article from late 2017 but it said that most crypto buyers invested ~3k or less. A large portion of BTC is concentrated in fewer than 1k people. What this means is that for most people when crypto crashes, it sucks but will simply be a cool story. This isn't .com or the housing bubble where many people's lives were ruined. Of course with the craze, the stats could have changed over the last few months.

deleted 9y ago
[deleted]
vertex-four 9y ago
The question is whether people have invested a significant amount of their life savings in bitcoin, not whether they own a significant amount of bitcoin proportional to the total market. For people who have, they may be panicking about how they'll support themselves in their later years, they may have invested in a lifestyle with the expectation that they can pay for it with Bitcoin's growth, and so on and so forth. People's lives may be ruined by this - they've often essentially been scammed into investing in cryptocurrency because they cannot understand the risks. If a financial adviser were promoting bitcoin to most people, it'd be illegal. I don't think it's fair to say this is OK because it won't affect people you know.
- matwood 9y ago
  The stats were not just people I know. One of the coin sites pulled them together. If 3k is a significant amount of someone's life savings, then they should not have put in BTC. Proportional to the total market is important because it puts into perspective how few people will really be impacted, and if it is something that could spread into the economy as a whole. Found the stats: https://coinspectator.com/news/127996/survey-finds-average-bitcoin-investment-under-3k-most-plan-to-own-less-than-3-years https://coinspectator.com/news/127996/survey-finds-average-b...
  - vertex-four 9y ago
    > If 3k is a significant amount of someone's life savings, then they should not have put in BTC. No, they shouldn't have. But many people don't actually understand what a high-risk market is, and especially not one as volatile as Bitcoin. They've heard their cousin/friend/waiter made a couple thousand bucks off it, done some googling, and found several thousand people saying this is the next big thing, with fancy graphs and miracle use cases and so on and so forth to prove it. Big well-known news sources like Bloomberg talking about it, and how big well-known investment banks are interested in it. This is the end result of what lack of regulation looks like. People get bamboozled - similar to many scams, you might get tricked into losing a couple of hundred bucks and calling it a life lesson, or you might get scammed into losing your life savings and winding up in severe debt. A few people (and it's more than a few) being impacted enough to cause them to be extremely worried about how they'll pay their bills, how they'll afford to keep a roof over their head in their later years, is important. It's maybe not as important to you as widespread economic collapse, but it's nothing to pretend isn't an issue. The comment you were originally replying to wasn't talking about economic collapse - it was talking about the impact on individual people.
  - saalweachter 9y ago
    > If 3k is a significant amount of someone's life savings, then they should not have put in BTC. Is that an appeal to consequences or did you have a different point?
wslh 9y ago
Beyond the concentration, there are a lot of millionaries out there. Much more than 1k. I always tell that I know more crypto-millionaries than startup ones.
- dsacco 9y ago
  And how many members do you know of each, in absolute terms?
  - wslh 9y ago
    What matters is the ratio: 1 to 10 only thinking about the closest ones.
    - dsacco 9y ago
      Sure, but a 1000% higher likelihood is close to meaningless if we’re talking about extremely tiny fractions in absolute terms. For example, a substance that increases your baseline risk of some type of cancer from 0.000003% to 0.00003% is basically imperceptible in a population of 300M people. That’s 90 incidents instead of 9 incidents out of the entire United States. You don’t have to tell me exact figures for how many people you personally know in each category, but my point is that if both figures are sufficiently small in absolute terms then the example is meaningless.
      - wslh 9y ago
        Your analysis is wrong. Startups and crypto investments can be seen as bets and a 10x increase in favor of you is a lot. And you are not taking into account the effort factor: startups are hard while storing some cryptoassets works even when you sleep. Not saying this will work forever, just saying that many people found it lucky to enjoy the momentum.
        dsacco 9y ago
        > Your analysis is wrong. Startups and crypto investments can be seen as bets and a 10x increase in favor of you is a lot. So you think a 1000% increase in likelihood to win the lottery is meaningful? I’m not saying a 1000% increase is insignificant relatively speaking. I’m saying that in the absolute context, it can be essentially meaningless. Which circles back to my point: you should add an absolute context to your numbers instead of just saying you know more cryptocurrency millionaires than startup millionaires.

JumpCrisscross 9y ago

> Naive speculators The problem with this characterization is when enough people lose their shirts on leveraged crypto purchases, a problem of individual finances becomes one of collective policy. I'd be careful with dismissing the problem as one contained to the stupid. There was a thread on the front page, earlier, where multiple commentators were equated the odds of a massive and permanent Bitcoin crash with that of a meteor impacting the earth [1]. Multiple people honestly could not imagine how Bitcoin could possibly become absolutely worthless. These are otherwise-reasonable people who, through a combination of misinformation and FOMO, got involved in something over their heads. Korea may be at the point where a 50% sustained drawdown plunges a significant fraction of the population into hardship. That, in turn, could trigger a recession. In case it needs to be said, now is not a good time for the Seoul to plunge into a financial and political crisis. I've gone from finding this Bitcoin fascinating, to being cautiously weary, to being outright dismissive, to becoming worried about systemic risks. [1] https://news.ycombinator.com/item?id=16160346 https://news.ycombinator.com/item?id=16160346

dahdum 9y ago
> Korea may already be at the point where a 50% sustained drawdown plunges a significant fraction of the population into hardship. That, in turn, could trigger a recession. That seems unlikely. Something like 2M of 51M people have any crypto there, and only a small fraction would be overextended significantly. Anyone buying a couple months ago would still be up.
- JumpCrisscross 9y ago
  > Something like 2M of 51M people have any crypto there, and only a small fraction would be overextended significantly How do you know that? For traditional securities, we have margin and prudential lending rules. These systems aren't perfect. But they incorporate lessons from crises past. One of those lessons is about how system risk can grow exponentially unexpectedly quickly.
  - justrobert 9y ago

danibx 9y ago

Not everyone that buys with credit card does so because they don't have money. Many people do this because this is the fastest way to move money to an exchange. Wire transfers to exchanges sometimes wait for weeks before they are confirmed.

pishpash 9y ago
No public, known, good investment suddenly becomes a bad investment in a few weeks, unless something terrible happens in between.
- semi-extrinsic 9y ago
  You must not have held gold in October of 1997. Price had been stable for years, then it dropped 13% in two months on no specific underlying news. There's tons of examples like this.

saas_co_de 9y ago

The same people would probably be recklessly borrowing money to gamble and waste on other worthless crap if bitcoin wasn't around so I don't think bitcoin is really an exceptional thing here. Just a run-of-the-mill scam and run-of-the-mill stupid people. However, those people will be demanding government intervention when their money is gone, so get ready for the regulatory party! Pretty safe to predict that bitcoin will the the Bernie Madoff of this business cycle.

jstarfish 9y ago

Not true, it's a very savvy move. You're gambling with someone else's money-- credit card debt can be discharged in bankruptcy. You don't lose your house or your shirt, and the only real consequence is poor credit for a few years. And if bitcoin goes up? Pay it off, keep the profits...you still win.

celticninja 9y ago
In a bankruptcy that was for personal debt such as credit cards surely your house as an asset can be sold in the event of a bankruptcy?
- Phlarp 9y ago
  Perfect play for the van dwelling SV crowd (or renters anywhere). What are they going to put a lien on when the most expensive thing you own is a macbook pro?
- jstarfish 9y ago
  Not if it's your primary residence. Your summer home or a rental property, sure.
  - celticninja 9y ago
    Where is this? In the UK and from what I could see in the US it would be included.
    - jstarfish 9y ago
      The US, through the provisions of the bankruptcy homestead exemption. Though having just looked into it again, they only allow you to retain up to a certain amount of equity in your primary residence-- anything more than that (or other properties you own) is considered an asset that can be leveraged to pay back your debts, as you suggest. So someone with a cheap house or little equity could still Bain Capital themselves with Bitcoin, declare bankruptcy and start over while avoiding homelessness. But if you're 90% of the way through a half-million-dollar mortgage then yeah you'll have a lien placed on the property. http://www.alllaw.com/articles/nolo/bankruptcy/homestead-exemption.html http://www.alllaw.com/articles/nolo/bankruptcy/homestead-exe...

celticninja 9y ago

I took out a loan to buy bitcoin. I got a $10k loan in 2013, the loan was paid off in 2015. I have taken out considerably more in profit than I invested and still have most of my bitcoins. Prior to that I had bought bitcoin when it was very cheap ($3-$5) and sold it because I needed money to buy a house, once the house purchase was completed I took out the loan to buy back in. Also, at least here in the UK it is possible to arrange credit card debt to be 0% so not every investor who uses a loan or credit card to purchase btc is naive.