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Your comment is pithy and likely to get downvoted, but anyone who thinks cryptocurrency is an "investment" is a fool. I have heard no reasonable explanation fr
by danhak 9y ago
Your comment is pithy and likely to get downvoted, but anyone who thinks cryptocurrency is an "investment" is a fool. I have heard no reasonable explanation from crypto enthusiasts when I ask them how they arrive at a fair valuation.
Even as a "store of value," anything this volatile is useless. Call a spade a spade: this is nothing short of pure mania and speculation. It will end poorly for the majority of people getting swept up in the hype.
- eganist 9y ago> anyone who thinks cryptocurrency is an "investment" is a fool. [...] this is nothing short of pure mania and speculation. Strictly speaking, speculation is a genuine investment strategy, but it's only appropriate for those with a high risk tolerance.
- blueprint 9y agoThen what is the definition of investment and when you speculate on the price rise of an asset what specifically are you investing in?
- vuln 9y agoPure hype. Hoping you convince more people to buy in and make loads of fake internet money.
- philipov 9y agoA reasonable definition of 'investment' involves the allocation of capital for the purpose of long-term creation of wealth in the instrument being invested in. This should be contrasted with 'speculation', which best applies to short-term strategy that merely seeks to skim alpha off the top of fluctuations in value, without regard to long-term health of the instrument.
- danhak 9y agoThe allocation of capital in anticiption of future cash flows.
- vuln 9y agoYeah that's exactly the type of people the Facebook ads and ICOs targeted. /s
- frgtpsswrdlame 9y agoStrictly speaking I can speculate that the next card in the deck is an ace. Time to invest - Hit! But the point is defining investment so widely as to include this sort of behavior just devalues the term.
- ThomPete 9y agoInvesting in financial schemes is investing by the very definition of the word.
- frgtpsswrdlame 9y agoI think a definition of investing which sees, for example, picking penny stocks as gambling and not investing is more useful. Really it's a gradient and I can't tell you where exactly to draw the line but there's a difference.
- ThomPete 9y agoThat really depends on whether the proponents are right or not.
- frgtpsswrdlame 9y agoI don't think you can define 'investing' in such a post hoc way. A winning poker hand isn't an investment, neither is a good penny stock pick.
- ThomPete 9y agoI don't have to. A financial scheme is an investment and bitcoin is more than that even if it doesn't succeed.
- frgtpsswrdlame 9y agoBut here you're just pushing a bad definition of investment off onto a bad definition of 'financial scheme.' Now we have to figure out what entails a 'financial scheme.' It seems to me that taking my money and putting it on black could be called a financial scheme so we still haven't gotten anywhere in what is and isn't an investment, unless you don't believe in a distinction between gambling and investment.
- jeffdavis 9y agoSpeculating on a commodity is making an estimate of future demand, and buying now, which has multiple perfectly reasonable benefits: 1. Takes some of the commodity off the market, saving it for the later spike in demand. 2. Promotes more aggressive investment now to hopefully provide more supply later. Those benefits offer grounding for the speculation. You can do some calculations to see how well those things might pay off, and make a bid based on that imperfect information. I don't see how that applies very well to any pure "store of value" like a cryptocurrency. How big the spike in demand will be has no bound on the error. Maybe when cryptocurrencies become a medium of exchange it would make more sense.
- blueprint 9y agoAn asset cannot be an investment. You make investments in things through an action. And speculating on something, by itself, does not qualify as an investment.
- dsacco 9y ago> And speculating on something, by itself, does not qualify as an investment. Yes it does. For example, venture capitalists are investors, and they engage in high risk speculation.
- deleted 9y ago[deleted]
- vuln 9y agoDo venture capitalists invest in something based upon a Facebook ad? Probably not. The cryptocurrency hype targeted the unknowledgeable with a blatant 'get rich scheme' worse than state sponsored lottery.
- dsacco 9y agoI don't disagree with you, I just dislike when the term "investment" is narrowed so as to preclude high risk speculation. Even university endowments and pension funds have speculative investments.
- paulgb 9y agoAesthetically I agree that I don't like the word "invest" applied to crypto-currencies but I think it's a subjective judgement. People can invest in the work of a young artist, and I don't have a problem with the word "invest" in that case, so where can we draw the line?
- vthallam 9y agoThat's a big blanket statement that it will end badly. Sure people will realize that most of the altcoins are a scam, but Bitcoin, Ethereum & few others will survive.
- elmar 9y agoA way to value crypto assets http://www.jsfour.com/value-crypto-assets/ http://www.jsfour.com/value-crypto-assets/ TL;DR - Bitcoin is an energy arbitrage.
- IntronExon 9y agoEntropy arbitrage. Edit: You might as well try to assign a value to gold based on how much you spent on picks and hammers.
- AnimalMuppet 9y agoOver time, the price of gold is based on how much people spend on picks and hammers. More generally, it's based on the cost of extraction. That sets the price for the (new) supply curve. (There is also a supply curve from people who hold it being willing to sell it at the right price.)
- IntronExon 9y agoThe price of gold is set by what people will pay for gold, the cost of extraction is only tenuously linked. In short, you have it backwards. http://www.lbma.org.uk/assets/blog/alchemist_articles/Alch75OConnor.pdf http://www.lbma.org.uk/assets/blog/alchemist_articles/Alch75...
- fwdpropaganda 9y agoHow does this value Bitcoin? It only says that if BTC price is above a certain value, a riskless opportunity for profit exists by doing "energy arbitrage". You can not use this reasoning to set the BTC price. Or am I missing the point?
- elmar 9y ago"Using the “what goes into it” valuing method, the value captured by each Bitcoin would be the cost of the mining hardware and the energy used before the number is guessed correctly." the biggest factor is energy cost and because of this it's a big energy arbitrage.
- ThomPete 9y agoThat's not how it works. The degree of volatility has nothing to do with whether it's an investment or not. The fair evaluation is what the market decides just like any other exchange out there. Bitcoin might very well fail but financial schemes are also investments.
- danhak 9y ago> The degree of volatility has nothing to do with whether it's an investment or not You’re right, and that wasn’t my assertion. My assertion was that it makes it an absurdly poor “store of value.”