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Someone please explain this to me: How is any cryptocurrency even considered an investment vehicle? I would classify myself as Boglehead and I believe in the f

Someone please explain this to me: How is any cryptocurrency even considered an investment vehicle? I would classify myself as Boglehead and I believe in the fundamentals of investing in stocks because in all it's technicality (and given the buy-and-hold strategy), you are investing in a business by owning a part of it which naturally means that you will and do get the returns on it, both in terms of profits (dividends) and and value growth (appreciation of the stock value). And conventional wisdom of lending also applies to bonds. That being said, again, why would cryptocurrency ever be considered as a good investment vehicle? Isn't it analogous to me investing my money in buying USD or the British Pound (or a well diversified currency ETF), something I don't see a lot of value in as well.

macspoofing 6y ago
>How is any cryptocurrency even considered an investment vehicle You're right that crypto currencies are not like equities. It's an investment vehicle in a similar way that gold is considered an investment vehicle. >why would cryptocurrency ever be considered as a good investment vehicle That's another question. I don't think it's a good investment vehicle.
vocatus_gate 6y ago
I'll try to use my elevator pitch: With cryptocurrency, you're right they're not an "investment" in the traditional sense. Right now more of a long-term gamble. In my opinion the value is in the network and the ability to move money instantly (or at very least faster than traditional methods), securely, to anywhere in the world for a fraction of a cent. That ability alone is valuable and hasn't existed until now. There are other arguments along the lines of deflationary vs. inflationary, anonymous vs. private, irreversibility of transactions (no charge-backs) that are good or bad depending on your views, but in general crypto represents a brand-new "investment" (or gamble if you like) for this generation. The different cryptocurrencies that various teams are building follow different philosophies, but I think the space in general is pretty interesting.
- iamspoilt 6y ago
  Okey, calling it a "long-term gamble" only sounds fair to me. Talking about value, isn't blockchain / crypto analogous to a medium that enables moving money quickly? If yes, internet would be similar in some sense (we have instant local money transfers these days) but we don't have anything that tracks internet as an investment. Coming back to it, I can rationalize myself investing in a money transfer business that is build on blockchain (think Transferwise that uses a mix of technology and banking agreements) and generates some revenue for me. But if that middleman can be removed, I cannot suddenly start considering that piece of technology, an investment.
  - aboodman 6y ago
    Any cryptocurrency can be used to move money quickly. So if you buy a cryptocurrency, you are automatically "investing" in that "business". You don't need Transferwise. Bitcoin is the canonical example. The value investment argument for Bitcoin is that you think Bitcoin is (or will become) a good way to move money. You're buying a scarce piece of that utility. === Some cryptocurrencies additionally have other utilities. Example, ethereum can be used to write very slow, shitty software that runs on the blockchain. So far nobody has come up with a super amazing use case for this, but theoretically, if somebody did this would dramatically increase the demand for ethereum tokens - (b) above. A better example would be something like https://handshake.org/ https://handshake.org/ - a cryptocurrency that is trying to power a decentralized replacement for dns. Remains to be seen whether this can be done and will have adoption. These systems have all the problems of traditional startups, plus all the problems of low level protocol development, plus standardization problems, plus novel math. However, I hope it's easy to see the value investment argument for something like handshake: dns is valuable, dns has problems, handshake is trying to solve those problems, by buying hns tokens I'm buying a part of this network, and if they succeed demand for those tokens goes up. Hope this helps.
    - iamspoilt 6y ago
      Thanks for the input. It does put things into some perspective but I am still wondering. So something analogous to owning a part of the network, would it be correct to say that, for instance, governments own and auction telecom spectrums to businesses. They do make money out of that ownership through the initial auction price and then potentially tax you later. So a cryptocurrency could be looked at in a similar way in the future. When you later sell the currency you have owned for a while (given that it takes off well over the couple of years), you are basically transferring that "spectrum" ownership to another party.
zapdrive 6y ago
A cryptocurrency cannot be put into any traditional bracket of commodity, currency, stock etc. It's a new breed in itself. It has features of a currency, a commodity, a stock and much more.
- raziel2701 6y ago
  So is it a jack of all trades and master of none sort of thing? I still see it as a speculation tool and it's grabbing a lot of momentum. But I don't see what's so fundamentally useful about the technology unless you're interested in laundering money and/or buying illegal stuff.
  - shuntress 6y ago
    Bitcoin is a currency. The fundamentally useful thing about Bitcoin is it's proof-of-work shared ledger that allows transactions to be conducted and verified between individuals (through the shared network) independent of any third party or broker. It is the electronic equivalent of handing someone a physical coin. It is genuinely pretty neat. Any actual meaningful application of this use has yet to be realized.
    - bollu 6y ago
      > It is genuinely pretty neat. This captures my feelings exactly about BTC, thank you for phrasing it so succinctly!
- andrewmcwatters 6y ago
  Yes it can. Why can't it? It's something people want because it's value increases, and there's a limited number of it. People don't know what value to assign to it, so its price violently fluctuates. I have no idea where this thinking comes from that it's novel other than people are sold on the hype of the concept without thinking about the concept from a different angle. If we did "Bitcoin by hand" and threw out increasingly large numbers, and whoever could figure out its factors would be awarded a ticket, and lets say there's only 100 million tickets, what would be the difference? That it can't be counterfeited? That the central bank can't print more tickets? That's it? Wow, OK. You know, the counterfeiting issue isn't one that modern economies face in significant portion anymore. And if you wanted to prevent the printing of money, you could just ask your local representative to advocate for the US to go back to the gold standard. Except it doesn't work anymore. So why would it work in software?
PretzelPirate 6y ago
I think part of the confusion is the word “currency”, which implies it’s something like USD. Ethereum’s ETH token, for example, is an asset that will appreciate if demand of the Ethereum network increases for real-world business applications (not just financial payments). That makes it much more like investing in a limited resource (ex: oil) that will go up in value. It’s still speculating, but most stock investments are close enough to speculation that you can’t really tell the difference.
- deleted 6y ago
  [deleted]
- misnamed 6y ago
  Stocks are shares in profitable companies. They have risks, sure, but they also have expected returns based on sound fundamentals and a long history of generating income.
  - iamspoilt 6y ago
    Exactly my point. They add certain value to the economy and have fundamentals. From my understanding, I don't even consider Gold (a limited resource) a long-term investment.
    - fractionalhare 6y ago
      Gold is a good portfolio asset for reducing overall risk in a long term investment strategy. You can beat the market over time with less risk by holding the S&P 500 and gold and weighting each according to respective volatility. This also has a lower beta exposure than just holding stocks. Gold (and commodities more generally) have fundamentals - just different ones from equities. You can't take advantage of the universe of sound investment opportunities if you restrict your attention to equities.
      - misnamed 6y ago
        We have fairly little data on gold as a freely available modern asset class (around 50 years), but yes, in small amounts it can limit volatility and potentially even increase returns (or at least: risk-adjusted returns). That said, over the long haul, independently, it has tended to roughly track inflation. I'm not against it, just see it as something of limited utility to an ordinary investor.
bitxbitxbitcoin 6y ago
It's more analagous to buying some gold for your investment portfolio than buying a fiat currency that has its inflation under control by a central government.
- iamspoilt 6y ago
  From the school of thought that I would adhere to (Jack Bogle, Warren Buffet), Gold on its own is not an investment.
  - TigeriusKirk 6y ago
    But do you understand why other people consider it to be an investment?
  - fractionalhare 6y ago
    Not on its own, no, but the person you're responding to said buying it for an investment portfolio. That's a very compelling use for gold.
- stopyellingatme 6y ago
  This is what i came here to say. BTC isn't very good as a currency but acts as a deflationary asset over time (i.e. there is a fixed amount that can exist). I, personally, hold BTC as part of my portfolio simply because of it's ensured existence and massive upside potential. I wouldn't put a terrible amount of my net worth into it, but a small fraction may serve you well in the future. Short story. Had the chance to invest 300k in 2012 (~$10 per coin). Didn't pull the trigger. Too much net worth. However, I should have used ~10k (maybe a little more). Wouldn't be nearly as worried about $ as I am today if I was just a little more conservative on investing up front.
- shuntress 6y ago
  I basically agree with this but I just want to add that if everyone decides to increase the total amount of bitcoins or change the inflation controls in some way, that can be done. The cool thing about bitcoin is that this is a shared decision made by everyone. Ok, technically, it is made by the groups contributing the majority of compute power to the network. And technically, central governments can be representative of everyone and therefor enable that same shared decision making but that's kind of a bigger discussion. The point is, changing the network to "add more" BTC is probably much more likely than breakthrough replicator technology that can turn hydrogen atoms into gold atoms.
baron_harkonnen 6y ago
I recommend you read some of Stephen Deihl's thoughts on the subject[0]. You're not alone if you feel that cryptocurrency doesn't make sense as an investment vehicle, but the HN community will make you feel crazy for not seeing what a great thinking this is an incredible new opportunity and "things are different this time!" There is no better indication of a bubble then people telling you that you're the crazy one for questioning it. I remember people telling me I was crazy for not buying a house in 2007, and crazy for not trading tech stocks in 1999. [0] https://www.stephendiehl.com/posts/crypto.html https://www.stephendiehl.com/posts/crypto.html
- Alex3917 6y ago
  As a store of value it's better than gold in some ways, because you don't need to physically store it. But unlike gold, which can appreciate in value indefinitely, Bitcoin is mathematically capped in how much it can appreciate in value because the expected value of mining and purchasing need to go to par.
  - gruez 6y ago
    >But unlike gold, which can appreciate in value indefinitely, Bitcoin is mathematically capped in how much it can appreciate in value because the expected value of mining and purchasing need to go to par. I don't think you're using the term "appreciate in value" correctly. I think what you meant to say is that gold can be mined infinitely (on earth, in space) and therefore has potentially infinite supply, whereas the total supply of bitcoins is capped at 21 million.
- Infinitesimus 6y ago
  > There is no better indication of a bubble then people telling you that you're the crazy one for questioning it. I remember people telling me I was crazy for not buying a house in 2007, and crazy for not trading tech stocks in 1999. I'm not sure that's a good indicator with so many counter examples: the internet, large touch screen phones, Cloud in the earlier days, etc. We truly have no idea what the future if Cryptocurrencies are.
jamesmehaffey 6y ago
If you are using blockchain tokens to run an application, then you are essentially paying A large network of computer operators for their combined processing capacity. This means their electricity, maintenance cost, etc. instead of investing in servers that will be old by the end of the year. So purchasing cryptocurrency is in fact a very real investment. Think of it like an airline purchasing jet fuel three months ahead of time.
- misnamed 6y ago
  A great investment if the cost of fuel goes up, but a bad one of if it goes down. Processing power is getting cheaper and cheaper.
  - jamesmehaffey 6y ago
    It really just comes down to the idea that blockchain networks are cheaper, more secure, more reliable and more scalable than traditional server arrangements. That’s not just my opinion; most of the top tech companies are ploughing huge amounts of money into it. market investors will do what they always do, but all I know is that I would rather have a crypto wallet with some stored value than an old, inefficient server sitting in the corner.
    - misnamed 6y ago
      I mean if you're literally talking about the difference between 'buying physical servers' and 'buying Bitcoin' ... well, it seems to me you're missing out on a range of other options, like: investing in companies developing new hardware, for starters. Personally, I just lease what I need at going rates, which get ever cheaper. And by cheaper I mean: in dollar terms - so to keep up with that, I don't see the need to hold highly volatile Bitcoins when I can just hold inflation-adjusted Treasury bonds.
      - jamesmehaffey 6y ago
        Bitcoin is probably not the best case study for this aspect of the conversation, but I suppose you have a fair enough point. Although to be clear, I am thinking of the assets more like commodities than speculative stocks or equities. I do not mean to suggest that traditional servers are going to go away or become obsolete any time soon, but after you get past the cryptocurrency hype in the headlines there really is a huge amount of potential for the technology. This is definitely what long-term investors are considering and why this is even a topic here.
tekkk 6y ago
I neither can understand why it is considered as investment but I guess scarcity and how it can be exchanged anonymously and cheaply for large sums makes it lucrative. Especially if you want to avoid governments for some reason.
misnamed 6y ago
Even if you accepted it as a diversifier, all cryptos combined still have a relatively small market cap, so I don't really see the point in adding them to a stock/fixed-income portfolio. It's a bit like frontier markets: sure, they're possible to invest in, but expensive, small and won't make a big difference at market weights.
nostrademons 6y ago
It's analogous to investing money in USD or GBP before those countries were given a license to print as many USD and GBP as they wanted. Before then (1931 for the pound and 1933 for the dollar, though they maintained de-facto parity with gold until 1971), dollars and pounds were considered good investments. That's why we had bank runs: people thought their money would be safer under their mattress, and preferred to own physical currency rather than numbers in a bank's ledger. The only reason holding USD is a bad investment is because inflation is basically guaranteed: you know that a dollar will be worth less tomorrow than it will be today, because the authorities that control the dollar say so. Not so with Bitcoin: the total supply is fixed at 21M, forever, and there's no central authority with the power to change that.
- iamspoilt 6y ago
  It is fixed at 21M but technically, this can be changed through an Economic Majority [0][1]. [0] https://en.bitcoin.it/wiki/Economic_majority https://en.bitcoin.it/wiki/Economic_majority [1] https://bitcoin.stackexchange.com/questions/3945/how-could-the-bitcoin-protocol-be-changed-has-this-ever-occurred https://bitcoin.stackexchange.com/questions/3945/how-could-t...
  - hammock 6y ago
    What does this concept of Economic Majority look like of we consider it for the US Dollar, rather than btc?
    - anythingdude321 6y ago
      economic majority for the USD is the Federal Reserve Board
    - ur-whale 6y ago
      Doesn't apply. The feds control the USD and if there's one thing the fed isn't it's a democratic mechanism.
  - dehrmann 6y ago
elevenoh 6y ago
ETH for instance is used for fees in the decentralized economy (e.g. p2p lending/borrowing/investing/marketplaces). If demand for fees in the ethereum economy outpaces supply, the price is likely to rise. https://cryptofees.info/ https://cryptofees.info/ Aside: If I issue equity in my company, I'd do it directly on a decentralized network like Ethereum > IPO. I'd prefer to not have an underwriter like goldman sachs take 3%+ & manipulate retail investors.
- Spivak 6y ago
  I think your phrasing of "demand for fees" is kinda weird. Since it really comes down to "demand for validators" or "demand for compute resources on the ETH network." ETH's fundamental value is that it's the only form of payment accepted to use the eth network. It can and does have secondary value as a medium of exchange but that's what's at the bottom and the reason you need ETH opposed to something else.
  - elevenoh 6y ago
    Agree that demand for network compute/validation is more accurate than 'demand for fees'. My error.
lordnacho 6y ago
This is not a comment on crypto as such, it's more a comment on how markets work. By the time you know what you're buying, it's priced in. When everyone agrees that some opportunity is amazing, they also agree the vehicle that provides it (shares, bonds, coins, whatever) has got to be expensive. At least more expensive than when it was just ideas.
deleted 6y ago
[deleted]
didibus 6y ago
When you buy into a Crypto you're investing into the technology itself. If you believe that more and more payments will be handled through it, its value will go up, thus making it a good investment. If you take Bitcoin, there's a small pool of total Bitcoin and that's guaranteed by the technology. Each new coin costs real money to mine, due to needing physical compute resource to do so, and it gets harder and harder overtime. That means as more and more people transact in Bitcoin, the demand for Bitcoins will go up, thus your Bitcoins are going to be worth more. Similarly for Ethereum2, there's not a fixed maximum, but there are set rates and limits that affect how much new Ether per year will be added. So there's some guarantees that there's a restricted supply. So again, if you believe that more and more people will rely on its network to transact, the demand for Ether will go up, thus its value.
- diab0lic 6y ago
  > When you buy into a Crypto you're investing into the technology itself. This argument of technology + limited supply is fallacious. If the technology is so useful the coin can just be cloned with more supply. The technology itself doesn't force me to participate in a limited supply market in order to get the benefits.
  - didibus 6y ago
    > The technology itself doesn't force me to participate in a limited supply market in order to get the benefits I'm not sure what you mean here. The technology does indeed force you, that's part of it. If you want to trade in its currency, you can't cheat it and make more coins for it, the network consensus will catch you and prevent you to cheat. If the tech fails to deliver this property, nobody would trust its currency, and nobody would use it for transacting.
- overcast 6y ago
  The only thing you're investing in is the wasting of the worlds energy supply. At best it's speculative.
  - 6y ago
deeviant 6y ago
Investing is buying things that gain value over time. Bitcoin was originally worthless, now it's ~19k a coin. Anybody that bought or mined a large amount of coins back in the day and held on to them, is now rich, so a pretty good investment. The same forces that acted on bitcoin and brought it from worthless to 19k are still acting on it now. Doesn't seem like it's very difficult to understand why bitcoin is considered an investment vehicle. There are certainly good arguments for why may or may not be a poor investment vehicle or not the right one for a particular strategy, but arguments of whether it is one are moot.
brighton36 6y ago
Sign value.
bgitarts 6y ago
1) Low correlation to other markets. Any 60/40 portfolio that moved just 1% of it's allocation to Bitcoin would have produced a higher sharpe ratio (higher return, less volatility) over past 5 years. 2) Many crypto protocols are already capital assets that generate income streams. These income streams can be discounted to the present just like the income streams of companies. Examples: - Ethereum (ETH): It has multiple use cases such as collateral and gas for execution (think oil) both of which contribute to it's value as usage grows, but it's also a capital asset that can be staked and used to validate transactions to generate an income stream. This is not much different than real estate or farm land being used as a productive asset to generate returns. - MakerDAO: Protocol that generates a stablecoin (DAI) backed by debt based collateral (think mortgages against homes). The interest from minting DAI is repaid to unlock the collateral and burns (think stock buybacks) MKR. - Yearn.finance: Protocol that takes stablecoin (crypto pegged to USD) assets and generates returns across decentralized money markets. Returns have been averaging between 10%-35% APR depending on the pool and strategy. Finally consider the current macro environment. Stocks generate a stream of future income based in USD and fiat currencies. In 2020, the central banks of the major currencies have not only increased currency supply by over 50% (FED balance sheet in march was 4.3T, today 7.2T) but worked with top level governments to hand out the new printed money directly to consumers which is now money that will be hard to pull back out of the economy and they did it while GDP and economic activity has been stifled. So a larger amount of currency backed by a smaller amount of economic activity is a depreciating asset. If the return on equity of your profitable companies is smaller rate than the depreciation of the currency you have a negative real return. In order to prevent this companies may start to transact in a currency that has a deterministic monetary policy and can not be changed by the whims of a select few bureaucrats. As the most stable and longest running crypto network, Bitcoin stands to be such an asset. See Micro strategy (MSTR) and Square (SQ) moving treasury reserves into Bitcoin. The way you value Bitcoin is you estimate the amount of global GDP (140 Trillion) that will shift to transacting in it and then divide that by the velocity of money or how often it changes hands. This will tell you how large a marketcap it will have in order to support that level of economic activity. So for example if 1% of global GDP is transacted in Bitcoin and it's velocity becomes something like USD (1.5x) or the Euro, let call it a velocity of 2 then: 140 * 1% / 2 = $700 Billion marketcap.
CapriciousCptl 6y ago
I want to believe it's an investment myself, but haven't been able to-- and by sitting it out we've of course lost a lot of money in forgone gains. Where I get stuck, and maybe someone could help me here-- generally, you don't have to try to hard to imagine a future with cryptocurrency being more useful then it is today. That is, it is more valuable. BUT, why should that mean that its price should be higher? It's like looking at the pithy saying, "price is not value" in reverse.
- asdffdsa 6y ago
  Are you disagreeing with the fundamental economics argument of supply and demand? More demand assuming a constant (forecasted) supply means the price will be higher.
  - joosters 6y ago
    There's no constant supply of cryptocurrency, there are new types of coins created every day.
    - tcoff91 6y ago
      Different cryptocurrencies are not fungible. New altcoins don't increase the supply of Bitcoin. It's not like they siphon much demand from Bitcoin either. Someone discovering a huge new source of Platinum doesn't fundamentally effect supply/demand of gold.
- clarky07 6y ago
  the value of something like bitcoin is generally going to be related to the value of the network. if you can envision it being more useful in the future, consider what the function is, and what it means for the value of the network as a whole. some examples to explain what i'm saying, not necessarily what i think will happen per se bitcoin replaces, or at least augments, gold as a "store of value inflation hedge" - in theory it should be a great inflation hedge. there are a limited number of bitcoin, 21 million max, but we keep printing trillions and trillions of new dollars. gold also doesn't do anything productive, it just sits there and acts as a hedge on inflation. in this scenario, the market cap of gold is something like 8 trillion. if bitcoin takes some of this job, it's market cap must get a lot bigger. functionally, we have 8 trillion "dollars" of wealth that are currently stored in gold. if we wanted to "store" 8 trillion "dollars" of wealth in bitcoin, we can't currently. the entire market cap of bitcoin is only a few hundred billion. For it to be an inflation hedge on the scale of gold, the price has to rise tremendously. this same calculation can be done for whatever potential usefulness you come up with. Like if you think it can replace the USD as a reserve currency for setting international oil trades, the market cap of bitcoin has to get exponentially bigger just to handle the scale of those markets. now, i don't think it's likely to become the world's reserve currency, certainly not anytime soon, but if it were you can see where it would have to have more value to be able to do so. I do think it is a great inflation hedge, and I think lots of money managers are going to start recommending to client to put 1-3-5% of their portfolios into bitcoin as a hedge. That's happening right now. IF that goes mainstream, the market cap of bitcoin HAS to go up significantly to handle all that new demand, given that the supply is capped.
x87678r 6y ago
I dont understand it either. To me yes BTC supply is limited, but there are lots of cryptos so BTC is nothing special. The secret could be if lots of important and smart people are invested in BTC you have to trust that it will keep being special, and better than other cryptos. It sounds sketchy to me, but the network effect is real so there might be something in it. It seems lots of well known financial people are getting on board right now. It seems like a ponzi to me but those people aren't dumb.
- JxLS-cpgbe0 6y ago
  > It seems like a ponzi to me A Ponzi Scheme relies on a central authority, BTC by definition has none. Maybe you were trying to say "market manipulation" or "securities fraud?"
  - x87678r 6y ago
    No definitely ponzi. Maybe a central authority is in the definition for ponzi, but I think this is exactly Ponzi without a CA. The whole thing isn't fraud or manipulation because again there is no one single owner, though looking at all the junk on social media there is definitely lots of both.
    - JxLS-cpgbe0 6y ago
      > this is exactly Ponzi without a CA Which would be...not a Ponzi Scheme. What makes you say that besides "junk on social media?"
      - x87678r 6y ago
        Honestly I think BTC matches this definition - just there is no organizer. Esp the last paragraph. https://www.investor.gov/introduction-investing/investing-basics/glossary/ponzi-schemes https://www.investor.gov/introduction-investing/investing-ba...
        6y ago
umanwizard 6y ago
Bitcoin’s ambition is to become the new gold: something that has been ingrained in human culture as “money” for so long that people accept it as such by habit.
dandanua 6y ago
It shouldn't be called an investment. Investment supposed to be spent on the production of new value. Bitcoin, despite its good intentions, is a pyramid scheme — its price grows only because of newcomers. I wrote a blog post about why it's a bad "investment" — https://dandanua.github.io/posts/why-i-wouldnt-recommend-using-bitcoin-as-a-lifetime-investment/ https://dandanua.github.io/posts/why-i-wouldnt-recommend-usi...
- Osiris 6y ago
  Since there is a limited supply of Bitcoin, people are buying Bitcoin now with the hope that there will be more demand for the limited supply in the future. There is a hope that Bitcoin becomes "useful", thus driving demand. Since supply is fixed, demand causes an increase in value. So, it's a speculative "investment". I suppose whether it's an "investment" depends on your definition of "investment".
  - dandanua 6y ago
    It's useful and it has demand for its use. But most people buy it only to make a fortune. This makes it a Ponzi scheme. No contradiction here.
    - JxLS-cpgbe0 6y ago
      A Ponzi Scheme relies on a central authority, BTC has none. I think you just mean "scheme?"
      - dandanua 6y ago
        There is Satoshi's wallet in the root, no need for authority as we can see.
        JxLS-cpgbe0 6y ago
        Yes, there is need for a central authority, Charles Ponzi for example. They actively and consciously channel the funds from new, defrauded investors, to that authority. BTC is not a Ponzi Scheme ; Satoshi is not steering the profits from a pump-and-dump. Passively profiting off new investors buying BTC does not make a Ponzi Scheme. Market manipulation is not a Ponzi Scheme. A Pyramid Scheme is not a Ponzi Scheme. "Ponzi Scheme" has a real definition.
csomar 6y ago
If you think of an investment vehicle as something that creates useful infrastructure in society and collects fees to pay dividends, then no. But then, look again, we are way past that. We are pulling Gold from the grounds to hide it again in the ground. We are trading weather futures. And people are buying apartments no to rent them or use them; but just to close them and leave them empty. In this sea of non-sense economic reality, Bitcoin actually makes lots of sense.
wsc981 6y ago
I see Bitcoin as a hedge against the USD and EUR as I feel the currencies will be in trouble in the coming years. I see Bitcoin as a store of value. Keeping some of my assets in Bitcoin keeps some of my assets out of the hands of governments and banks and will not be affected by devaluation. There's no risk of a bail-in [0] for example. I don't invest all my assets in Bitcoin, currently perhaps 10% of my net worth. I do feel Bitcoin will rise to 100.000 USD in the next few years and possibly even 1.000.000 USD in 10+ years, my aim is to gain a total of at least 3 BTC or so in the next year. I just hope Bitcoin doesn't rise too quick in value in that time period, since I can only afford to buy for maybe 1.000 USD per month. I might sell a bit of my Bitcoin assets after my total Bitcoin asset value reach around 500.000 USD, since at that point I should be able to take things slow. At that point I would diversify a bit more into ETFs or stocks. Perhaps this video [1] by Raoul Pal can give you some insight in my point of view, as I agree with him on most points. --- [0]: https://www.forbes.com/sites/nathanlewis/2013/05/03/the-cyprus-bank-bail-in-is-another-crony-bankster-scam/?sh=e83ff8c26856 https://www.forbes.com/sites/nathanlewis/2013/05/03/the-cypr... [1]: https://www.youtube.com/watch?v=qL2LfVRl3J0 https://www.youtube.com/watch?v=qL2LfVRl3J0
- misnamed 6y ago
  If you want to hedge against inflation, I suggest TIPS and maybe a bit of gold. I would also point out that the market expectation clearly isn't aligned with currencies being 'in trouble' - very low inflation in general right now.
  - wsc981 6y ago
    > If you want to hedge against inflation, I suggest TIPS and maybe a bit of gold. I need to read up on TIPS, haven't heard about that before. Yes, gold is a decent option as well. However I view Bitcoin as digital gold and it has a few nice properties that gold doesn't have (of course gold has some good properties that Bitcoin doesn't have). One of the aspects of Bitcoin that I appreciate the most, is that it's very easy to carry around with me, for example when travelling on an airplane to another country. The same is not true for gold. > I would also point out that the market expectation clearly isn't aligned with currencies being 'in trouble' - very low inflation in general right now. Inflation is actually really high, but its mostly hidden in rising prices for stocks and real estate.
SilasX 6y ago
Someone please explain this to me: How is any negative-yielding bond even considered an investment vehicle? I would classify myself as a Boglehead and I believe in the fundamentals of investing in bonds because it all its technicality (and given the buy-and-hold strategy), you are indirectly lending to a government by buying its bonds, which naturally means that you will and do get returns on it, both in terms of the interest (coupon payments) and value growth (further decline in those bond yields). That being said, again, why would negative yield bonds ever be considered a good investment vehicle? Isn't it analogous to me investing in my money in a depreciating car, which will only lose value unless the car happens to have a random spurt of high demand that lets me unload it at a profit?
cocoa19 6y ago
It shouldn't be considered an investment vehicle if we follow Benjamin Graham's philosophy (father of value investment, Warren Buffet's mentor). I'd say it should be called a speculative vehicle. The word speculative carries a negative connotation, so financial companies won't make money off of bitcoin trades, so hence the name investment vehicle. It's as manipulative as the name almond milk, which is not really milk.
spir 6y ago
One answer to this question is that Ethereum will soon become a "real investment" because fees will accrue to ETH holders and the huge expense of electricity-intensive proof of work mining will be discontinued forever. Here is how it'll work - in 2021, an improvement to the Ethereum network known as EIP-1559 will launch, causing a portion of all new transaction fees to be burned/destroyed, which is effectively a "stock buyback" for ETH. This will be the first time that ETH holders receive any kind of "earnings per share". But, it's not enough: - EIP-1559 alone is not enough for ETH to be a profitable investment from a cashflow perspective. The problem is that Ethereum's proof of work mining is extremely expensive, like Bitcoin's. Ethereum will run at a "net loss" until proof of work is discontinued. - two days ago, the Ethereum v2 "beacon chain" launched after years of research and effort. This "beacon chain" is currently not used for any ethereum transactions and won't be for two years. Here is a 3rd party UI for exploring the beacon chain https://beaconcha.in/ https://beaconcha.in/ - in 2022, the main ethereum blockchain will merge with the new ethereum v2 beacon chain and proof of work mining will go away forever. The new system, proof of stake, is dramatically less expensive. It's so cheap that it's effectively free. - in 2022, with proof of stake fully live, ethereum's transaction fees will effectively accrue to ETH holders and there will be no material expenses to offset this income. The result is that ETH will become a real investment vehicle from a cashflow perspective. Learn more https://ethereum.org/en/eth2/#roadmap https://ethereum.org/en/eth2/#roadmap
- Zamicol 6y ago
  >How is any cryptocurrency even considered an investment vehicle? [...] [Y]ou are investing in a business by owning a part of it which naturally means that you will and do get the returns on it[.] That is how Ethereum works. Validators get returns from Ethereum by holding shares, i.e. ETH. Validators, after EIP-1559, will be paid with newly minted ETH and anything over the base burn fee. (Currently there is no mandatory burning of fees.) To stake in ETH 2.0 a stand alone validator needs 32 ETH (~$20,000). It reminds me of Outback's business model of requiring managers to buy in as stake holders (https://hbr.org/2005/09/a-stake-in-the-business https://hbr.org/2005/09/a-stake-in-the-business). This is before all the crazy features that can be built on top of eth-as-programmatic-money, such as lending. https://defipulse.com/ https://defipulse.com/
staplers 6y ago
Imagine your bought the rights to a tree that would later be turned into thousands of $100 bills. Bitcoin is a speculative bet that it will become a popular global currency. The idea is eventually you will be able to use the bitcoin as currency once it scales up.
cody3222 6y ago
For the same reason gold is an "investment." It's a store of value and a hedge against government controlled currencies such as the US Dollar.
shuntress 6y ago
It is exactly the same as you trading Currency-A in exchange for Currency-B.
twox2 6y ago
Pretty sure 90% of retail crypto investors are just FOMOing, but more and more people are excited by the technology and looking for creative applications. DeFi has been interesting to watch.
ur-whale 6y ago
By your reasoning, gold isn't an investment vehicle either (a rather widely-held belief, btw). Yet, a somewhat sizeable category of people still invest in gold ... Could it be that the definition of "investment vehicle" is broader that what you may have willingly restricted yourself to?
- eldaisfish 6y ago
  You logic is correct. Gold is not an investment, it is a hedge. Gold does no useful work and produced no measurable output. It's "purpose" is simply that society has assigned it a value that most people will agree to exchange for other forms of value. In exactly the same way, crypto or any fiat currency is not an investment.
  - mrlala 6y ago
    >Gold does no useful work and produced no measurable output What? Gold us physically useful and relatively scarce, THAT is why it has value. You are acting like people just got together and said "hey, let's take this useful hunk of garbage and assign it some value to see how rich we all are".
    - eldaisfish 6y ago
      >You are acting like people just got together and said "hey, let's take this useful hunk of garbage and assign it some value to see how rich we all are". Correct. Gold's value in an industrial sense is no different from any other relatively scarce material. This is precisely why gold is not an investment. Its value is simply a group of people assigning a value to something driven in part by scarcity.
cryptica 6y ago
It's not about ROI anymore. It's mostly about which asset can capture most of the newly printed fiat money now and in the future. New fiat currency is constantly being created and all assets are competing for the biggest possible chunk of that new money. The reason why crypto is doing well comes down to a contrast between monetary abundance and scarcity. Some people in this world have access to an essentially infinite supply of fiat currency at 0 risk... So fiat currency is not worth anything to these people; so if these people start buying some scarce resource, they will quickly realize that it will drive up the price of that resource ad infinitum. The only other variable is how hard people HODL the asset. If enough of these people buy up the same scarce resource, the growth of that scarce resource will outpace that of all other scarce resources.
arisAlexis 6y ago
think gold with finite supply and easily transmissible. Bogleheads approved :)
thorwasdfasdf 6y ago
I'll explain it to you in one sentence: There IS NOTHING else. There's only 4 main assets classes: 1) Equity valuations are at all time highs by nearly every objective measure out there 2) Fixed income is really vulnerable to the onslaught of inflation that looks ever more likely with all the MMT that's been going on. 3) Real Estate is a possibility but not scalable and not tax efficient and takes a great deal of skill and time to execute properly. (not counting REITs and other real estate ETFs) 4) All that leaves is commodities: Gold and Bitcoin.
JoshTko 6y ago
Bitcoin has only two core benefits, store of value, and unconditional point to point transactions. The key investment question is will people value these features more or less in the future.
vmception 6y ago
This is easy. You made an analogy to stocks and ignored the entire universe of investments and other asset classes. Doesn't that tell you all you need to know? There is a decade old meme of getting stock market gurus to comment about crypto and their sycophants repeating their predictably abysmal view of something outside of their wheelhouse. Commodities traders never had an issue and volatility is also not an issue in that market. There are no “permabulls” in commodities outside of a few rare metals, and trading in those markets primarily factors in seasonal and cyclical supply and demand. Buy and hold works ok in some crypto assets. But the permabulls that never traded anything else, and the stock market investors that keep a stock certificate their grandma gave them 20 years ago should just not be in this market. You are conflating “good” investment vehicle with “valid” investment vehicle, where its a mixture of whether being a permabull works alongside whether enough institutions that you respect have said positive things. make your own choices about what you want to trade.
acituan 6y ago
> I believe in the fundamentals of investing in stocks because in all it's technicality (and given the buy-and-hold strategy), you are investing in a business by owning a part of it which naturally means that you will and do get the returns on it, both in terms of profits (dividends) and and value growth (appreciation of the stock value). And conventional wisdom of lending also applies to bonds. Except that is not technically true. Unless buying stocks purely for dividends, you are investing in a secondary market of shares and the "value" you're talking about is the expected value the other secondary market participants will appraise the stock for, independent of the company's operations. There is only a directional correlation because there is a tacit assumption between the investors to equivocate between the two. If you look at the historical trends of P/E of S&P composite price index, prices have gone way more up than the actual earnings.[1] so there is an element of wishful self-deception here. Consider this; bitcoin might one day build enough track record to prove itself a good enough investment for a large amount of people, and then the stock market will have to seriously compete with this non-derivative instrument for investment money of those people, which will reduce the price of stocks in aggregate, independent of the "value" of underlying company performances. If you take that into account, crypto-or-not a currency is simply another instrument which we bet for the future expected value for gains. In fact, while the value of traditional currencies are backed by their purchasing power performance in a given market, crypto currencies theoretically don't have that limit because it has unlimited supranational reach. Mind you, US stock markets have at most one century of roughly-comparable historical data, and that is just not enough sample size to make 30-50 year assumptions (speaking for retirement buy-and-hold strategies). [1] https://en.wikipedia.org/wiki/Stock_market#/media/File:IE_Real_SandP_Prices,_Earnings,_and_Dividends_1871-2006.png https://en.wikipedia.org/wiki/Stock_market#/media/File:IE_Re...
brightball 6y ago
Same reasons as buying gold or silver.
nofunphil 6y ago
Buying Bitcoin is becoming similar to buying gold. It’s a Store of Value. Why is gold an investment? Because it’s scarce and we have, as a society, decided it’s an investment. There may be nuances here, but that’s the basic idea. Bitcoin is digital gold. Most other tokens are similar buying fiat currencies which can help if you local fiat currency is hyper-inflating. But then some tokens give access to de-fi which a whole other rabbit hole.
- postingpals 6y ago
  A store of value is just one aspect to what makes money, money. It also has to be a medium of exchange and a standard of value. Bitcoin's value changes so wildly that it cannot be a standard (right now) and no one uses it to buy things. Everyone is investing in bitcoin on the promise that its going to be so much more useful than dollars, in the hopes that they will make a lot of... dollars? Do you see the contradiction? If they think it's going to be so much better than dollars what are they going to do with their long term investment dollars if, in the long run, bitcoin surpasses them? Don't use economics terms to explain the usefulness of bitcoin when economics itself disagrees.
  - Erlich_Bachman 6y ago
    Your logic stumbles when you consider gold. "no one uses it" either to "buy things", and yet it is valueable and has been so for eons. Store of value is a very important function in itself.
    - deleted 6y ago
      [deleted]
    - postingpals 6y ago
      The gold standard was abandoned precisely because it was inferior. It was pretty useful up until early 20th century as a medium of exchange too. People used to use gold coins to buy things, didn't they?
      - 6y ago
UShouldBWorking 6y ago
Here comes the hn, "durrr, I don't get it, it must be fake. There's no real value..." How is it that a group of people that purportedly understand so much about programming and systems are so incredibly obtuse about a programming system? Bitcoin has value because there is an unlimited supply and it is a useful tool for moving and storing value, how hard is this to understand?
dcolkitt 6y ago
I consider it a deep out of the money call option. There's a small but real chance that Bitcoin (or another crypto) essentially replaces the US dollar as the world's reserves currency. Bitcoin's total capitalization today is $200 billion. The total value of the dollar is harder to measure and depends on what you count as money or just money-like. But M3 is $20 trillion, and add in short-term T-bills and money markets and it's substantially higher. So in this scenario, it's possible for BTC to rise from $20,000 to $1,000,000+ or higher. Given that, I think it's prudent to allocate 1-2% of your overall net worth to crypto exposure. Especially because we expect it to out-perform in high-inflation/low-growth environments, which is the worst environment for traditional 60/40 portfolios.
flignats 6y ago
The world's first global, decentralized, transparent, immutable ledger has come into existence. And you can own a piece of it by owning Bitcoin. Who knows what it will be used for, but it will be used.
- justaman 6y ago
  Drugs, the answer is(and was) drugs.
- andrewmcwatters 6y ago
  Why in the world would I want that? I can remove write permissions from an SQLite database and rsync it to any VPS in the world for pennies on the dollar. The ledger concept is weird to me. No one is asking for it. And you certainly don't "own" it by owning Bitcoin. You can go download the software and own it.
  - flignats 6y ago
    No, you don't own it but it is a very simple way to understand why you'd want it as an investment. As for why would you want that? Ledgers are a fundamental part of how many things work. Blockchain is an evolution of the ledger. It literally makes things faster, cheaper, more secure. Bitcoin's blockchain will disrupt (evolve) something. The leading use case is a store of value. If that is to be adopted then bitcoin's value will be in the trillions.
    - andrewmcwatters 6y ago
      > It literally makes things faster, cheaper, more secure. How? I'm pretty sure if this was true, everyone would be using it for database work now, except no one does. So these claims are baseless. > Bitcoin's blockchain will disrupt (evolve) something. The leading use case is a store of value. If that is to be adopted then bitcoin's value will be in the trillions. Evolve what? You don't even seem to be sure and are just guessing that it's novel and surely has some value, but you don't know why. Trillions? Where do you get this number from? Do you somehow take the size of an existing market and assign a value per consumer? Where is the rigor behind your claims?
hart_russell 6y ago
It's forex trading. Currencies gain and lose value relative to each other. Not that hard to understand.
centimeter 6y ago
> Isn't it analogous to me investing my money in buying USD or the British Pound It would be, if those were hard (non-inflationary) monies. In a hypothetical future equilibrium where Bitcoin is a world reserve asset, buying Bitcoin is approximately isomorphic to buying spoos or other wide-market indices.
disown 6y ago
> I would classify myself as Boglehead and I believe in the fundamentals of investing in stocks If you are a boglehead, just stick to no-load, low fee diversified funds. It's the smart way to go for most people. If cryptos are worth investing in, eventually you'll get cryptocurrency exposure via the funds you own or maybe a dedicated crypto fund through vanguard or whomever. I wouldn't take any investment advice on a social media platform.

macspoofing 6y ago

>How is any cryptocurrency even considered an investment vehicle You're right that crypto currencies are not like equities. It's an investment vehicle in a similar way that gold is considered an investment vehicle. >why would cryptocurrency ever be considered as a good investment vehicle That's another question. I don't think it's a good investment vehicle.

vocatus_gate 6y ago

I'll try to use my elevator pitch: With cryptocurrency, you're right they're not an "investment" in the traditional sense. Right now more of a long-term gamble. In my opinion the value is in the network and the ability to move money instantly (or at very least faster than traditional methods), securely, to anywhere in the world for a fraction of a cent. That ability alone is valuable and hasn't existed until now. There are other arguments along the lines of deflationary vs. inflationary, anonymous vs. private, irreversibility of transactions (no charge-backs) that are good or bad depending on your views, but in general crypto represents a brand-new "investment" (or gamble if you like) for this generation. The different cryptocurrencies that various teams are building follow different philosophies, but I think the space in general is pretty interesting.

iamspoilt 6y ago
Okey, calling it a "long-term gamble" only sounds fair to me. Talking about value, isn't blockchain / crypto analogous to a medium that enables moving money quickly? If yes, internet would be similar in some sense (we have instant local money transfers these days) but we don't have anything that tracks internet as an investment. Coming back to it, I can rationalize myself investing in a money transfer business that is build on blockchain (think Transferwise that uses a mix of technology and banking agreements) and generates some revenue for me. But if that middleman can be removed, I cannot suddenly start considering that piece of technology, an investment.
- aboodman 6y ago
  Any cryptocurrency can be used to move money quickly. So if you buy a cryptocurrency, you are automatically "investing" in that "business". You don't need Transferwise. Bitcoin is the canonical example. The value investment argument for Bitcoin is that you think Bitcoin is (or will become) a good way to move money. You're buying a scarce piece of that utility. === Some cryptocurrencies additionally have other utilities. Example, ethereum can be used to write very slow, shitty software that runs on the blockchain. So far nobody has come up with a super amazing use case for this, but theoretically, if somebody did this would dramatically increase the demand for ethereum tokens - (b) above. A better example would be something like https://handshake.org/ https://handshake.org/ - a cryptocurrency that is trying to power a decentralized replacement for dns. Remains to be seen whether this can be done and will have adoption. These systems have all the problems of traditional startups, plus all the problems of low level protocol development, plus standardization problems, plus novel math. However, I hope it's easy to see the value investment argument for something like handshake: dns is valuable, dns has problems, handshake is trying to solve those problems, by buying hns tokens I'm buying a part of this network, and if they succeed demand for those tokens goes up. Hope this helps.
  - iamspoilt 6y ago
    Thanks for the input. It does put things into some perspective but I am still wondering. So something analogous to owning a part of the network, would it be correct to say that, for instance, governments own and auction telecom spectrums to businesses. They do make money out of that ownership through the initial auction price and then potentially tax you later. So a cryptocurrency could be looked at in a similar way in the future. When you later sell the currency you have owned for a while (given that it takes off well over the couple of years), you are basically transferring that "spectrum" ownership to another party.

zapdrive 6y ago

A cryptocurrency cannot be put into any traditional bracket of commodity, currency, stock etc. It's a new breed in itself. It has features of a currency, a commodity, a stock and much more.

raziel2701 6y ago
So is it a jack of all trades and master of none sort of thing? I still see it as a speculation tool and it's grabbing a lot of momentum. But I don't see what's so fundamentally useful about the technology unless you're interested in laundering money and/or buying illegal stuff.
- shuntress 6y ago
  Bitcoin is a currency. The fundamentally useful thing about Bitcoin is it's proof-of-work shared ledger that allows transactions to be conducted and verified between individuals (through the shared network) independent of any third party or broker. It is the electronic equivalent of handing someone a physical coin. It is genuinely pretty neat. Any actual meaningful application of this use has yet to be realized.
  - bollu 6y ago
    > It is genuinely pretty neat. This captures my feelings exactly about BTC, thank you for phrasing it so succinctly!
andrewmcwatters 6y ago
Yes it can. Why can't it? It's something people want because it's value increases, and there's a limited number of it. People don't know what value to assign to it, so its price violently fluctuates. I have no idea where this thinking comes from that it's novel other than people are sold on the hype of the concept without thinking about the concept from a different angle. If we did "Bitcoin by hand" and threw out increasingly large numbers, and whoever could figure out its factors would be awarded a ticket, and lets say there's only 100 million tickets, what would be the difference? That it can't be counterfeited? That the central bank can't print more tickets? That's it? Wow, OK. You know, the counterfeiting issue isn't one that modern economies face in significant portion anymore. And if you wanted to prevent the printing of money, you could just ask your local representative to advocate for the US to go back to the gold standard. Except it doesn't work anymore. So why would it work in software?

PretzelPirate 6y ago

I think part of the confusion is the word “currency”, which implies it’s something like USD. Ethereum’s ETH token, for example, is an asset that will appreciate if demand of the Ethereum network increases for real-world business applications (not just financial payments). That makes it much more like investing in a limited resource (ex: oil) that will go up in value. It’s still speculating, but most stock investments are close enough to speculation that you can’t really tell the difference.

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misnamed 6y ago
Stocks are shares in profitable companies. They have risks, sure, but they also have expected returns based on sound fundamentals and a long history of generating income.
- iamspoilt 6y ago
  Exactly my point. They add certain value to the economy and have fundamentals. From my understanding, I don't even consider Gold (a limited resource) a long-term investment.
  - fractionalhare 6y ago
    Gold is a good portfolio asset for reducing overall risk in a long term investment strategy. You can beat the market over time with less risk by holding the S&P 500 and gold and weighting each according to respective volatility. This also has a lower beta exposure than just holding stocks. Gold (and commodities more generally) have fundamentals - just different ones from equities. You can't take advantage of the universe of sound investment opportunities if you restrict your attention to equities.
    - misnamed 6y ago
      We have fairly little data on gold as a freely available modern asset class (around 50 years), but yes, in small amounts it can limit volatility and potentially even increase returns (or at least: risk-adjusted returns). That said, over the long haul, independently, it has tended to roughly track inflation. I'm not against it, just see it as something of limited utility to an ordinary investor.

bitxbitxbitcoin 6y ago

It's more analagous to buying some gold for your investment portfolio than buying a fiat currency that has its inflation under control by a central government.

iamspoilt 6y ago
From the school of thought that I would adhere to (Jack Bogle, Warren Buffet), Gold on its own is not an investment.
- TigeriusKirk 6y ago
  But do you understand why other people consider it to be an investment?
- fractionalhare 6y ago
  Not on its own, no, but the person you're responding to said buying it for an investment portfolio. That's a very compelling use for gold.
stopyellingatme 6y ago
This is what i came here to say. BTC isn't very good as a currency but acts as a deflationary asset over time (i.e. there is a fixed amount that can exist). I, personally, hold BTC as part of my portfolio simply because of it's ensured existence and massive upside potential. I wouldn't put a terrible amount of my net worth into it, but a small fraction may serve you well in the future. Short story. Had the chance to invest 300k in 2012 (~$10 per coin). Didn't pull the trigger. Too much net worth. However, I should have used ~10k (maybe a little more). Wouldn't be nearly as worried about $ as I am today if I was just a little more conservative on investing up front.
shuntress 6y ago
I basically agree with this but I just want to add that if everyone decides to increase the total amount of bitcoins or change the inflation controls in some way, that can be done. The cool thing about bitcoin is that this is a shared decision made by everyone. Ok, technically, it is made by the groups contributing the majority of compute power to the network. And technically, central governments can be representative of everyone and therefor enable that same shared decision making but that's kind of a bigger discussion. The point is, changing the network to "add more" BTC is probably much more likely than breakthrough replicator technology that can turn hydrogen atoms into gold atoms.

baron_harkonnen 6y ago

I recommend you read some of Stephen Deihl's thoughts on the subject[0]. You're not alone if you feel that cryptocurrency doesn't make sense as an investment vehicle, but the HN community will make you feel crazy for not seeing what a great thinking this is an incredible new opportunity and "things are different this time!" There is no better indication of a bubble then people telling you that you're the crazy one for questioning it. I remember people telling me I was crazy for not buying a house in 2007, and crazy for not trading tech stocks in 1999. [0] https://www.stephendiehl.com/posts/crypto.html https://www.stephendiehl.com/posts/crypto.html

Alex3917 6y ago
As a store of value it's better than gold in some ways, because you don't need to physically store it. But unlike gold, which can appreciate in value indefinitely, Bitcoin is mathematically capped in how much it can appreciate in value because the expected value of mining and purchasing need to go to par.
- gruez 6y ago
  >But unlike gold, which can appreciate in value indefinitely, Bitcoin is mathematically capped in how much it can appreciate in value because the expected value of mining and purchasing need to go to par. I don't think you're using the term "appreciate in value" correctly. I think what you meant to say is that gold can be mined infinitely (on earth, in space) and therefore has potentially infinite supply, whereas the total supply of bitcoins is capped at 21 million.
Infinitesimus 6y ago
> There is no better indication of a bubble then people telling you that you're the crazy one for questioning it. I remember people telling me I was crazy for not buying a house in 2007, and crazy for not trading tech stocks in 1999. I'm not sure that's a good indicator with so many counter examples: the internet, large touch screen phones, Cloud in the earlier days, etc. We truly have no idea what the future if Cryptocurrencies are.

jamesmehaffey 6y ago

If you are using blockchain tokens to run an application, then you are essentially paying A large network of computer operators for their combined processing capacity. This means their electricity, maintenance cost, etc. instead of investing in servers that will be old by the end of the year. So purchasing cryptocurrency is in fact a very real investment. Think of it like an airline purchasing jet fuel three months ahead of time.

misnamed 6y ago
A great investment if the cost of fuel goes up, but a bad one of if it goes down. Processing power is getting cheaper and cheaper.
- jamesmehaffey 6y ago
  It really just comes down to the idea that blockchain networks are cheaper, more secure, more reliable and more scalable than traditional server arrangements. That’s not just my opinion; most of the top tech companies are ploughing huge amounts of money into it. market investors will do what they always do, but all I know is that I would rather have a crypto wallet with some stored value than an old, inefficient server sitting in the corner.
  - misnamed 6y ago
    I mean if you're literally talking about the difference between 'buying physical servers' and 'buying Bitcoin' ... well, it seems to me you're missing out on a range of other options, like: investing in companies developing new hardware, for starters. Personally, I just lease what I need at going rates, which get ever cheaper. And by cheaper I mean: in dollar terms - so to keep up with that, I don't see the need to hold highly volatile Bitcoins when I can just hold inflation-adjusted Treasury bonds.
    - jamesmehaffey 6y ago
      Bitcoin is probably not the best case study for this aspect of the conversation, but I suppose you have a fair enough point. Although to be clear, I am thinking of the assets more like commodities than speculative stocks or equities. I do not mean to suggest that traditional servers are going to go away or become obsolete any time soon, but after you get past the cryptocurrency hype in the headlines there really is a huge amount of potential for the technology. This is definitely what long-term investors are considering and why this is even a topic here.

tekkk 6y ago

I neither can understand why it is considered as investment but I guess scarcity and how it can be exchanged anonymously and cheaply for large sums makes it lucrative. Especially if you want to avoid governments for some reason.

misnamed 6y ago

Even if you accepted it as a diversifier, all cryptos combined still have a relatively small market cap, so I don't really see the point in adding them to a stock/fixed-income portfolio. It's a bit like frontier markets: sure, they're possible to invest in, but expensive, small and won't make a big difference at market weights.

nostrademons 6y ago

It's analogous to investing money in USD or GBP before those countries were given a license to print as many USD and GBP as they wanted. Before then (1931 for the pound and 1933 for the dollar, though they maintained de-facto parity with gold until 1971), dollars and pounds were considered good investments. That's why we had bank runs: people thought their money would be safer under their mattress, and preferred to own physical currency rather than numbers in a bank's ledger. The only reason holding USD is a bad investment is because inflation is basically guaranteed: you know that a dollar will be worth less tomorrow than it will be today, because the authorities that control the dollar say so. Not so with Bitcoin: the total supply is fixed at 21M, forever, and there's no central authority with the power to change that.

iamspoilt 6y ago
It is fixed at 21M but technically, this can be changed through an Economic Majority [0][1]. [0] https://en.bitcoin.it/wiki/Economic_majority https://en.bitcoin.it/wiki/Economic_majority [1] https://bitcoin.stackexchange.com/questions/3945/how-could-the-bitcoin-protocol-be-changed-has-this-ever-occurred https://bitcoin.stackexchange.com/questions/3945/how-could-t...
- hammock 6y ago
  What does this concept of Economic Majority look like of we consider it for the US Dollar, rather than btc?
  - anythingdude321 6y ago
    economic majority for the USD is the Federal Reserve Board
  - ur-whale 6y ago
    Doesn't apply. The feds control the USD and if there's one thing the fed isn't it's a democratic mechanism.
- dehrmann 6y ago

elevenoh 6y ago

ETH for instance is used for fees in the decentralized economy (e.g. p2p lending/borrowing/investing/marketplaces). If demand for fees in the ethereum economy outpaces supply, the price is likely to rise. https://cryptofees.info/ https://cryptofees.info/ Aside: If I issue equity in my company, I'd do it directly on a decentralized network like Ethereum > IPO. I'd prefer to not have an underwriter like goldman sachs take 3%+ & manipulate retail investors.

Spivak 6y ago
I think your phrasing of "demand for fees" is kinda weird. Since it really comes down to "demand for validators" or "demand for compute resources on the ETH network." ETH's fundamental value is that it's the only form of payment accepted to use the eth network. It can and does have secondary value as a medium of exchange but that's what's at the bottom and the reason you need ETH opposed to something else.
- elevenoh 6y ago
  Agree that demand for network compute/validation is more accurate than 'demand for fees'. My error.

lordnacho 6y ago

This is not a comment on crypto as such, it's more a comment on how markets work. By the time you know what you're buying, it's priced in. When everyone agrees that some opportunity is amazing, they also agree the vehicle that provides it (shares, bonds, coins, whatever) has got to be expensive. At least more expensive than when it was just ideas.

deleted 6y ago

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didibus 6y ago

When you buy into a Crypto you're investing into the technology itself. If you believe that more and more payments will be handled through it, its value will go up, thus making it a good investment. If you take Bitcoin, there's a small pool of total Bitcoin and that's guaranteed by the technology. Each new coin costs real money to mine, due to needing physical compute resource to do so, and it gets harder and harder overtime. That means as more and more people transact in Bitcoin, the demand for Bitcoins will go up, thus your Bitcoins are going to be worth more. Similarly for Ethereum2, there's not a fixed maximum, but there are set rates and limits that affect how much new Ether per year will be added. So there's some guarantees that there's a restricted supply. So again, if you believe that more and more people will rely on its network to transact, the demand for Ether will go up, thus its value.

diab0lic 6y ago
> When you buy into a Crypto you're investing into the technology itself. This argument of technology + limited supply is fallacious. If the technology is so useful the coin can just be cloned with more supply. The technology itself doesn't force me to participate in a limited supply market in order to get the benefits.
- didibus 6y ago
  > The technology itself doesn't force me to participate in a limited supply market in order to get the benefits I'm not sure what you mean here. The technology does indeed force you, that's part of it. If you want to trade in its currency, you can't cheat it and make more coins for it, the network consensus will catch you and prevent you to cheat. If the tech fails to deliver this property, nobody would trust its currency, and nobody would use it for transacting.
overcast 6y ago
The only thing you're investing in is the wasting of the worlds energy supply. At best it's speculative.
- 6y ago

deeviant 6y ago

Investing is buying things that gain value over time. Bitcoin was originally worthless, now it's ~19k a coin. Anybody that bought or mined a large amount of coins back in the day and held on to them, is now rich, so a pretty good investment. The same forces that acted on bitcoin and brought it from worthless to 19k are still acting on it now. Doesn't seem like it's very difficult to understand why bitcoin is considered an investment vehicle. There are certainly good arguments for why may or may not be a poor investment vehicle or not the right one for a particular strategy, but arguments of whether it is one are moot.

brighton36 6y ago

Sign value.

bgitarts 6y ago

1) Low correlation to other markets. Any 60/40 portfolio that moved just 1% of it's allocation to Bitcoin would have produced a higher sharpe ratio (higher return, less volatility) over past 5 years. 2) Many crypto protocols are already capital assets that generate income streams. These income streams can be discounted to the present just like the income streams of companies. Examples: - Ethereum (ETH): It has multiple use cases such as collateral and gas for execution (think oil) both of which contribute to it's value as usage grows, but it's also a capital asset that can be staked and used to validate transactions to generate an income stream. This is not much different than real estate or farm land being used as a productive asset to generate returns. - MakerDAO: Protocol that generates a stablecoin (DAI) backed by debt based collateral (think mortgages against homes). The interest from minting DAI is repaid to unlock the collateral and burns (think stock buybacks) MKR. - Yearn.finance: Protocol that takes stablecoin (crypto pegged to USD) assets and generates returns across decentralized money markets. Returns have been averaging between 10%-35% APR depending on the pool and strategy. Finally consider the current macro environment. Stocks generate a stream of future income based in USD and fiat currencies. In 2020, the central banks of the major currencies have not only increased currency supply by over 50% (FED balance sheet in march was 4.3T, today 7.2T) but worked with top level governments to hand out the new printed money directly to consumers which is now money that will be hard to pull back out of the economy and they did it while GDP and economic activity has been stifled. So a larger amount of currency backed by a smaller amount of economic activity is a depreciating asset. If the return on equity of your profitable companies is smaller rate than the depreciation of the currency you have a negative real return. In order to prevent this companies may start to transact in a currency that has a deterministic monetary policy and can not be changed by the whims of a select few bureaucrats. As the most stable and longest running crypto network, Bitcoin stands to be such an asset. See Micro strategy (MSTR) and Square (SQ) moving treasury reserves into Bitcoin. The way you value Bitcoin is you estimate the amount of global GDP (140 Trillion) that will shift to transacting in it and then divide that by the velocity of money or how often it changes hands. This will tell you how large a marketcap it will have in order to support that level of economic activity. So for example if 1% of global GDP is transacted in Bitcoin and it's velocity becomes something like USD (1.5x) or the Euro, let call it a velocity of 2 then: 140 * 1% / 2 = $700 Billion marketcap.

CapriciousCptl 6y ago

I want to believe it's an investment myself, but haven't been able to-- and by sitting it out we've of course lost a lot of money in forgone gains. Where I get stuck, and maybe someone could help me here-- generally, you don't have to try to hard to imagine a future with cryptocurrency being more useful then it is today. That is, it is more valuable. BUT, why should that mean that its price should be higher? It's like looking at the pithy saying, "price is not value" in reverse.

asdffdsa 6y ago
Are you disagreeing with the fundamental economics argument of supply and demand? More demand assuming a constant (forecasted) supply means the price will be higher.
- joosters 6y ago
  There's no constant supply of cryptocurrency, there are new types of coins created every day.
  - tcoff91 6y ago
    Different cryptocurrencies are not fungible. New altcoins don't increase the supply of Bitcoin. It's not like they siphon much demand from Bitcoin either. Someone discovering a huge new source of Platinum doesn't fundamentally effect supply/demand of gold.
clarky07 6y ago
the value of something like bitcoin is generally going to be related to the value of the network. if you can envision it being more useful in the future, consider what the function is, and what it means for the value of the network as a whole. some examples to explain what i'm saying, not necessarily what i think will happen per se bitcoin replaces, or at least augments, gold as a "store of value inflation hedge" - in theory it should be a great inflation hedge. there are a limited number of bitcoin, 21 million max, but we keep printing trillions and trillions of new dollars. gold also doesn't do anything productive, it just sits there and acts as a hedge on inflation. in this scenario, the market cap of gold is something like 8 trillion. if bitcoin takes some of this job, it's market cap must get a lot bigger. functionally, we have 8 trillion "dollars" of wealth that are currently stored in gold. if we wanted to "store" 8 trillion "dollars" of wealth in bitcoin, we can't currently. the entire market cap of bitcoin is only a few hundred billion. For it to be an inflation hedge on the scale of gold, the price has to rise tremendously. this same calculation can be done for whatever potential usefulness you come up with. Like if you think it can replace the USD as a reserve currency for setting international oil trades, the market cap of bitcoin has to get exponentially bigger just to handle the scale of those markets. now, i don't think it's likely to become the world's reserve currency, certainly not anytime soon, but if it were you can see where it would have to have more value to be able to do so. I do think it is a great inflation hedge, and I think lots of money managers are going to start recommending to client to put 1-3-5% of their portfolios into bitcoin as a hedge. That's happening right now. IF that goes mainstream, the market cap of bitcoin HAS to go up significantly to handle all that new demand, given that the supply is capped.

x87678r 6y ago

I dont understand it either. To me yes BTC supply is limited, but there are lots of cryptos so BTC is nothing special. The secret could be if lots of important and smart people are invested in BTC you have to trust that it will keep being special, and better than other cryptos. It sounds sketchy to me, but the network effect is real so there might be something in it. It seems lots of well known financial people are getting on board right now. It seems like a ponzi to me but those people aren't dumb.

JxLS-cpgbe0 6y ago
> It seems like a ponzi to me A Ponzi Scheme relies on a central authority, BTC by definition has none. Maybe you were trying to say "market manipulation" or "securities fraud?"
- x87678r 6y ago
  No definitely ponzi. Maybe a central authority is in the definition for ponzi, but I think this is exactly Ponzi without a CA. The whole thing isn't fraud or manipulation because again there is no one single owner, though looking at all the junk on social media there is definitely lots of both.
  - JxLS-cpgbe0 6y ago
    > this is exactly Ponzi without a CA Which would be...not a Ponzi Scheme. What makes you say that besides "junk on social media?"
    - x87678r 6y ago
      Honestly I think BTC matches this definition - just there is no organizer. Esp the last paragraph. https://www.investor.gov/introduction-investing/investing-basics/glossary/ponzi-schemes https://www.investor.gov/introduction-investing/investing-ba...
      - 6y ago

umanwizard 6y ago

Bitcoin’s ambition is to become the new gold: something that has been ingrained in human culture as “money” for so long that people accept it as such by habit.

dandanua 6y ago

It shouldn't be called an investment. Investment supposed to be spent on the production of new value. Bitcoin, despite its good intentions, is a pyramid scheme — its price grows only because of newcomers. I wrote a blog post about why it's a bad "investment" — https://dandanua.github.io/posts/why-i-wouldnt-recommend-using-bitcoin-as-a-lifetime-investment/ https://dandanua.github.io/posts/why-i-wouldnt-recommend-usi...

Osiris 6y ago
Since there is a limited supply of Bitcoin, people are buying Bitcoin now with the hope that there will be more demand for the limited supply in the future. There is a hope that Bitcoin becomes "useful", thus driving demand. Since supply is fixed, demand causes an increase in value. So, it's a speculative "investment". I suppose whether it's an "investment" depends on your definition of "investment".
- dandanua 6y ago
  It's useful and it has demand for its use. But most people buy it only to make a fortune. This makes it a Ponzi scheme. No contradiction here.
  - JxLS-cpgbe0 6y ago
    A Ponzi Scheme relies on a central authority, BTC has none. I think you just mean "scheme?"
    - dandanua 6y ago
      There is Satoshi's wallet in the root, no need for authority as we can see.
      - JxLS-cpgbe0 6y ago
        Yes, there is need for a central authority, Charles Ponzi for example. They actively and consciously channel the funds from new, defrauded investors, to that authority. BTC is not a Ponzi Scheme ; Satoshi is not steering the profits from a pump-and-dump. Passively profiting off new investors buying BTC does not make a Ponzi Scheme. Market manipulation is not a Ponzi Scheme. A Pyramid Scheme is not a Ponzi Scheme. "Ponzi Scheme" has a real definition.

csomar 6y ago

If you think of an investment vehicle as something that creates useful infrastructure in society and collects fees to pay dividends, then no. But then, look again, we are way past that. We are pulling Gold from the grounds to hide it again in the ground. We are trading weather futures. And people are buying apartments no to rent them or use them; but just to close them and leave them empty. In this sea of non-sense economic reality, Bitcoin actually makes lots of sense.

wsc981 6y ago

I see Bitcoin as a hedge against the USD and EUR as I feel the currencies will be in trouble in the coming years. I see Bitcoin as a store of value. Keeping some of my assets in Bitcoin keeps some of my assets out of the hands of governments and banks and will not be affected by devaluation. There's no risk of a bail-in [0] for example. I don't invest all my assets in Bitcoin, currently perhaps 10% of my net worth. I do feel Bitcoin will rise to 100.000 USD in the next few years and possibly even 1.000.000 USD in 10+ years, my aim is to gain a total of at least 3 BTC or so in the next year. I just hope Bitcoin doesn't rise too quick in value in that time period, since I can only afford to buy for maybe 1.000 USD per month. I might sell a bit of my Bitcoin assets after my total Bitcoin asset value reach around 500.000 USD, since at that point I should be able to take things slow. At that point I would diversify a bit more into ETFs or stocks. Perhaps this video [1] by Raoul Pal can give you some insight in my point of view, as I agree with him on most points. --- [0]: https://www.forbes.com/sites/nathanlewis/2013/05/03/the-cyprus-bank-bail-in-is-another-crony-bankster-scam/?sh=e83ff8c26856 https://www.forbes.com/sites/nathanlewis/2013/05/03/the-cypr... [1]: https://www.youtube.com/watch?v=qL2LfVRl3J0 https://www.youtube.com/watch?v=qL2LfVRl3J0

misnamed 6y ago
If you want to hedge against inflation, I suggest TIPS and maybe a bit of gold. I would also point out that the market expectation clearly isn't aligned with currencies being 'in trouble' - very low inflation in general right now.
- wsc981 6y ago
  > If you want to hedge against inflation, I suggest TIPS and maybe a bit of gold. I need to read up on TIPS, haven't heard about that before. Yes, gold is a decent option as well. However I view Bitcoin as digital gold and it has a few nice properties that gold doesn't have (of course gold has some good properties that Bitcoin doesn't have). One of the aspects of Bitcoin that I appreciate the most, is that it's very easy to carry around with me, for example when travelling on an airplane to another country. The same is not true for gold. > I would also point out that the market expectation clearly isn't aligned with currencies being 'in trouble' - very low inflation in general right now. Inflation is actually really high, but its mostly hidden in rising prices for stocks and real estate.

SilasX 6y ago

Someone please explain this to me: How is any negative-yielding bond even considered an investment vehicle? I would classify myself as a Boglehead and I believe in the fundamentals of investing in bonds because it all its technicality (and given the buy-and-hold strategy), you are indirectly lending to a government by buying its bonds, which naturally means that you will and do get returns on it, both in terms of the interest (coupon payments) and value growth (further decline in those bond yields). That being said, again, why would negative yield bonds ever be considered a good investment vehicle? Isn't it analogous to me investing in my money in a depreciating car, which will only lose value unless the car happens to have a random spurt of high demand that lets me unload it at a profit?

cocoa19 6y ago

It shouldn't be considered an investment vehicle if we follow Benjamin Graham's philosophy (father of value investment, Warren Buffet's mentor). I'd say it should be called a speculative vehicle. The word speculative carries a negative connotation, so financial companies won't make money off of bitcoin trades, so hence the name investment vehicle. It's as manipulative as the name almond milk, which is not really milk.

spir 6y ago

One answer to this question is that Ethereum will soon become a "real investment" because fees will accrue to ETH holders and the huge expense of electricity-intensive proof of work mining will be discontinued forever. Here is how it'll work - in 2021, an improvement to the Ethereum network known as EIP-1559 will launch, causing a portion of all new transaction fees to be burned/destroyed, which is effectively a "stock buyback" for ETH. This will be the first time that ETH holders receive any kind of "earnings per share". But, it's not enough: - EIP-1559 alone is not enough for ETH to be a profitable investment from a cashflow perspective. The problem is that Ethereum's proof of work mining is extremely expensive, like Bitcoin's. Ethereum will run at a "net loss" until proof of work is discontinued. - two days ago, the Ethereum v2 "beacon chain" launched after years of research and effort. This "beacon chain" is currently not used for any ethereum transactions and won't be for two years. Here is a 3rd party UI for exploring the beacon chain https://beaconcha.in/ https://beaconcha.in/ - in 2022, the main ethereum blockchain will merge with the new ethereum v2 beacon chain and proof of work mining will go away forever. The new system, proof of stake, is dramatically less expensive. It's so cheap that it's effectively free. - in 2022, with proof of stake fully live, ethereum's transaction fees will effectively accrue to ETH holders and there will be no material expenses to offset this income. The result is that ETH will become a real investment vehicle from a cashflow perspective. Learn more https://ethereum.org/en/eth2/#roadmap https://ethereum.org/en/eth2/#roadmap

Zamicol 6y ago
>How is any cryptocurrency even considered an investment vehicle? [...] [Y]ou are investing in a business by owning a part of it which naturally means that you will and do get the returns on it[.] That is how Ethereum works. Validators get returns from Ethereum by holding shares, i.e. ETH. Validators, after EIP-1559, will be paid with newly minted ETH and anything over the base burn fee. (Currently there is no mandatory burning of fees.) To stake in ETH 2.0 a stand alone validator needs 32 ETH (~$20,000). It reminds me of Outback's business model of requiring managers to buy in as stake holders (https://hbr.org/2005/09/a-stake-in-the-business https://hbr.org/2005/09/a-stake-in-the-business). This is before all the crazy features that can be built on top of eth-as-programmatic-money, such as lending. https://defipulse.com/ https://defipulse.com/

staplers 6y ago

Imagine your bought the rights to a tree that would later be turned into thousands of $100 bills. Bitcoin is a speculative bet that it will become a popular global currency. The idea is eventually you will be able to use the bitcoin as currency once it scales up.

cody3222 6y ago

For the same reason gold is an "investment." It's a store of value and a hedge against government controlled currencies such as the US Dollar.

shuntress 6y ago

It is exactly the same as you trading Currency-A in exchange for Currency-B.

twox2 6y ago

Pretty sure 90% of retail crypto investors are just FOMOing, but more and more people are excited by the technology and looking for creative applications. DeFi has been interesting to watch.

ur-whale 6y ago

By your reasoning, gold isn't an investment vehicle either (a rather widely-held belief, btw). Yet, a somewhat sizeable category of people still invest in gold ... Could it be that the definition of "investment vehicle" is broader that what you may have willingly restricted yourself to?

eldaisfish 6y ago
You logic is correct. Gold is not an investment, it is a hedge. Gold does no useful work and produced no measurable output. It's "purpose" is simply that society has assigned it a value that most people will agree to exchange for other forms of value. In exactly the same way, crypto or any fiat currency is not an investment.
- mrlala 6y ago
  >Gold does no useful work and produced no measurable output What? Gold us physically useful and relatively scarce, THAT is why it has value. You are acting like people just got together and said "hey, let's take this useful hunk of garbage and assign it some value to see how rich we all are".
  - eldaisfish 6y ago
    >You are acting like people just got together and said "hey, let's take this useful hunk of garbage and assign it some value to see how rich we all are". Correct. Gold's value in an industrial sense is no different from any other relatively scarce material. This is precisely why gold is not an investment. Its value is simply a group of people assigning a value to something driven in part by scarcity.

cryptica 6y ago

It's not about ROI anymore. It's mostly about which asset can capture most of the newly printed fiat money now and in the future. New fiat currency is constantly being created and all assets are competing for the biggest possible chunk of that new money. The reason why crypto is doing well comes down to a contrast between monetary abundance and scarcity. Some people in this world have access to an essentially infinite supply of fiat currency at 0 risk... So fiat currency is not worth anything to these people; so if these people start buying some scarce resource, they will quickly realize that it will drive up the price of that resource ad infinitum. The only other variable is how hard people HODL the asset. If enough of these people buy up the same scarce resource, the growth of that scarce resource will outpace that of all other scarce resources.

arisAlexis 6y ago

think gold with finite supply and easily transmissible. Bogleheads approved :)

thorwasdfasdf 6y ago

I'll explain it to you in one sentence: There IS NOTHING else. There's only 4 main assets classes: 1) Equity valuations are at all time highs by nearly every objective measure out there 2) Fixed income is really vulnerable to the onslaught of inflation that looks ever more likely with all the MMT that's been going on. 3) Real Estate is a possibility but not scalable and not tax efficient and takes a great deal of skill and time to execute properly. (not counting REITs and other real estate ETFs) 4) All that leaves is commodities: Gold and Bitcoin.

JoshTko 6y ago

Bitcoin has only two core benefits, store of value, and unconditional point to point transactions. The key investment question is will people value these features more or less in the future.

vmception 6y ago

This is easy. You made an analogy to stocks and ignored the entire universe of investments and other asset classes. Doesn't that tell you all you need to know? There is a decade old meme of getting stock market gurus to comment about crypto and their sycophants repeating their predictably abysmal view of something outside of their wheelhouse. Commodities traders never had an issue and volatility is also not an issue in that market. There are no “permabulls” in commodities outside of a few rare metals, and trading in those markets primarily factors in seasonal and cyclical supply and demand. Buy and hold works ok in some crypto assets. But the permabulls that never traded anything else, and the stock market investors that keep a stock certificate their grandma gave them 20 years ago should just not be in this market. You are conflating “good” investment vehicle with “valid” investment vehicle, where its a mixture of whether being a permabull works alongside whether enough institutions that you respect have said positive things. make your own choices about what you want to trade.

acituan 6y ago

> I believe in the fundamentals of investing in stocks because in all it's technicality (and given the buy-and-hold strategy), you are investing in a business by owning a part of it which naturally means that you will and do get the returns on it, both in terms of profits (dividends) and and value growth (appreciation of the stock value). And conventional wisdom of lending also applies to bonds. Except that is not technically true. Unless buying stocks purely for dividends, you are investing in a secondary market of shares and the "value" you're talking about is the expected value the other secondary market participants will appraise the stock for, independent of the company's operations. There is only a directional correlation because there is a tacit assumption between the investors to equivocate between the two. If you look at the historical trends of P/E of S&P composite price index, prices have gone way more up than the actual earnings.[1] so there is an element of wishful self-deception here. Consider this; bitcoin might one day build enough track record to prove itself a good enough investment for a large amount of people, and then the stock market will have to seriously compete with this non-derivative instrument for investment money of those people, which will reduce the price of stocks in aggregate, independent of the "value" of underlying company performances. If you take that into account, crypto-or-not a currency is simply another instrument which we bet for the future expected value for gains. In fact, while the value of traditional currencies are backed by their purchasing power performance in a given market, crypto currencies theoretically don't have that limit because it has unlimited supranational reach. Mind you, US stock markets have at most one century of roughly-comparable historical data, and that is just not enough sample size to make 30-50 year assumptions (speaking for retirement buy-and-hold strategies). [1] https://en.wikipedia.org/wiki/Stock_market#/media/File:IE_Real_SandP_Prices,_Earnings,_and_Dividends_1871-2006.png https://en.wikipedia.org/wiki/Stock_market#/media/File:IE_Re...

brightball 6y ago

Same reasons as buying gold or silver.

nofunphil 6y ago

Buying Bitcoin is becoming similar to buying gold. It’s a Store of Value. Why is gold an investment? Because it’s scarce and we have, as a society, decided it’s an investment. There may be nuances here, but that’s the basic idea. Bitcoin is digital gold. Most other tokens are similar buying fiat currencies which can help if you local fiat currency is hyper-inflating. But then some tokens give access to de-fi which a whole other rabbit hole.

postingpals 6y ago
A store of value is just one aspect to what makes money, money. It also has to be a medium of exchange and a standard of value. Bitcoin's value changes so wildly that it cannot be a standard (right now) and no one uses it to buy things. Everyone is investing in bitcoin on the promise that its going to be so much more useful than dollars, in the hopes that they will make a lot of... dollars? Do you see the contradiction? If they think it's going to be so much better than dollars what are they going to do with their long term investment dollars if, in the long run, bitcoin surpasses them? Don't use economics terms to explain the usefulness of bitcoin when economics itself disagrees.
- Erlich_Bachman 6y ago
  Your logic stumbles when you consider gold. "no one uses it" either to "buy things", and yet it is valueable and has been so for eons. Store of value is a very important function in itself.
  - deleted 6y ago
    [deleted]
  - postingpals 6y ago
    The gold standard was abandoned precisely because it was inferior. It was pretty useful up until early 20th century as a medium of exchange too. People used to use gold coins to buy things, didn't they?
    - 6y ago

UShouldBWorking 6y ago

Here comes the hn, "durrr, I don't get it, it must be fake. There's no real value..." How is it that a group of people that purportedly understand so much about programming and systems are so incredibly obtuse about a programming system? Bitcoin has value because there is an unlimited supply and it is a useful tool for moving and storing value, how hard is this to understand?

dcolkitt 6y ago

I consider it a deep out of the money call option. There's a small but real chance that Bitcoin (or another crypto) essentially replaces the US dollar as the world's reserves currency. Bitcoin's total capitalization today is $200 billion. The total value of the dollar is harder to measure and depends on what you count as money or just money-like. But M3 is $20 trillion, and add in short-term T-bills and money markets and it's substantially higher. So in this scenario, it's possible for BTC to rise from $20,000 to $1,000,000+ or higher. Given that, I think it's prudent to allocate 1-2% of your overall net worth to crypto exposure. Especially because we expect it to out-perform in high-inflation/low-growth environments, which is the worst environment for traditional 60/40 portfolios.

flignats 6y ago

The world's first global, decentralized, transparent, immutable ledger has come into existence. And you can own a piece of it by owning Bitcoin. Who knows what it will be used for, but it will be used.

justaman 6y ago
Drugs, the answer is(and was) drugs.
andrewmcwatters 6y ago
Why in the world would I want that? I can remove write permissions from an SQLite database and rsync it to any VPS in the world for pennies on the dollar. The ledger concept is weird to me. No one is asking for it. And you certainly don't "own" it by owning Bitcoin. You can go download the software and own it.
- flignats 6y ago
  No, you don't own it but it is a very simple way to understand why you'd want it as an investment. As for why would you want that? Ledgers are a fundamental part of how many things work. Blockchain is an evolution of the ledger. It literally makes things faster, cheaper, more secure. Bitcoin's blockchain will disrupt (evolve) something. The leading use case is a store of value. If that is to be adopted then bitcoin's value will be in the trillions.
  - andrewmcwatters 6y ago
    > It literally makes things faster, cheaper, more secure. How? I'm pretty sure if this was true, everyone would be using it for database work now, except no one does. So these claims are baseless. > Bitcoin's blockchain will disrupt (evolve) something. The leading use case is a store of value. If that is to be adopted then bitcoin's value will be in the trillions. Evolve what? You don't even seem to be sure and are just guessing that it's novel and surely has some value, but you don't know why. Trillions? Where do you get this number from? Do you somehow take the size of an existing market and assign a value per consumer? Where is the rigor behind your claims?

hart_russell 6y ago

It's forex trading. Currencies gain and lose value relative to each other. Not that hard to understand.

centimeter 6y ago

> Isn't it analogous to me investing my money in buying USD or the British Pound It would be, if those were hard (non-inflationary) monies. In a hypothetical future equilibrium where Bitcoin is a world reserve asset, buying Bitcoin is approximately isomorphic to buying spoos or other wide-market indices.

disown 6y ago

> I would classify myself as Boglehead and I believe in the fundamentals of investing in stocks If you are a boglehead, just stick to no-load, low fee diversified funds. It's the smart way to go for most people. If cryptos are worth investing in, eventually you'll get cryptocurrency exposure via the funds you own or maybe a dedicated crypto fund through vanguard or whomever. I wouldn't take any investment advice on a social media platform.