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I’m enjoying sitting on the sidelines and watching people “invest” in a digital “currency” that you cannot spend, does not produce cash flow, and whose values a

I’m enjoying sitting on the sidelines and watching people “invest” in a digital “currency” that you cannot spend, does not produce cash flow, and whose values are determined by other shmucks buying it from previous shmucks. What a time to be alive. No wonder the S&P 500 CAPE ratio is beyond the 1929 high. No one has any idea of what the intrinsic value is of anything. Investing in companies that don’t make a profit, investing in companies whose investment returns are below real inflation, investing in SPACs that don’t expose financials. You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits.

free2OSS 6y ago
Wait until you hear about gold index funds/trusts.... Anyway, the reason you buy it is so you don't need to manage the security. Both Binance and Circle Pay ended United States operations causing my friends to either move their Bitcoin or they didn't and had it sold at 3k/coin and can get it from their states "lost money".
pradn 6y ago
If the value of a cryptocurrency is dependent on the community of the faithful, it's possible to "start the engines of faith", and keep it going for a long time. Fine art has been a large component of generational wealth in the West for the past six centuries. Of course, art has value as aesthetic objects; the same can be said for the potential use of cryptocurrency, however nebulous it may be. Religions, too, demand faith and, once they get started, often have staying power on the order of centuries.
- chki 6y ago
  That's a good point, also described in the book Sapiens by Harari: In a way Religion, currency and contract law (and many other things) are all "made up". They have institutions (priests, central banks, lawyers) with magic words (amen, price stability, due diligence) and a certain combination of magic words creates a new reality out of thin air. Think about how weird it is to "sign" an important contract and thereby changing you own future or the future of your company irrevocably. While I'm definitely not a fan of crypto currency and wouldn't seriously consider investing a single Euro into this mess, it's certainly misguided to simply laugh at it being "not real", because a lot of important things are. Obviously the gp makes some other important points.
  - staplers 6y ago
    You've made the first step towards the deep dive of realizing cryptocurrency is a world changer. Good luck!
vmception 6y ago
Although digital asset prices are not a good proxy for their utility, there are plenty of utility for enough people and that expands and the addressable market expands. Crypto businesses are very lucrative so don’t be too busy asking why when you should be asking how
- andrewmcwatters 6y ago
  I’m not asking why, because anyone can find instances of mania in history such as this. Beanie babies. Tulips. The law of large numbers, in this case—the speculative experiment of seeking returns from assets that do not produce value, will iron this out. History does not repeat, but it rhymes often enough for those who know the tune to sing along.
  - vmception 6y ago
    Rattling off references to other asset bubbles only shows how little you know about those asset bubbles and undermines the credibility of your strongly held opinions on what makes an asset worth paying attention to. For starters, you should probably start over on whatever you think you know about the tulips. Primarily its relation to tulip derivatives and the spot market of tulips, and the government's role in the dutch derivatives market at that time. And secondly, the length of that asset price distortion, compared to the crypto markets.
    - andrewmcwatters 6y ago
      I don’t know what you’re getting at. It would be like trying to better understand the microeconomic factors behind Beanie Babies. It’s an exercise in futility. They’re toys and they ended up being resold at prices that made no sense to the common man. Of all the endless knowledge that humanity produces, you have to ask yourself whether or not there’s meaning in pursuing topics endlessly. They’re flowers. This isn’t a discussion about some ECON 500-level course topic. There’s an academic argument to be had about whether or not the accounts of the event are credible, but that’s not what we’re talking about here.
NicoJuicy 6y ago
And where halve of the raise on crypto is because of tether...
- imaginenore 6y ago
  I call BS. Bitcoin's trading volume has been between $20 and $50 billion USD per day (in the last year). Tether's total valuation is $19.4 billion. It's a drop in the bucket.
  - NicoJuicy 6y ago
    Then explain, by your own quote: > Research by John M. Griffin and Amin Shams in 2018 suggests that trading associated with increases in the amount of tether and associated trading at the Bitfinex exchange account for about half of the price increase in bitcoin in late 2017.[29][11][23] https://en.m.wikipedia.org/wiki/Tether_(cryptocurrency) https://en.m.wikipedia.org/wiki/Tether_(cryptocurrency) :) In the past, ethereum was also highly automated trading.
    - imaginenore 6y ago
      1) That is not my own quote. 2) Confirmation bias. There are people looking to prove what they already believe. So they go out and "prove it". Have you seen what their proof exactly is? I've heard claims like that many times, and their proofs fall apart every time as soon as you look at the numbers and how much cryptocurrencies are actually traded. The volumes are huge. Tether is tiny.
  - Yizahi 6y ago
    Bitcoin is traded, even is we forget for a moment about wash trading. In each transaction we generate only a small margin, which adds to the value of traded assets. Only 2-5 billion dollars of bitcoins were from mining in 2020. Tethers are printed out of thin air and sold fully, from 0$ to 1$ (in equivalent), margin is 100%. So 15 billion of new tethers printed this summer had much more influence on the market than even greater amount of Bitcoin trades.
- 6y ago
centimeter 6y ago
> that you cannot spend, You can spend it. > does not produce cash flow, Neither commodities nor currencies produce cash flow. People still reasonably invest in both. > and whose values are determined by other shmucks buying it from previous shmucks. The value of every other asset in existence is also determined by this process.
- FridgeSeal 6y ago
  Bought any coffees (in person) with the crypto-currency of the week recently?
  - hiimtroymclure 6y ago
    haha yeah I wasn't able to buy my coffee this morning with my gold bar so I threw it away. worthless metal amirite
    - FridgeSeal 6y ago
      At least gold has intrinsic value and isn’t attempting to be a modern currency...
      - centimeter 6y ago
        > gold has intrinsic value "Intrinsic value" isn't a rational concept and doesn't exist inside any successful economic formalizations. Gold has value because it has useful properties, just like Bitcoin. Gold: Shiny, sort of limited supply, difficult to store and transport Bitcoin: Not shiny, hard-limited supply, easy to store and transport
  - s5300 6y ago
    So I asked this cute barista if she'd be able to accept a fraction of my TSLA stonks for my coffee
  - centimeter 6y ago
    I don't drink coffee, but I bought a JLC Geophysic last week.
reader_mode 6y ago
>You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits. You refuted yourself in the second paragraph. I suspect that crazy cash and financial instruments are crowding out the value of business investment.
colejohnson66 6y ago
> I’m enjoying sitting on the sidelines and watching people “invest” in a digital “currency” that you cannot spend, does not produce cash flow, and whose values are determined by other shmucks buying it from previous shmucks. Is that any different than a stock though? You can’t spend stocks, they don’t produce cash flow (ignoring dividends), and their value is what other’s are buying and selling it for. Just as I can offer to sell my share for $10,000 despite it trading at $100, I can do the same with Bitcoin. There’s a reason some people call Bitcoin an “investment.” Now, before anyone thinks I’m advocating Bitcoin, I’m not. I’m just pointing out the similarities to the stock market.
- andrewmcwatters 6y ago
  If I buy a company, I literally can choose what to do with its earnings. That’s the point of valuing businesses. You’re not buying the stock. You’re buying a portion of the business. Say you have a drywall company in town. You and the owner are good friends and the owner wants to retire but doesn’t have a family member who is interested in the enterprise. He seeks out buyers. You mention to him you’re interested but you have to ask yourself how much you’re willing to pay for the business, its fleet, tools, leads and customer database, current lease agreements, employees, etc. Someone has to value that, because it intrinsically has value. It’s not worthless. You can’t rebuild a multimillion dollar business over night. So it turns out if you have this entity that produces cash flow, it’s worth something. So how much are you willing to pay for each dollar of earnings? At the end of the day, that’s what a business produces for its owners.
  - colejohnson66 6y ago
    Sure, voting is something different. I didn’t say they were the same. I said they were similar. Also, I know plenty of people who purchase stocks simply to make money: I don’t know anyone who does to vote.
    - mantap 6y ago
      The existence of companies that have voting and non-voting shares allows us to measure how much voting is worth. Google's non voting shares trade at basically the same value as their voting shares. Berkshire Hathaway's reduced voting right shares trade at basically the same value as their full voting right shares. Whatever drives the value of shares it's not voting rights.
adverbly 6y ago
(difficulty to execute hardest to easiest) - Starting the right business - Picking the right businesses to invest in - Investing in Crypto(used to be easier than it is now) - Convincing shmucks to invest in the wrong business - Investing in index funds ROI if executed successfully(highest to lowest) - Starting the right business - Convincing shmucks to invest in the wrong business - Investing in Crypto - Picking the right businesses to invest in - Investing in index funds strategic money making popularity scores Don't try this at home. Very few people do this well. Those that do make a lot of money. - Picking the right businesses to invest in - Starting the right business The "Dominant Strategy" of the market right now - Convincing shmucks to invest in the wrong business If you know what you're doing - Investing in Crypto What shmucks should do - Investing in index funds
UShouldBWorking 6y ago
What a salty jerk. 1. How else are you going to transfer or store wealth across borders? 2. How do you know which business to start/invest in. 3. You are just more of the same, angry and lashing out because you missed the boat.
misnamed 6y ago
Agree re:CAPE. Meanwhile, people are ignoring the relatively attractive valuations of small, value, plus developed and emerging ex-US markets. While retail investors pile onto overvalued US stocks, these are now slowly catching back up and starting to get ahead. Funny thing about all of this to me is that people are always fighting the last proverbial war. Ten years ago, US stocks and tech in particular were in the doghouse - no one was buying them then. TL;DR A lot of investors buy high and sell low. We're seeing that now with crypto as well as US stocks.
deleted 6y ago
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sithlord 6y ago
You don't buy stocks because the company "makes money" you buy stocks because the expectation is that they will make more money in the future than they are now. Also, stocks don't really produce cash flow either - A dividend drops the price of each stock by the equivelent amount. So if you get a 3% dividend a year, the stock price is dropping by the same amount. I will say, it is easier to quantify that Apple/Google/other company is in an industry and makes things, and has revenue/expense to look at and thats why they are worth xyz today. I can't explain why bitcoin goes up or down. (other than whale buys a bunch, so the sheep follow)
- andrewmcwatters 6y ago
  No, that’s pretty much the number one reason someone would purchase equity in a company. I don’t know where the concept of dividends dropping the value of a company came from, but from a transactional point of view it doesn’t make sense. Sure, there are more earnings that have not been retained for increasing future earnings, but the value does not drop correspondingly. That’s just not how companies are valued. 3% of earnings going to shareholders just does not at all mean the company drops by 3% in value. Companies are valued in a number of different ways, but not one of them is based on a 1:1 proportion of earnings. Earnings multiples, yes, but what you’re suggesting is companies drop equivalent to being valued at a P/E ratio of 1. A company making 1 billion in earnings is not worth 1 billion dollars. Certainly not a majority of the time, at least. I am well aware of this myth, but not from where it originates. Yes, certainly cash on hand drops which affects valuations, but not by as much as you’re suggesting. I don’t understand your comment about stocks not producing cash flow. You’re buying part of a company. You’re not buying the certificate.
  - ur-whale 6y ago
    >I don’t know where the concept of dividends dropping the value of a company came from, Well, there's taxes for example.
    - andrewmcwatters 6y ago
      I should have been more clear in that first line. I don’t understand where the concept of a valuation of a company dropping 1:1 proportionally with its dividend payment came from.
doggosphere 6y ago
I'm enjoying sitting on the sidelines and watching people "save" in a fiat "currency" whose value is not linked to anything intrinsic, whose supply can magically be increased at the discretion of a few powerful individuals, and whose value has been declining relative to almost any tradeable assets. What a time to be alive. No wonder the M2 money supply is at an all time high. No one has any idea of what the intrinsic value is of anything.
- andrewmcwatters 6y ago
  Central banking as it exists in the US is designed to encourage spending. One person’s spending becomes another’s income. Having finite dollars and increasing demand leads to a currency that only increases in value. If an asset increases in value, there is an incentive to acquire it and not part with it.
  - jkhdigital 6y ago
    No matter how much I read on the subject, I always feel like the true nature and complexity of money eludes me. I don’t mean to disparage your comments, but I believe they reflect a lack of appreciation for the magnitude of the subject.
    - andrewmcwatters 6y ago
      I agree with you. I don’t mean to suggest economic machinations are trivial, but some of the comments in this subthread raise counterpoints that I think casually dismiss the original points.
      - traceddd 6y ago
        It’s true, but hardly limited to this subthread. While I disagree with most of HN about cryptocurrency and economics, the discussions are significantly more considerate and studied than anything I’ve come across in my daily life. Even society’s proclaimed experts seem to have an admittedly limited understanding and predictive capability. At the core, economics are an expression of collective human desire and thus it seems it will never be truly rigorous.
px43 6y ago
> You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits. Well yeah, starting a business is literally the riskiest thing you can do with a wad of cash. Much riskier than cryptocurrencies, riskier than most casinos. Of course it's going to have higher potential upside, but 75% of companies go completely broke within their first 15 years.
- andrewmcwatters 6y ago
  You’d also find that most public companies don’t increase their earnings growth substantially over extended periods of time, causing one to lose value correspondingly.
abetterday 6y ago
There is a whole mindset that has invigorated growth investing and has been invigorated by it: success is more luck and social proof than correctness or work + winner will take all = illusion management is key work + valuations don’t matter, but getting in does. It underpins major perspectives on investment, monetary and gov policy, and individual agency. It is infuriating, but it has worked spectacularly for a long time and has just enough truth in it to keep people building castles in the air.
nootropicat 6y ago
There's too much idle wealth in the world, or more precisely too many people with wealth have no idea what to do with it. It ends up 'invested' into negative yield assets like bitcoin (billions of dollars lost to mining per year - over 7 at the current price) or hyped companies running at perpetual loss. Bitcoin is interesting because it's possibly the biggest actual wealth destructor from all tradeable assets. Companies can have large losses on paper, but how much of that is actual wealth destruction, and how much just redistribution to new owners? I suspect the fraction that's actually gone in the physical sense is very small, allowing wealth to slosh around for a long time. Bitcoin's proof of work is designed to actually destroy wealth in the physical sense - transformed into waste heat and devices designed to do nothing else. This means that it's eventually certain to be outcompeted even by redistribution-type loss schemes, as groups that stay away from bitcoin completely are going to be increasingly wealthier relatively to groups that buy into it. In the short term it may not look like it, but what's happening is social redistribution of power away from people that think bitcoin is a great idea.
- shawnz 6y ago
  What's the difference from any kind of resource extraction industry that produces waste heat in addition to the resource?
  - nootropicat 6y ago
    That the gain from resource's utility is larger than losses, increasing the total amount of wealth in the world. Even in the case of gold, majority of demand is utility demand. https://www.goldbroker.com/media/image/cms/media/images/global-gold-demand-2019.jpg https://www.goldbroker.com/media/image/cms/media/images/glob...
    - shawnz 6y ago
      I don't really understand. If Gold didn't have use cases as jewellery or for industrial uses then are you saying it would be a net destructor too? How can it be a net destructor if the coins are worth more than the mining energy? Would Gold become a net destructor if jewellery demand declined for some reason?
imgabe 6y ago
I'm glad you're enjoying the sidelines. I'm enjoying that the $1000 I've invested in crypto has returned about $20,000 so far. Maybe it will still go to zero, who knows. I've already taken out more than I put in, so I don't care. > You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits. Yes, this incredibly vague statement is almost tautologically true. You can definitely think of a business that will make more money than some cherry-picked example of an investment that lost money. Bravo.
wayeq 6y ago
> You’d literally make more money today taking your cash and starting a business Right. Small businesses are just killing it these days.
deleted 6y ago
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mekster 6y ago
I find it interesting that HN crowd doesn't really refute your claims after 18 replies. I take its value that its supply doesn't unexpectedly increase by a single entity's decision but controlled and doesn't also need the help of another entity to transfer. Not sure if you call that intrinsic value but there is value.
wayeq 6y ago
Looking at Bitcoin solely through the lens of an investment vehicle is myopic. Bitcoin solves a number of problems right now, for example providing an opportunity for the nearly 2 billion people without access to a traditional banking system to securely participate in the world economy with nothing more than an old Nokia phone that can be bought for a few dollars. Another example is how it is providing a way for people in hyper-inflationary economies like Venezuela to store value. Demand is not only coming from people falling for the "greater sucker" theory. You're either ill informed on the topic or being dishonest.
- kbhn 6y ago
  > Bitcoin solves a number of problems right now, for example providing an opportunity for the nearly 2 billion people without access to a traditional banking system to securely participate in the world economy with nothing more than an old Nokia phone that can be bought for a few dollars. This is a fantasy put forth by Bitcoin enthusiasts that's not supported by the facts. The average cost of a bitcoin transaction is currently ~$7.5USD[1]; nobody in the unbanked world is spending the cost of 1-2 Nokias to make day-to-day purchases. > Another example is how it is providing a way for people in hyper-inflationary economies like Venezuela to store value. This isn't true. Zelle's ability to store actual USD make it the preferred means for storing digital currency safely in Venezuela right now[2]: "Ecoanalítica, a local consulting firm, estimates that 17% of transactions at retail establishments in Caracas go through [Zelle] and that other Venezuelan cities are seeing similar usage levels. The actual figure may be larger, considering the data do not include smaller shops." Accusing others of being ill informed or dishonest while yourself pushing forth maximalist narratives that aren't grounded in reality is a bit rich. [1] https://ycharts.com/indicators/bitcoin_average_transaction_fee#:~:text=Average%20Bitcoin%20transaction%20fees%20can,from%200.603%20one%20year%20ago https://ycharts.com/indicators/bitcoin_average_transaction_f.... [2] https://www.bloomberg.com/amp/news/features/2020-11-11/zelle-has-turned-dollar-starved-venezuela-into-a-cashless-test-lab https://www.bloomberg.com/amp/news/features/2020-11-11/zelle...
  - doggosphere 6y ago
    https://en.wikipedia.org/wiki/Lightning_Network https://en.wikipedia.org/wiki/Lightning_Network
olalonde 6y ago
Bullish. HN has an abysmally bad track record when it comes to investment advice, from Facebook to Bitcoin.
seebetter 6y ago
I agree and I took your advice. I believe in building things not trying to find some investment. I mined bitcoin and bought it at $1. And I looked at Ethereum prior to their ICO. Start a business, build a product. If you have excess cash by all means invest in crypto assets and startups.
shitgoose 6y ago
crypto is money. money can be invested, i.e. crypto can be invested. one does not invest in crypto. you are looking from the fiat=the_only_money prospective, which is limited. there are many types of money - fiat, crypto, gold. you can move between them, but those are not strictly investments in a sense of cash flow generation. re intrinsic value - i think that intrinsic value is a fiction. there is always a market value. i don't know what the hell "intrinsic" value is and how useful can it be.
- andrewmcwatters 6y ago
  How many legs does a dog have if you call his tail a leg?
  - shitgoose 6y ago
    5. what is the point?
deleted 6y ago
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c1b 6y ago
heard of gold?

free2OSS 6y ago

Wait until you hear about gold index funds/trusts.... Anyway, the reason you buy it is so you don't need to manage the security. Both Binance and Circle Pay ended United States operations causing my friends to either move their Bitcoin or they didn't and had it sold at 3k/coin and can get it from their states "lost money".

pradn 6y ago

If the value of a cryptocurrency is dependent on the community of the faithful, it's possible to "start the engines of faith", and keep it going for a long time. Fine art has been a large component of generational wealth in the West for the past six centuries. Of course, art has value as aesthetic objects; the same can be said for the potential use of cryptocurrency, however nebulous it may be. Religions, too, demand faith and, once they get started, often have staying power on the order of centuries.

chki 6y ago
That's a good point, also described in the book Sapiens by Harari: In a way Religion, currency and contract law (and many other things) are all "made up". They have institutions (priests, central banks, lawyers) with magic words (amen, price stability, due diligence) and a certain combination of magic words creates a new reality out of thin air. Think about how weird it is to "sign" an important contract and thereby changing you own future or the future of your company irrevocably. While I'm definitely not a fan of crypto currency and wouldn't seriously consider investing a single Euro into this mess, it's certainly misguided to simply laugh at it being "not real", because a lot of important things are. Obviously the gp makes some other important points.
- staplers 6y ago
  You've made the first step towards the deep dive of realizing cryptocurrency is a world changer. Good luck!

vmception 6y ago

Although digital asset prices are not a good proxy for their utility, there are plenty of utility for enough people and that expands and the addressable market expands. Crypto businesses are very lucrative so don’t be too busy asking why when you should be asking how

andrewmcwatters 6y ago
I’m not asking why, because anyone can find instances of mania in history such as this. Beanie babies. Tulips. The law of large numbers, in this case—the speculative experiment of seeking returns from assets that do not produce value, will iron this out. History does not repeat, but it rhymes often enough for those who know the tune to sing along.
- vmception 6y ago
  Rattling off references to other asset bubbles only shows how little you know about those asset bubbles and undermines the credibility of your strongly held opinions on what makes an asset worth paying attention to. For starters, you should probably start over on whatever you think you know about the tulips. Primarily its relation to tulip derivatives and the spot market of tulips, and the government's role in the dutch derivatives market at that time. And secondly, the length of that asset price distortion, compared to the crypto markets.
  - andrewmcwatters 6y ago
    I don’t know what you’re getting at. It would be like trying to better understand the microeconomic factors behind Beanie Babies. It’s an exercise in futility. They’re toys and they ended up being resold at prices that made no sense to the common man. Of all the endless knowledge that humanity produces, you have to ask yourself whether or not there’s meaning in pursuing topics endlessly. They’re flowers. This isn’t a discussion about some ECON 500-level course topic. There’s an academic argument to be had about whether or not the accounts of the event are credible, but that’s not what we’re talking about here.

NicoJuicy 6y ago

And where halve of the raise on crypto is because of tether...

imaginenore 6y ago
I call BS. Bitcoin's trading volume has been between $20 and $50 billion USD per day (in the last year). Tether's total valuation is $19.4 billion. It's a drop in the bucket.
- NicoJuicy 6y ago
  Then explain, by your own quote: > Research by John M. Griffin and Amin Shams in 2018 suggests that trading associated with increases in the amount of tether and associated trading at the Bitfinex exchange account for about half of the price increase in bitcoin in late 2017.[29][11][23] https://en.m.wikipedia.org/wiki/Tether_(cryptocurrency) https://en.m.wikipedia.org/wiki/Tether_(cryptocurrency) :) In the past, ethereum was also highly automated trading.
  - imaginenore 6y ago
    1) That is not my own quote. 2) Confirmation bias. There are people looking to prove what they already believe. So they go out and "prove it". Have you seen what their proof exactly is? I've heard claims like that many times, and their proofs fall apart every time as soon as you look at the numbers and how much cryptocurrencies are actually traded. The volumes are huge. Tether is tiny.
- Yizahi 6y ago
  Bitcoin is traded, even is we forget for a moment about wash trading. In each transaction we generate only a small margin, which adds to the value of traded assets. Only 2-5 billion dollars of bitcoins were from mining in 2020. Tethers are printed out of thin air and sold fully, from 0$ to 1$ (in equivalent), margin is 100%. So 15 billion of new tethers printed this summer had much more influence on the market than even greater amount of Bitcoin trades.
6y ago

centimeter 6y ago

> that you cannot spend, You can spend it. > does not produce cash flow, Neither commodities nor currencies produce cash flow. People still reasonably invest in both. > and whose values are determined by other shmucks buying it from previous shmucks. The value of every other asset in existence is also determined by this process.

FridgeSeal 6y ago
Bought any coffees (in person) with the crypto-currency of the week recently?
- hiimtroymclure 6y ago
  haha yeah I wasn't able to buy my coffee this morning with my gold bar so I threw it away. worthless metal amirite
  - FridgeSeal 6y ago
    At least gold has intrinsic value and isn’t attempting to be a modern currency...
    - centimeter 6y ago
      > gold has intrinsic value "Intrinsic value" isn't a rational concept and doesn't exist inside any successful economic formalizations. Gold has value because it has useful properties, just like Bitcoin. Gold: Shiny, sort of limited supply, difficult to store and transport Bitcoin: Not shiny, hard-limited supply, easy to store and transport
- s5300 6y ago
  So I asked this cute barista if she'd be able to accept a fraction of my TSLA stonks for my coffee
- centimeter 6y ago
  I don't drink coffee, but I bought a JLC Geophysic last week.

reader_mode 6y ago

>You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits. You refuted yourself in the second paragraph. I suspect that crazy cash and financial instruments are crowding out the value of business investment.

colejohnson66 6y ago

> I’m enjoying sitting on the sidelines and watching people “invest” in a digital “currency” that you cannot spend, does not produce cash flow, and whose values are determined by other shmucks buying it from previous shmucks. Is that any different than a stock though? You can’t spend stocks, they don’t produce cash flow (ignoring dividends), and their value is what other’s are buying and selling it for. Just as I can offer to sell my share for $10,000 despite it trading at $100, I can do the same with Bitcoin. There’s a reason some people call Bitcoin an “investment.” Now, before anyone thinks I’m advocating Bitcoin, I’m not. I’m just pointing out the similarities to the stock market.

andrewmcwatters 6y ago
If I buy a company, I literally can choose what to do with its earnings. That’s the point of valuing businesses. You’re not buying the stock. You’re buying a portion of the business. Say you have a drywall company in town. You and the owner are good friends and the owner wants to retire but doesn’t have a family member who is interested in the enterprise. He seeks out buyers. You mention to him you’re interested but you have to ask yourself how much you’re willing to pay for the business, its fleet, tools, leads and customer database, current lease agreements, employees, etc. Someone has to value that, because it intrinsically has value. It’s not worthless. You can’t rebuild a multimillion dollar business over night. So it turns out if you have this entity that produces cash flow, it’s worth something. So how much are you willing to pay for each dollar of earnings? At the end of the day, that’s what a business produces for its owners.
- colejohnson66 6y ago
  Sure, voting is something different. I didn’t say they were the same. I said they were similar. Also, I know plenty of people who purchase stocks simply to make money: I don’t know anyone who does to vote.
  - mantap 6y ago
    The existence of companies that have voting and non-voting shares allows us to measure how much voting is worth. Google's non voting shares trade at basically the same value as their voting shares. Berkshire Hathaway's reduced voting right shares trade at basically the same value as their full voting right shares. Whatever drives the value of shares it's not voting rights.

adverbly 6y ago

(difficulty to execute hardest to easiest) - Starting the right business - Picking the right businesses to invest in - Investing in Crypto(used to be easier than it is now) - Convincing shmucks to invest in the wrong business - Investing in index funds ROI if executed successfully(highest to lowest) - Starting the right business - Convincing shmucks to invest in the wrong business - Investing in Crypto - Picking the right businesses to invest in - Investing in index funds strategic money making popularity scores Don't try this at home. Very few people do this well. Those that do make a lot of money. - Picking the right businesses to invest in - Starting the right business The "Dominant Strategy" of the market right now - Convincing shmucks to invest in the wrong business If you know what you're doing - Investing in Crypto What shmucks should do - Investing in index funds

UShouldBWorking 6y ago

What a salty jerk. 1. How else are you going to transfer or store wealth across borders? 2. How do you know which business to start/invest in. 3. You are just more of the same, angry and lashing out because you missed the boat.

misnamed 6y ago

Agree re:CAPE. Meanwhile, people are ignoring the relatively attractive valuations of small, value, plus developed and emerging ex-US markets. While retail investors pile onto overvalued US stocks, these are now slowly catching back up and starting to get ahead. Funny thing about all of this to me is that people are always fighting the last proverbial war. Ten years ago, US stocks and tech in particular were in the doghouse - no one was buying them then. TL;DR A lot of investors buy high and sell low. We're seeing that now with crypto as well as US stocks.

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sithlord 6y ago

You don't buy stocks because the company "makes money" you buy stocks because the expectation is that they will make more money in the future than they are now. Also, stocks don't really produce cash flow either - A dividend drops the price of each stock by the equivelent amount. So if you get a 3% dividend a year, the stock price is dropping by the same amount. I will say, it is easier to quantify that Apple/Google/other company is in an industry and makes things, and has revenue/expense to look at and thats why they are worth xyz today. I can't explain why bitcoin goes up or down. (other than whale buys a bunch, so the sheep follow)

andrewmcwatters 6y ago
No, that’s pretty much the number one reason someone would purchase equity in a company. I don’t know where the concept of dividends dropping the value of a company came from, but from a transactional point of view it doesn’t make sense. Sure, there are more earnings that have not been retained for increasing future earnings, but the value does not drop correspondingly. That’s just not how companies are valued. 3% of earnings going to shareholders just does not at all mean the company drops by 3% in value. Companies are valued in a number of different ways, but not one of them is based on a 1:1 proportion of earnings. Earnings multiples, yes, but what you’re suggesting is companies drop equivalent to being valued at a P/E ratio of 1. A company making 1 billion in earnings is not worth 1 billion dollars. Certainly not a majority of the time, at least. I am well aware of this myth, but not from where it originates. Yes, certainly cash on hand drops which affects valuations, but not by as much as you’re suggesting. I don’t understand your comment about stocks not producing cash flow. You’re buying part of a company. You’re not buying the certificate.
- ur-whale 6y ago
  >I don’t know where the concept of dividends dropping the value of a company came from, Well, there's taxes for example.
  - andrewmcwatters 6y ago
    I should have been more clear in that first line. I don’t understand where the concept of a valuation of a company dropping 1:1 proportionally with its dividend payment came from.

doggosphere 6y ago

I'm enjoying sitting on the sidelines and watching people "save" in a fiat "currency" whose value is not linked to anything intrinsic, whose supply can magically be increased at the discretion of a few powerful individuals, and whose value has been declining relative to almost any tradeable assets. What a time to be alive. No wonder the M2 money supply is at an all time high. No one has any idea of what the intrinsic value is of anything.

andrewmcwatters 6y ago
Central banking as it exists in the US is designed to encourage spending. One person’s spending becomes another’s income. Having finite dollars and increasing demand leads to a currency that only increases in value. If an asset increases in value, there is an incentive to acquire it and not part with it.
- jkhdigital 6y ago
  No matter how much I read on the subject, I always feel like the true nature and complexity of money eludes me. I don’t mean to disparage your comments, but I believe they reflect a lack of appreciation for the magnitude of the subject.
  - andrewmcwatters 6y ago
    I agree with you. I don’t mean to suggest economic machinations are trivial, but some of the comments in this subthread raise counterpoints that I think casually dismiss the original points.
    - traceddd 6y ago
      It’s true, but hardly limited to this subthread. While I disagree with most of HN about cryptocurrency and economics, the discussions are significantly more considerate and studied than anything I’ve come across in my daily life. Even society’s proclaimed experts seem to have an admittedly limited understanding and predictive capability. At the core, economics are an expression of collective human desire and thus it seems it will never be truly rigorous.

px43 6y ago

> You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits. Well yeah, starting a business is literally the riskiest thing you can do with a wad of cash. Much riskier than cryptocurrencies, riskier than most casinos. Of course it's going to have higher potential upside, but 75% of companies go completely broke within their first 15 years.

andrewmcwatters 6y ago
You’d also find that most public companies don’t increase their earnings growth substantially over extended periods of time, causing one to lose value correspondingly.

abetterday 6y ago

There is a whole mindset that has invigorated growth investing and has been invigorated by it: success is more luck and social proof than correctness or work + winner will take all = illusion management is key work + valuations don’t matter, but getting in does. It underpins major perspectives on investment, monetary and gov policy, and individual agency. It is infuriating, but it has worked spectacularly for a long time and has just enough truth in it to keep people building castles in the air.

nootropicat 6y ago

There's too much idle wealth in the world, or more precisely too many people with wealth have no idea what to do with it. It ends up 'invested' into negative yield assets like bitcoin (billions of dollars lost to mining per year - over 7 at the current price) or hyped companies running at perpetual loss. Bitcoin is interesting because it's possibly the biggest actual wealth destructor from all tradeable assets. Companies can have large losses on paper, but how much of that is actual wealth destruction, and how much just redistribution to new owners? I suspect the fraction that's actually gone in the physical sense is very small, allowing wealth to slosh around for a long time. Bitcoin's proof of work is designed to actually destroy wealth in the physical sense - transformed into waste heat and devices designed to do nothing else. This means that it's eventually certain to be outcompeted even by redistribution-type loss schemes, as groups that stay away from bitcoin completely are going to be increasingly wealthier relatively to groups that buy into it. In the short term it may not look like it, but what's happening is social redistribution of power away from people that think bitcoin is a great idea.

shawnz 6y ago
What's the difference from any kind of resource extraction industry that produces waste heat in addition to the resource?
- nootropicat 6y ago
  That the gain from resource's utility is larger than losses, increasing the total amount of wealth in the world. Even in the case of gold, majority of demand is utility demand. https://www.goldbroker.com/media/image/cms/media/images/global-gold-demand-2019.jpg https://www.goldbroker.com/media/image/cms/media/images/glob...
  - shawnz 6y ago
    I don't really understand. If Gold didn't have use cases as jewellery or for industrial uses then are you saying it would be a net destructor too? How can it be a net destructor if the coins are worth more than the mining energy? Would Gold become a net destructor if jewellery demand declined for some reason?

imgabe 6y ago

I'm glad you're enjoying the sidelines. I'm enjoying that the $1000 I've invested in crypto has returned about $20,000 so far. Maybe it will still go to zero, who knows. I've already taken out more than I put in, so I don't care. > You’d literally make more money today taking your cash and starting a business than dumping it in some of these worthless pursuits. Yes, this incredibly vague statement is almost tautologically true. You can definitely think of a business that will make more money than some cherry-picked example of an investment that lost money. Bravo.

wayeq 6y ago

> You’d literally make more money today taking your cash and starting a business Right. Small businesses are just killing it these days.

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mekster 6y ago

I find it interesting that HN crowd doesn't really refute your claims after 18 replies. I take its value that its supply doesn't unexpectedly increase by a single entity's decision but controlled and doesn't also need the help of another entity to transfer. Not sure if you call that intrinsic value but there is value.

wayeq 6y ago

Looking at Bitcoin solely through the lens of an investment vehicle is myopic. Bitcoin solves a number of problems right now, for example providing an opportunity for the nearly 2 billion people without access to a traditional banking system to securely participate in the world economy with nothing more than an old Nokia phone that can be bought for a few dollars. Another example is how it is providing a way for people in hyper-inflationary economies like Venezuela to store value. Demand is not only coming from people falling for the "greater sucker" theory. You're either ill informed on the topic or being dishonest.

kbhn 6y ago
> Bitcoin solves a number of problems right now, for example providing an opportunity for the nearly 2 billion people without access to a traditional banking system to securely participate in the world economy with nothing more than an old Nokia phone that can be bought for a few dollars. This is a fantasy put forth by Bitcoin enthusiasts that's not supported by the facts. The average cost of a bitcoin transaction is currently ~$7.5USD[1]; nobody in the unbanked world is spending the cost of 1-2 Nokias to make day-to-day purchases. > Another example is how it is providing a way for people in hyper-inflationary economies like Venezuela to store value. This isn't true. Zelle's ability to store actual USD make it the preferred means for storing digital currency safely in Venezuela right now[2]: "Ecoanalítica, a local consulting firm, estimates that 17% of transactions at retail establishments in Caracas go through [Zelle] and that other Venezuelan cities are seeing similar usage levels. The actual figure may be larger, considering the data do not include smaller shops." Accusing others of being ill informed or dishonest while yourself pushing forth maximalist narratives that aren't grounded in reality is a bit rich. [1] https://ycharts.com/indicators/bitcoin_average_transaction_fee#:~:text=Average%20Bitcoin%20transaction%20fees%20can,from%200.603%20one%20year%20ago https://ycharts.com/indicators/bitcoin_average_transaction_f.... [2] https://www.bloomberg.com/amp/news/features/2020-11-11/zelle-has-turned-dollar-starved-venezuela-into-a-cashless-test-lab https://www.bloomberg.com/amp/news/features/2020-11-11/zelle...
- doggosphere 6y ago
  https://en.wikipedia.org/wiki/Lightning_Network https://en.wikipedia.org/wiki/Lightning_Network

olalonde 6y ago

Bullish. HN has an abysmally bad track record when it comes to investment advice, from Facebook to Bitcoin.

seebetter 6y ago

I agree and I took your advice. I believe in building things not trying to find some investment. I mined bitcoin and bought it at $1. And I looked at Ethereum prior to their ICO. Start a business, build a product. If you have excess cash by all means invest in crypto assets and startups.

shitgoose 6y ago

crypto is money. money can be invested, i.e. crypto can be invested. one does not invest in crypto. you are looking from the fiat=the_only_money prospective, which is limited. there are many types of money - fiat, crypto, gold. you can move between them, but those are not strictly investments in a sense of cash flow generation. re intrinsic value - i think that intrinsic value is a fiction. there is always a market value. i don't know what the hell "intrinsic" value is and how useful can it be.

andrewmcwatters 6y ago
How many legs does a dog have if you call his tail a leg?
- shitgoose 6y ago
  5. what is the point?

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c1b 6y ago

heard of gold?