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> This sounds like a weird way to invest. According to this logic I should invest $.01 in BTC and then to borrow from a funny commenter in this thread, $.01 in

> This sounds like a weird way to invest. According to this logic I should invest $.01 in BTC and then to borrow from a funny commenter in this thread, $.01 in Dodgecoin, $.01 in Ether, $.01 in baseball cards, $.01 in wine, $.01 in beanie babies, etc etc etc etc etc - that basically any investment that exists deserves my dollars. Honestly, I found that comment disrespectful and making a mockery of a point - it's all too common these days. If I were to take the opposite of the comment, we should NOT invest in anything and stay 100% in cash because each and every asset has risks and volatility. > I disagree. There's plenty of stuff one "could" invest in and very few one "should." You know that I agree with you right? I never said you SHOULD invest in BTC. I was making the point that IF one wants to invest in the BTC, then one can do so by a minimal asset allocation. It fits within your "expected value" framework. > But the point of diversification is to secure uncorrelated positive returns. A negative return on the other hand is just a negative return. I totally agree with you that I could be wrong in my short case on BTC, my logic rests on it. I agree. But, surely if you were willing to consider an Armageddon scenario for BTC; you could also consider a 100% upside scenario too. We did a thought experiment on the Armageddon scenario, I haven't seen any calculations on the upside. > And just in defense of my case - I think about markets as someone who's studied and worked in them for 18+ years. Doesn't mean I am right and I have an open mind. So whenever I encounter someone who has the opposite view, I explain to them my case with the hopes that they can point me to what I am missing, but I always walk away with the impression they hadn't thought about the issue deeply and with nuance. Again, I could totally be wrong, but as an investor if it seems like I did my homework and the others are driven by hype/FOMO/not understanding then I am gonna sit it out :) I am grateful for you that you took the time to listen. I could not find a e-mail or contact on your profile. I'd be happy to take this offline and I want to understand what I am missing here.

xyzelement 6y ago
To be clear - you're right, I did the run-through the worst-case scenario, but I did it for someone else who wasn't seeing it. It's not that my own view rests on it. I won't share my email or other contact here since I tend to share somewhat personal stories on HN so I'd rather it not totally tie to who I am (though really who cares) so let me lay out the simplest view of my short case on BTC. I believe that valuation matters. I "believe" in the price of an oil futures contract for example because I know it represents the best effort of invested parties to arrive at what that price ought to be (through a market mechanism.) So people say things like "I am bullish on oil as long as it's under $X" - and once it goes above $X (plus some margin perhaps) even the bulls sell. This is good because it's sane behavior in the market. With Bitcoin, I don't see anyone say "I am bullish until it crosses $X" - the culture of the marketplace is that it's going up no matter the price. In market terms it creates unchecked upward pressure on the price, which in my mind equates to bubble conditions. And then I have seen enough bubbles burst (in my lifetime and through study of history) to know that unchecked upward pressure will stop just after it reaches its max. And since people aren't anchoring to an analytic $X price, there's likewise no floor on the way down. I spelled out the mechanics of this in what you call Armageddon analysis. To boil this down very simply: 1. Whenever people are buying without an attempt to valuate, they inflate a bubble. 2. Bubbles always burst. I have other, more technical and psychological elements to the short case, but this is the simplest piece. People bidding something up without concern for valuation always spells trouble.

xyzelement 6y ago

To be clear - you're right, I did the run-through the worst-case scenario, but I did it for someone else who wasn't seeing it. It's not that my own view rests on it. I won't share my email or other contact here since I tend to share somewhat personal stories on HN so I'd rather it not totally tie to who I am (though really who cares) so let me lay out the simplest view of my short case on BTC. I believe that valuation matters. I "believe" in the price of an oil futures contract for example because I know it represents the best effort of invested parties to arrive at what that price ought to be (through a market mechanism.) So people say things like "I am bullish on oil as long as it's under $X" - and once it goes above $X (plus some margin perhaps) even the bulls sell. This is good because it's sane behavior in the market. With Bitcoin, I don't see anyone say "I am bullish until it crosses $X" - the culture of the marketplace is that it's going up no matter the price. In market terms it creates unchecked upward pressure on the price, which in my mind equates to bubble conditions. And then I have seen enough bubbles burst (in my lifetime and through study of history) to know that unchecked upward pressure will stop just after it reaches its max. And since people aren't anchoring to an analytic $X price, there's likewise no floor on the way down. I spelled out the mechanics of this in what you call Armageddon analysis. To boil this down very simply: 1. Whenever people are buying without an attempt to valuate, they inflate a bubble. 2. Bubbles always burst. I have other, more technical and psychological elements to the short case, but this is the simplest piece. People bidding something up without concern for valuation always spells trouble.