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People doubled their money on paper in unrealized gains. But since Bitcoin is being sold as a store of value and not as a medium of exchange nowadays, if you wa

by np- 6y ago

People doubled their money on paper in unrealized gains. But since Bitcoin is being sold as a store of value and not as a medium of exchange nowadays, if you want to realize that value you need to sell. Where's that cash coming from? Other buyers, i.e. the next layer of suckers as indicated in OP's post. And if enough people decide to sell, then those doubled/tripled/etc values aren't going to last very long. Note I'm not saying that it's not possible to win in this system - clearly some people will, at the expense of many others. Perhaps it's my own ignorance, but I genuinely struggle to see how this isn't a zero sum game.

ZephyrBlu 6y ago
The stock market is zero sum as well... When one person wins, another loses. Are people buying Google, Facebook and Amazon stock suckers as well?
- Animats 6y ago
  Stocks have dividends. The value of a stock is the present value of all future dividends. Otherwise you're hoping to find a greater fool.
  - tcoff91 6y ago
    More and more companies are moving away from dividends to buy backs so for many stocks you have to sell to realize profits.
    - Animats 6y ago
      Yes, because stock buybacks reward management with options. Dividends do not. Many countries don't allow a company to buy its own stock.
      - tcoff91 6y ago
        Stock buybacks are more tax advantageous to investors than dividends. The price goes up and you sell some shares and pay long term capital gains if you’ve held for more than a year. This is cheaper than paying income tax on dividends.
  - Galanwe 6y ago
    > The value of a stock is the present value of all future dividend That is an idea from the 70s. Not many people would agree that there is an actual fair value for a stock anymore, much less that it is driven solely by accrued future dividends.
    - Animats 6y ago
      After a while, reality comes back to bite you.
    - georgeecollins 6y ago
      >> That is an idea from the 70s. No, that is an idea from economics predating the 1970s. Did you mean the 1870s? It predates that. You can value a stock however you like. Good luck, I wish you well.
      - Galanwe 6y ago
        > No, that is an idea from economics predating the 1970s. Did you mean the 1870s? It predates that. It really depends on what level of formalism you consider to be the basis of "the idea". I'm referring to the "dividend discount model" (DDM) here, which to me is the first real well defined model of this idea in modern economy. Exposed in early 60s and democratized in the 70s: "The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value."
- petters 6y ago
  The stock market is certainly not zero sum. Bitcoin provides very little value outside speculation, not zero, but very little. That is the difference.
  - tcoff91 6y ago
    Crypto provides global access to a decentralized, permissionless, censorship resistant financial system. Bitcoin provides a savings vehicle that has a completely predictable and transparent supply. That's very valuable.
    - andresp 6y ago
      Why do you care so much about predictable supply if the price is anything but predictable? How is such high volatility commodity a good storage of value? It might be a good speculation vehicle, but people looking to store value typically look for something more stable. It remains to be seen how resistant Bitcoin is if powerful governments really decide to take it down. Bitcoin and Blockchain is an interesting project but 1 BTC > 50k USD... Yeah, sure...
      - throwaway3699 6y ago
        It doesn't matter if there's some instability, as long as it's not a downward trend. > Bitcoin and Blockchain is an interesting project but 1 BTC > 50k USD... Yeah, sure... Bitcoin could conceivably become the next global reserve currency, 50k USD is horribly undervalued from that PoV.
      - repartix 6y ago
        I applaud you for asking good questions. > Why do you care so much about predictable supply if the price is anything but predictable? Because the price will go higher. When the price goes over $x MM per BTC it will be very predictable. > How is such high volatility commodity a good storage of value? It stores more value than any other commodity. When the stock market started in 1920s it was no less volatile than Bitcoin. Volatility is a sign of disruption as much as it is a sign of value. > 1 BTC > 50k USD... Yeah, sure... If only you could see the data I'm seeing.
- np- 6y ago
  Well, no comment on if they're suckers or not, but I think this is a misunderstanding of what a share in a company is. With a share, you own something with actual tangential value, i.e. claim on dividends/voting rights/cash flow/etc. Plus the company itself can actually go and do valuable things and make money - Apple can go and sell a bunch of iPhones and make a ton of money, and then reward their investors through dividends, buybacks, etc. That's not zero sum, there was something of value created and provided to the world. I do understand that in reality many people play the stock market like it's a casino, but that doesn't change the fact that it's still fundamentally different.
kragen 6y ago
Same's true of gold, silver, or cash-settled fresh bacon index futures. Consequently such commodities tend to have long-run zero returns, or returns that just equal the per-capita GDP growth rate, depending on how you look at it. I've watched people lose fortunes at that poker table. The fresh bacon index is maybe less exposed to this kind of thing because, unless the world mass-converts to Judaism or something, someone will pay to eat bacon, so there's a floor on how low the value can go. But gold? Industrial use of gold is minuscule compared to speculative gold trading. Today GC trades at US$1773 per troy ounce, which is 10% down from a few months ago, late 02020, and 100% up from 02008. In 02001 it was barely above US$200. It could drop to US$200 again, and everyone who bought today and held will have lost 80% of what they invested. That can happen with fresh bacon, too. What's different with gold is that, if enough people decide to sell, it could drop to US$20. It could drop to US$2. Or it could rise to US$20000. We have more history about gold: it's been a precious metal for many millennia and a widespread currency for the last three. So it's a lot less likely for it to lose 99% or 99.9% of its value like that, or go up 100× (though, as I said, it's gone up very close to 10× in a mere score of years.) People — and, especially, central banks and governments — invest in gold because they dont think it's likely for that to happen, and because it doesn't have the secular inflationary tendency that fiat currencies do. It may bounce up and down by a factor of 10 in a couple of decades, but in 01687 it was probably also within that same factor-of-10 band. They're not looking for an expectation of profit when they seek a "store of value". They're just looking to reduce the risk of indigency.

by np- 6y ago

ZephyrBlu 6y ago

The stock market is zero sum as well... When one person wins, another loses. Are people buying Google, Facebook and Amazon stock suckers as well?

Animats 6y ago
Stocks have dividends. The value of a stock is the present value of all future dividends. Otherwise you're hoping to find a greater fool.
- tcoff91 6y ago
  More and more companies are moving away from dividends to buy backs so for many stocks you have to sell to realize profits.
  - Animats 6y ago
    Yes, because stock buybacks reward management with options. Dividends do not. Many countries don't allow a company to buy its own stock.
    - tcoff91 6y ago
      Stock buybacks are more tax advantageous to investors than dividends. The price goes up and you sell some shares and pay long term capital gains if you’ve held for more than a year. This is cheaper than paying income tax on dividends.
- Galanwe 6y ago
  > The value of a stock is the present value of all future dividend That is an idea from the 70s. Not many people would agree that there is an actual fair value for a stock anymore, much less that it is driven solely by accrued future dividends.
  - Animats 6y ago
    After a while, reality comes back to bite you.
  - georgeecollins 6y ago
    >> That is an idea from the 70s. No, that is an idea from economics predating the 1970s. Did you mean the 1870s? It predates that. You can value a stock however you like. Good luck, I wish you well.
    - Galanwe 6y ago
      > No, that is an idea from economics predating the 1970s. Did you mean the 1870s? It predates that. It really depends on what level of formalism you consider to be the basis of "the idea". I'm referring to the "dividend discount model" (DDM) here, which to me is the first real well defined model of this idea in modern economy. Exposed in early 60s and democratized in the 70s: "The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value."
petters 6y ago
The stock market is certainly not zero sum. Bitcoin provides very little value outside speculation, not zero, but very little. That is the difference.
- tcoff91 6y ago
  Crypto provides global access to a decentralized, permissionless, censorship resistant financial system. Bitcoin provides a savings vehicle that has a completely predictable and transparent supply. That's very valuable.
  - andresp 6y ago
    Why do you care so much about predictable supply if the price is anything but predictable? How is such high volatility commodity a good storage of value? It might be a good speculation vehicle, but people looking to store value typically look for something more stable. It remains to be seen how resistant Bitcoin is if powerful governments really decide to take it down. Bitcoin and Blockchain is an interesting project but 1 BTC > 50k USD... Yeah, sure...
    - throwaway3699 6y ago
      It doesn't matter if there's some instability, as long as it's not a downward trend. > Bitcoin and Blockchain is an interesting project but 1 BTC > 50k USD... Yeah, sure... Bitcoin could conceivably become the next global reserve currency, 50k USD is horribly undervalued from that PoV.
    - repartix 6y ago
      I applaud you for asking good questions. > Why do you care so much about predictable supply if the price is anything but predictable? Because the price will go higher. When the price goes over $x MM per BTC it will be very predictable. > How is such high volatility commodity a good storage of value? It stores more value than any other commodity. When the stock market started in 1920s it was no less volatile than Bitcoin. Volatility is a sign of disruption as much as it is a sign of value. > 1 BTC > 50k USD... Yeah, sure... If only you could see the data I'm seeing.
np- 6y ago
Well, no comment on if they're suckers or not, but I think this is a misunderstanding of what a share in a company is. With a share, you own something with actual tangential value, i.e. claim on dividends/voting rights/cash flow/etc. Plus the company itself can actually go and do valuable things and make money - Apple can go and sell a bunch of iPhones and make a ton of money, and then reward their investors through dividends, buybacks, etc. That's not zero sum, there was something of value created and provided to the world. I do understand that in reality many people play the stock market like it's a casino, but that doesn't change the fact that it's still fundamentally different.

kragen 6y ago

Same's true of gold, silver, or cash-settled fresh bacon index futures. Consequently such commodities tend to have long-run zero returns, or returns that just equal the per-capita GDP growth rate, depending on how you look at it. I've watched people lose fortunes at that poker table. The fresh bacon index is maybe less exposed to this kind of thing because, unless the world mass-converts to Judaism or something, someone will pay to eat bacon, so there's a floor on how low the value can go. But gold? Industrial use of gold is minuscule compared to speculative gold trading. Today GC trades at US$1773 per troy ounce, which is 10% down from a few months ago, late 02020, and 100% up from 02008. In 02001 it was barely above US$200. It could drop to US$200 again, and everyone who bought today and held will have lost 80% of what they invested. That can happen with fresh bacon, too. What's different with gold is that, if enough people decide to sell, it could drop to US$20. It could drop to US$2. Or it could rise to US$20000. We have more history about gold: it's been a precious metal for many millennia and a widespread currency for the last three. So it's a lot less likely for it to lose 99% or 99.9% of its value like that, or go up 100× (though, as I said, it's gone up very close to 10× in a mere score of years.) People — and, especially, central banks and governments — invest in gold because they dont think it's likely for that to happen, and because it doesn't have the secular inflationary tendency that fiat currencies do. It may bounce up and down by a factor of 10 in a couple of decades, but in 01687 it was probably also within that same factor-of-10 band. They're not looking for an expectation of profit when they seek a "store of value". They're just looking to reduce the risk of indigency.