7 ms·

Bitcoin as an Investment (2018) [pdf]

nodesocket 5y ago
> 1.2 Bitcoin investing is a negative-sum game Bitcoin on the day this was published was trading around $7,500. It's now trading at $37,000. I'd say these guys got it wrong. *at least so far*.
- ryan-allen 5y ago
  If only we could predict the future!
- Elzear 5y ago
  "At any point in time — past, present, or future — the people who have ever bought bitcoins, considered as a whole, have put into the game more money than they have got back." Are you claiming that this sentence is false?
  - keymone 5y ago
    is it not? only tiny fraction of bitcoin's lifetime -- two months out of 12 years -- has it been at higher levels than today.
  - ta1234567890 5y ago
    That’s true. And it’s also true for any stock that doesn’t pay dividends as well. Should people not invest in those stocks? Or should we ban non-dividend stocks for being Ponzi schemes?
    - randomsearch 5y ago
      I believe that the missing point there is the expectation that those stocks will _eventually_ pay dividends.
      - mastermojo 5y ago
        I don't think (in my lifetime) I've heard anyone discuss buying or selling a stock in the context of a Dividend Discount Model. This observation isn't really in support of Bitcoin, it's more of a depressing thought that our stock markets are closer to a Keynesian beauty contest. (GME, AMC, etc). I don't personally own stocks or real estate for cash flow purposes. I own them with the expectation that I can sell them for more money down the line.
        randomsearch 5y ago
        > I've heard anyone discuss buying or selling a stock in the context of a Dividend Discount Model. Pension funds.
    - arcticbull 5y ago
      That's not accurate. Dividends are just one of the many ways that companies accrue value. Companies use revenues to invest in the business, to repurchase shares and also to issue dividends. This net welfare accretion must be considered in its totality. Just because a company doesn't issue dividends doesn't make it a Ponzi scheme, and it doesn't make it a zero sum investment (like precious metals) or an negative sum investment (like PoW coins and to a lesser extent, most (all?) other coins). “In the short run, the market is a voting machine, but in the long run, it is a weighing machine”
    - JediLuke 5y ago
      At least stocks/companies have a balance sheet with real assets. Even if the whole company shut down (and wasn’t bankrupt) investors would still get at least some of their money back after liquidation.
    - deleted 5y ago
      [deleted]
  - BenoitP 5y ago
    This is compatible with Bitcoin being a store of value. If velocity stays low, the price will continue to go up.
  - pcthrowaway 5y ago
    Let's consider this in the context of another currency, say, the Euro. "At any point in time - past, present, or future - the people who have ever bought Euros [with real currency, aka every other fiat], considered as a whole, have put into the game more money than they have got back." Now the Euro is heavily traded in forex markets, and surely the price fluctuates. Is this statement true? I'd suspect yes, though there are many other factors at play. Has the value of Euro increased relative to the other currencies it trades against? If so, this is probably due to large amounts of money pouring into it as a more lucrative asset than the quote currency. I think this question really only makes sense using another currency as a reference. So let's consider the Zimbabwe dollar during its period of hyperinflation (2007-2009). In this case, citizens of Zimbabwe who bought Euros very likely got back more of whatever currency they eventually converted it to than they would have if they had kept their money in Zimbabwe dollars. But what does this even mean. There is no 'stable' currency to use as a true reference, the value of each in the global market is constantly fluctuating. 'Getting less or more money back' becomes hard to evaluate. So let's talk about purchasing power instead. I suspect the people who have ever bought into bitcoins as a whole, have increased their purchasing power (the number of coca-cola's they can theoretically buy on any given day).
    - arcticbull 5y ago
      > Now the Euro is heavily traded in forex markets, and surely the price fluctuates. Is this statement true? It is not true, because currencies aren't assets. Currencies are a medium of exchange. Their job is to hold value for only as long as it takes you use them to buy necessities or invest them in assets. That's it. Any longer is a non-goal. Goals include low transaction costs, high transaction speed, fungibility, stability and predictability. As for the FOREX market, that's a highly leveraged speculative trade on the relative purchasing power of a pair of currencies. That's not an investment and it's certainly not an asset. With that in mind FOREX is widely regarded as a zero-sum market in the same way options and futures are. Money from the winners goes to pay off the losers. > In this case, citizens of Zimbabwe who bought Euros very likely got back more of whatever currency they eventually converted it to than they would have if they had kept their money in Zimbabwe dollars. This would have been a zero sum trade, not negative sum. Zero sum doesn't mean reversible or that there aren't winners and losers, just that considered as a whole, between all participants, no money left the system and no money entered - what was there was simply redistributed.
- Yizahi 5y ago
  All bitcoin gains came from some poor guys who bought into this hysteria later than other and are now hoping to find another poor guy who will buy at current prices. I'm not saying that they will definitely stop, it is possible that this loop will continue for a long time, but people need to remember that these "valuations" is simply a product of a hype to resell at a higher price.
  - ddrdrck_ 5y ago
    So far I wouldn't talk about "poor" guys
- arcticbull 5y ago
  This is addressed specifically. > "Since there is no source of revenue that would repay investments in bitcoin, there is no way to make a rational estimate for its value (above zero). There is no explanation for why the price is now 7300 USD/BTC rather than 0.73 or 73,000,000" (section 1.3)
  - jjjdjjddddsfsd 5y ago
    Why is a liter of milk worth 1$?
    - deleted 5y ago
      [deleted]
    - arcticbull 5y ago
      It doesn't matter why a liter of milk costs $1 - what matters is that it costs $1 now, it'll cost roughly $1 a year from now and in the interim, it'll still also cost $1. Predictability and consistency is a critical aspect of currency. The actual numerical value is irrelevant. You can't assign a fundamental value to the purchasing power of a bitcoin when treating it as a currency because there's nowhere in the world that bitcoin is used to denominate the sticker price of goods. If there was you could regress its value based on how much one bitcoin would buy you in terms of goods priced in it. However, without that, you can only treat it as a purely speculative asset as jstolfi did. If that ever changes, our model will have to change. It has not, and IMO will not, even with El Salvador because its wildly fluctuating notional value determined predominantly by global speculators precludes it from being used to actually price things in a meaningful and consistent way. [edit] Either way, the title of the write-up was 'Bitcoin as an investment' - currencies aren't an investment, so the analysis models it as an asset.
      - hervature 5y ago
        Your entire comment is an argument why Bitcoin is more an investment than currency. The opposite of what the paper is trying to accomplish.
      - 5y ago
hervature 5y ago
Can we somehow change the title to reflect that this isn't an official SEC statement and rather a comment from the public? Written by someone with (seemingly) no economic understanding. Particularly, stating the price of Bitcoins is "fictitious". You can make an argument that it is based purely on speculation, but that doesn't make the price a matter of fiction. Edit: Here is a rebuttal letter to this comment: https://www.sec.gov/comments/sr-batsbzx-2016-30/batsbzx201630-32.pdf https://www.sec.gov/comments/sr-batsbzx-2016-30/batsbzx20163... The person clearly has an axe to grind with Bitcoin.
- arcticbull 5y ago
  Their entire rebuttal is "jstolfi makes some good points but he's mean to us on reddit"
- haskellandchill 5y ago
  I was going to thank you for pointing out the rebuttal except it was utterly devoid of substance. As for the title, your comment is good enough to note this is a comment rather than SEC statement. Hacker News is a little weak with domains that serve multiple purposes and I don't think it is misleading or even matters as this submission won't make the front page or anything.
  - hervature 5y ago
    At the time when I posted my comment, it was on the front page. Substance is in the eye of the beholder, but the posting of the comment served two purposes. 1) To show that anyone can say anything in these comments, 2) the level of commentary is need not be very high.
gopalgoel19 5y ago
13 pages of bullshit
- dvfjsdhgfv 5y ago
  Frankly, I see no pint of debating this issue (bitcoin as an investment, not as an environmental issue). People who don't like it don't have to buy it. Those who are confident it could be advantageous will invest some money in it to diversify their portfolio, with the percentage corresponding to the inherent risk and investment period. Since the risk is quite high, I wouldn't put more than 15-20% in it. Yes, the potential net gain will be lower, but if things go bad, I won't lose any sleep over it.
  - keymone 5y ago
    in this case it's a hater that wants to stand in other people's way to have multiple options to invest in bitcoin.
    - haskellandchill 5y ago
      You can cast it that way, or as an expert giving their opinion on a nonsensical investment in an effort to save others from financial ruin.
      - keymone 5y ago
        but he's not an expert, he clearly doesn't understand how any of it works, you can see it by simply reading that document
tonyvince7 5y ago
The main problem with this analysis is that it is purely based on the fiat standard. Bitcoin as a store of value is conceptualised as an alternative to this fiat standard. Over the years many "experts" claimed - Bitcoin will collapse at x and will never recover - The institutional adoption will not happen - It can not be used for day-to-day payments - It will never become a legal tender We all know what happened to these predictions over the years.
- nroets 5y ago
  My main problem with Bitcoin is that the number of times it has been used for advertising prices is still negligible. By contrast, fiat currencies are ubiquitously used to advertise prices. So Bitcoin got its intangible differently from a normal fiat currency and Bitcoin can loose it again. https://bitcoin.isnot.money https://bitcoin.isnot.money
audit 5y ago
in section 1.4 -- the author is arguing that Bitcoin's block chain is not tamper resistant. By means where the cost of rewriting the last segment of the block, to be roughly equivalent to the investment in creating that segment. I do not quite understand that explanation. What does he mean ? I, personally thought, may be wrongly -- that there is an 'speculative' value for bitcoin, which is separate to the 'technological value' of the network. The 'technological value' is basically equivalent to its resistance to forgery, and resistance to 'outages'. The more days pass on without forgery and without an outage -- the higher the technological value. I cannot explain the 'speculative value' though, but that's outside of my interests anyways.

> 1.2 Bitcoin investing is a negative-sum game Bitcoin on the day this was published was trading around $7,500. It's now trading at $37,000. I'd say these guys got it wrong. *at least so far*.

ryan-allen 5y ago
If only we could predict the future!
Elzear 5y ago
"At any point in time — past, present, or future — the people who have ever bought bitcoins, considered as a whole, have put into the game more money than they have got back." Are you claiming that this sentence is false?
- keymone 5y ago
  is it not? only tiny fraction of bitcoin's lifetime -- two months out of 12 years -- has it been at higher levels than today.
- ta1234567890 5y ago
  That’s true. And it’s also true for any stock that doesn’t pay dividends as well. Should people not invest in those stocks? Or should we ban non-dividend stocks for being Ponzi schemes?
  - randomsearch 5y ago
    I believe that the missing point there is the expectation that those stocks will _eventually_ pay dividends.
    - mastermojo 5y ago
      I don't think (in my lifetime) I've heard anyone discuss buying or selling a stock in the context of a Dividend Discount Model. This observation isn't really in support of Bitcoin, it's more of a depressing thought that our stock markets are closer to a Keynesian beauty contest. (GME, AMC, etc). I don't personally own stocks or real estate for cash flow purposes. I own them with the expectation that I can sell them for more money down the line.
      - randomsearch 5y ago
        > I've heard anyone discuss buying or selling a stock in the context of a Dividend Discount Model. Pension funds.
  - arcticbull 5y ago
    That's not accurate. Dividends are just one of the many ways that companies accrue value. Companies use revenues to invest in the business, to repurchase shares and also to issue dividends. This net welfare accretion must be considered in its totality. Just because a company doesn't issue dividends doesn't make it a Ponzi scheme, and it doesn't make it a zero sum investment (like precious metals) or an negative sum investment (like PoW coins and to a lesser extent, most (all?) other coins). “In the short run, the market is a voting machine, but in the long run, it is a weighing machine”
  - JediLuke 5y ago
    At least stocks/companies have a balance sheet with real assets. Even if the whole company shut down (and wasn’t bankrupt) investors would still get at least some of their money back after liquidation.
  - deleted 5y ago
    [deleted]
- BenoitP 5y ago
  This is compatible with Bitcoin being a store of value. If velocity stays low, the price will continue to go up.
- pcthrowaway 5y ago
  Let's consider this in the context of another currency, say, the Euro. "At any point in time - past, present, or future - the people who have ever bought Euros [with real currency, aka every other fiat], considered as a whole, have put into the game more money than they have got back." Now the Euro is heavily traded in forex markets, and surely the price fluctuates. Is this statement true? I'd suspect yes, though there are many other factors at play. Has the value of Euro increased relative to the other currencies it trades against? If so, this is probably due to large amounts of money pouring into it as a more lucrative asset than the quote currency. I think this question really only makes sense using another currency as a reference. So let's consider the Zimbabwe dollar during its period of hyperinflation (2007-2009). In this case, citizens of Zimbabwe who bought Euros very likely got back more of whatever currency they eventually converted it to than they would have if they had kept their money in Zimbabwe dollars. But what does this even mean. There is no 'stable' currency to use as a true reference, the value of each in the global market is constantly fluctuating. 'Getting less or more money back' becomes hard to evaluate. So let's talk about purchasing power instead. I suspect the people who have ever bought into bitcoins as a whole, have increased their purchasing power (the number of coca-cola's they can theoretically buy on any given day).
  - arcticbull 5y ago
    > Now the Euro is heavily traded in forex markets, and surely the price fluctuates. Is this statement true? It is not true, because currencies aren't assets. Currencies are a medium of exchange. Their job is to hold value for only as long as it takes you use them to buy necessities or invest them in assets. That's it. Any longer is a non-goal. Goals include low transaction costs, high transaction speed, fungibility, stability and predictability. As for the FOREX market, that's a highly leveraged speculative trade on the relative purchasing power of a pair of currencies. That's not an investment and it's certainly not an asset. With that in mind FOREX is widely regarded as a zero-sum market in the same way options and futures are. Money from the winners goes to pay off the losers. > In this case, citizens of Zimbabwe who bought Euros very likely got back more of whatever currency they eventually converted it to than they would have if they had kept their money in Zimbabwe dollars. This would have been a zero sum trade, not negative sum. Zero sum doesn't mean reversible or that there aren't winners and losers, just that considered as a whole, between all participants, no money left the system and no money entered - what was there was simply redistributed.
Yizahi 5y ago
All bitcoin gains came from some poor guys who bought into this hysteria later than other and are now hoping to find another poor guy who will buy at current prices. I'm not saying that they will definitely stop, it is possible that this loop will continue for a long time, but people need to remember that these "valuations" is simply a product of a hype to resell at a higher price.
- ddrdrck_ 5y ago
  So far I wouldn't talk about "poor" guys
arcticbull 5y ago
This is addressed specifically. > "Since there is no source of revenue that would repay investments in bitcoin, there is no way to make a rational estimate for its value (above zero). There is no explanation for why the price is now 7300 USD/BTC rather than 0.73 or 73,000,000" (section 1.3)
- jjjdjjddddsfsd 5y ago
  Why is a liter of milk worth 1$?
  - deleted 5y ago
    [deleted]
  - arcticbull 5y ago
    It doesn't matter why a liter of milk costs $1 - what matters is that it costs $1 now, it'll cost roughly $1 a year from now and in the interim, it'll still also cost $1. Predictability and consistency is a critical aspect of currency. The actual numerical value is irrelevant. You can't assign a fundamental value to the purchasing power of a bitcoin when treating it as a currency because there's nowhere in the world that bitcoin is used to denominate the sticker price of goods. If there was you could regress its value based on how much one bitcoin would buy you in terms of goods priced in it. However, without that, you can only treat it as a purely speculative asset as jstolfi did. If that ever changes, our model will have to change. It has not, and IMO will not, even with El Salvador because its wildly fluctuating notional value determined predominantly by global speculators precludes it from being used to actually price things in a meaningful and consistent way. [edit] Either way, the title of the write-up was 'Bitcoin as an investment' - currencies aren't an investment, so the analysis models it as an asset.
    - hervature 5y ago
      Your entire comment is an argument why Bitcoin is more an investment than currency. The opposite of what the paper is trying to accomplish.
    - 5y ago

hervature 5y ago

Can we somehow change the title to reflect that this isn't an official SEC statement and rather a comment from the public? Written by someone with (seemingly) no economic understanding. Particularly, stating the price of Bitcoins is "fictitious". You can make an argument that it is based purely on speculation, but that doesn't make the price a matter of fiction. Edit: Here is a rebuttal letter to this comment: https://www.sec.gov/comments/sr-batsbzx-2016-30/batsbzx201630-32.pdf https://www.sec.gov/comments/sr-batsbzx-2016-30/batsbzx20163... The person clearly has an axe to grind with Bitcoin.

arcticbull 5y ago
Their entire rebuttal is "jstolfi makes some good points but he's mean to us on reddit"
haskellandchill 5y ago
I was going to thank you for pointing out the rebuttal except it was utterly devoid of substance. As for the title, your comment is good enough to note this is a comment rather than SEC statement. Hacker News is a little weak with domains that serve multiple purposes and I don't think it is misleading or even matters as this submission won't make the front page or anything.
- hervature 5y ago
  At the time when I posted my comment, it was on the front page. Substance is in the eye of the beholder, but the posting of the comment served two purposes. 1) To show that anyone can say anything in these comments, 2) the level of commentary is need not be very high.

gopalgoel19 5y ago

13 pages of bullshit

dvfjsdhgfv 5y ago
Frankly, I see no pint of debating this issue (bitcoin as an investment, not as an environmental issue). People who don't like it don't have to buy it. Those who are confident it could be advantageous will invest some money in it to diversify their portfolio, with the percentage corresponding to the inherent risk and investment period. Since the risk is quite high, I wouldn't put more than 15-20% in it. Yes, the potential net gain will be lower, but if things go bad, I won't lose any sleep over it.
- keymone 5y ago
  in this case it's a hater that wants to stand in other people's way to have multiple options to invest in bitcoin.
  - haskellandchill 5y ago
    You can cast it that way, or as an expert giving their opinion on a nonsensical investment in an effort to save others from financial ruin.
    - keymone 5y ago
      but he's not an expert, he clearly doesn't understand how any of it works, you can see it by simply reading that document

tonyvince7 5y ago

The main problem with this analysis is that it is purely based on the fiat standard. Bitcoin as a store of value is conceptualised as an alternative to this fiat standard. Over the years many "experts" claimed - Bitcoin will collapse at x and will never recover - The institutional adoption will not happen - It can not be used for day-to-day payments - It will never become a legal tender We all know what happened to these predictions over the years.

nroets 5y ago
My main problem with Bitcoin is that the number of times it has been used for advertising prices is still negligible. By contrast, fiat currencies are ubiquitously used to advertise prices. So Bitcoin got its intangible differently from a normal fiat currency and Bitcoin can loose it again. https://bitcoin.isnot.money https://bitcoin.isnot.money

audit 5y ago

in section 1.4 -- the author is arguing that Bitcoin's block chain is not tamper resistant. By means where the cost of rewriting the last segment of the block, to be roughly equivalent to the investment in creating that segment. I do not quite understand that explanation. What does he mean ? I, personally thought, may be wrongly -- that there is an 'speculative' value for bitcoin, which is separate to the 'technological value' of the network. The 'technological value' is basically equivalent to its resistance to forgery, and resistance to 'outages'. The more days pass on without forgery and without an outage -- the higher the technological value. I cannot explain the 'speculative value' though, but that's outside of my interests anyways.