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Why the ‘Big Short’ Guys Think Bitcoin Is a Bubble

110 points by graeme 5y ago

game_the0ry 5y ago
Overall, the experts cited in this article make weak points. There are legitimate concerns with crypto (which I would be happy to discuss if anyone wants to have sane dialogue), none of where really covered in depth. > “My view is that bitcoin will ultimately end up going to zero. And I think we are in the final stages right now.” Bitcoin's market value will never go to zero. Let me explain - bitcoin was borne out some internet guy's (we call him / her "Satoshi Nakamoto") idea of what money could be and how to implement it on the internet. It was not theorized in a white paper by PhD economists from MIT or U-Chicago. It proved itself in the internet's black market, and made its way to the main stream. It is fundamentally a bottom up proven technology, it did not come from the top down like the modern fiat dollar. In the event that bitcoin does not have value in the main stream, it will always have some value in the internet's dark market, and it won't be zero. > “And the U.S. dollar is backed by the full faith of the United States. Does bitcoin have an army?” Money does not need an army. The army gets paid in money, the money does not make the army. Humans traded in coinage before organized nation states or even city states. Contemplate this - what good is an army when they do not know who the anonymous holders of the internet money are? Who do they attack? And when the fiat money gets in inflated to zero, who protects the civilian government from a hungry and angry army that has all the guns? > “Nothing is priced in bitcoin" Bricks of cocaine are priced in bitcoin. So is fiat currency. I could go to a local bitcoin meetup and trade bitcoin for dollar bills, no KYC. I can do the same on the dark web, and have USPO deliver me dollars. That makes my bitcoin as good as cash, and everything is priced in cash. By the transitive property, bitcoin is cash. > Despite a steep sell-off in May and the growing certainty that the Securities and Exchange Commission, the U.S. Treasury, and even the Department of Justice are getting ready to clamp down on the cryptocurrency world, retail and institutional investors alike have kept buying. When China announced on September 24 that it would ban all cryptocurrency activities, bitcoin fell less than 6 percent. Fun fact - chairman of the SEC teaches courses on blockchain and crypto at MIT.[1] Doubtful that the US will go the way of China. And if it does, so what? The Chinese ban was a non-event. And if you think you can ban bitcoin, you do not understand bitcoin. > “As I dug into the actual underpinnings, it just became very clear that what was actually going on was cultlike behavior with no real understanding of the asset or the economic implications for the model that it was proposing,” he says. This is a better description for fiat currency than bitcoin. > “What a crazy concept this is that we as a country embrace so many bright, young, talented people to come up with a replacement for our reserve currency,” he said at the Economic Club of Chicago. ..."so many smart, bright, young, talented people"...I think this quote speaks for itself. > Bitcoin, its critics like to say, is nothing but electricity. “To tell me that something that’s constructed as a computer program, where you engage in some process of sitting there in front of your computer and, after a period of time and the expenditure of a bunch of electricity, a message appears on your screen that you have created something, that’s ridiculous,” Singer said on an investment podcast earlier this year. “It’s nothing.” Yes, this how the bitcoin protocol defines the value of coins, but so does the fiat denomination that people are willing to pay for bitcoin. It's a traded market now, and that's where most of the value is coming from. > As Roubini put it in the Goldman report, “Bitcoin and other cryptocurrencies have no income or utility, so there’s just no way to arrive at a fundamental value.” Yes there is - go on a bitcoin exchange, see the fiat exchange rate for bitcoin, that's the fundamental value. > He also scoffs at those who call it digital gold. “Bitcoin could disappear one day, but gold won’t.” Highly unlikely that a globally distributed electronic ledger that can fit on like 500gb hhard drive would ever disappear. SMH, these people need to do more research on the subject of crypto. > Green estimates that 40 percent of bitcoin’s real-world transactions are still criminal in nature (don’t forget, the first killer app was black-market bazaar Silk Road), including recent ransomware hackings. Bulls argue that the real number is a lot lower. A report by industry firm Chainalysis pegged it at less than one percent in 2020 — less than than comparable figures for cash. Mr Green is lying and ignorant on the subject of bitcoin. > “I would broadly describe what’s going on with El Salvador as they’re trying to make money-laundering the national business,” says Green, who contends that El Salvador is at risk of becoming a narco state. Holding morality, legality, and potential human suffering aside, what El Salvador is going to be good for the value of bitcoin. Sad but true. > hedge-fund mogul Ray Dalio of Bridgewater Associates, who dabbles in cryptocurrencies, said he believed regulators would “kill” bitcoin if it became too successful. Again, if you think you can ban bitcoin, you do not understand bitcoin. > “I can see why governments need to fight this thing. They are probably going to shut it down at some point.” The fact that governments already see it as a threat (China, especially) signals the vulnerability they see in the legacy fiat system. > Beyond all the specific arguments and counterarguments, the fact remains that those from the “big short” set making the case against bitcoin are generally not making the same kind of real-life short bets that made them so much money in 2008. Face palm Speaks for itself. > “You can’t be short it in scale,” agrees the short seller. Like some of the others who fundamentally dislike it, he even has a small position in bitcoin. “If it goes up, I’ll make a little bit of money. If it goes to zero, I’ll be so happy, I will gladly lose the money.” Hubris and schadenfreude - these do not mix well for the incumbents in a legacy, obsolete system. *Fundamentally, bitcoin and the mechanics of crypto are challenging how people think about money - what it is and how it fits into our lives. That is a good thing.* [1] https://ocw.mit.edu/courses/sloan-school-of-management/15-s12-blockchain-and-money-fall-2018/video-lectures/session-1-introduction/ https://ocw.mit.edu/courses/sloan-school-of-management/15-s1...
- atatatat 5y ago
  You're one of the best people to ask, probably: Direct effects of USA/EUR making private wallets illegal?
seibelj 5y ago
> “You can’t be short it in scale,” agrees the short seller. Like some of the others who fundamentally dislike it, he even has a small position in bitcoin. “If it goes up, I’ll make a little bit of money. If it goes to zero, I’ll be so happy, I will gladly lose the money.” The attitude that pervades HN in regards to crypto. This website is not a good place for discussion regarding blockchain technologies.
- PaulDavisThe1st 5y ago
  I don't think that's an accurate read at all. HN appears to me more full of people (like me) who were fired up by the initial promise of (a) blockchain technology (b) intermediary- and free-free transfer of value. What happened instead was that the technology turned out to be one of the worst threats to global warming since farting cows (yes,yes, i know, ethereum makes it all better), the intermediary- and fee-free part never actually worked out at all (because people need accounts somewhere, sorry, wallets), and finally, bitcoin and others turned into a speculating collectors' frenzy that while technically, perhaps, not as absurd as beanie babies or dutch bulbs, is generally adjacent to such historical fancies. Given the energy problems (yes, yes, i know ethereum makes it all better), the attitude towards blockchain itself remains remarkably positive. But the quoted position above isn't about blockchain, it's about bitcoin, and you're distorting facts and also "the HN attitude" (which doesn't really exist) by attempting to conflate the two.
  - AnthonyMouse 5y ago
    > What happened instead was that the technology turned out to be one of the worst threats to global warming since farting cows (yes,yes, i know, ethereum makes it all better) This has been overstated by critics. It's currently at something like a half a percent of world electricity usage. Which as an absolute number is really big, but as a contribution to global warming it's just not a meaningful percentage. And even ignoring something like proof of stake or Chia, it gets solved the same way as the rest of the problem -- replace generation capacity with non-carbon sources. Institute a carbon tax. Then people will mine Bitcoin using renewables and that'll be the end of it. > the intermediary- and fee-free part never actually worked out at all (because people need accounts somewhere, sorry, wallets) It turns out people often want this because they don't want to lose all their money if they accidentally drop their phone in a river. The key is to make sure that it's still possible to do it without an intermediary, because that's what keeps the intermediary from becoming an abusive chokepoint for authoritarian policies, since any attempt to implement them there would only overtake the benefit of their convenience and cause people to switch to direct transactions. > bitcoin and others turned into a speculating collectors' frenzy that while technically, perhaps, not as absurd as beanie babies or dutch bulbs, is generally adjacent to such historical fancies. This was made significantly worse by the design of Bitcoin in particular since there is a limit to the amount of Bitcoin that will ever exist. Which makes it not only not inflationary but heavily deflationary, which promotes speculation. It's plausible that some other cryptocurrency that limits volume only in proportion to some scarcity (whether or not it's still compute) but has no fixed maximum number of coins would be less subject to speculation and therefore less volatile. And then the lower volatility might cause it to have higher adoption in the long term.
rapsey 5y ago
Crypto has never gone through a major economic crisis and when there were short term panics it always dropped significantly. Being without a central bank also means there is no limit to how far it can drop.
- raptorraver 5y ago
  Do you mean there haven't been major economic crisis related cryptocurrencies or we don't know what happens to cryptos if (and when) a major, general economic crisis happens in the world? I'm interested in what would happen in the latter case. Probably cryptos would crash even harder but are there cases where people would trust cryptos more than cash in crisis?
  - rapsey 5y ago
    In a general one. In a general crash everything tends to drop because everyone is selling assets to cover debts. I can't see crypto doing anything other than drop more than anything has ever dropped. It would recover later probably if investor confidence is not completely destroyed. Because as we all know, the entire space is still completely without any real world use case and entirely useless other than speculation.
- gpt5 5y ago
  To be fair, as regularly seen in smaller economies - regular money also tends to show no limit to how far it can drop during economic crisis.
  - rapsey 5y ago
    Crypto is a speculative asset. It was made and promoted itself as money but failed completely in that aspect.
    - lamp987 5y ago
      Except Monero. Funnily enough, Monero is the crypto that failed as speculative asset.
dnautics 5y ago
Michael burry is correct. The others (e.g talib, paulsen)... Are just hot gas. What distinguishes a bubble from a mania is the high degree of leverage underlying the price support. To date none of the Bitcoin price peaks in the past Exhibited the hallmark sign of a bubble popping, which is 2x faster price drop relative to rate of climb, if anything most of them were 2x slower. However, if you look at the motion that has been happening recently, the declines have initially manifested as 2x faster, both in the most recent Bitcoin correction but especially in the "altcoin" prices, indicating leverage-covering behavior. This tracks with the increasing participation of trad finance (aka indirect leverage-backed prices) and the increasing availability of secondary products (options, shorts) which are also leveraged positions. Fwiw, in all past Bitcoin price rises I have consistently said "it's not a bubble" -- you can search hn if curious. This time it's different. Good luck out there folks.
- lamp987 5y ago
  When btc becomes overleveraged, we simply see a -25% flashcrash. They happen every couple months.
  - dnautics 5y ago
    Maybe. I'm just an armchair economist. I don't have quantitative evidence, but you can imagine that the overall degree of leveraging can affect the local-in-time price dynamics and push them into a phase change from a flash crash regime to a `bigger problems` regime. The saving grace to date has been that Bitcoin is a fundamentally financialization-resistant technology, but it still lives in and interacts with the real world, which is financialized. That has crept in. Things feel different this time (and there is good reason to believe it could be so), is all I'm saying. When in the past the cute phrase was, "I knew when to pull out because my shoeshine boy was giving me advice" maybe now it's, "I knew when to pull out because George Soros is in" (as an indicator of leverage participation)
    - ISL 5y ago
      I'm qualitatively in agreement -- I had day-traded bitcoin many years ago and sold off my last small holdings over the weekend. I had a forcing function that made the sale timely, but $62k/BTC was close-enough to my ~$100k/BTC target that it seemed silly to try to squeak out the remaining ~50% gain given the downside risk. It is strange no longer holding any cryptocurrency, but it is harder to see the future of crypto, as an investment, now than it was back at $30. Blockchains are here to stay and the underlying technology is proven, but as a fraction of M1, it is harder to know where the prices might go and which crypto will emerge as the ultimate winner. Alternatively, if crypto is to go through a "First they ignore you, then they laugh at you, then they fight you, then you win" experience, I believe we're just beginning the "then they fight you" stage, which may be challenging for investors. Over all of this is my feeling that, looking with a logarithmic perspective (the only way one should view Bitcoin), there is now a lot more distance for prices, especially of any one currency, to fall than there is for prices to rise. I asked myself the perpetual question, "If markets were to close for the next five years, would I be happier holding BTC or USD at the present price?" The answer was no longer emphatically BTC.
jsemrau 5y ago
Is it really a bubble or is it driven by market demands as more and more applications and use-cases emerge? In the end, a lot of the blockchain infrastructure relies on bitcoin hence it moves in sync. China's real estate market is a bubble because there is a excess of 500 million dwellings that are not needed.
- bcrosby95 5y ago
  I'm not really in the crypto scene so it's hard for me to tell. But of everyone I know in bitcoin, they just use it as an investment. Sell when it gets too high. Buy when it crashes. Sell it when they need to buy a new car. That's pretty much it. Maybe they're the minority. But if they aren't, I think there's eventually going to be a rude awakening.
- paulgb 5y ago
  > In the end, a lot of the blockchain infrastructure relies on bitcoin hence it moves in sync. Does it, though? I’m on the sidelines, but it seems like all the excitement/money flowing into crypto these days is into blockchains with higher transaction throughput and more advanced smart contract interpreters. I know there are some maxis trying to build things like DeFi and NFTs on Bitcoin but it seems to have really taken a backseat in the latest crypto hype cycle.
  - leesalminen 5y ago
    > DeFi and NFTs on Bitcoin There are DeFi and NFT platforms on Bitcoin? I haven’t heard of those. Are you talking about Ethereum?
    - ur-whale 5y ago
      There are some efforts underway to bring ETH-like smart contracts to BTC, which - if they succeed - will allow all the ETH-powered paraphernalia to happen on top of BTC. But the going is slow. Other than that, there already are some "NFT's" embedded in the Bitcoin blockchain. To give you an example of what I mean, consider the Genesis block, which, while its reward can't be spent still has a private key attached to it. I'm willing to bet that the day the person who owns that key (Satoshi, assuming he's still alive) decides to put it up for auction, the bids won't be zero :)
jqpabc123 5y ago
Tether is a fraud and everyone knows it. More than half of all crypto trades involve tether so the fraud is pervasive. But the most damning aspect of all is the fact that despite common knowledge of the pervasive fraud, USDT maintains it's peg. This indicates collusion by the market making exchanges in perpetrating this widespread, pervasive fraud. This essentially makes the entire crypto marketplace as we know it one big huge fraud.
- mrfox321 5y ago
  As fraudulent as being able to lend at an arbitrary multiple of your reserves. A run the bank would bring it all down. Just like in real life.
  - jqpabc123 5y ago
    Just like in real life. Real life has safeguards in place to prevent a bank run from "bringing it all down". Crypto has no safeguards.
    - NicoJuicy 5y ago
      Yes it does. In a flash crash, all the exchanges go down. Additionally, you can't redeem all your money at once ( except when you're musk probably)
- SRTP 5y ago
  Or - and hear me out here - you're simply misinformed.
  - jqpabc123 5y ago
    If this is really the case and not just an opinion, you should be able to easy show that Tether is not a fraud. Can you do this? I don't think so because Tether itself has never shown as much. Calling me "misinformed" without any easily verifiable basis in fact would suggest that perhaps you are a participant in the fraud somehow.
cm2012 5y ago
It has honestly surprised me that a bunch of people I thought were smart really think NFTs are a good long term investment. It clearly has no value beyond speculation and the bubble will pop.
- xenihn 5y ago
  The exact same thing happened with Ethereum (and crypto in general) in 2017. But look how much it's rebounded after that crash. I still don't think it's a good long term investment, but it's been an amazing way for some people to make life-changing money. Sadly, I'm not one of them.
  - trophycase 5y ago
    It's a good investment dude. I'm not trying to shill or anything here but Ethereum is literally the "internet" of finance. It democratizes and brings access to basic financial building blocks like we've never before seen in history and truly anything can be built on it. Unironically it's the future of finance. Don't listen to the Luddites and cynics here. Do the research yourself and try it out for yourself and it becomes glaringly obvious. Using defi is how I would imagine typing in a chatroom or accessing a website felt back when the web was just in its infancy.
    - sizzle 5y ago
      I love defi simply for the fact that I hold the keys to my money, not banks or a central entity.
    - koonsolo 5y ago
      You are 100% right, and also downvoted. Welcome to HackerNews, a place that should think startup-like progressive, but really is technology conservative.
    - atatatat 5y ago
      Ethereum? Or Ethereum2?
    - 5y ago
SRTP 5y ago
I'm really amazed at these comments. Every time Bitcoin goes through a major move, the "bubble" crowd comes out of the woodwork, while having done absolutely no effort in understanding what Bitcoin is.
- H8crilA 5y ago
  I mean, what is it if not a worse gold? All assets can be roughly divided into few categories: currency, debt, equity, derivatives/bets, collectibles. It's not an equity or debt instrument, it's not a derivative, and it's not a currency as nobody settles transactions in it. It's a collectible (like gold or paintings), with a short history (unlike gold), that delivers zero value for the holder in the meantime (unlike paintings). (And please spare the tech; people really do understand it, at least to the level that matters)
  - jerry1979 5y ago
    How do you classify gold using your categories?
    - H8crilA 5y ago
      Gold is a collectible, with a marginal use as a commodity. A commodity is an input to industrial processes, not really an asset though you can call commodities assets too if you want to. It used to be a currency quite a while ago - people would actually use it in contracts, most importantly long term debt contracts (long term contracts is where the value/acceptance of the currency really shows; imagine taking or issuing a 30yr mortgage in Bitcoin, as in the homeowner is obliged to pay fixed X Bitcoin per month, lol). A big part of the great depression fighting/relief was to make debt contracts denominated in gold unenforceable.
  - ur-whale 5y ago
    > All assets can be roughly divided into few categories: currency, debt, equity, derivatives/bets, collectibles. Says who? Your Econ. 101 book? You flippantly decide that no new class of asset can ever come into being and decide to present it as one of the fundamental laws of nature?
ur-whale 5y ago
Rather balanced article, but like many fails to mention one really important aspect of Bitcoin: There is a IMO a very tangible market demand for a financial product that allows one to completely shield value from the myriad of value-eroding propositions that have been baked into the traditional financial system to essentially bleed you dry on a long enough timeline. - "management" fees - capital gain taxes - death taxes (inheritance taxes) - asset seizures (divorces, bankruptcy, random court decisions against you, Cyprus Bank Disaster [1], etc...) - inflation (govt mandated or otherwise) - etc ... No such product exists today in traditional finance, and imo quite a bit of the demand for Bitcoin comes from there. For example, many of the traditional way to shield your wealth (stock market, commodities, real-estate) fail to be prone to some of the events I list above. You may not agree that Bitcoin solves all of the above, in which case please list something that gets as close. The fact that some of the things listed above will be viewed by some as "morally reprehensible" is irrelevant to the conversation: moral or not, the demand still exists. And for folks who look at Bitcoin for this (shielding wealth) the fact that Bitcoin has gone parabolic in the last 10 years is kind of a nice cherry on the cake. Yes, if you decide to use BTC to shield value, you are taking a rather big risk (volatility, BTC could be hurt by govt cracking down on it, there will be a huge "event" when Tether finally implodes, etc ...). But again, please list something that comes any closer to solving the problem. The above is why I believe people who claim Bitcoin has no "intrinsic value" (a term I consider to be entirely meaningless) are wrong, even using their own definition of "intrinsic value". [1] https://en.wikipedia.org/wiki/2012%E2%80%932013_Cypriot_financial_crisis https://en.wikipedia.org/wiki/2012%E2%80%932013_Cypriot_fina...
- yardstick 5y ago
  Some of the items you listed apply to crypto assets just like regular assets. It’s just the enforcement of the laws hasn’t been as consistent as with other physical financial assets. Specifically: “ - capital gain taxes - death taxes (inheritance taxes) - asset seizures (divorces, bankruptcy, random court decisions against you, Cyprus Bank Disaster [1], etc...)” And > The fact that some of the things listed above will be viewed by some as "morally reprehensible" is irrelevant to the conversation: moral or not, the demand still exists. Isn’t it more a legal issue than moral? Evading tax is a criminal matter I thought.
theknocker 5y ago
Michael Burry found a specific, verifiable problem with mortgages. That's how he predicated and capitalized on the 2008 crisis. What specific problem has he verified that pertains to Bitcoin?
theknocker 5y ago
Michael Burry found a specific, verifiable problem with mortgages. That's how he predicated and capitalized on the 2008 crisis. What specific problem has he verified that pertains to Bitcoin? And here's another clue (about life and how the universe actually works): It's probably not a bubble if every idiot you meet prattles on about how it's a bubble. Exuberance can't be irrational if it doesn't exist to begin with.
paxys 5y ago
Michael Burry was also famously (and vocally) short TSLA for many years until he finally folded and closed his positions recently. I'm not crazy bullish on crypto myself, but it is pointless to hold the opinion of a few analysts/fund managers above the rest just because they made some good bets in the past. The one thing that the market has shown is that no one knows which way any security will go tomorrow – not Buffett, not Burry and not you or me.
- alpha_squared 5y ago
  I don't think that's a sign of Burry being wrong, it very well could mean he couldn't stay solvent in that position longer than the irrationality of the market.
  - chillacy 5y ago
    > irrationality of the market The idea that the market can be irrational presumes some sort of external correctness, but it can become a circular definition: either Burry is right or the market is irrational, there is no space to say that he's wrong. It's useful to remember that all models, including looking at fundamentals and value based investing, made to approximate reality, not reality itself.
  - H8crilA 5y ago
    That's what I keep telling myself too. I've shorted TSLA way before Bury, and already made my peace with the losses. The truth is that if you get squeezed out of a short you were wrong. The result is all that matters. This kind of stuff is why most investors do not ever short anything at all (best example: Buffett & Munger), as you can be "right" and still lose. On the long side you cannot be squeezed out of a position. Traders, market makers and other "technical" participants such as HFTs - that's a different story, their use of shorting is kind of more sensible.
  - koonsolo 5y ago
    The "irrationality of the market" is most of the time just blaming everyone else for your own mistake. "I was right, it's just that the whole market keeps being wrong". Denial at its finest.
trixie_ 5y ago
Transferring money through banks is such a pain in the ass versus crypto. It really feels like we’re at a tipping point where ACH and wire transfers become the equivalent of writing a check.
- 88840-8855 5y ago
  I disagree. my grandma, my mum, my gf and most of my friends understand the concepts and processes of personal banking. crypto is complex and unforgiving and not very userfriendly for that reason. i doubt that they would ever be able to use it in a safe way. Finally, normal people want service. I got scammed online while purchasing a leather good. My bank helped me to charge my money back. Paypal does that, too, here. Alone this feature makes cryptos a nightmare for regular users.
  - trixie_ 5y ago
    No reason your family still can’t use banks. If the banks use stable coins to send and clear transfers then win win. In terms of getting money back from scams even today it’s best practice to use a credit card for that.
- chrisrogers 5y ago
  ACH replaced real clearing houses. Some banks have implemented rapid low-fee transactions, but not all. It's not unreasonable to assume that banks will widely implement an ACH replacement that makes this advantage of cryptocurrency exchange irrelevant.
  - trixie_ 5y ago
    What about sending money between services that aren’t even banks? Crypto removes the need to have money transfers go through any intermediaries. Which saves time and hassle.
- speedgoose 5y ago
  What do you mean? For international transfers, I just write the account number and it's done for a small fee. It's also reversible. For national payments I can use the account number, the phone number, or simply the name of the person using an app (vipps). Everyone has it,also elderly people, and it's actually instant and verified transactions for real.
brandrada 5y ago
Today's NFT is nothing; it has no value except for its speculated price. I hope that a good company can take advantage of this craze to have some functionalities related to cryptocurrency and NFTs.
limusrazor 5y ago
A bubble in terms of what? If we continue to print money at this rate it won't make sense to short almost anything. Even with highly leveraged assets, if they drop they will only face a temporal correction. I agree with Zhu Fu in saying that by Burry defining himself as a bear, he hasn't achieved anything but underperform the market.
rich_sasha 5y ago
The problem with shorting in bubbles is you don’t know when they will pop. As Maynard Keynes famously said, markets can remain irrational much longer than you can remain solvent. And given enough time for irrational price levitation, something else can fill the bubble void and the price justifiable at some level. Maybe you short BTC at $30k. It then goes to $300k. You’re licking your wounds but anticipating the drop back down to 0. Except somehow price snaps back to $45k and you’re still a loser.
entropicgravity 5y ago
Bitcoin is the Rorschach test of the investment class.

110 points by graeme 5y ago

Overall, the experts cited in this article make weak points. There are legitimate concerns with crypto (which I would be happy to discuss if anyone wants to have sane dialogue), none of where really covered in depth. > “My view is that bitcoin will ultimately end up going to zero. And I think we are in the final stages right now.” Bitcoin's market value will never go to zero. Let me explain - bitcoin was borne out some internet guy's (we call him / her "Satoshi Nakamoto") idea of what money could be and how to implement it on the internet. It was not theorized in a white paper by PhD economists from MIT or U-Chicago. It proved itself in the internet's black market, and made its way to the main stream. It is fundamentally a bottom up proven technology, it did not come from the top down like the modern fiat dollar. In the event that bitcoin does not have value in the main stream, it will always have some value in the internet's dark market, and it won't be zero. > “And the U.S. dollar is backed by the full faith of the United States. Does bitcoin have an army?” Money does not need an army. The army gets paid in money, the money does not make the army. Humans traded in coinage before organized nation states or even city states. Contemplate this - what good is an army when they do not know who the anonymous holders of the internet money are? Who do they attack? And when the fiat money gets in inflated to zero, who protects the civilian government from a hungry and angry army that has all the guns? > “Nothing is priced in bitcoin" Bricks of cocaine are priced in bitcoin. So is fiat currency. I could go to a local bitcoin meetup and trade bitcoin for dollar bills, no KYC. I can do the same on the dark web, and have USPO deliver me dollars. That makes my bitcoin as good as cash, and everything is priced in cash. By the transitive property, bitcoin is cash. > Despite a steep sell-off in May and the growing certainty that the Securities and Exchange Commission, the U.S. Treasury, and even the Department of Justice are getting ready to clamp down on the cryptocurrency world, retail and institutional investors alike have kept buying. When China announced on September 24 that it would ban all cryptocurrency activities, bitcoin fell less than 6 percent. Fun fact - chairman of the SEC teaches courses on blockchain and crypto at MIT.[1] Doubtful that the US will go the way of China. And if it does, so what? The Chinese ban was a non-event. And if you think you can ban bitcoin, you do not understand bitcoin. > “As I dug into the actual underpinnings, it just became very clear that what was actually going on was cultlike behavior with no real understanding of the asset or the economic implications for the model that it was proposing,” he says. This is a better description for fiat currency than bitcoin. > “What a crazy concept this is that we as a country embrace so many bright, young, talented people to come up with a replacement for our reserve currency,” he said at the Economic Club of Chicago. ..."so many smart, bright, young, talented people"...I think this quote speaks for itself. > Bitcoin, its critics like to say, is nothing but electricity. “To tell me that something that’s constructed as a computer program, where you engage in some process of sitting there in front of your computer and, after a period of time and the expenditure of a bunch of electricity, a message appears on your screen that you have created something, that’s ridiculous,” Singer said on an investment podcast earlier this year. “It’s nothing.” Yes, this how the bitcoin protocol defines the value of coins, but so does the fiat denomination that people are willing to pay for bitcoin. It's a traded market now, and that's where most of the value is coming from. > As Roubini put it in the Goldman report, “Bitcoin and other cryptocurrencies have no income or utility, so there’s just no way to arrive at a fundamental value.” Yes there is - go on a bitcoin exchange, see the fiat exchange rate for bitcoin, that's the fundamental value. > He also scoffs at those who call it digital gold. “Bitcoin could disappear one day, but gold won’t.” Highly unlikely that a globally distributed electronic ledger that can fit on like 500gb hhard drive would ever disappear. SMH, these people need to do more research on the subject of crypto. > Green estimates that 40 percent of bitcoin’s real-world transactions are still criminal in nature (don’t forget, the first killer app was black-market bazaar Silk Road), including recent ransomware hackings. Bulls argue that the real number is a lot lower. A report by industry firm Chainalysis pegged it at less than one percent in 2020 — less than than comparable figures for cash. Mr Green is lying and ignorant on the subject of bitcoin. > “I would broadly describe what’s going on with El Salvador as they’re trying to make money-laundering the national business,” says Green, who contends that El Salvador is at risk of becoming a narco state. Holding morality, legality, and potential human suffering aside, what El Salvador is going to be good for the value of bitcoin. Sad but true. > hedge-fund mogul Ray Dalio of Bridgewater Associates, who dabbles in cryptocurrencies, said he believed regulators would “kill” bitcoin if it became too successful. Again, if you think you can ban bitcoin, you do not understand bitcoin. > “I can see why governments need to fight this thing. They are probably going to shut it down at some point.” The fact that governments already see it as a threat (China, especially) signals the vulnerability they see in the legacy fiat system. > Beyond all the specific arguments and counterarguments, the fact remains that those from the “big short” set making the case against bitcoin are generally not making the same kind of real-life short bets that made them so much money in 2008. Face palm Speaks for itself. > “You can’t be short it in scale,” agrees the short seller. Like some of the others who fundamentally dislike it, he even has a small position in bitcoin. “If it goes up, I’ll make a little bit of money. If it goes to zero, I’ll be so happy, I will gladly lose the money.” Hubris and schadenfreude - these do not mix well for the incumbents in a legacy, obsolete system. *Fundamentally, bitcoin and the mechanics of crypto are challenging how people think about money - what it is and how it fits into our lives. That is a good thing.* [1] https://ocw.mit.edu/courses/sloan-school-of-management/15-s12-blockchain-and-money-fall-2018/video-lectures/session-1-introduction/ https://ocw.mit.edu/courses/sloan-school-of-management/15-s1...

atatatat 5y ago
You're one of the best people to ask, probably: Direct effects of USA/EUR making private wallets illegal?

seibelj 5y ago

> “You can’t be short it in scale,” agrees the short seller. Like some of the others who fundamentally dislike it, he even has a small position in bitcoin. “If it goes up, I’ll make a little bit of money. If it goes to zero, I’ll be so happy, I will gladly lose the money.” The attitude that pervades HN in regards to crypto. This website is not a good place for discussion regarding blockchain technologies.

PaulDavisThe1st 5y ago
I don't think that's an accurate read at all. HN appears to me more full of people (like me) who were fired up by the initial promise of (a) blockchain technology (b) intermediary- and free-free transfer of value. What happened instead was that the technology turned out to be one of the worst threats to global warming since farting cows (yes,yes, i know, ethereum makes it all better), the intermediary- and fee-free part never actually worked out at all (because people need accounts somewhere, sorry, wallets), and finally, bitcoin and others turned into a speculating collectors' frenzy that while technically, perhaps, not as absurd as beanie babies or dutch bulbs, is generally adjacent to such historical fancies. Given the energy problems (yes, yes, i know ethereum makes it all better), the attitude towards blockchain itself remains remarkably positive. But the quoted position above isn't about blockchain, it's about bitcoin, and you're distorting facts and also "the HN attitude" (which doesn't really exist) by attempting to conflate the two.
- AnthonyMouse 5y ago
  > What happened instead was that the technology turned out to be one of the worst threats to global warming since farting cows (yes,yes, i know, ethereum makes it all better) This has been overstated by critics. It's currently at something like a half a percent of world electricity usage. Which as an absolute number is really big, but as a contribution to global warming it's just not a meaningful percentage. And even ignoring something like proof of stake or Chia, it gets solved the same way as the rest of the problem -- replace generation capacity with non-carbon sources. Institute a carbon tax. Then people will mine Bitcoin using renewables and that'll be the end of it. > the intermediary- and fee-free part never actually worked out at all (because people need accounts somewhere, sorry, wallets) It turns out people often want this because they don't want to lose all their money if they accidentally drop their phone in a river. The key is to make sure that it's still possible to do it without an intermediary, because that's what keeps the intermediary from becoming an abusive chokepoint for authoritarian policies, since any attempt to implement them there would only overtake the benefit of their convenience and cause people to switch to direct transactions. > bitcoin and others turned into a speculating collectors' frenzy that while technically, perhaps, not as absurd as beanie babies or dutch bulbs, is generally adjacent to such historical fancies. This was made significantly worse by the design of Bitcoin in particular since there is a limit to the amount of Bitcoin that will ever exist. Which makes it not only not inflationary but heavily deflationary, which promotes speculation. It's plausible that some other cryptocurrency that limits volume only in proportion to some scarcity (whether or not it's still compute) but has no fixed maximum number of coins would be less subject to speculation and therefore less volatile. And then the lower volatility might cause it to have higher adoption in the long term.

rapsey 5y ago

Crypto has never gone through a major economic crisis and when there were short term panics it always dropped significantly. Being without a central bank also means there is no limit to how far it can drop.

raptorraver 5y ago
Do you mean there haven't been major economic crisis related cryptocurrencies or we don't know what happens to cryptos if (and when) a major, general economic crisis happens in the world? I'm interested in what would happen in the latter case. Probably cryptos would crash even harder but are there cases where people would trust cryptos more than cash in crisis?
- rapsey 5y ago
  In a general one. In a general crash everything tends to drop because everyone is selling assets to cover debts. I can't see crypto doing anything other than drop more than anything has ever dropped. It would recover later probably if investor confidence is not completely destroyed. Because as we all know, the entire space is still completely without any real world use case and entirely useless other than speculation.
gpt5 5y ago
To be fair, as regularly seen in smaller economies - regular money also tends to show no limit to how far it can drop during economic crisis.
- rapsey 5y ago
  Crypto is a speculative asset. It was made and promoted itself as money but failed completely in that aspect.
  - lamp987 5y ago
    Except Monero. Funnily enough, Monero is the crypto that failed as speculative asset.

dnautics 5y ago

Michael burry is correct. The others (e.g talib, paulsen)... Are just hot gas. What distinguishes a bubble from a mania is the high degree of leverage underlying the price support. To date none of the Bitcoin price peaks in the past Exhibited the hallmark sign of a bubble popping, which is 2x faster price drop relative to rate of climb, if anything most of them were 2x slower. However, if you look at the motion that has been happening recently, the declines have initially manifested as 2x faster, both in the most recent Bitcoin correction but especially in the "altcoin" prices, indicating leverage-covering behavior. This tracks with the increasing participation of trad finance (aka indirect leverage-backed prices) and the increasing availability of secondary products (options, shorts) which are also leveraged positions. Fwiw, in all past Bitcoin price rises I have consistently said "it's not a bubble" -- you can search hn if curious. This time it's different. Good luck out there folks.

lamp987 5y ago
When btc becomes overleveraged, we simply see a -25% flashcrash. They happen every couple months.
- dnautics 5y ago
  Maybe. I'm just an armchair economist. I don't have quantitative evidence, but you can imagine that the overall degree of leveraging can affect the local-in-time price dynamics and push them into a phase change from a flash crash regime to a `bigger problems` regime. The saving grace to date has been that Bitcoin is a fundamentally financialization-resistant technology, but it still lives in and interacts with the real world, which is financialized. That has crept in. Things feel different this time (and there is good reason to believe it could be so), is all I'm saying. When in the past the cute phrase was, "I knew when to pull out because my shoeshine boy was giving me advice" maybe now it's, "I knew when to pull out because George Soros is in" (as an indicator of leverage participation)
  - ISL 5y ago
    I'm qualitatively in agreement -- I had day-traded bitcoin many years ago and sold off my last small holdings over the weekend. I had a forcing function that made the sale timely, but $62k/BTC was close-enough to my ~$100k/BTC target that it seemed silly to try to squeak out the remaining ~50% gain given the downside risk. It is strange no longer holding any cryptocurrency, but it is harder to see the future of crypto, as an investment, now than it was back at $30. Blockchains are here to stay and the underlying technology is proven, but as a fraction of M1, it is harder to know where the prices might go and which crypto will emerge as the ultimate winner. Alternatively, if crypto is to go through a "First they ignore you, then they laugh at you, then they fight you, then you win" experience, I believe we're just beginning the "then they fight you" stage, which may be challenging for investors. Over all of this is my feeling that, looking with a logarithmic perspective (the only way one should view Bitcoin), there is now a lot more distance for prices, especially of any one currency, to fall than there is for prices to rise. I asked myself the perpetual question, "If markets were to close for the next five years, would I be happier holding BTC or USD at the present price?" The answer was no longer emphatically BTC.

jsemrau 5y ago

Is it really a bubble or is it driven by market demands as more and more applications and use-cases emerge? In the end, a lot of the blockchain infrastructure relies on bitcoin hence it moves in sync. China's real estate market is a bubble because there is a excess of 500 million dwellings that are not needed.

bcrosby95 5y ago
I'm not really in the crypto scene so it's hard for me to tell. But of everyone I know in bitcoin, they just use it as an investment. Sell when it gets too high. Buy when it crashes. Sell it when they need to buy a new car. That's pretty much it. Maybe they're the minority. But if they aren't, I think there's eventually going to be a rude awakening.
paulgb 5y ago
> In the end, a lot of the blockchain infrastructure relies on bitcoin hence it moves in sync. Does it, though? I’m on the sidelines, but it seems like all the excitement/money flowing into crypto these days is into blockchains with higher transaction throughput and more advanced smart contract interpreters. I know there are some maxis trying to build things like DeFi and NFTs on Bitcoin but it seems to have really taken a backseat in the latest crypto hype cycle.
- leesalminen 5y ago
  > DeFi and NFTs on Bitcoin There are DeFi and NFT platforms on Bitcoin? I haven’t heard of those. Are you talking about Ethereum?
  - ur-whale 5y ago
    There are some efforts underway to bring ETH-like smart contracts to BTC, which - if they succeed - will allow all the ETH-powered paraphernalia to happen on top of BTC. But the going is slow. Other than that, there already are some "NFT's" embedded in the Bitcoin blockchain. To give you an example of what I mean, consider the Genesis block, which, while its reward can't be spent still has a private key attached to it. I'm willing to bet that the day the person who owns that key (Satoshi, assuming he's still alive) decides to put it up for auction, the bids won't be zero :)

jqpabc123 5y ago

Tether is a fraud and everyone knows it. More than half of all crypto trades involve tether so the fraud is pervasive. But the most damning aspect of all is the fact that despite common knowledge of the pervasive fraud, USDT maintains it's peg. This indicates collusion by the market making exchanges in perpetrating this widespread, pervasive fraud. This essentially makes the entire crypto marketplace as we know it one big huge fraud.

mrfox321 5y ago
As fraudulent as being able to lend at an arbitrary multiple of your reserves. A run the bank would bring it all down. Just like in real life.
- jqpabc123 5y ago
  Just like in real life. Real life has safeguards in place to prevent a bank run from "bringing it all down". Crypto has no safeguards.
  - NicoJuicy 5y ago
    Yes it does. In a flash crash, all the exchanges go down. Additionally, you can't redeem all your money at once ( except when you're musk probably)
SRTP 5y ago
Or - and hear me out here - you're simply misinformed.
- jqpabc123 5y ago
  If this is really the case and not just an opinion, you should be able to easy show that Tether is not a fraud. Can you do this? I don't think so because Tether itself has never shown as much. Calling me "misinformed" without any easily verifiable basis in fact would suggest that perhaps you are a participant in the fraud somehow.

cm2012 5y ago

It has honestly surprised me that a bunch of people I thought were smart really think NFTs are a good long term investment. It clearly has no value beyond speculation and the bubble will pop.

xenihn 5y ago
The exact same thing happened with Ethereum (and crypto in general) in 2017. But look how much it's rebounded after that crash. I still don't think it's a good long term investment, but it's been an amazing way for some people to make life-changing money. Sadly, I'm not one of them.
- trophycase 5y ago
  It's a good investment dude. I'm not trying to shill or anything here but Ethereum is literally the "internet" of finance. It democratizes and brings access to basic financial building blocks like we've never before seen in history and truly anything can be built on it. Unironically it's the future of finance. Don't listen to the Luddites and cynics here. Do the research yourself and try it out for yourself and it becomes glaringly obvious. Using defi is how I would imagine typing in a chatroom or accessing a website felt back when the web was just in its infancy.
  - sizzle 5y ago
    I love defi simply for the fact that I hold the keys to my money, not banks or a central entity.
  - koonsolo 5y ago
    You are 100% right, and also downvoted. Welcome to HackerNews, a place that should think startup-like progressive, but really is technology conservative.
  - atatatat 5y ago
    Ethereum? Or Ethereum2?
  - 5y ago

SRTP 5y ago

I'm really amazed at these comments. Every time Bitcoin goes through a major move, the "bubble" crowd comes out of the woodwork, while having done absolutely no effort in understanding what Bitcoin is.

H8crilA 5y ago
I mean, what is it if not a worse gold? All assets can be roughly divided into few categories: currency, debt, equity, derivatives/bets, collectibles. It's not an equity or debt instrument, it's not a derivative, and it's not a currency as nobody settles transactions in it. It's a collectible (like gold or paintings), with a short history (unlike gold), that delivers zero value for the holder in the meantime (unlike paintings). (And please spare the tech; people really do understand it, at least to the level that matters)
- jerry1979 5y ago
  How do you classify gold using your categories?
  - H8crilA 5y ago
    Gold is a collectible, with a marginal use as a commodity. A commodity is an input to industrial processes, not really an asset though you can call commodities assets too if you want to. It used to be a currency quite a while ago - people would actually use it in contracts, most importantly long term debt contracts (long term contracts is where the value/acceptance of the currency really shows; imagine taking or issuing a 30yr mortgage in Bitcoin, as in the homeowner is obliged to pay fixed X Bitcoin per month, lol). A big part of the great depression fighting/relief was to make debt contracts denominated in gold unenforceable.
- ur-whale 5y ago
  > All assets can be roughly divided into few categories: currency, debt, equity, derivatives/bets, collectibles. Says who? Your Econ. 101 book? You flippantly decide that no new class of asset can ever come into being and decide to present it as one of the fundamental laws of nature?

ur-whale 5y ago

Rather balanced article, but like many fails to mention one really important aspect of Bitcoin: There is a IMO a very tangible market demand for a financial product that allows one to completely shield value from the myriad of value-eroding propositions that have been baked into the traditional financial system to essentially bleed you dry on a long enough timeline. - "management" fees - capital gain taxes - death taxes (inheritance taxes) - asset seizures (divorces, bankruptcy, random court decisions against you, Cyprus Bank Disaster [1], etc...) - inflation (govt mandated or otherwise) - etc ... No such product exists today in traditional finance, and imo quite a bit of the demand for Bitcoin comes from there. For example, many of the traditional way to shield your wealth (stock market, commodities, real-estate) fail to be prone to some of the events I list above. You may not agree that Bitcoin solves all of the above, in which case please list something that gets as close. The fact that some of the things listed above will be viewed by some as "morally reprehensible" is irrelevant to the conversation: moral or not, the demand still exists. And for folks who look at Bitcoin for this (shielding wealth) the fact that Bitcoin has gone parabolic in the last 10 years is kind of a nice cherry on the cake. Yes, if you decide to use BTC to shield value, you are taking a rather big risk (volatility, BTC could be hurt by govt cracking down on it, there will be a huge "event" when Tether finally implodes, etc ...). But again, please list something that comes any closer to solving the problem. The above is why I believe people who claim Bitcoin has no "intrinsic value" (a term I consider to be entirely meaningless) are wrong, even using their own definition of "intrinsic value". [1] https://en.wikipedia.org/wiki/2012%E2%80%932013_Cypriot_financial_crisis https://en.wikipedia.org/wiki/2012%E2%80%932013_Cypriot_fina...

yardstick 5y ago
Some of the items you listed apply to crypto assets just like regular assets. It’s just the enforcement of the laws hasn’t been as consistent as with other physical financial assets. Specifically: “ - capital gain taxes - death taxes (inheritance taxes) - asset seizures (divorces, bankruptcy, random court decisions against you, Cyprus Bank Disaster [1], etc...)” And > The fact that some of the things listed above will be viewed by some as "morally reprehensible" is irrelevant to the conversation: moral or not, the demand still exists. Isn’t it more a legal issue than moral? Evading tax is a criminal matter I thought.

theknocker 5y ago

Michael Burry found a specific, verifiable problem with mortgages. That's how he predicated and capitalized on the 2008 crisis. What specific problem has he verified that pertains to Bitcoin?

theknocker 5y ago

Michael Burry found a specific, verifiable problem with mortgages. That's how he predicated and capitalized on the 2008 crisis. What specific problem has he verified that pertains to Bitcoin? And here's another clue (about life and how the universe actually works): It's probably not a bubble if every idiot you meet prattles on about how it's a bubble. Exuberance can't be irrational if it doesn't exist to begin with.

paxys 5y ago

Michael Burry was also famously (and vocally) short TSLA for many years until he finally folded and closed his positions recently. I'm not crazy bullish on crypto myself, but it is pointless to hold the opinion of a few analysts/fund managers above the rest just because they made some good bets in the past. The one thing that the market has shown is that no one knows which way any security will go tomorrow – not Buffett, not Burry and not you or me.

alpha_squared 5y ago
I don't think that's a sign of Burry being wrong, it very well could mean he couldn't stay solvent in that position longer than the irrationality of the market.
- chillacy 5y ago
  > irrationality of the market The idea that the market can be irrational presumes some sort of external correctness, but it can become a circular definition: either Burry is right or the market is irrational, there is no space to say that he's wrong. It's useful to remember that all models, including looking at fundamentals and value based investing, made to approximate reality, not reality itself.
- H8crilA 5y ago
  That's what I keep telling myself too. I've shorted TSLA way before Bury, and already made my peace with the losses. The truth is that if you get squeezed out of a short you were wrong. The result is all that matters. This kind of stuff is why most investors do not ever short anything at all (best example: Buffett & Munger), as you can be "right" and still lose. On the long side you cannot be squeezed out of a position. Traders, market makers and other "technical" participants such as HFTs - that's a different story, their use of shorting is kind of more sensible.
- koonsolo 5y ago
  The "irrationality of the market" is most of the time just blaming everyone else for your own mistake. "I was right, it's just that the whole market keeps being wrong". Denial at its finest.

trixie_ 5y ago

Transferring money through banks is such a pain in the ass versus crypto. It really feels like we’re at a tipping point where ACH and wire transfers become the equivalent of writing a check.

88840-8855 5y ago
I disagree. my grandma, my mum, my gf and most of my friends understand the concepts and processes of personal banking. crypto is complex and unforgiving and not very userfriendly for that reason. i doubt that they would ever be able to use it in a safe way. Finally, normal people want service. I got scammed online while purchasing a leather good. My bank helped me to charge my money back. Paypal does that, too, here. Alone this feature makes cryptos a nightmare for regular users.
- trixie_ 5y ago
  No reason your family still can’t use banks. If the banks use stable coins to send and clear transfers then win win. In terms of getting money back from scams even today it’s best practice to use a credit card for that.
chrisrogers 5y ago
ACH replaced real clearing houses. Some banks have implemented rapid low-fee transactions, but not all. It's not unreasonable to assume that banks will widely implement an ACH replacement that makes this advantage of cryptocurrency exchange irrelevant.
- trixie_ 5y ago
  What about sending money between services that aren’t even banks? Crypto removes the need to have money transfers go through any intermediaries. Which saves time and hassle.
speedgoose 5y ago
What do you mean? For international transfers, I just write the account number and it's done for a small fee. It's also reversible. For national payments I can use the account number, the phone number, or simply the name of the person using an app (vipps). Everyone has it,also elderly people, and it's actually instant and verified transactions for real.

brandrada 5y ago

Today's NFT is nothing; it has no value except for its speculated price. I hope that a good company can take advantage of this craze to have some functionalities related to cryptocurrency and NFTs.

limusrazor 5y ago

A bubble in terms of what? If we continue to print money at this rate it won't make sense to short almost anything. Even with highly leveraged assets, if they drop they will only face a temporal correction. I agree with Zhu Fu in saying that by Burry defining himself as a bear, he hasn't achieved anything but underperform the market.

rich_sasha 5y ago

The problem with shorting in bubbles is you don’t know when they will pop. As Maynard Keynes famously said, markets can remain irrational much longer than you can remain solvent. And given enough time for irrational price levitation, something else can fill the bubble void and the price justifiable at some level. Maybe you short BTC at $30k. It then goes to $300k. You’re licking your wounds but anticipating the drop back down to 0. Except somehow price snaps back to $45k and you’re still a loser.

entropicgravity 5y ago

Bitcoin is the Rorschach test of the investment class.