4 ms·

You shouldn't invest in the crypto currency?

6 points by gogo61 4y ago

joebob42 4y ago
I think one issue here is that there do appear to be people with a mathematical edge similar to the casinos in gambling: the people who create individual coins and who manipulate the market directly. This may be less of a concern in stabler, larger coins like btc and eth. I'm still not sure I get why staying longer yields any sort of edge, though. If my expected return over some small period is 0, adding a bunch of those small periods together does not yield a positive expected return.
- aww_dang 4y ago
  >I'm still not sure I get why staying longer yields any sort of edge One way of looking at it is to say that traditional currencies are constantly devaluing as their supply increases. A counter argument there might be that the supply of cryptocurrencies is increasing generally. This could be tested if BTC or ETH are ever unseated by another blockchain. The psychological conditions could change if every new cryptocurrency was viewed as a potential heir to the throne. "Digital gold" could be debunked in the eyes of the masses.
- robocat 4y ago
  Even worse, their argument is the same as betting on winning chess, because chess is a “zero-sum” game. Different investors have different skill levels. There are many asymmetries between retail investors in crypto, and hedge fund investors. It is difficult to predict which hedge fund will win, but it is predictable that individual investors will lose on average over time (although some individuals will win).
lucasyvas 4y ago
What does the author think of index investing in this context then? I concede that currencies should function differently than the stock market, but this is exactly how long-term stock investing is meant to work. I suppose I'm missing the point.
- arcticbull 4y ago
  Not really, no. Equities, and equity indices, are comprised of productive businesses. They are positive sum because investor returns are generated by non-investor participants (the customers of the business buying goods and services). A better analogy between crypto in traditional markets is some sort of wild-west futures market and options market. Index futures are provably zero-sum. Options are negative-sum for buyers, if I'm not mistaken.
arcticbull 4y ago
> Disclaimer - I have invested 1% of my savings into stable cryptocurrencies such as Bitcoin and Ethereum etc. ... well, this individual appears not to know the definition of stable, but do go on. > Cryptocurrency returns are a zero-sum game i.e. if 1 person gets a $10 profit, another person has to lose $10. First, equities are positive-sum games, which makes them, on the whole, in the fullness of time, a strictly better investment. It is not true that someone has to lose for someone else to win in the equity markets. Shareholder returns are derived from the business itself. Second, proof-of-work currencies are negative sum, since the miners have to expend unfathomable quantities of electricity and generate mountains e-waste. This costs money. This money is obtained by selling the block reward, which puts negative price pressure on the cryptos. So not only are the only source of returns other gamblers, there's also a hole in the bucket. In gambling parlance, that's the rake in a game of poker.
- thebean11 4y ago
  > Second, proof-of-work currencies are negative sum Assuming the network doesn't produce external value to the people transacting on it (for example, lower transaction fees than alternatives, lower cost to enforce contracts, lower spread trading equities or currencies etc).
  - jonny_eh 4y ago
    > Assuming the network doesn't produce external value They don't, definitely nowhere near the amount currently invested.
    - thebean11 4y ago
      Sure, the point is there's a difference between: "this system is currently costing more than it is producing" vs "this system, by definition, is negative sum" The first is a comment on the current state of the thing, the second is an immutable statement about the thing's nature, which in this case is false.
  - arcticbull 4y ago
acqbu 4y ago
I invested in the crypto currency and I am proud that I did so!
ytwombly 4y ago
Additionally, the past several years have seen cryptocurrencies rising and falling in near lock-step with most stock indices. If you are looking for a hedge against market volatility, keep looking.
olalonde 4y ago
You could say the same about fiat. Yet, fiat is at least 100x bigger than cryptocurrency in terms of value. But yeah, currencies aren't usually good investments unless they are severely underpriced (this is a belief commonly held by cryptocurrency investors).
sam1r 4y ago
Curious if anyone can explicate how fanduel plays into this topic
sshine 4y ago
> Cryptocurrency returns are a zero-sum game i.e. if 1 person gets a $10 profit, another person has to lose $10. > So, it is the same as gambling where if you are winning, someone has to lose. Not true. If you think of cryptocurrency as gambling, yes. If you think of cryptocurrency as a kind of money, no. For example: I buy $100 worth of Bitcoin, and I spend those on a VPN and some drugs. The seller of the Bitcoin feel they won because they can use $100 on something else they like, and I feel I won because I'm anonymous and on drugs! It is your own responsibility to not treat cryptocurrencies like gambling. Use it to buy something. Who knows what's gonna happen long-term with any one altcoin / project. > In the cryptocurrency world, no one really has a positive mathematical edge in cryptocurrency i.e. no one has such information which makes them better than other crypto investors. So, it is impossible to make a profit in long term. Not true. A must-read: https://medium.com/@danrobinson/ethereum-is-a-dark-forest-ecc5f0505dff https://medium.com/@danrobinson/ethereum-is-a-dark-forest-ec... There are lots of people with a mathematical edge. You're probably not one of them. A friend of mine who sucks at math was fascinated by day-trading because it seemed so easy. It's not a fair game, it's not for everyone, and it is popularised because it's so much more profitable if more suckers want to join. What's a sucker? Someone who sucks at math who wants to get rich quick and effortlessly through financial speculation.
- gogo61 4y ago
  > If you think of cryptocurrency as a kind of money, no. This is really great point which i missed. Thanks :)
BrissyCoder 4y ago
> into stable cryptocurrencies such as Bitcoin and Ethereum Close tab.

6 points by gogo61 4y ago

I think one issue here is that there do appear to be people with a mathematical edge similar to the casinos in gambling: the people who create individual coins and who manipulate the market directly. This may be less of a concern in stabler, larger coins like btc and eth. I'm still not sure I get why staying longer yields any sort of edge, though. If my expected return over some small period is 0, adding a bunch of those small periods together does not yield a positive expected return.

aww_dang 4y ago
>I'm still not sure I get why staying longer yields any sort of edge One way of looking at it is to say that traditional currencies are constantly devaluing as their supply increases. A counter argument there might be that the supply of cryptocurrencies is increasing generally. This could be tested if BTC or ETH are ever unseated by another blockchain. The psychological conditions could change if every new cryptocurrency was viewed as a potential heir to the throne. "Digital gold" could be debunked in the eyes of the masses.
robocat 4y ago
Even worse, their argument is the same as betting on winning chess, because chess is a “zero-sum” game. Different investors have different skill levels. There are many asymmetries between retail investors in crypto, and hedge fund investors. It is difficult to predict which hedge fund will win, but it is predictable that individual investors will lose on average over time (although some individuals will win).

lucasyvas 4y ago

What does the author think of index investing in this context then? I concede that currencies should function differently than the stock market, but this is exactly how long-term stock investing is meant to work. I suppose I'm missing the point.

arcticbull 4y ago
Not really, no. Equities, and equity indices, are comprised of productive businesses. They are positive sum because investor returns are generated by non-investor participants (the customers of the business buying goods and services). A better analogy between crypto in traditional markets is some sort of wild-west futures market and options market. Index futures are provably zero-sum. Options are negative-sum for buyers, if I'm not mistaken.

arcticbull 4y ago

> Disclaimer - I have invested 1% of my savings into stable cryptocurrencies such as Bitcoin and Ethereum etc. ... well, this individual appears not to know the definition of stable, but do go on. > Cryptocurrency returns are a zero-sum game i.e. if 1 person gets a $10 profit, another person has to lose $10. First, equities are positive-sum games, which makes them, on the whole, in the fullness of time, a strictly better investment. It is not true that someone has to lose for someone else to win in the equity markets. Shareholder returns are derived from the business itself. Second, proof-of-work currencies are negative sum, since the miners have to expend unfathomable quantities of electricity and generate mountains e-waste. This costs money. This money is obtained by selling the block reward, which puts negative price pressure on the cryptos. So not only are the only source of returns other gamblers, there's also a hole in the bucket. In gambling parlance, that's the rake in a game of poker.

thebean11 4y ago
> Second, proof-of-work currencies are negative sum Assuming the network doesn't produce external value to the people transacting on it (for example, lower transaction fees than alternatives, lower cost to enforce contracts, lower spread trading equities or currencies etc).
- jonny_eh 4y ago
  > Assuming the network doesn't produce external value They don't, definitely nowhere near the amount currently invested.
  - thebean11 4y ago
    Sure, the point is there's a difference between: "this system is currently costing more than it is producing" vs "this system, by definition, is negative sum" The first is a comment on the current state of the thing, the second is an immutable statement about the thing's nature, which in this case is false.
- arcticbull 4y ago

acqbu 4y ago

I invested in the crypto currency and I am proud that I did so!

ytwombly 4y ago

Additionally, the past several years have seen cryptocurrencies rising and falling in near lock-step with most stock indices. If you are looking for a hedge against market volatility, keep looking.

olalonde 4y ago

You could say the same about fiat. Yet, fiat is at least 100x bigger than cryptocurrency in terms of value. But yeah, currencies aren't usually good investments unless they are severely underpriced (this is a belief commonly held by cryptocurrency investors).

sam1r 4y ago

Curious if anyone can explicate how fanduel plays into this topic

sshine 4y ago

> Cryptocurrency returns are a zero-sum game i.e. if 1 person gets a $10 profit, another person has to lose $10. > So, it is the same as gambling where if you are winning, someone has to lose. Not true. If you think of cryptocurrency as gambling, yes. If you think of cryptocurrency as a kind of money, no. For example: I buy $100 worth of Bitcoin, and I spend those on a VPN and some drugs. The seller of the Bitcoin feel they won because they can use $100 on something else they like, and I feel I won because I'm anonymous and on drugs! It is your own responsibility to not treat cryptocurrencies like gambling. Use it to buy something. Who knows what's gonna happen long-term with any one altcoin / project. > In the cryptocurrency world, no one really has a positive mathematical edge in cryptocurrency i.e. no one has such information which makes them better than other crypto investors. So, it is impossible to make a profit in long term. Not true. A must-read: https://medium.com/@danrobinson/ethereum-is-a-dark-forest-ecc5f0505dff https://medium.com/@danrobinson/ethereum-is-a-dark-forest-ec... There are lots of people with a mathematical edge. You're probably not one of them. A friend of mine who sucks at math was fascinated by day-trading because it seemed so easy. It's not a fair game, it's not for everyone, and it is popularised because it's so much more profitable if more suckers want to join. What's a sucker? Someone who sucks at math who wants to get rich quick and effortlessly through financial speculation.

gogo61 4y ago
> If you think of cryptocurrency as a kind of money, no. This is really great point which i missed. Thanks :)

BrissyCoder 4y ago

> into stable cryptocurrencies such as Bitcoin and Ethereum Close tab.