6 ms·

I mean to play Devil's Advocate, many people have the same opinion on MLM's (e.g., "you just have to really understand the leggings market and how to run a busi

by RC_ITR 4y ago

I mean to play Devil's Advocate, many people have the same opinion on MLM's (e.g., "you just have to really understand the leggings market and how to run a business, all these new people who got burnt thought they could get rich quick without working" etc.) because the nature of Ponzi Schemes is that the early investors often do cash out. In fact, the reason Madoff got so large was b/c he was one of the few who convinced most early investors not to cash out. Implying that smart money is 'being early to the Ponzi Scheme' is certainly an outlook on life, IDK if it's a particularly good one though.

spaceman_2020 4y ago
That's true for most non-dividend paying stocks though, isn't it? The price can only go up if other people buy too since holding the stock itself doesn't generate any income. Would you call Peloton's VC backers "ponzi schemers"?
- pfisherman 4y ago
  You forgot about stock buybacks. Which have a similar effect as dividends with favorable tax treatment.
  - rsj_hn 4y ago
    I mean, that's not how stock buybacks work. First, stock buybacks are not tax exempt. If a firm earns $100 in profits and buys back $50 of shares, it still pays the corporate taxes on $100, not on $50. Unlike paying interest, corporations don't get to write off money spent on stock buybacks. So it doesn't affect their tax situation. Second, for the investors in the company, the total aggregate amount of taxes is paid whether the investors are holding 10 stocks and get $1 per stock in dividends, or if they are holding 5 stocks and get $2 per stock in dividends. The number of shares outstanding does not raise or lower the ultimate value of the dividend stream, nor the tax obligation applied to the dividend stream. What if a company never pays any dividends and just buys back stock? Then it's value is just the terminal liquidation value, and each time investors sell stock back to the company, that is a taxable event for them, probably taxed at the long term rate which is the same as the dividend tax rate, up until the company winds down, in which case the rest is taxed at the long term rate. The set of taxable events is the same as if the company had paid dividends, but the difference is that investors self-select as to who realizes the gain and who doesn't. Really this is the difference when companies buy back stock -- some shareholders don't want to take any gains, while others do. The total gains are the same, and the total paid to the government is the same, and the time it's paid to the government is the same, but investors can sort themselves into those who want to to take the gain and those who don't. You get to decide when you want to take the gain, and this optionality has value for you. It's as if you could signal to the management -- don't pay out a dividend, re-invest the money that you would have paid out this quarter so that I'll get more later. That's basically what is going on for the individual investor, but for the government, they still get their quarterly taxes paid just in terms of capital gains by those who sell their shares.
    - pfisherman 4y ago
      What I mean that the tax you pay on dividends is often more than the capital gains tax. So you might prefer that the company spend money to prop up the share price by buying back stock rather than paying it out as dividends.
      - rsj_hn 4y ago
        Perhaps there was some tax reform since I last looked, but generally speaking dividends are taxed at the long term capital gains rate. So they would be the same or less than capital gains (short term capital gains are just treated as income). I am not a tax accountant :) But I agree that many do prefer buybacks, for the reasons I outlined -- it gives investors a choice as to when to realize the gain. Some investors may not want to receive the gain each quarter. And this can be a tax benefit, not because the rate is different, but because the timing may be more convenient.
        pfisherman 4y ago
        I’ll defer to you on this one. I’m not a tax accountant either :)
- alasdair_ 4y ago
  Yes, but “other people” includes stock buybacks, which are like dividends but have much better tax implications.
- RC_ITR 4y ago
  Peloton sells bikes for cash. That's real honest-to-goodness GDP. I can assume Peloton will make more economic value than it retally will, but at least it creates economic value. What does Ethereum contribute to GDP? And that's why it's worse than MLMs, at least those pretend to be retailers.
  - spaceman_2020 4y ago
    Now you're talking about value, which is entirely subjective. As far as GDP, Ethereum spawned an entire new industry with tons of companies paying actual salaries to people (in fiat, if I might add), all of whom bought lattes and cars and houses, and some, I'm sure, also bought Peloton bikes. Crypto currencies are like stock tickers. The price does not have to have any bearing on the actual value generated by the stock or the company it represents. There is a speculative element to all markets, including the stock market. And I think you know that as well.
    - lmm 4y ago
      > As far as GDP, Ethereum spawned an entire new industry with tons of companies paying actual salaries to people (in fiat, if I might add), all of whom bought lattes and cars and houses, and some, I'm sure, also bought Peloton bikes. Paying developers goes in the cost column, not the benefit column. (If you hire a bunch of developers and pay them to sit around twiddling their thumbs all day, you're not growing the economy but rather damaging it - they could've done something more productive instead). The question is what value the ecosystem produces that people are paying in for. And there's certainly a subjective element to that, but the market price should be a sanity check. Peloton sells exercise bikes and delivers virtual spin classes etc.. And while you can certainly argue they're overvalued (and I'd agree with you, FWIW), it's easy to see how they're actually doing something valuable in the real world - something that, in a small marginal way, improves peoples lives. We can have a sensible conversation about whether a weekly Peleton class is worth $45/month, but people are paying that much for it, not as a speculative "investment" but as a simple exchange of money for goods and services. Real people are better off - in that they were able to take the class and get fitter or whatever. There's certainly a speculative element on top of that, but at the foundational level there's real value being produced. Where's the product or service for Ethereum? They've had long enough to come up with one. People used to talk about doing cross-border currency transfers (genuinely useful) or that cat breeding game (potentially genuinely fun), but nowadays fees are too high for either of those to be worthwhile and people don't really talk about them. It's not just excessive speculation on top of a fundamentally sound business; there's simply no there there.
- xapata 4y ago
  Shareholders own assets. If I buy a brick of gold, the gold doesn't pay dividends either.
  - lmm 4y ago
    Gold is a poor investment, and indeed has some Ponzi-like properties.
  - spaceman_2020 4y ago
    What assets do Uber's shareholders own? The app? How is that different from dApp?
    - xapata 4y ago
      Shareholders own shares of the company, and the company owns assets. For example, Uber owns some data center equipment. If the company were liquidated, that equipment would be sold and the proceeds distributed to creditors, bond-holders, and share-holders. We're about to see this process unfold for FTX. How exciting!
  - RC_ITR 4y ago
    Gold is a consumption good (jewelry) that people choose to treat as an asset (so much so that they forget that it was originally valuable because it was our most easily smithed/mined metal that rulers liked to adorn themselves with).
- mixedbit 4y ago
  Companies behind non-dividend paying stocks can own assets and make profits and shareholders own these assets and profits. The value of these assets and profits somehow anchor the stock price, the price can go significantly below reasonable valuation in short time frames, but in a long run market will correct cases where you can buy 100$ worth of assets for 50$. (also companies often use the profits to buy back own stocks, in which case the price goes up without any people buying)
  - spaceman_2020 4y ago
    Uber has no cars Airbnb has no hotels If these companies don't generate profits, then what assets are shareholders holding onto? The app? The algorithm? The design? Then that's just IP. And if the asset is just the IP, how is that different from any blockchain dApp, which is just code? I don't think you're making the point you think you're making. An unprofitable SaaS startup has no assets besides its code either.
    - mixedbit 4y ago
      From a set of companies that do not pay dividends, companies that do not generate profits are a small subset. Many companies in the SP500 index do not pay dividends, but one of the conditions of inclusion in the SP500 index is for a company to generate profits. Unprofitable companies may well be very similar to any blockchain app, although you have more signals to analyze their future profitability potential.
- pjc50 4y ago
  "Non dividend paying" is a bit of a red herring since companies have started doing buybacks instead (for tax reasons). Ultimately it's the voting rights that can make the company pay dividends. If you've got a non-voting non-dividend stock .. you might want to ask what you've actually got there.
  - spaceman_2020 4y ago
    A lot of tokens give "voting" rights in the form of governance if its run as a DAO Some tokens share revenue with token holders. GMX, for instance, distributes all of the nearly $2M daily fees it generates to holders of the GMX token. Goldfinch, which loans to real-world microfinance companies, also gives back its fees to Goldfinch token holders. Some tokens are necessary for paying for transactions or any on-chain asset (most core blockchain tokens). It's not as much hot air as it appears
- friendzis 4y ago
  Non dividend paying company stocks are market speculation, not a ponzi. Cryptocoins, not being part of a circular economy, must, by definition, keep attracting new money to pay for earlier investors. Sounds much like a pyramid. A more apt analogy would be a public company that does not do any real economic activity and simply issues more shares to cover expenses. Cryptocoins cannot exist without the network running and the only way to cover those expenses is to attract new money without any product. While stock speculation is a zero sum game, cryptocoins are negative sum game. Quite a major difference in my book.
  - spaceman_2020 4y ago
    Again, the speculative value of cryptocurrencies is largely built on the belief that the dApps built on top of the network will have enough usage and revenues to justify the current valuations. If you look at the revenues generated by OpenSea or Uniswap or Compound, it's not exactly an outlandish idea.
    - quickthrowman 4y ago
      The speculative value of cryptocurrency is based on nothing more than the greater fool theory. ETH isn’t down 75% YTD because of discounted dApp cash flows, let’s be realistic here.

by RC_ITR 4y ago

spaceman_2020 4y ago

That's true for most non-dividend paying stocks though, isn't it? The price can only go up if other people buy too since holding the stock itself doesn't generate any income. Would you call Peloton's VC backers "ponzi schemers"?

pfisherman 4y ago
You forgot about stock buybacks. Which have a similar effect as dividends with favorable tax treatment.
- rsj_hn 4y ago
  I mean, that's not how stock buybacks work. First, stock buybacks are not tax exempt. If a firm earns $100 in profits and buys back $50 of shares, it still pays the corporate taxes on $100, not on $50. Unlike paying interest, corporations don't get to write off money spent on stock buybacks. So it doesn't affect their tax situation. Second, for the investors in the company, the total aggregate amount of taxes is paid whether the investors are holding 10 stocks and get $1 per stock in dividends, or if they are holding 5 stocks and get $2 per stock in dividends. The number of shares outstanding does not raise or lower the ultimate value of the dividend stream, nor the tax obligation applied to the dividend stream. What if a company never pays any dividends and just buys back stock? Then it's value is just the terminal liquidation value, and each time investors sell stock back to the company, that is a taxable event for them, probably taxed at the long term rate which is the same as the dividend tax rate, up until the company winds down, in which case the rest is taxed at the long term rate. The set of taxable events is the same as if the company had paid dividends, but the difference is that investors self-select as to who realizes the gain and who doesn't. Really this is the difference when companies buy back stock -- some shareholders don't want to take any gains, while others do. The total gains are the same, and the total paid to the government is the same, and the time it's paid to the government is the same, but investors can sort themselves into those who want to to take the gain and those who don't. You get to decide when you want to take the gain, and this optionality has value for you. It's as if you could signal to the management -- don't pay out a dividend, re-invest the money that you would have paid out this quarter so that I'll get more later. That's basically what is going on for the individual investor, but for the government, they still get their quarterly taxes paid just in terms of capital gains by those who sell their shares.
  - pfisherman 4y ago
    What I mean that the tax you pay on dividends is often more than the capital gains tax. So you might prefer that the company spend money to prop up the share price by buying back stock rather than paying it out as dividends.
    - rsj_hn 4y ago
      Perhaps there was some tax reform since I last looked, but generally speaking dividends are taxed at the long term capital gains rate. So they would be the same or less than capital gains (short term capital gains are just treated as income). I am not a tax accountant :) But I agree that many do prefer buybacks, for the reasons I outlined -- it gives investors a choice as to when to realize the gain. Some investors may not want to receive the gain each quarter. And this can be a tax benefit, not because the rate is different, but because the timing may be more convenient.
      - pfisherman 4y ago
        I’ll defer to you on this one. I’m not a tax accountant either :)
alasdair_ 4y ago
Yes, but “other people” includes stock buybacks, which are like dividends but have much better tax implications.
RC_ITR 4y ago
Peloton sells bikes for cash. That's real honest-to-goodness GDP. I can assume Peloton will make more economic value than it retally will, but at least it creates economic value. What does Ethereum contribute to GDP? And that's why it's worse than MLMs, at least those pretend to be retailers.
- spaceman_2020 4y ago
  Now you're talking about value, which is entirely subjective. As far as GDP, Ethereum spawned an entire new industry with tons of companies paying actual salaries to people (in fiat, if I might add), all of whom bought lattes and cars and houses, and some, I'm sure, also bought Peloton bikes. Crypto currencies are like stock tickers. The price does not have to have any bearing on the actual value generated by the stock or the company it represents. There is a speculative element to all markets, including the stock market. And I think you know that as well.
  - lmm 4y ago
    > As far as GDP, Ethereum spawned an entire new industry with tons of companies paying actual salaries to people (in fiat, if I might add), all of whom bought lattes and cars and houses, and some, I'm sure, also bought Peloton bikes. Paying developers goes in the cost column, not the benefit column. (If you hire a bunch of developers and pay them to sit around twiddling their thumbs all day, you're not growing the economy but rather damaging it - they could've done something more productive instead). The question is what value the ecosystem produces that people are paying in for. And there's certainly a subjective element to that, but the market price should be a sanity check. Peloton sells exercise bikes and delivers virtual spin classes etc.. And while you can certainly argue they're overvalued (and I'd agree with you, FWIW), it's easy to see how they're actually doing something valuable in the real world - something that, in a small marginal way, improves peoples lives. We can have a sensible conversation about whether a weekly Peleton class is worth $45/month, but people are paying that much for it, not as a speculative "investment" but as a simple exchange of money for goods and services. Real people are better off - in that they were able to take the class and get fitter or whatever. There's certainly a speculative element on top of that, but at the foundational level there's real value being produced. Where's the product or service for Ethereum? They've had long enough to come up with one. People used to talk about doing cross-border currency transfers (genuinely useful) or that cat breeding game (potentially genuinely fun), but nowadays fees are too high for either of those to be worthwhile and people don't really talk about them. It's not just excessive speculation on top of a fundamentally sound business; there's simply no there there.
xapata 4y ago
Shareholders own assets. If I buy a brick of gold, the gold doesn't pay dividends either.
- lmm 4y ago
  Gold is a poor investment, and indeed has some Ponzi-like properties.
- spaceman_2020 4y ago
  What assets do Uber's shareholders own? The app? How is that different from dApp?
  - xapata 4y ago
    Shareholders own shares of the company, and the company owns assets. For example, Uber owns some data center equipment. If the company were liquidated, that equipment would be sold and the proceeds distributed to creditors, bond-holders, and share-holders. We're about to see this process unfold for FTX. How exciting!
- RC_ITR 4y ago
  Gold is a consumption good (jewelry) that people choose to treat as an asset (so much so that they forget that it was originally valuable because it was our most easily smithed/mined metal that rulers liked to adorn themselves with).
mixedbit 4y ago
Companies behind non-dividend paying stocks can own assets and make profits and shareholders own these assets and profits. The value of these assets and profits somehow anchor the stock price, the price can go significantly below reasonable valuation in short time frames, but in a long run market will correct cases where you can buy 100$ worth of assets for 50$. (also companies often use the profits to buy back own stocks, in which case the price goes up without any people buying)
- spaceman_2020 4y ago
  Uber has no cars Airbnb has no hotels If these companies don't generate profits, then what assets are shareholders holding onto? The app? The algorithm? The design? Then that's just IP. And if the asset is just the IP, how is that different from any blockchain dApp, which is just code? I don't think you're making the point you think you're making. An unprofitable SaaS startup has no assets besides its code either.
  - mixedbit 4y ago
    From a set of companies that do not pay dividends, companies that do not generate profits are a small subset. Many companies in the SP500 index do not pay dividends, but one of the conditions of inclusion in the SP500 index is for a company to generate profits. Unprofitable companies may well be very similar to any blockchain app, although you have more signals to analyze their future profitability potential.
pjc50 4y ago
"Non dividend paying" is a bit of a red herring since companies have started doing buybacks instead (for tax reasons). Ultimately it's the voting rights that can make the company pay dividends. If you've got a non-voting non-dividend stock .. you might want to ask what you've actually got there.
- spaceman_2020 4y ago
  A lot of tokens give "voting" rights in the form of governance if its run as a DAO Some tokens share revenue with token holders. GMX, for instance, distributes all of the nearly $2M daily fees it generates to holders of the GMX token. Goldfinch, which loans to real-world microfinance companies, also gives back its fees to Goldfinch token holders. Some tokens are necessary for paying for transactions or any on-chain asset (most core blockchain tokens). It's not as much hot air as it appears
friendzis 4y ago
Non dividend paying company stocks are market speculation, not a ponzi. Cryptocoins, not being part of a circular economy, must, by definition, keep attracting new money to pay for earlier investors. Sounds much like a pyramid. A more apt analogy would be a public company that does not do any real economic activity and simply issues more shares to cover expenses. Cryptocoins cannot exist without the network running and the only way to cover those expenses is to attract new money without any product. While stock speculation is a zero sum game, cryptocoins are negative sum game. Quite a major difference in my book.
- spaceman_2020 4y ago
  Again, the speculative value of cryptocurrencies is largely built on the belief that the dApps built on top of the network will have enough usage and revenues to justify the current valuations. If you look at the revenues generated by OpenSea or Uniswap or Compound, it's not exactly an outlandish idea.
  - quickthrowman 4y ago
    The speculative value of cryptocurrency is based on nothing more than the greater fool theory. ETH isn’t down 75% YTD because of discounted dApp cash flows, let’s be realistic here.