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"Inevitably" lose money? What this paper finds is that (from 2015-2022), people tend to buy when BTC is making new peaks, and so they are buying high and then

"Inevitably" lose money? What this paper finds is that (from 2015-2022), people tend to buy when BTC is making new peaks, and so they are buying high and then so far are not in a position to sell for a profit. I strongly expect that if you tracked people who in the relatively recent past have bought any other asset that had a rise and then a big spike during the pandemic, you'd see something similar.

abeppu 4y ago
Framed this way (selecting for people who had bought an asset which had a rise and spike) this makes sense. But I think a key difference between BTC and more traditional assets is that for other assets, one typically has information from which to judge whether it is over or underpriced. If in late 2021, I had two friends Alice and Bob, who were enthusiastic and so far successful in shoveling money into TSLA and BTC respectively, and who are both telling trying to convince me to follow their lead, how can I judge their suggestions? I can look at Tesla's quarterly reports, and rabbithole into information about other company's EV efforts, and see analysts try to make projections about future revenue. I'd be left with a lot of uncertainty, but I can make a good faith effort to try to judge what an appropriate price is based on future earnings, and whether the current price is too high or too low. With BTC one doesn't have that. Even if prices had increased lately, how would one judge whether that was high or low relative to where prices _should_ be? Today, after a period when prices have fallen a lot, are they high still? Would $10k be too high? $1k? About a decade ago it was roughly $11 and 2 years before that it was $0.20. There's no way to judge value, only price.
- aetherson 4y ago
  You have to disbelieve the efficient markets hypothesis to an unreasonable degree to imagine that the kind of information you're talking about isn't baked into TSLA. And people certainly forecast -- with varying success -- the future of BTC. You can read their analyses and disagree/agree with them. This isn't to imply that BTC isn't a volatile and risky asset. Of course it is! But some people want to buy volatile and risky assets.
  - abeppu 4y ago
    Given that TSLA has come down by close to half in the past year, yeah I don't think available information was appropriately priced in. There was plenty of room for someone to say "This PE has the wrong number of digits." But because shares are claims on future revenue, their value can be grounded to _something_. My point is not that BTC is volatile, but that it has no fundamentals. There is only the sentiment of other participants. Tulip bulbs can at least be planted.
    - aetherson 4y ago
      Lots of assets have either no floor on their value or an incredibly low floor. Is it actually a comfort if you invest in gold that it can only lose 98% of its value instead of 100%? Are those two outcomes meaningfully different to you? Companies can go bankrupt and zero the value of their stock. Bonds can be defaulted on. Are you out there evangelizing how stocks and bonds are bad investments?
      - abeppu 4y ago
        Sure, a company can go bankrupt. A bond can be defaulted on. But one can evaluate those risks based on information about those companies and have a principled and fact-based approach to estimating a _value_ rather than merely guessing a _price_. My objection to BTC is not that one can get burned. I don't know how to be more clear about this without repeating myself. Suppose I start a new lottery and sell tickets. I announce nothing about the odds of any payout or perhaps even when the drawing will take place, but tickets are finite in number, and are transferable. If you can buy a ticket at auction, how much should you pay? In a different context, I hope people would complain that there is not enough information to answer. But on crypto exchanges, people seem happy to say "I just don't want to pay too much more than the last buyer." In contrast, suppose my friend starts a raffle, selling tickets for a dollar, and makes clear that the pot is exactly one dollar per ticket sold. Yes, anyone buying a ticket can lose 100% of what they put in, but it's also easy to see that the expected value of a ticket is $1. If you have the opportunity to buy a 2nd hand ticket for less than $1, it's in some sense rational to do so, depending on your own risk tolerances. If I try to sell a ticket for $1.25, people can immediately see that it is overpriced. This is entirely consistent with the fact that the outcome for any particular ticketholder is highly variable.
pencilguin 4y ago
There are exactly three possible outcomes: (1) most gain a little and a few lose a lot, (2) equal numbers gain and lose, or (3) a few win big and most people lose. The system organization favors a few winning big, so the majority must ("inevitably") lose.
- aetherson 4y ago
  Um, no? If the asset price increases monotonically, everyone gains money. Obviously no asset price increases truly monotonically, and especially BTC doesn't, but this isn't a zero-sum game.
  - abeppu 4y ago
    Um, no? Crypto currencies are not creating value. If crypto prices increased monotonically, it would only mean that the fiat currency in which you're denominating prices is losing value. Non-zero-sum games require mechanisms that produce or unlock new value that becomes available to agents. An innovation lets a farmer produce more grain, such that the farmer makes more money and consumers pay less for the same amount of food. But a pile of transactions each of which just exchanges goods, fiat currency and crypto currency at varying prices does not produce net value.
    - aetherson 4y ago
      This is all just crazily, pants-on-head wrong. Like, sure, on a whole-economy level, if nobody is creating value, then the economy isn't growing. But you aren't buying the whole economy, you're buying an asset, and that asset just needs to be desired in order for it to increase in value. There is no function where "if I gain money from BTC, you have to lose money from BTC." That's just... not at all how this works.
      - abeppu 4y ago
        I wonder if we're somehow talking about different things. If you realize gains from BTC, it's because you sold it to someone else who bought your BTC, presumably with dollars, yes? The crazy stipulation of "token price monotonically increases" for some crypto currency implies that people are actually exchanging ever larger quantities of some other currency for that asset. Of course this means that the other currency is losing value. When the dollar goes up against the pound, or vice versa, no one thinks it's because some magical process is creating net wealth.

abeppu 4y ago

Framed this way (selecting for people who had bought an asset which had a rise and spike) this makes sense. But I think a key difference between BTC and more traditional assets is that for other assets, one typically has information from which to judge whether it is over or underpriced. If in late 2021, I had two friends Alice and Bob, who were enthusiastic and so far successful in shoveling money into TSLA and BTC respectively, and who are both telling trying to convince me to follow their lead, how can I judge their suggestions? I can look at Tesla's quarterly reports, and rabbithole into information about other company's EV efforts, and see analysts try to make projections about future revenue. I'd be left with a lot of uncertainty, but I can make a good faith effort to try to judge what an appropriate price is based on future earnings, and whether the current price is too high or too low. With BTC one doesn't have that. Even if prices had increased lately, how would one judge whether that was high or low relative to where prices _should_ be? Today, after a period when prices have fallen a lot, are they high still? Would $10k be too high? $1k? About a decade ago it was roughly $11 and 2 years before that it was $0.20. There's no way to judge value, only price.

aetherson 4y ago
You have to disbelieve the efficient markets hypothesis to an unreasonable degree to imagine that the kind of information you're talking about isn't baked into TSLA. And people certainly forecast -- with varying success -- the future of BTC. You can read their analyses and disagree/agree with them. This isn't to imply that BTC isn't a volatile and risky asset. Of course it is! But some people want to buy volatile and risky assets.
- abeppu 4y ago
  Given that TSLA has come down by close to half in the past year, yeah I don't think available information was appropriately priced in. There was plenty of room for someone to say "This PE has the wrong number of digits." But because shares are claims on future revenue, their value can be grounded to _something_. My point is not that BTC is volatile, but that it has no fundamentals. There is only the sentiment of other participants. Tulip bulbs can at least be planted.
  - aetherson 4y ago
    Lots of assets have either no floor on their value or an incredibly low floor. Is it actually a comfort if you invest in gold that it can only lose 98% of its value instead of 100%? Are those two outcomes meaningfully different to you? Companies can go bankrupt and zero the value of their stock. Bonds can be defaulted on. Are you out there evangelizing how stocks and bonds are bad investments?
    - abeppu 4y ago
      Sure, a company can go bankrupt. A bond can be defaulted on. But one can evaluate those risks based on information about those companies and have a principled and fact-based approach to estimating a _value_ rather than merely guessing a _price_. My objection to BTC is not that one can get burned. I don't know how to be more clear about this without repeating myself. Suppose I start a new lottery and sell tickets. I announce nothing about the odds of any payout or perhaps even when the drawing will take place, but tickets are finite in number, and are transferable. If you can buy a ticket at auction, how much should you pay? In a different context, I hope people would complain that there is not enough information to answer. But on crypto exchanges, people seem happy to say "I just don't want to pay too much more than the last buyer." In contrast, suppose my friend starts a raffle, selling tickets for a dollar, and makes clear that the pot is exactly one dollar per ticket sold. Yes, anyone buying a ticket can lose 100% of what they put in, but it's also easy to see that the expected value of a ticket is $1. If you have the opportunity to buy a 2nd hand ticket for less than $1, it's in some sense rational to do so, depending on your own risk tolerances. If I try to sell a ticket for $1.25, people can immediately see that it is overpriced. This is entirely consistent with the fact that the outcome for any particular ticketholder is highly variable.

pencilguin 4y ago

There are exactly three possible outcomes: (1) most gain a little and a few lose a lot, (2) equal numbers gain and lose, or (3) a few win big and most people lose. The system organization favors a few winning big, so the majority must ("inevitably") lose.

aetherson 4y ago
Um, no? If the asset price increases monotonically, everyone gains money. Obviously no asset price increases truly monotonically, and especially BTC doesn't, but this isn't a zero-sum game.
- abeppu 4y ago
  Um, no? Crypto currencies are not creating value. If crypto prices increased monotonically, it would only mean that the fiat currency in which you're denominating prices is losing value. Non-zero-sum games require mechanisms that produce or unlock new value that becomes available to agents. An innovation lets a farmer produce more grain, such that the farmer makes more money and consumers pay less for the same amount of food. But a pile of transactions each of which just exchanges goods, fiat currency and crypto currency at varying prices does not produce net value.
  - aetherson 4y ago
    This is all just crazily, pants-on-head wrong. Like, sure, on a whole-economy level, if nobody is creating value, then the economy isn't growing. But you aren't buying the whole economy, you're buying an asset, and that asset just needs to be desired in order for it to increase in value. There is no function where "if I gain money from BTC, you have to lose money from BTC." That's just... not at all how this works.
    - abeppu 4y ago
      I wonder if we're somehow talking about different things. If you realize gains from BTC, it's because you sold it to someone else who bought your BTC, presumably with dollars, yes? The crazy stipulation of "token price monotonically increases" for some crypto currency implies that people are actually exchanging ever larger quantities of some other currency for that asset. Of course this means that the other currency is losing value. When the dollar goes up against the pound, or vice versa, no one thinks it's because some magical process is creating net wealth.