3 ms·

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 tr

by 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.
      - aetherson 4y ago
        I feel like you don't actually understand the efficient markets hypothesis. The point of all this information being baked into the price of an asset is not that the market is particularly correct -- surprises certainly happen. It's that you don't really profit from all that knowledge. You say, "Oh, well, I know that this company has such-and-such a balance sheet." But everyone else knows that as well (and, in fact, knows more about the health of that company because they have access to semi-private information and/or just more expertise about that economic sector than you do), and if you go, "Hey, I want to buy this stock because their business seems strong," you already have to pay the premium for their business being strong, and their expected growth, such that you're pretty much purely buying risk now, not the strong company. If they profit, but not quite as much as expected, you lose money. Potentially a lot of money! Meta is down 65% this year. That's on $27B in quarterly revenue and $4.39B in quarterly profit! And it's down 65%! Let's be real: you didn't look at Meta's financials at the beginning of this year and realize that your investment there would be down 65%. What's the floor on Meta? I mean, nobody actually knows. They have a lot of revenue, but you can always get a lot of debt and have that eat your revenue up. I'm inclined to be optimistic about Meta -- but so is the market, that's why it's at $310B market cap. If I buy now, could it lose another 65% value and be at a "mere" $100B market cap? Sure.
- pencilguin 4y ago
  Anybody who doesn't "disbelieve the efficient markets hypothesis" isn't paying attention. NRGV ("Energy Vault") was trading at a $2.4B market cap less than a year ago, and are now at $0.4B, still radically overpriced. Their product was an obvious scam before, then they pivoted to another obvious scam. The only way their stock could have any legitimate value would be if they still had $0.4B in cash, and could be prevented from squandering it. All perfectly legal, apparently. Same for fusion startups. (It is just barely possible that Helion could have value.) Kyoto Fusioneering builds equipment to use in fusion startups' sham demos, and provides a conduit for dumb VC money into the pockets of startup founders and VCs who invest in it. All perfectly legal, apparently.
  - aetherson 4y ago
    If you feel that the EMH is wrong to the degree that you're implying, you should go trade stocks on the valuable alpha that you apparently have.
    - pencilguin 4y ago
      "The market can remain irrational longer than you can remain solvent." Irrational is contrary to efficient.
      - aetherson 4y ago
        I know this is old now, but there are two possible answers here: 1. If you mean, "the market will not in fact go to the stock price that I think is correct in a time window that anyone can remain solvent for and perhaps ever," then what you are saying is you believe the EMH. 2. If you are instead saying that you are a small fish and big fish could play this scheme successfully, absorbing relatively small fluctuations, then, I mean, go pitch Jane Street in your brilliant approach of "look at the financials." (Obviously, you won't get anywhere because, spoiler warning, they already do this, and it's priced in).
        pencilguin 4y ago

by abeppu 4y ago

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.
    - aetherson 4y ago
      I feel like you don't actually understand the efficient markets hypothesis. The point of all this information being baked into the price of an asset is not that the market is particularly correct -- surprises certainly happen. It's that you don't really profit from all that knowledge. You say, "Oh, well, I know that this company has such-and-such a balance sheet." But everyone else knows that as well (and, in fact, knows more about the health of that company because they have access to semi-private information and/or just more expertise about that economic sector than you do), and if you go, "Hey, I want to buy this stock because their business seems strong," you already have to pay the premium for their business being strong, and their expected growth, such that you're pretty much purely buying risk now, not the strong company. If they profit, but not quite as much as expected, you lose money. Potentially a lot of money! Meta is down 65% this year. That's on $27B in quarterly revenue and $4.39B in quarterly profit! And it's down 65%! Let's be real: you didn't look at Meta's financials at the beginning of this year and realize that your investment there would be down 65%. What's the floor on Meta? I mean, nobody actually knows. They have a lot of revenue, but you can always get a lot of debt and have that eat your revenue up. I'm inclined to be optimistic about Meta -- but so is the market, that's why it's at $310B market cap. If I buy now, could it lose another 65% value and be at a "mere" $100B market cap? Sure.
pencilguin 4y ago
Anybody who doesn't "disbelieve the efficient markets hypothesis" isn't paying attention. NRGV ("Energy Vault") was trading at a $2.4B market cap less than a year ago, and are now at $0.4B, still radically overpriced. Their product was an obvious scam before, then they pivoted to another obvious scam. The only way their stock could have any legitimate value would be if they still had $0.4B in cash, and could be prevented from squandering it. All perfectly legal, apparently. Same for fusion startups. (It is just barely possible that Helion could have value.) Kyoto Fusioneering builds equipment to use in fusion startups' sham demos, and provides a conduit for dumb VC money into the pockets of startup founders and VCs who invest in it. All perfectly legal, apparently.
- aetherson 4y ago
  If you feel that the EMH is wrong to the degree that you're implying, you should go trade stocks on the valuable alpha that you apparently have.
  - pencilguin 4y ago
    "The market can remain irrational longer than you can remain solvent." Irrational is contrary to efficient.
    - aetherson 4y ago
      I know this is old now, but there are two possible answers here: 1. If you mean, "the market will not in fact go to the stock price that I think is correct in a time window that anyone can remain solvent for and perhaps ever," then what you are saying is you believe the EMH. 2. If you are instead saying that you are a small fish and big fish could play this scheme successfully, absorbing relatively small fluctuations, then, I mean, go pitch Jane Street in your brilliant approach of "look at the financials." (Obviously, you won't get anywhere because, spoiler warning, they already do this, and it's priced in).
      - pencilguin 4y ago