Not sure what the operating costs look like for Coinbase, but here's some napkin math based on just the Coinbase Pro exchange .
They get roughly $200 per bitcoin trade. That's on both sides, so $400 per bitcoin transaction. Today was a slightly higher volume day but they did $1.6B in BTC-USD, so around ~30k bitcoin changed hands.
30k * 400 = $12Million
Bitcoin is 1/3 of their volume (they have a lot of other crypto currency pairs), so let's take 3x of that = $36 Million in trading fees today.
Bitcoin is a 24/7 market, so 365 days = $13.14 Billion per year.
This does not even count what used to be (still is?) their main business of just buying and holding bitcoin for people through DCA buys or on their app. They also are starting to have a bunch of other revenue streams through loans, debit cards, etc and invest in a number of early crypto projects.
I'm not sure what the multiple is going to be like since I don't know their expenses, but since most tech companies are valued from revenue and future growth expectations anyway, who knows.
"Coinbase generated $141 million of net income on $691 million in revenue for the first nine months of 2020, according to documents shared with investors."
Though 2021 will be higher, will it be 20x higher?
This seems a little myopic. Definitely earnings growth is a factor, but it can’t really explain what just happened with GameStop and WSB, nor most of Amazon’s rise over the past decades. Future expected cash flows, market size, interest rates (and therefore capital seeking yield via equity markets) are all factors. Alongside human tastes, cultural perception, and pockets of irrationality.
Yes, because there's enough people like you who would blindly throw money at it just because of FOMO then back-rationalize the decision using whatever HN tells you. Stonks only go up.
No matter if you think we're in a bubble or if this valuation supports your view that we are in a bubble, at the end of the day we are all losers who have decided to spend our precious time on a Friday night glued to HN.
Same here. I convince myself by saying, hey this is not reddit or some sportsforum or <insert-forum-here> but this is probably a worse form of procrastination. At least when I visit /r/nba or espncricinfo, I can relax a bit and just enjoy.
It’s Saturday morning for me in Thailand right now. I’m gonna drive a bit around on the 2nd hand motorcycle I bought this week - my own very first motorcycle. Lots of fun!
I stay in Mea Thalop, a small village near amphur Chaiprakan in the Chiang Mai province. Close to the border with Myanmar.
Next Friday I plan to do the 2-3 hour trip on motorcycle to Chiang Mai city. It’s through a mountainous snake road and with good weather very beautiful to drive.
dang should offer us an easy way to delete account and anonymize comments. I don't know why there's no such option (other than of course dropping the email).
I think it is so that you take care with what you post - it will be readable forever and someone who goes looking for you online may be able to link your profile to your posts by the details you divulge
So what happens to global valuations once the world population starts shrinking? I also wonder what would happen if there was another significant war - surely peace cannot continue forever.
If you value stocks based on book value + dividends and discounted cash flow, this bubble's been going on for almost a hundred years by now. We've just gotten used to the new multiples.
I don't see that. You'll need a source if you want to argue that. We've gone through cycles of higher and lower valuations. You also need to compare that to interest rates, because lower rates make the market more forward looking.
I don't think it was wrong then either. I think this is a greater fool style of bubble like the famous tulip bubble, eventually we'll run out of fools.
The other possibility is that it will be widely used in the future as a store of value or for some other purposes. Might be rational to put at least some percentage of your net worth into it. People need and want something like that to exist where they have complete control over their assets without any worries about government or institutions.
Unless governments take a hard line against bitcoin by banning it, something they mostly haven't been doing to date, I expect it will have a future as a kind of digital gold. However, gold has tens of thousands of years of history as an asset class, while bitcoin is a little less proven. Don't forget it used to be illegal to own gold in the US, so bitcoin is not as safe from government as people might think.
But all financial assets tend to follow cycles of booms and busts. So the question is, where are we in the cycle? Are we nearing the top in the near term? I think we are, the growth of bitcoin has gone nearly vertical lately.
> People need and want something like that to exist where they have complete control over their assets without any worries about government or institutions.
The government can always just make a law and take whatever it wants from you (or imprison you). Doesn't matter if it's from a bank account or bitcoin cold storage on planet Musk.
> Doesn't matter if it's from a bank account or bitcoin cold storage on planet Musk.
It's a lot easier for the government to pilfer your bank account, than for them to torture you to hand over your seed phrase (that is if they even know your real identity). Decentralization absolutely takes power away from the state. That's not even touching the truly anonymous crypto like zCash.
> People need and want something like that to exist where they have complete control over their assets without any worries about government or institutions.
Are you sure? I have never in my life met anyone who thought they didn't have control over their assets or that they needed to have more control.
I get this argument if it was for e.g. gold. A physical asset, thousands of years of people appreciating it, nothing else like it. But why might it be rational to put some of your net worth to bitcoin? What speaks for bitcoin existing in a meaningful form 50 years from now, instead of some improved, different (blockchain-based or not) digital asset?
Isn't inflation the economic equivalent of gravity?
If an asset isn't growing faster than inflation, it's losing money. If there are other assets offering better risk/reward then money will flow to them and out of the inflated assets.
Inflation is high, but it's nowhere near enough to explain the recent market mania. Likewise, stimulus isn't enough to explain the market mania, especially after you subtract out COVID economic losses.
Personal savings rate is up, discretionary spending is down, people are stuck at home, and everyone is glued to their phones. I think a lot of people's extra money is going into crypto and the market. FOMO reigns supreme, at least until the numbers turn red.
CPI might not be high, but inflation can show itself in different places. Asset inflation has been increasingly high since 2019, which is clearly visible in stock market, real estate and commodity markets. Similarly, construction materials are up significantly.
It may or may not show up in consumer prices eventually.
Sure, but this is not inflation. Inflation is an increase in the price level. When some prices are up and others down so that there is no general increase in prices, we cannot speak of inflation.
What prices are down? Big Macs? Flat screen TVs? Crap from Walmart?
How about the actual things you need: housing, groceries, college, gas, electricity, a vacation?
Due to the pressure on government to keep inflation low to avoid devaluing their dollar inflation is a gamed number and the goal posts have been moved to keep it low so things look good. Meanwhile the price on everything that I buy or want to buy is through the roof and I can’t find a job that will pay me more than my current one - guess I should have gone with software instead of hardware
In the Bay Area I've seen groceries creep up a bit but basically everything I buy(rent, fuel, consumer goods, information/entertainment services) has stayed the same over the last year or two.
Now, thanks to economic inequality, I think a lot of folks are feeling effective inflation, but the true value we define as 'inflation' has not risen much yet. Sure, some things are up, but they're not included in the calculation of 'inflation' so it makes sense to talk about them in different terms, I think.
Inflation is a general term for when the nominal price of goods increases disproportionately to the intrinsic or real value.
Inflation as represented by CPI is only one measure of inflation. Just because the Fed uses that measure to drive policy doesn't mean there isn't inflation in other areas of the economy, like housing.
Latest data I saw showed factory input prices are up but not currently being passed on to consumers, possibly because businesses know it will be very poorly received by both consumers and the media.
Inflation is coming, but it seems to be inflation driven by supply disruptions and not monetary policy driven inflation. I'm still not 100% on board with the idea, but I've been reading lately that QE is basically low-velocity money and doesn't necessarily contribute to inflation. I know we didn't get much inflation after QE'08 and the velocity of money has been in the toilet since then. Combined with the USD reserve currency status I think we could actually end up with deflation but IDK. Real economists can't figure it out and I'm just some idiot on the internet.
Ok. My advice is, if you are interested in economics, get yourself informed from reputable sources, and be always sceptical, but especially of claims made by non-economists who have read some bitcoin whitepaper and think they understand economics.
There’s a lot of stimulus so assets are being inflated. It will pop at some point though and yea lots of people will get burned so don’t get too greedy on the ride up!
Since everyone thinks that buying stock is a good idea, stocks grow, and buying more stock becomes a rational decision, fueling the flame even more. It becomes a self-fulfilling prophecy — for some time. A crash-up before a crash-down.
Jumping off this train in time is what takes a real skill, not jumping on it.
In a bubble (up to you to decide if this is a bubble) a lot of people end up very wealthy on paper, but they only keep what they manage to sell before the retraction. Sadly, a lot of people can't resist the urge to double down as prices get higher and higher, meaning they lose more on the way down than they thought they were risking on the way up.
> Like somebody who put in 50% of their net worth today, and maybe it drops?
YOLOing your net worth into stocks isn't something that happens in the real world very often, contrary to what you see on WSB. The only people doing that either have severe gambling problems, or small enough net worth that they feel like they don't really care if they lose it all because they can start over.
The weird thing about this bubble is everyone he gets rich on extreme gambles seems to want to post it for internet cred. Makes it look like everyone's doing it.
It's happened before, it'll likely happen again: a new high that's multiples of the previous high, months of exuberance, and then a 70%+ drop. 2-3 years of teeth gnashing and accumulation, and repeat the process. It seems to come several months after Bitcoin's halvings.
I wish Coinbase would support more cryptos or allow storage of ERC-20 tokens so people would be more encouraged to spin up ETH projects. Feels like Coinbase is trying to be the big corporate face of crypto, kind of going against the spirit of it IMO.
Ah yes, possibly the 5th company that I wished I joined this past 18 months...
Historically there were some exchanges that have been hacked. This caused not only the company to go bankrupt but people losing a lot of money. How does coinbase prevent this from happening? This is very much one of the reasons I will never hold crypto (FYI: I've wrote my own Golang flavour of ethereum blockchain and solidity when it first came out, since im gonna get bashed for this post. I also regret not putting 1k during ethereums ICO when that was the only money I had in my bank account. This is not an investment advice). If my etrade or bank account got hacked, I can still get my money back through FDIC and SIPC. If a non-tech personstarted hyping a cryptocurrency and placed 100k in it, and they get hacked, essentially their 100k evaporates right? I guess there are worse ways to gamble your money
What I like about crypto though is the 24/7 market. I wish there was something like this in the stock market.
It's not perfect, but I believe Coinbase uses a combination of cold (offline) storage for most of its coins and insurance for the rest. Also, as you probably already know, people should not hold large sums on exchanges if they can use secure their own keys (and wallets) instead.
> "Coinbase prioritizes the security of our customer's digital currency through a combination of online “hot storage” and offline “cold” storage. Coinbase maintains 98% or more of customer digital currency in cold storage, with the remainder in secure hot servers as necessary to serve the liquidity needs of our customers. All digital currency that Coinbase holds in its online hot storage is insured. If Coinbase were to suffer a breach of its online hot storage, the insurance policy would pay out to cover any customer funds lost as a result."
I'd imagine with SV money and SV knowledge building a secure exchange, with proper cold wallets and processes in place to secure them and manage access, is not that difficult.
I get the impression that a lot of exchanges are (or were in the early days) built by 'enthusiasts' who know just enough tech to be dangerous.
You are assuming cold storage can not be "hacked" or "stolen". It is much more difficult at Coinbase scale but such an event would have drastic impact on crypto markets. Coinbase is too big to fail :)
Regarding your last line: futures trade nearly 24 hours, 6 days/week. It's also several times bigger than the ETF market, in terms of average daily dollar volume, so you get the liquidity and smaller spreads as well. [1]
In line with the rest of new State- and Fed-driven parasitic economy - out of control consumer spending, ever moar gov debt, zero interest rates, nobody makes anything in the US (gov spends 2bn of taxpayer money to send a robot to Mars but needs foreign companies to set up semiconductor fab in the country).
I am afraid that we might be on the verge of another dot com level bubble. It's interesting to see how one inflated asset is propping up another. Tesla - which rose by 1000% in 2020, bought bitcoin. Ark Invest Etfs - some of the biggest actively managed etfs, hold significant amount of Tesla, and with the profit generated from Tesla's phenomenal rise, they are investing more on bitcoin.
I believe in the future of cryptocurrencies, but the current state of bitcoin is abysmal. It's slow, expensive and the hacky patches on top (lightning network) either haven't been widely adopted or are still buggy. This all seems so much like the pets.com of the dot com bubble era. Great idea but terrible implementation.
https://www.forbes.com/sites/billybambrough/2020/07/09/bitco...
the nice thing with that bubble is that because it is manufactured by the Fed, you have an easy signal for when it has reached its top, just look at the weekly fed balance sheet:
Fed contributes, but it's hardly a singular explainer for the current market mania.
The chart you shared hasn't even changed significantly since July.
The Fed didn't print enough money to buoy Tesla 1000% or send Bitcoin up 100% in a month. There's no mechanism directing money straight from the Fed into the riskiest assets. Market mania has taken hold.
It definitely plays a role in driving overall sentiment though. And indirectly plays a role in people taking more risks. There's a view that the economy won't collapse because central banks will just keep printing money... and it's probably correct because there's no real alternative right now unless you want civil unrest because that's what you'll get once you shut down the economy and then turn off the money taps simultaneously.
But at some point, in order for fiat currency to retain any sort of reliable buying power, there does need to be a rug pull of some sort. Doing it while so many are out of work and so many industries are effectively shut down by government regulation would be extremely dangerous (for the government of the day).
Is this like the dot com bubble? My understanding is that the mindset of the time was a true mania - people were convinced it was the new normal and that businesses got insane valuations preproduct even. It seems like with a lot of these bubbles everyone is like “get in this stupidly inflated asset with money you can lose to try and make a quick buck” with retail investing at all time highs rather than some dramatic distortion in people’s perspectives. Even while assets are so inflated the investor sentiment still seems sober.
Everybody is selling EVs now. I wonder what happens to TSLA in Q4 2022 when car manufacturers publish their numbers. Enjoy it while it lasts indeed but I'm worried if that will have a cascading effect into other stocks or even also crypto.
I started paying attention to ARK funds lately because of seeing it here and there online. Then I subscribed to their YouTube channel last month and listened to this month's update from their fund principal manager (Cathie Wood). I have to say I learned some new stuff about Macro econ from listening to her video, BUT her talk about AI innovation [https://youtu.be/uwajUw4RFVk?t=1207], just convinced me that she is overestimating the potential of the AI's impact at least in the near term.
We're just at a point in the economy where it doesn't make sense to hold on to cash. It's just completely losing its value thanks to a long sustained QE.
People are just putting their money into anything as a hedge - real estate, stocks, crypto, gold. Until the value of the at can be sustained and inflation comes back, it's unlikely much else will change.
> We're just at a point in the economy where it doesn't make sense to hold on to cash.
We're not at that point, and I'm speaking as someone that supports a gold standard or equivalent to prevent rampant fiat debasement. I take it you didn't live through the 1970s. There have been numerous times in the past century where currency in major economies was prominently debased far worse, far faster than what we're seeing today. Sutained QE has done far less damage to the USD as one example, than what the 1970s did to it or the extreme destruction we saw during the George W Bush years (go to Google, type in "Belgium GDP", Netherlands GDP, Czech GDP, or Brazil GDP, almost any nation; you'll see a comical liftoff in their GDP chart, far beyond any real growth rates, that's the dollar getting massacred thanks to the idiotic fiscal policies during the GWB years).
Gold went from around $250 to $1900 over a little more than a decade from ~2000-2011, before sustained QE became a thing. In the 1970s it basically went up 1,000%. Not much has actually changed about how governments destroy currencies, it's the same old same old. Perma QE didn't change much, it's not a new tool, and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
You're better off holding cash than Tesla shares at $800 or $900. I'd rather take a 3% average debasement per year than sit in the S&P 500 at these levels (especially given what the US economy is going to look like in the coming decade). From these heights I'll bide my time for the next inevitable crash or significant decline, that's when the serious returns are generated, not chasing mania ever higher in markets at late stages. The big money was already made in Bitcoin, from $0 to $50,000; the upside from here is a joke by comparison to the risk. So it goes to $150,000 (maybe). That isn't a crazy return vs the outsized risk, that's the kind of return you could have gotten in any cloud stock after IPO. Yet it takes an extraordinary move of adding ~$2 trillion in market cap for Bitcoin to get there. The risk vs reward in Bitcoin at these levels is like a lot of absurdly overvalued stocks presently. And of course everyone becomes certain that something is fundamentally different today - it's not, this mania won't endure either (to be clear, we're not just in an asset bubble, this is a mania, the 8th or 9th inning of a bubble phase).
Significant inflation isn't coming back anytime soon (not until or unless they start devaluing the USD directly, but that isn't for at least 20 years yet), the US is in a heat-death stage of economic erosion. Ever greater sums of capital are being put into the freezer in the form of very low yielding debt, that process will continue to rob the US of dynamism and growth, trending growth toward zero as it goes. This is the exact same process Japan went through, and it's why they were unable to spark traditional inflation with their crazy spending and QE-like programs, they tried everything in the Keynesian book and it all failed (for the same reason the US didn't drown in inflation from 2010-2020 despite the rather insanely low interest rates over that time). We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.
No I don't think gold would be up 1,000% if Bitcoin didn't exist.
Bitcoin is a more of a speculative investment than a store of value at this stage, because it has been producing such extraordinary returns (whereas gold is the opposite, on average far more of a store of value than a speculative investment (with some rare bursts of euphoria)). Bitcoin still isn't very widely/greatly (immense sums) held by the rich or the elite institutions, they're only beginning to dip their toes into it. Will Bitcoin end up primarily as a store of value over time (and less of a speculative frenzy)? Sure, that appears to be the likelihood at this point.
Gold moves, across time, in line with the destruction of the US Dollar (it'll see occasional temporary bursts due to fear / panic / commodity bubbles etc). Gold is overwhelmingly priced in dollars. Most commodities are. If gold would be up 1,000% as representative of enormous inflation / destruction in the USD, we'd be seeing that in an epic commodity bubble of the sort we saw in the 2000s. You'd see it in everything from copper to oil to silver. While those commodities are clearly seeing some inflationary push-up from the dollar losing value (and bets on future dollar destruction), it's not remotely close to a 1,000% gold move type debasement.
Low interest rates over a very long period of time, is indeed inflating assets, exactly as it helped cause the 2003-2007 real-estate bubble previously. I wasn't disputing any of that in what I said. Those low interest rates are causing housing values to rest far beyond where they otherwise would be (people buying more house than they otherwise could, due to artificially low mortgage rates). Those low interest rates are driving speculative money into most asset classes, from art & collectible cards to stocks and real-estate and most everything inbetween. It took a while but the high asset prices became a bubble which then became a mania, which will then either crash or otherwise be forced to stagnate across a very long period of time (think: Nasdaq from 2000 to 2015). This market doesn't have to crash, it may just decline or swing in tantrums, while inflation erodes its value and brings the valuations back in line with the mediocre US (and global) growth rates. The China boom phase is well over and there is no next China-like outcome coming soon, so global growth will largely disappoint this decade. This current market is a rather extreme case of future returns - distant future returns - being pulled forward. How many decades will it take for Tesla or Snowflake or Shopify to grow into their valuations? Tesla needs to become as profitable as 2 to 4 Toyotas to justify its present valuation, that should only take about 40 years of perfect execution and world conquering dominance. When you pull returns forward from so far into the future, the penalty you pay is stagnation as you eventually pass through that future time. And if this market does crash spectacularly, they'll pump and pump and pump and reinflate the valuations again at some point, most likely, even if it takes the better part of a decade to do it (which isn't to say those valuations will reach present mania levels again, maybe that doesn't happen but once every several decades; but to get back to abnormally elevated valuations, they can certainly drive us back to that after a crash with QE and low interest rates plus 5-10 years).
My strategy is to pay as far below what I consider to be fair value as I can for high quality assets. It ends up being taking advantage of the fact that very few investors are capable of objectivity, capable of controlling themselves, capable of controlling their greed or emotions. Markets always go too high and sell down too low; you sell into the froth and buy the panic (Buffett's mantra of being greedy when others are fearful, and fearful when others are greedy, it is that simple; then repeat it with discipline across a lifetime). The disciplined win over tim...
I don't generally recommend the Intelligent Investor. I think it's almost always a mistake for ... 99% of new investors to bother with Benjamin Graham. His material is far too dense and often advanced for anyone that isn't quite an experienced investor. I'm sure there are exceptions, however I've found it's a huge turn-off for most new or newish investors, it delays / stunts their learning process, it's an obnoxious book to try digest if you're starting out. It'll make you hate investing or think that value investing is difficult (it's not, it's simultaneously the best approach for generating consistently high returns over time and very easy to learn).
Here is what I point new investors to:
- Buffett: The Making of an American Capitalist, by Roger Lowenstein.
- Margin of Safety, by Seth Klarman
- The Little Book That Still Beats the Market, by Joel Greenblatt
- Common Stocks and Uncommon Profits, by Philip Fisher
- Business Adventures: Twelve Classic Tales from the World of Wall Street, by John Brooks
- Peter Lynch also has a couple of optional books that are decent and very easy to digest for a new investor, very common sense oriented.
- Also optionally, Buffett's various writings are often excellent, however they're all over the place in focus, so it's hard to pick one. His annual letters for example can be acquired on the Kindle or from Berkshire's website and many are worth reading (if somewhat boring for most people I suspect).
The single most important thought in investing, in my opinion, is to always be cognizant of price vs value. What you're paying, what you're getting in return. Then always be aware of, always estimate as best you can, what your moat is for the investment at the price you're paying (what Klarman and others have called a margin of safety). How much can go wrong with your investment before you drown? How much room for error is there in the price that you paid? I like the Buffett book I reference above, because it pounds home that concept while introducing how Buffett came up, how he thinks (I don't particularly like his book, The Snowball, for that).
Also, Margin of Safety is out of print. However, there is a certain Archive site with a time machine, that if you were to put this url into it:
You'll find an archived copy of the book in PDF format. Alternatively you can put that file name into Google and find some other copies of it floating about still (Klarman refuses to put it back into print and had been having the PDF copies taken down).
Bless your dear soul for the Margin of Safety link. I've been meaning to read it for quite awhile, but you can guess why not. All your other commentary is top notch, although I still think the SP500 is fairly valued (won't have great 8% returns going forward, but won't be 0% stagnant).
Some if it is time and experience. Seeing markets come and go, seeing valuations come and go. You could perhaps study historical markets to gain some of that, but there is no better teacher than going through it (including taking some beatings along the way, along the process of learning and instilling discipline).
The absolute easiest things to look for (things most anybody can do), is growth vs valuation, along with having enough of an understanding of the business you're buying part of, to know whether they have an enduring position in their market, whether they have a moat or edge that isn't going to easily vanish. It's important to understand the context of the business you're buying into. Ultimately if you're going to self-manage, you have to decide what kind of ratio on growth vs valuation you're willing to accept, what's too high. These are largely subjective decisions, there is no right or wrong answer in most cases, only answers that entail more or less risk (the worse the ratio (eg high valuation + negative growth), the closer you get to it being an objectively wrong, dangerous answer though). Personally I prefer a balance on that equation. I'm a value investor, and it's commonly thought that value investing is a conservative, low return approach, however that's not inherently the case, that's up to the investor's approach (Benjamin Graham was a cigar butt value investor, looking for a last puff on cheap stocks, and his approach produces far lower returns over time than Buffett's approach to value investing). If a stock has a medium or high valuation, it can be a great value proposition if the necessary growth is there as a proper offset.
For example, if you go back to December 2018, Facebook was trading for around a $370 billion market cap, around 14.8 times operating income for that year. Why didn't more investors see that opportunity? It should take only a few minutes at most to run a basic extrapolation of a modest growth rate and see how that Facebook value proposition would end up a few years into the future. And yet, sentiment on the stock was irrationally bearish. That's nothing more than emotion, herd behavior, and it's extremely common. It's investors listening to other low-value opinions, it's Wall Street money being the typical followers that they are. People are generally terrified to stand apart on any decision, much less an investment. Many of those investors end up being the desperate sellers you want to buy from as they sell you FB at $137. They have no idea what they're doing, they have no idea when to buy or sell. And that's true of most of the professionals on Wall Street, they're almost all clowns (very highly paid clowns, because they're operating in a protected cartel). Was Facebook's social monopoly - their moat, their edge - going to vanish soon circa December 2018? That was an absurd, silly, borderline stupid premise, and yet it was a commonly floated notion; there was wildly bearish sentiment going around at the time - and yet back in objective land, where you always want to remain, their business was still firing soundly. So if an investor could brush away the irrational people spewing their emotional bias about FB, you could focus on the actual business and what it was actually doing, and run some very straight-forward projections into the future (even being conservative about it).
I'll give you another obvious example from my perspective. In March I posted here about which stocks I thought were interesting during the crash. I argued about Square and why I liked it. For that stock I looked at a few things. They did $4.7b in sales in 2019 and their market cap was down to like $17-$19 billion during the crash, so it was trading for around four times trailing sales with a solid growth profile (and, in theory, a lot of growth ahead of them, as they were still relatively early into their growth phase). Their operating profit/loss picture had persistently ...
Thanks for all the detailed responses. Very much appreciated food for thought.
I have a specific question about the calculation of the fair value. My understanding is that there are two steps:
1. Project the future earning (that is the difficult part)
2. Discount the earnings and get the NPV - the fair value of the company
Currently the interest rates are so low that the NPV will be quite high and not that far from the current valuations. Indeed, this seems to be the rationalization by many for the sky high valuations of today. But this seems wrong to me. What would you advice? Pick some other interest rate, maybe an aspirational rate of return for ones investing? Or don't try to compute the NPV and think in terms of multiples like P/E and P/S?
When I say fair value, it's what I consider to be fair value. As an investor you always have to ultimately make those decisions for yourself, or you have to defer to another person's judgment on the matter (whether a talking head on TV, or pump & dumpers on Reddit, or newsletters, etc). I'm not basing that on something some guy put into a book 70 years ago about how to value a stock, even if some textbook'ish knowledge can be worth learning to use as you go about coming up with your own valuing formulation (as in the case of Ben Graham). It's based on my past ~26 years of experience with stocks and what I look for in investments. You'll find with experience as an investor, if you're self-educating and or managing some or all of your own investing, you'll come up with your own tests for investments, your own way of valuing what you're buying & selling (or you should anyway). You can take pieces here and there from others and assemble it based on how you like to invest, inevitably over a lifetime it no doubt becomes an amalgam from what you learn.
So for example if I think the fair value for Coca Cola (KO) is 30% to 50% lower than where it's at today, that's not based on a textbook valuation approach. I base it on what I'm willing to pay for growth, and Coca Cola is a pathetic non-growth machine (not to mention a giant sugar liability). I look at Coke's financials and, with some understanding of their business, I ask: what am I willing to pay for zero or negative growth across time? China's boom has come and gone and Coke's growth - as a global business - has recently been stagnant, mediocre, so what are their prospects going forward? I don't like that picture at all. I might be willing to pay somewhere between 8 to 15 times earnings for zero growth (depending on context; I might pay less for a financial firm than a tech firm, and so on), if there is something I like about a company. Coke's multiple is closer to 27-33 lately. Why would anybody ever pay 30 times earnings for zero growth and bad prospects for growth? Coke is a very easy fair value calculation as far as my personal judgment is concerned, their persistent growth problems make that a super fast decision. I'll look elsewhere. McDonald's is in a similar boat as Coke, it's a horrific value proposition, 30+ times earnings for a business with very little (or negative) growth. I might pay 12-15 times for MCD or KO, maybe. Personally I tend to really dislike companies with no growth or weak growth prospects going forward, it's a giant negative in the margin of safety calculation (growth is a first-aid kit for problems that inevitably crop up in a business over time, random messes, it applies a bit of a balm, helps as an offset in the value calculation; if you don't even have growth, inevitable problems are that much worse when they happen).
Fair value means I've looked at the stock in a way that I prefer to approach a stock and I've made a determination for myself, for my investment purposes, as to how much I think it should be worth. And I may come up with a few versions of that, one for an average market (with typical multiples), one for a slightly bubbly market; typically I disregard trying to come up with a value based on a mania, I'm not a buyer at that time in most cases. Those variations, models, are meant to inform myself as to the flex in my investment. If valuations merely go back to where they were in 2012 or 2016, how might my investment perform if its multiple is reset 1/3 lower? Will I get killed on the price I paid? It's modeling.
Interest rates will absolutely distort the context of deciding what something is worth, that falls into the variations, models, you build for different scenarios. The point of doing that is to check / prepare your position against a bad outcome. People claim that low interest rates will keep stocks inflated, so there's nothing to worry about; I like to point out that ...
Yeah they don't tend to talk very openly about who is doing the buying for what. Occasionally in the last few years Buffett will indicate if it was him specifically buying something, usually outsized positions.
I think either Ted or Todd is likely is doing the buying on Snowflake (at least instigated the premise), perhaps with Buffett's sign-off (given it's an increasingly large position). I also think one of the other buyers is likely responsible for Berkshire's position in VRSN.
There's a high risk that Snowflake position will humiliate Berkshire Hathaway. I think it's a mistake. It wouldn't be Berkshire's first mistake in dabbling in tech but it looks like it could be the biggest.
I have great respect for Buffett's historical performance, however I consider him mostly done at this point. He's conservatively managing the end game of his career now, he seems to be intentionally avoiding doing anything that might stretch beyond his lifetime now (I don't think he wants to do anything that might need a decade to manage that he might have to offload onto the next person). I think he should have taken advantage of KHC's weakness for example, to strip Heinz back out of the conglomerate and break it up and sell off the rest of Kraft, the stock was so cheap at times you could have almost gotten Heinz for free in the process. Instead Buffett is sitting on a hundred plus billion dollars yielding squat (KHC was down to near half the market cap it currently sports, which was the general time to grab it to try to get the Heinz business, and then sell off the lesser pieces, either after you repair what was ailing KHC or immediately depending).
If the bull case was only $150k, I might agree with you. The bull case is $5 million. But bitcoin has always been risky and can always go to 0 rather quickly.
Anyway, there is no point at looking at nominal values given inflation, population growth, general progress. I like to look at everything as a ratio against total global numbers (global wealth, global debt, global population, global equality etc.). Unfortunately it’s hard to find reliable global numbers.
The IIF only gives its numbers to a few hundred global banks and similar sized institutions.
Once the bullish case is set at $5 million you might as well set it at $5 trillion.
At $5 million it's approaching the value of all stocks on the planet. I don't have to elaborate on the economy those stocks represent, the annual profit generation.
$100 trillion is nearly all household assets in the US, and nearly double all household assets in China.
I like Bitcoin, it's simply not a believable bullish case at all.
Total wealth 500 trillion. Frequently Recommended institutional allocation 30-50% bonds. Bitcoin replaces the bulk of cash equivalents. Not impossible.
Getting nearly everyone on the planet to do that, including all governments to allow it, is impossible. As one very prominent example, the odds are dramatically higher that China will banish Bitcoin from being legal inside of their country than that they'll allow everyone to switch to using Bitcoin instead of the currency system they directly control (and can manipulate as it fits their aims). All nations generally feel the same way about controlling their own currency, they more than overwhelmingly prefer to retain that power in their political system. If Bitcoin actually threatens that they have all the guns that matter and will act accordingly legislatively. They might be willing to allow Bitcoin to be a store of value competitor to gold however, but that's all they're going to allow.
We don't have gold backed currencies for the same reason we're not going to see Bitcoin overtake all national currency systems. The guys in power with the guns determine how your currency system works and they all universally say no: you may not have your fiat currency backed by gold (or in the future, swapped out for Bitcoin).
At $5 million, at current mining rates, it would cost $1.7 trillion dollars per year in energy and equipment costs to run the network. That is fresh capital that needs to be shovelled in and burned each and every year.
Not to increase the price, just to maintain the network. What is the network doing that would justify that investment?
After halving the cost would drop to $850 billion a year but still.
It doesn't really make sense to measure this in USD if one of the major hypothesis driving Bitcoin is that USD is being hyper inflated. Yeah, it might cost $1.7 trillion dollars but at that point a 3bd house might cost $5M. If you're going to pin BTC to USD, you need to use inflation adjusted numbers.
> It doesn't really make sense to measure this in USD if one of the major hypothesis driving Bitcoin is that USD is being hyper inflated
“USD is being hyperinflated” is an easily falsiable (and obviously false) statement, so basing anything on it is nonsense.
(That it is imminently going to slide into hyperinflation is less easily falsified, which is why that is actually the perennial cry of cryptobugs, as it was for goldbugs—sometimes, the exact same people—before then.)
Isn’t it easy to verify? How much did a house cost 20 years ago? A 4 year college degree? How much were you paying per month for health insurance in the 90s? Salaries have not kept up. They’ve been amazingly static my entire life.
You've mentioned three items that have experienced specific inflation at higher than the general rate of inflation (but even then mostly not at rates anywhere in the remote neighborhood that would qualify as hyperinflation [> +50%/month] even if they were the rate of general inflation.)
So,yeah, when even the rapidly inflating segments aren't anywhere close to hyperinflation, it's pretty clearly not general hyperinflation.
And stagnant wages are a completely unrelated issue to hyperinflation, though obviously wage increases mitigate and wage stagnation or decline exacerbates the effect of whatever inflation there is on wage earners.
> They also just listed the set of the largest expenses for a vast majority of our society
Buying a house is an asset acquisition, not an expense. Housing is an expense (and typically the single greatest household expenses), but that expense has increased in price less than home prices.
The next greatest expenses are food and transportation.
> Yet it takes an extraordinary move of adding ~$2 trillion in market cap for Bitcoin to get there. The risk vs reward in Bitcoin at these levels is like a lot of absurdly overvalued stocks presently.
Bitcoin is not a stock, it's a deflationary asset. There are not just a limited amount of bitcoin, but a constantly decreasing amount and a constantly increasing amount of people wishing to use them. People sounded very much like you at every step of the way, including in the rise to $1,000. "The risk isn't worth it."
> Significant inflation isn't coming back anytime soon
I mean except in the commodities markets, the housing market, the price of ammo, of course. Unless you believe those are just "bubbles" as well.
> We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.
We are seeing inflation, it's just occurring in hard asset classes like real estate.
> and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
Yeah, people call it the everything bubble, when the obvious explanation is the money is being massively debased to pay debt that can't be serviced otherwise.
In all historical episodes of hyperinflation, at the start, everyone holding assets just thinks they are getting rich.
A lot of states have tax breaks for ag land, or land that doesn't contain a permanent dwelling. Taxes overall can be quite low in rural counties regardless. And even with property tax, money can be made leasing the land to farmers or timbering it. There is plenty of value to be had in owning land. Plenty to be lost too, sure if you don't know what you're doing.
Given that all of those things have increased in cost at rates far beyond 2%, I don't really see how you blame that on the inflation of the USD as a whole. They have their own systemic problems attributing to their astronomical costs.
> Given that all of those things have increased in cost at rates far beyond 2%, I don't really see how you blame that on the inflation of the USD as a whole.
My point is inflation isn't being measured in a way that actually matters to people worried about more than buying groceries and a new laptop.
If all those things were included in the measurement inflation would be way over 2%.
conceptually holding more cash than you can usefully spend reduces your cash value and doesn't have to happen with inflation
I remember Buffets letter to shareholders apologising Berkshire Hathaway wasn't able to continue delivering the same historic returns because that trajectory would require them to own every publicly traded asset in the world after ten more years.
even now you can potentially eliminate the major inflationary risks by holding property without debt and rely on policy consumer price regulation to hold basic necessities in check but I personally think that energy risks and not only exceptional weather events put that out of contention for sanity sake. In fact if energy infrastructure and general infrastructure development is increasingly critical for the future it makes little sense to have a cash savings incentive in the economy despite this is unfortunately not a explicit case for the generational savings deprecated in a way that I readily appreciate.
edit to remove accidental negative from I personally [don't] think that energy risks....
This seems more like chasing yield and less like cash losing value or being a bad asset. Cash obviously has benefits to hold and that isn’t changing soon.
absolutely agreed I'm all cash since 2018 in fact, which is why I'm sensitive to the cost of that liquidity.
I noticed a comment sadly without details reporting a third party obtained a crypto collateralized 7 figure loan obtained in a matter of minutes which interested me enough to plan a new survey of the infrastructure in the market. I'm personally interested in pending short term 5 figures as a business. but only if I can figure out how report to credit agencies specifically for positive feedback and I am only interested in non secured lending but whilst holding the underlying as the custodian. unsecured loan performance is a particularly valuable credit record history especially in the present volatility. the model I wish to pursue is to provide liquidity for trading traditional instruments and by acting as custodian for both crypto and trad assets, providing as USP analytical tools and guaranteeing fills on quotes from my ticker, acting as guarantor for the trades to a mainstream financial or bank. I won't go into the model but it does include kicking back fees from my prime broker for the volume and transparently revealing the collars around the spread enabling truly immediate liquidity and real time netting. hedge strategy p&l to benefit customers when closing in the market thereby paying every customer for anything that they left on the table excess for buying the liquidity.
> We're just at a point in the economy where it doesn't make sense to hold on to cash.
One of the whole purposes of conversion to pure fiat is to eliminate any reason to hold cash other than short-term liquidity in order to encourage investment in productive assets, driving production.
> It's just completely losing its value thanks to a long sustained QE.
Except...it's not, the quantity of direct, utility-producing goods and services you can get for a given number of dollars is declining much slower than the long-term average rate. Easy-money policies aren’t driving significant inflation, probably because we’d be seeing significant deflation without those policies given other conditions.
Cash is what you want to be sitting on when discounted opportunities abound. The people that lack cash at such critical times, suffer enormously for that error.
How nice was it to have plentiful cash after the real-estate implosion? They were practically giving homes and condos away in markets like Nevada or Florida, condos that were going for $250,000 during the bubble were being given away for $35k-$50k at the bottom of the implosion and there were few takers, entire buildings were sitting empty in formerly hot markets in Florida.
How nice was it to have a lot of opportunity cash at the ready as the S&P 500 collapsed in late 2008 / early 2009 (or March 2020 for that matter), while everybody else was getting mauled, worried about margin calls, fleeing the market in fear. You wanted to be buying from those people as they were dumping nice assets for $0.25 on the dollar. To do that you needed cash on hand.
The time period after steep asset declines or crashes, is when the majority of investors lack for cash the most, they're always pinned, scared by the hits they took, and can't seize the opportunities that become available; and that's when you make the biggest killing, that's when you take up your greatest potential return positions, not during rah rah times (that's when you cash out your prior opportunistic positioning and build cash, rinse & repeat).
That's not to suggest you should always be holding nothing but cash, that isn't the point. The notion that it never makes sense to hold cash is way off the mark however. At a minimum you want some opportunity cash on hand at nearly all times, and you can increase or decrease how much that is depending on the context of the economy/market/personal/etc.
There you go right there, sounds like those who stayed were the smart ones or even there are some who want to time it perfectly after the direct listing + the lockup period.
Given the industry-wide reaction to Coinbase's apolitical policy last year and the peak of the political chaos of 2020, I doubt they considered staying.
In general, If you get woke, you'll only go broke.
It doesn't much matter to me if its crypto currency or real goods, when markets, stock exchanges float, I think we're insane.
The marketplace should not of itself be valuable. If it is, its extraction of value for the goods/utility being traded. Its rent seeking. The only possible value derives from what is a tax on trades by volume and value, to NOT fund the engine which runs the trades. Sure Lloyd's of London is priceless. Priceless really should mean "does not usefully have a price, in that sense"
If coinbase is worth $100b what does that even mean in terms of the sustained value of the dollar?
>The marketplace should not of itself be valuable. If it is, its extraction of value for the goods/utility being traded.
Due to regulatory capture Coinbase gets away with charging literally 10x higher fees than international exchanges, as US regulations essentially ban Americans from trading on most of the popular international exchanges, so Coinbase has little competition.
I do think that a $100B public company engaging in the activity makes a really strong case for regulatory reform. I would expect it to be straightforward for other markets to add crypto for US residents once Coinbase goes public. I don't know that I would want to own Coinbase stock once CME/ICE/CBOE have crypto exchanges with lower fees.
Coinbase could end up being the victim of its own success.
What underlying value does btc buy or hold? It's rarely accepted anywhere.
How can it be made stable? It's risky to invest large sums in if it can just collapse at any time.
Is it even demonstrably secure against the potential of malicious original owners/operators running away with large sums of money? If there are original owners/operators, where's the governance, paper trail, and audit of them?
What if there are security or structural flaws? Who's going to fix them? Who decides what fixes to implement? Who reviews the fixes?
How can it can be converted to money if countries make exchanges illegal or tax it into oblivion?
> Is it even demonstrably secure against the potential of malicious original owners/operators running away with large sums of money?
Are you talking about Bitcoin itself here? There are no operators holding your money. It's secured by standard cryptography implemented in open source code, and the entire ledger is public.
There are developers who fix bugs that come up, and make minor improvements to the protocol occasionally. Ultimately it's everybody running the software who decides whether the changes actually deploy.
(If you're talking about Coinbase, they do hold your money and they are regulated and audited.)
The ledger can be public and people can choose what code to run, but someone started it. Do does anyone know how distributed (as a running system, not as a protocol) BTC actually began vs. is? And someone early likely has a giant pool of BTC. Does anyone suspect BTC is a long con?
I'm not talking about who is holding money at present time, but running away with the value from piles of BTCs (either historic wallets, customer wallets, or modern investment), cashing-out, and dumping BTC's value.
It's entirely different if a "founder" can walk away with their now insanely valuable "stock" or someone else's "stock," effectively a partial pyramid scheme.
I mean, Elon Musk could sell a large amount of TSLA if he wanted, just like Satoshi could theoretically sell lots of BTC. Neither can sell someone else's holdings.
I think a bet on coinbase, not bitcoin is the best bet for anyone who is looking toward betting for a future of cryptocurrencies.
Bitcoin has a lot going against it- the tether fraud stuff, connections to money laundering, slow transaction speed.
Coinbase is tied to none of those things, and has the unique advantage of having a reputation in both security and compliance in an industry full of greenhorns.
What about the environmental impact / physical limitations of cryptomining? At this point BTC alone consumes more energy than Argentina (https://www.bbc.com/news/technology-56012952)- will legislators allow this to continue? Will it even be possible for it to continue much further?
And? If miners use it, it means John Doe needs to use coal power to charge his Tesla instead of renewables because the mining setup next to the hydro plant is gobbling it all up.
In case the tweet is deleted, a summary. Coinbase is now being valued at over half the combined market value of the companies that collectively own most major global markets outside of China. Those markets trade everything from currencies to stocks and bonds to commodities.
For scale of asset pools: The value of all Bitcoins ever mined just hit $1 trillion. The CME Group exchanges trade nearly 6x that daily. This funding values Coinbase ~50% higher than CME Group.
Something similar that intrigued me recently is that Airbnb is valued at more than all the USA publicly listed hotel chains put together (Marriott etc)
In that case, the comparison is between a capital-efficient tech company and a real estate management company where capital is tied up in real estate around the world.
If there's a similar distinction between the business models of Coinbase and e.g. CME Group, I have yet to hear it.
> If there's a similar distinction between the business models of Coinbase and e.g. CME Group, I have yet to hear it.
Traditional finance and crypto finance are often hard to compare, but here's a surface level comparison: Coinbase is an exchange, a brokerage, and a clearing house all wrapped into one. I'm not aware of entity in traditional finance that is all three, though plenty are two out of three (Robinhood is a brokerage and clearing house, CME is an exchange and clearing house).
It's great for coinbase, but I don't understand why it's winning the competition. It's fees are incredible, and it doesn't even seem to offer basic features like limit orders.
I see a lot of people talking about the market being in a bubble, and that they’re holding cash waiting for a crash.
Even if that’s true, I recently read about the bubble potentially “bursting up”: instead of prices coming crashing down, prices stay stagnant or grow slowly, while earnings grow quickly. The net result is the same (P/E ratios stabilize), but you lose out on a lot by staying out of the market.
> instead of prices coming crashing down, prices stay stagnant or grow slowly, while earnings grow quickly
Do you have a link where I could read more about this? As a layman I fail to understand how this would work, and I couldn't find a page explaining it.
My naive understanding is that a bubble pops when investors lose confidence in the market, and instead of anticipating growth, anticipates a correction and create a feedback loop down to a certain level (at which some counter feedback stabilizes the movement).
How can earnings increase when investors have lost confidence?
The market is overvalued when the price-to-earnings ratio is too high (ie, valuations outweigh the actual money that a company makes). When it gets really high, investors can panic, and sell stocks, driving prices down and hence reducing the PE ratio.
The alternative I’m describing is one where panic selling doesn’t occur. Earnings can continue to rise (because earnings reflect consumer spending and other similar trends), whereas prices don’t go up as much because market speculation reduces and people are less bullish. It doesn’t have to devolve to panic selling.
I don't think so, because we're using earnings precisely to assess if the observed increase in value is justified. Stocks without dividends are not a problem, because businesses always have earnings regardless of whether they distribute dividends or not.
It seems like the unlikely alternative. What would motivate everyone to keep money in assets that aren’t moving, or barely moving? Perhaps if there are zero alternatives — nothing is growing faster — then yeah... That’s hard to imagine.
I think the other practical issue is that a "bubble" can go high enough where a 70% downward correction could still land above where you originally decided to cash out. I made this error back in 2016 thinking that Obama had juiced things for 8+ years and there'd be no way for Trump to keep the party going. And that taught me a hard lesson on the foolishness of trying to time the markets.
The other issue we are dealing with now is also asset inflation, where the number on the screen does not reflect any intrinsic value, but moreso the ongoing devaluing of the dollar we hold in our pockets.
I personally think this whole "modern monetary theory" is a game where the smart folks at the Fed realize that rather than have people watch the number on their savings and 401ks obliterated in a crash, they prefer to keep that number appearing the same and bury the "cost" of the bubble into a deflating dollar. It keeps the masses happy because they see the $s in their savings account still going up, which retains confidence in the system. Who knows when everyone will catch on, but it's been working so far.
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[ 1.7 ms ] story [ 259 ms ] threadHow much do they own now?
They get roughly $200 per bitcoin trade. That's on both sides, so $400 per bitcoin transaction. Today was a slightly higher volume day but they did $1.6B in BTC-USD, so around ~30k bitcoin changed hands.
30k * 400 = $12Million
Bitcoin is 1/3 of their volume (they have a lot of other crypto currency pairs), so let's take 3x of that = $36 Million in trading fees today.
Bitcoin is a 24/7 market, so 365 days = $13.14 Billion per year.
This does not even count what used to be (still is?) their main business of just buying and holding bitcoin for people through DCA buys or on their app. They also are starting to have a bunch of other revenue streams through loans, debit cards, etc and invest in a number of early crypto projects.
I'm not sure what the multiple is going to be like since I don't know their expenses, but since most tech companies are valued from revenue and future growth expectations anyway, who knows.
Though 2021 will be higher, will it be 20x higher?
I don't know if it will be 20x higher either. Just saying, this makes more sense than say, Zoom, which trades at $120B mcap.
I dont think the volumes will last, but if you look at volumes today and extrapolate further growth, then sure $100B makes sense.
Doesn't quite add up, but what do I know.
Edit: Peter Lynch agrees with me. Instead of being a passive aggressive downvoting asshole leave a comment.
https://youtu.be/UNrMnFM3VvE
Edit: Lol, I can't respond to your comments because everyone downvoted my comment and HN rate-limited me. Later.
This pushes up the price of equities and decreases their return too.
Also Peter Lynch is no fool, so I'd like a source for you saying he thinks there is no connection before I believe he said that.
Lower interest rates enable growth in corporate debt, which has been used to buy back stock.
There is a direct connection between decades of lower rates, stock buy backs, and asset appreciation including stocks.
https://archive.is/NMR1R
If they aren’t of a mind stable enough to stay on this plane of existence, don’t not not stay.
It gets worse. Many of us are probably reading HN while listening to Clubhouse at the same time.
Next Friday I plan to do the 2-3 hour trip on motorcycle to Chiang Mai city. It’s through a mountainous snake road and with good weather very beautiful to drive.
They're for limiting your max amount of time on HN in a single stretch. :)
while checking out HN, TikTok, Clubhouse and Facebook at the same time
What's your reason for such a firm belief that this is absolutely going to happen in any timeframe that matters to this valuation?
The population is not really the factor here, it's economic growth, which is connected to population.
Growth must slow eventually too. I'm not sure how long that would take or how we'll adapt.
Like somebody who put in 50% of their net worth today, and maybe it drops?
there is no gravity.
Maybe it pops tomorrow, maybe it goes on for years. I don't know, nobody really does.
Same thing was said in 2013 and 2017..
That's my opinion, but we'll see.
Unless governments take a hard line against bitcoin by banning it, something they mostly haven't been doing to date, I expect it will have a future as a kind of digital gold. However, gold has tens of thousands of years of history as an asset class, while bitcoin is a little less proven. Don't forget it used to be illegal to own gold in the US, so bitcoin is not as safe from government as people might think.
But all financial assets tend to follow cycles of booms and busts. So the question is, where are we in the cycle? Are we nearing the top in the near term? I think we are, the growth of bitcoin has gone nearly vertical lately.
The government can always just make a law and take whatever it wants from you (or imprison you). Doesn't matter if it's from a bank account or bitcoin cold storage on planet Musk.
It's a lot easier for the government to pilfer your bank account, than for them to torture you to hand over your seed phrase (that is if they even know your real identity). Decentralization absolutely takes power away from the state. That's not even touching the truly anonymous crypto like zCash.
Works the same as with bank accounts or scamcoins.
Are you sure? I have never in my life met anyone who thought they didn't have control over their assets or that they needed to have more control.
If an asset isn't growing faster than inflation, it's losing money. If there are other assets offering better risk/reward then money will flow to them and out of the inflated assets.
Personal savings rate is up, discretionary spending is down, people are stuck at home, and everyone is glued to their phones. I think a lot of people's extra money is going into crypto and the market. FOMO reigns supreme, at least until the numbers turn red.
https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
It may or may not show up in consumer prices eventually.
How about the actual things you need: housing, groceries, college, gas, electricity, a vacation?
Due to the pressure on government to keep inflation low to avoid devaluing their dollar inflation is a gamed number and the goal posts have been moved to keep it low so things look good. Meanwhile the price on everything that I buy or want to buy is through the roof and I can’t find a job that will pay me more than my current one - guess I should have gone with software instead of hardware
Now, thanks to economic inequality, I think a lot of folks are feeling effective inflation, but the true value we define as 'inflation' has not risen much yet. Sure, some things are up, but they're not included in the calculation of 'inflation' so it makes sense to talk about them in different terms, I think.
Inflation as represented by CPI is only one measure of inflation. Just because the Fed uses that measure to drive policy doesn't mean there isn't inflation in other areas of the economy, like housing.
Inflation is coming, but it seems to be inflation driven by supply disruptions and not monetary policy driven inflation. I'm still not 100% on board with the idea, but I've been reading lately that QE is basically low-velocity money and doesn't necessarily contribute to inflation. I know we didn't get much inflation after QE'08 and the velocity of money has been in the toilet since then. Combined with the USD reserve currency status I think we could actually end up with deflation but IDK. Real economists can't figure it out and I'm just some idiot on the internet.
This is a market mania at this point. Everything thinks stimulus is all-powerful at this point, but there's a lot of FOMO going on too.
Jumping off this train in time is what takes a real skill, not jumping on it.
In a bubble (up to you to decide if this is a bubble) a lot of people end up very wealthy on paper, but they only keep what they manage to sell before the retraction. Sadly, a lot of people can't resist the urge to double down as prices get higher and higher, meaning they lose more on the way down than they thought they were risking on the way up.
> Like somebody who put in 50% of their net worth today, and maybe it drops?
YOLOing your net worth into stocks isn't something that happens in the real world very often, contrary to what you see on WSB. The only people doing that either have severe gambling problems, or small enough net worth that they feel like they don't really care if they lose it all because they can start over.
The weird thing about this bubble is everyone he gets rich on extreme gambles seems to want to post it for internet cred. Makes it look like everyone's doing it.
Historically there were some exchanges that have been hacked. This caused not only the company to go bankrupt but people losing a lot of money. How does coinbase prevent this from happening? This is very much one of the reasons I will never hold crypto (FYI: I've wrote my own Golang flavour of ethereum blockchain and solidity when it first came out, since im gonna get bashed for this post. I also regret not putting 1k during ethereums ICO when that was the only money I had in my bank account. This is not an investment advice). If my etrade or bank account got hacked, I can still get my money back through FDIC and SIPC. If a non-tech personstarted hyping a cryptocurrency and placed 100k in it, and they get hacked, essentially their 100k evaporates right? I guess there are worse ways to gamble your money
What I like about crypto though is the 24/7 market. I wish there was something like this in the stock market.
> "Coinbase prioritizes the security of our customer's digital currency through a combination of online “hot storage” and offline “cold” storage. Coinbase maintains 98% or more of customer digital currency in cold storage, with the remainder in secure hot servers as necessary to serve the liquidity needs of our customers. All digital currency that Coinbase holds in its online hot storage is insured. If Coinbase were to suffer a breach of its online hot storage, the insurance policy would pay out to cover any customer funds lost as a result."
https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
I get the impression that a lot of exchanges are (or were in the early days) built by 'enthusiasts' who know just enough tech to be dangerous.
[1]: https://www.cmegroup.com/education/courses/futures-vs-etfs/w...
And they eat up 2%+ fee even for people that wish to pay in cash?
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
And right now they are still printing more and more.
The chart you shared hasn't even changed significantly since July.
The Fed didn't print enough money to buoy Tesla 1000% or send Bitcoin up 100% in a month. There's no mechanism directing money straight from the Fed into the riskiest assets. Market mania has taken hold.
Tether “being printed” is per design. Just like wire transfers and account signups to Coinbase, they align with spikes in price.
That’s not to say they are legitimate either, but the constant conjecture about it is mostly people confused about causation.
But at some point, in order for fiat currency to retain any sort of reliable buying power, there does need to be a rug pull of some sort. Doing it while so many are out of work and so many industries are effectively shut down by government regulation would be extremely dangerous (for the government of the day).
How is that any different from today?
https://ir.theice.com/governance/executive-management-team/d....
People are just putting their money into anything as a hedge - real estate, stocks, crypto, gold. Until the value of the at can be sustained and inflation comes back, it's unlikely much else will change.
We're not at that point, and I'm speaking as someone that supports a gold standard or equivalent to prevent rampant fiat debasement. I take it you didn't live through the 1970s. There have been numerous times in the past century where currency in major economies was prominently debased far worse, far faster than what we're seeing today. Sutained QE has done far less damage to the USD as one example, than what the 1970s did to it or the extreme destruction we saw during the George W Bush years (go to Google, type in "Belgium GDP", Netherlands GDP, Czech GDP, or Brazil GDP, almost any nation; you'll see a comical liftoff in their GDP chart, far beyond any real growth rates, that's the dollar getting massacred thanks to the idiotic fiscal policies during the GWB years).
Gold went from around $250 to $1900 over a little more than a decade from ~2000-2011, before sustained QE became a thing. In the 1970s it basically went up 1,000%. Not much has actually changed about how governments destroy currencies, it's the same old same old. Perma QE didn't change much, it's not a new tool, and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
You're better off holding cash than Tesla shares at $800 or $900. I'd rather take a 3% average debasement per year than sit in the S&P 500 at these levels (especially given what the US economy is going to look like in the coming decade). From these heights I'll bide my time for the next inevitable crash or significant decline, that's when the serious returns are generated, not chasing mania ever higher in markets at late stages. The big money was already made in Bitcoin, from $0 to $50,000; the upside from here is a joke by comparison to the risk. So it goes to $150,000 (maybe). That isn't a crazy return vs the outsized risk, that's the kind of return you could have gotten in any cloud stock after IPO. Yet it takes an extraordinary move of adding ~$2 trillion in market cap for Bitcoin to get there. The risk vs reward in Bitcoin at these levels is like a lot of absurdly overvalued stocks presently. And of course everyone becomes certain that something is fundamentally different today - it's not, this mania won't endure either (to be clear, we're not just in an asset bubble, this is a mania, the 8th or 9th inning of a bubble phase).
Significant inflation isn't coming back anytime soon (not until or unless they start devaluing the USD directly, but that isn't for at least 20 years yet), the US is in a heat-death stage of economic erosion. Ever greater sums of capital are being put into the freezer in the form of very low yielding debt, that process will continue to rob the US of dynamism and growth, trending growth toward zero as it goes. This is the exact same process Japan went through, and it's why they were unable to spark traditional inflation with their crazy spending and QE-like programs, they tried everything in the Keynesian book and it all failed (for the same reason the US didn't drown in inflation from 2010-2020 despite the rather insanely low interest rates over that time). We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.
Even Silver is being pumped.
Can’t we say the reason why gold isn’t up 1000% is because its digital form of it, bitcoin, took that position?
Isn’t QE inflating assets instead of monetary value hence why stocks/equity is going up?
Btw very interesting take thank you!
Bitcoin is a more of a speculative investment than a store of value at this stage, because it has been producing such extraordinary returns (whereas gold is the opposite, on average far more of a store of value than a speculative investment (with some rare bursts of euphoria)). Bitcoin still isn't very widely/greatly (immense sums) held by the rich or the elite institutions, they're only beginning to dip their toes into it. Will Bitcoin end up primarily as a store of value over time (and less of a speculative frenzy)? Sure, that appears to be the likelihood at this point.
Gold moves, across time, in line with the destruction of the US Dollar (it'll see occasional temporary bursts due to fear / panic / commodity bubbles etc). Gold is overwhelmingly priced in dollars. Most commodities are. If gold would be up 1,000% as representative of enormous inflation / destruction in the USD, we'd be seeing that in an epic commodity bubble of the sort we saw in the 2000s. You'd see it in everything from copper to oil to silver. While those commodities are clearly seeing some inflationary push-up from the dollar losing value (and bets on future dollar destruction), it's not remotely close to a 1,000% gold move type debasement.
Low interest rates over a very long period of time, is indeed inflating assets, exactly as it helped cause the 2003-2007 real-estate bubble previously. I wasn't disputing any of that in what I said. Those low interest rates are causing housing values to rest far beyond where they otherwise would be (people buying more house than they otherwise could, due to artificially low mortgage rates). Those low interest rates are driving speculative money into most asset classes, from art & collectible cards to stocks and real-estate and most everything inbetween. It took a while but the high asset prices became a bubble which then became a mania, which will then either crash or otherwise be forced to stagnate across a very long period of time (think: Nasdaq from 2000 to 2015). This market doesn't have to crash, it may just decline or swing in tantrums, while inflation erodes its value and brings the valuations back in line with the mediocre US (and global) growth rates. The China boom phase is well over and there is no next China-like outcome coming soon, so global growth will largely disappoint this decade. This current market is a rather extreme case of future returns - distant future returns - being pulled forward. How many decades will it take for Tesla or Snowflake or Shopify to grow into their valuations? Tesla needs to become as profitable as 2 to 4 Toyotas to justify its present valuation, that should only take about 40 years of perfect execution and world conquering dominance. When you pull returns forward from so far into the future, the penalty you pay is stagnation as you eventually pass through that future time. And if this market does crash spectacularly, they'll pump and pump and pump and reinflate the valuations again at some point, most likely, even if it takes the better part of a decade to do it (which isn't to say those valuations will reach present mania levels again, maybe that doesn't happen but once every several decades; but to get back to abnormally elevated valuations, they can certainly drive us back to that after a crash with QE and low interest rates plus 5-10 years).
My strategy is to pay as far below what I consider to be fair value as I can for high quality assets. It ends up being taking advantage of the fact that very few investors are capable of objectivity, capable of controlling themselves, capable of controlling their greed or emotions. Markets always go too high and sell down too low; you sell into the froth and buy the panic (Buffett's mantra of being greedy when others are fearful, and fearful when others are greedy, it is that simple; then repeat it with discipline across a lifetime). The disciplined win over tim...
Could you give some guide lines on how to achieve this?
Here is what I point new investors to:
- Buffett: The Making of an American Capitalist, by Roger Lowenstein.
- Margin of Safety, by Seth Klarman
- The Little Book That Still Beats the Market, by Joel Greenblatt
- Common Stocks and Uncommon Profits, by Philip Fisher
- Business Adventures: Twelve Classic Tales from the World of Wall Street, by John Brooks
- This article from 1984 by Warren Buffett: https://www8.gsb.columbia.edu/articles/columbia-business/sup...
- Peter Lynch also has a couple of optional books that are decent and very easy to digest for a new investor, very common sense oriented.
- Also optionally, Buffett's various writings are often excellent, however they're all over the place in focus, so it's hard to pick one. His annual letters for example can be acquired on the Kindle or from Berkshire's website and many are worth reading (if somewhat boring for most people I suspect).
The single most important thought in investing, in my opinion, is to always be cognizant of price vs value. What you're paying, what you're getting in return. Then always be aware of, always estimate as best you can, what your moat is for the investment at the price you're paying (what Klarman and others have called a margin of safety). How much can go wrong with your investment before you drown? How much room for error is there in the price that you paid? I like the Buffett book I reference above, because it pounds home that concept while introducing how Buffett came up, how he thinks (I don't particularly like his book, The Snowball, for that).
Also, Margin of Safety is out of print. However, there is a certain Archive site with a time machine, that if you were to put this url into it:
https://files.leopolds.com/books/Margin.of.Safety.1st.Editio...
You'll find an archived copy of the book in PDF format. Alternatively you can put that file name into Google and find some other copies of it floating about still (Klarman refuses to put it back into print and had been having the PDF copies taken down).
The absolute easiest things to look for (things most anybody can do), is growth vs valuation, along with having enough of an understanding of the business you're buying part of, to know whether they have an enduring position in their market, whether they have a moat or edge that isn't going to easily vanish. It's important to understand the context of the business you're buying into. Ultimately if you're going to self-manage, you have to decide what kind of ratio on growth vs valuation you're willing to accept, what's too high. These are largely subjective decisions, there is no right or wrong answer in most cases, only answers that entail more or less risk (the worse the ratio (eg high valuation + negative growth), the closer you get to it being an objectively wrong, dangerous answer though). Personally I prefer a balance on that equation. I'm a value investor, and it's commonly thought that value investing is a conservative, low return approach, however that's not inherently the case, that's up to the investor's approach (Benjamin Graham was a cigar butt value investor, looking for a last puff on cheap stocks, and his approach produces far lower returns over time than Buffett's approach to value investing). If a stock has a medium or high valuation, it can be a great value proposition if the necessary growth is there as a proper offset.
For example, if you go back to December 2018, Facebook was trading for around a $370 billion market cap, around 14.8 times operating income for that year. Why didn't more investors see that opportunity? It should take only a few minutes at most to run a basic extrapolation of a modest growth rate and see how that Facebook value proposition would end up a few years into the future. And yet, sentiment on the stock was irrationally bearish. That's nothing more than emotion, herd behavior, and it's extremely common. It's investors listening to other low-value opinions, it's Wall Street money being the typical followers that they are. People are generally terrified to stand apart on any decision, much less an investment. Many of those investors end up being the desperate sellers you want to buy from as they sell you FB at $137. They have no idea what they're doing, they have no idea when to buy or sell. And that's true of most of the professionals on Wall Street, they're almost all clowns (very highly paid clowns, because they're operating in a protected cartel). Was Facebook's social monopoly - their moat, their edge - going to vanish soon circa December 2018? That was an absurd, silly, borderline stupid premise, and yet it was a commonly floated notion; there was wildly bearish sentiment going around at the time - and yet back in objective land, where you always want to remain, their business was still firing soundly. So if an investor could brush away the irrational people spewing their emotional bias about FB, you could focus on the actual business and what it was actually doing, and run some very straight-forward projections into the future (even being conservative about it).
I'll give you another obvious example from my perspective. In March I posted here about which stocks I thought were interesting during the crash. I argued about Square and why I liked it. For that stock I looked at a few things. They did $4.7b in sales in 2019 and their market cap was down to like $17-$19 billion during the crash, so it was trading for around four times trailing sales with a solid growth profile (and, in theory, a lot of growth ahead of them, as they were still relatively early into their growth phase). Their operating profit/loss picture had persistently ...
I have a specific question about the calculation of the fair value. My understanding is that there are two steps:
1. Project the future earning (that is the difficult part)
2. Discount the earnings and get the NPV - the fair value of the company
Currently the interest rates are so low that the NPV will be quite high and not that far from the current valuations. Indeed, this seems to be the rationalization by many for the sky high valuations of today. But this seems wrong to me. What would you advice? Pick some other interest rate, maybe an aspirational rate of return for ones investing? Or don't try to compute the NPV and think in terms of multiples like P/E and P/S?
So for example if I think the fair value for Coca Cola (KO) is 30% to 50% lower than where it's at today, that's not based on a textbook valuation approach. I base it on what I'm willing to pay for growth, and Coca Cola is a pathetic non-growth machine (not to mention a giant sugar liability). I look at Coke's financials and, with some understanding of their business, I ask: what am I willing to pay for zero or negative growth across time? China's boom has come and gone and Coke's growth - as a global business - has recently been stagnant, mediocre, so what are their prospects going forward? I don't like that picture at all. I might be willing to pay somewhere between 8 to 15 times earnings for zero growth (depending on context; I might pay less for a financial firm than a tech firm, and so on), if there is something I like about a company. Coke's multiple is closer to 27-33 lately. Why would anybody ever pay 30 times earnings for zero growth and bad prospects for growth? Coke is a very easy fair value calculation as far as my personal judgment is concerned, their persistent growth problems make that a super fast decision. I'll look elsewhere. McDonald's is in a similar boat as Coke, it's a horrific value proposition, 30+ times earnings for a business with very little (or negative) growth. I might pay 12-15 times for MCD or KO, maybe. Personally I tend to really dislike companies with no growth or weak growth prospects going forward, it's a giant negative in the margin of safety calculation (growth is a first-aid kit for problems that inevitably crop up in a business over time, random messes, it applies a bit of a balm, helps as an offset in the value calculation; if you don't even have growth, inevitable problems are that much worse when they happen).
Fair value means I've looked at the stock in a way that I prefer to approach a stock and I've made a determination for myself, for my investment purposes, as to how much I think it should be worth. And I may come up with a few versions of that, one for an average market (with typical multiples), one for a slightly bubbly market; typically I disregard trying to come up with a value based on a mania, I'm not a buyer at that time in most cases. Those variations, models, are meant to inform myself as to the flex in my investment. If valuations merely go back to where they were in 2012 or 2016, how might my investment perform if its multiple is reset 1/3 lower? Will I get killed on the price I paid? It's modeling.
Interest rates will absolutely distort the context of deciding what something is worth, that falls into the variations, models, you build for different scenarios. The point of doing that is to check / prepare your position against a bad outcome. People claim that low interest rates will keep stocks inflated, so there's nothing to worry about; I like to point out that ...
I think either Ted or Todd is likely is doing the buying on Snowflake (at least instigated the premise), perhaps with Buffett's sign-off (given it's an increasingly large position). I also think one of the other buyers is likely responsible for Berkshire's position in VRSN.
There's a high risk that Snowflake position will humiliate Berkshire Hathaway. I think it's a mistake. It wouldn't be Berkshire's first mistake in dabbling in tech but it looks like it could be the biggest.
I have great respect for Buffett's historical performance, however I consider him mostly done at this point. He's conservatively managing the end game of his career now, he seems to be intentionally avoiding doing anything that might stretch beyond his lifetime now (I don't think he wants to do anything that might need a decade to manage that he might have to offload onto the next person). I think he should have taken advantage of KHC's weakness for example, to strip Heinz back out of the conglomerate and break it up and sell off the rest of Kraft, the stock was so cheap at times you could have almost gotten Heinz for free in the process. Instead Buffett is sitting on a hundred plus billion dollars yielding squat (KHC was down to near half the market cap it currently sports, which was the general time to grab it to try to get the Heinz business, and then sell off the lesser pieces, either after you repair what was ailing KHC or immediately depending).
If you are argument is "but the volatility" then you enjoy not winning.
Upside volatility.
Number go up.
Anyway, there is no point at looking at nominal values given inflation, population growth, general progress. I like to look at everything as a ratio against total global numbers (global wealth, global debt, global population, global equality etc.). Unfortunately it’s hard to find reliable global numbers.
The IIF only gives its numbers to a few hundred global banks and similar sized institutions.
At $5 million it's approaching the value of all stocks on the planet. I don't have to elaborate on the economy those stocks represent, the annual profit generation.
$100 trillion is nearly all household assets in the US, and nearly double all household assets in China.
I like Bitcoin, it's simply not a believable bullish case at all.
We don't have gold backed currencies for the same reason we're not going to see Bitcoin overtake all national currency systems. The guys in power with the guns determine how your currency system works and they all universally say no: you may not have your fiat currency backed by gold (or in the future, swapped out for Bitcoin).
Not to increase the price, just to maintain the network. What is the network doing that would justify that investment?
After halving the cost would drop to $850 billion a year but still.
“USD is being hyperinflated” is an easily falsiable (and obviously false) statement, so basing anything on it is nonsense.
(That it is imminently going to slide into hyperinflation is less easily falsified, which is why that is actually the perennial cry of cryptobugs, as it was for goldbugs—sometimes, the exact same people—before then.)
So,yeah, when even the rapidly inflating segments aren't anywhere close to hyperinflation, it's pretty clearly not general hyperinflation.
And stagnant wages are a completely unrelated issue to hyperinflation, though obviously wage increases mitigate and wage stagnation or decline exacerbates the effect of whatever inflation there is on wage earners.
Buying a house is an asset acquisition, not an expense. Housing is an expense (and typically the single greatest household expenses), but that expense has increased in price less than home prices.
The next greatest expenses are food and transportation.
If people buy four household computers that isn’t inflation, but how does buying a 4 bedroom home rather than two bedroom show in inflation stats?
Bitcoin is not a stock, it's a deflationary asset. There are not just a limited amount of bitcoin, but a constantly decreasing amount and a constantly increasing amount of people wishing to use them. People sounded very much like you at every step of the way, including in the rise to $1,000. "The risk isn't worth it."
> Significant inflation isn't coming back anytime soon
I mean except in the commodities markets, the housing market, the price of ammo, of course. Unless you believe those are just "bubbles" as well.
> We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.
We are seeing inflation, it's just occurring in hard asset classes like real estate.
> and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
https://fred.stlouisfed.org/series/M1
It is worse though.
I find this hard to believe, at least not to the extent you're implying. People don't actually use Bitcoins that much, they mostly speculate on it.
Bitcoin was created after the last financial crisis. I'm genuinely curious to see what will happen when the next one hits.
In all historical episodes of hyperinflation, at the start, everyone holding assets just thinks they are getting rich.
Do you have anything I can read to learn how to distinguish asset bubbles from inflation? Why does inflation sometimes take this form?
Maybe I need to start looking into land prices. And for that I mean forest or agricultural...
But if you don't want to improve your life and just want to survive until the next paycheck sure, I guess inflation is low.
My point is inflation isn't being measured in a way that actually matters to people worried about more than buying groceries and a new laptop.
If all those things were included in the measurement inflation would be way over 2%.
I remember Buffets letter to shareholders apologising Berkshire Hathaway wasn't able to continue delivering the same historic returns because that trajectory would require them to own every publicly traded asset in the world after ten more years.
even now you can potentially eliminate the major inflationary risks by holding property without debt and rely on policy consumer price regulation to hold basic necessities in check but I personally think that energy risks and not only exceptional weather events put that out of contention for sanity sake. In fact if energy infrastructure and general infrastructure development is increasingly critical for the future it makes little sense to have a cash savings incentive in the economy despite this is unfortunately not a explicit case for the generational savings deprecated in a way that I readily appreciate.
edit to remove accidental negative from I personally [don't] think that energy risks....
I noticed a comment sadly without details reporting a third party obtained a crypto collateralized 7 figure loan obtained in a matter of minutes which interested me enough to plan a new survey of the infrastructure in the market. I'm personally interested in pending short term 5 figures as a business. but only if I can figure out how report to credit agencies specifically for positive feedback and I am only interested in non secured lending but whilst holding the underlying as the custodian. unsecured loan performance is a particularly valuable credit record history especially in the present volatility. the model I wish to pursue is to provide liquidity for trading traditional instruments and by acting as custodian for both crypto and trad assets, providing as USP analytical tools and guaranteeing fills on quotes from my ticker, acting as guarantor for the trades to a mainstream financial or bank. I won't go into the model but it does include kicking back fees from my prime broker for the volume and transparently revealing the collars around the spread enabling truly immediate liquidity and real time netting. hedge strategy p&l to benefit customers when closing in the market thereby paying every customer for anything that they left on the table excess for buying the liquidity.
One of the whole purposes of conversion to pure fiat is to eliminate any reason to hold cash other than short-term liquidity in order to encourage investment in productive assets, driving production.
> It's just completely losing its value thanks to a long sustained QE.
Except...it's not, the quantity of direct, utility-producing goods and services you can get for a given number of dollars is declining much slower than the long-term average rate. Easy-money policies aren’t driving significant inflation, probably because we’d be seeing significant deflation without those policies given other conditions.
There is asset price inflation for the things we want to buy. Stonks. Real estate in desirable places.
If you examine the 500 most commonly bought household goods, inflation is tracking ~10%+ in major metro areas in the US. This is before covid.
How nice was it to have plentiful cash after the real-estate implosion? They were practically giving homes and condos away in markets like Nevada or Florida, condos that were going for $250,000 during the bubble were being given away for $35k-$50k at the bottom of the implosion and there were few takers, entire buildings were sitting empty in formerly hot markets in Florida.
How nice was it to have a lot of opportunity cash at the ready as the S&P 500 collapsed in late 2008 / early 2009 (or March 2020 for that matter), while everybody else was getting mauled, worried about margin calls, fleeing the market in fear. You wanted to be buying from those people as they were dumping nice assets for $0.25 on the dollar. To do that you needed cash on hand.
The time period after steep asset declines or crashes, is when the majority of investors lack for cash the most, they're always pinned, scared by the hits they took, and can't seize the opportunities that become available; and that's when you make the biggest killing, that's when you take up your greatest potential return positions, not during rah rah times (that's when you cash out your prior opportunistic positioning and build cash, rinse & repeat).
That's not to suggest you should always be holding nothing but cash, that isn't the point. The notion that it never makes sense to hold cash is way off the mark however. At a minimum you want some opportunity cash on hand at nearly all times, and you can increase or decrease how much that is depending on the context of the economy/market/personal/etc.
Given the industry-wide reaction to Coinbase's apolitical policy last year and the peak of the political chaos of 2020, I doubt they considered staying.
In general, If you get woke, you'll only go broke.
The marketplace should not of itself be valuable. If it is, its extraction of value for the goods/utility being traded. Its rent seeking. The only possible value derives from what is a tax on trades by volume and value, to NOT fund the engine which runs the trades. Sure Lloyd's of London is priceless. Priceless really should mean "does not usefully have a price, in that sense"
If coinbase is worth $100b what does that even mean in terms of the sustained value of the dollar?
Due to regulatory capture Coinbase gets away with charging literally 10x higher fees than international exchanges, as US regulations essentially ban Americans from trading on most of the popular international exchanges, so Coinbase has little competition.
I do think that a $100B public company engaging in the activity makes a really strong case for regulatory reform. I would expect it to be straightforward for other markets to add crypto for US residents once Coinbase goes public. I don't know that I would want to own Coinbase stock once CME/ICE/CBOE have crypto exchanges with lower fees.
Coinbase could end up being the victim of its own success.
How can it be made stable? It's risky to invest large sums in if it can just collapse at any time.
Is it even demonstrably secure against the potential of malicious original owners/operators running away with large sums of money? If there are original owners/operators, where's the governance, paper trail, and audit of them?
What if there are security or structural flaws? Who's going to fix them? Who decides what fixes to implement? Who reviews the fixes?
How can it can be converted to money if countries make exchanges illegal or tax it into oblivion?
Are you talking about Bitcoin itself here? There are no operators holding your money. It's secured by standard cryptography implemented in open source code, and the entire ledger is public.
There are developers who fix bugs that come up, and make minor improvements to the protocol occasionally. Ultimately it's everybody running the software who decides whether the changes actually deploy.
(If you're talking about Coinbase, they do hold your money and they are regulated and audited.)
I'm not talking about who is holding money at present time, but running away with the value from piles of BTCs (either historic wallets, customer wallets, or modern investment), cashing-out, and dumping BTC's value.
Bitcoin has a lot going against it- the tether fraud stuff, connections to money laundering, slow transaction speed.
Coinbase is tied to none of those things, and has the unique advantage of having a reputation in both security and compliance in an industry full of greenhorns.
https://twitter.com/JohnStCapital/status/1362859527230672896
In case the tweet is deleted, a summary. Coinbase is now being valued at over half the combined market value of the companies that collectively own most major global markets outside of China. Those markets trade everything from currencies to stocks and bonds to commodities.
For scale of asset pools: The value of all Bitcoins ever mined just hit $1 trillion. The CME Group exchanges trade nearly 6x that daily. This funding values Coinbase ~50% higher than CME Group.
If there's a similar distinction between the business models of Coinbase and e.g. CME Group, I have yet to hear it.
Traditional finance and crypto finance are often hard to compare, but here's a surface level comparison: Coinbase is an exchange, a brokerage, and a clearing house all wrapped into one. I'm not aware of entity in traditional finance that is all three, though plenty are two out of three (Robinhood is a brokerage and clearing house, CME is an exchange and clearing house).
The price is a prediction of future payouts (whether in dividends or value of the assets the company is holding).
Even if that’s true, I recently read about the bubble potentially “bursting up”: instead of prices coming crashing down, prices stay stagnant or grow slowly, while earnings grow quickly. The net result is the same (P/E ratios stabilize), but you lose out on a lot by staying out of the market.
Do you have a link where I could read more about this? As a layman I fail to understand how this would work, and I couldn't find a page explaining it.
My naive understanding is that a bubble pops when investors lose confidence in the market, and instead of anticipating growth, anticipates a correction and create a feedback loop down to a certain level (at which some counter feedback stabilizes the movement).
How can earnings increase when investors have lost confidence?
The alternative I’m describing is one where panic selling doesn’t occur. Earnings can continue to rise (because earnings reflect consumer spending and other similar trends), whereas prices don’t go up as much because market speculation reduces and people are less bullish. It doesn’t have to devolve to panic selling.
The other issue we are dealing with now is also asset inflation, where the number on the screen does not reflect any intrinsic value, but moreso the ongoing devaluing of the dollar we hold in our pockets.
I personally think this whole "modern monetary theory" is a game where the smart folks at the Fed realize that rather than have people watch the number on their savings and 401ks obliterated in a crash, they prefer to keep that number appearing the same and bury the "cost" of the bubble into a deflating dollar. It keeps the masses happy because they see the $s in their savings account still going up, which retains confidence in the system. Who knows when everyone will catch on, but it's been working so far.