>Well, the economists at the Bank of International Settlements stated it pretty plainly.
>“Users [are] being drawn to Bitcoin by rising prices—rather than a dislike for traditional banks, the search for a store of value or distrust in public institutions,”
I'm convinced.
In other news, Foxes overwhelmingly support vulnerable hen-houses...
Well that's a given knowing that the price went down drastically. That's like saying that the vast majority of those who invested in a market that just crashed lost money.
Yep, this factoid goes in cycles just like the price. If anyone is interested in diving deeper, the indicator to look at is called MVRV (Market Value to Realized Value). During time periods when it's less than 1, the average investor is carrying a loss, and > 1 means carrying a profit. Historically every halving it has spent some time below 1, and this time around we're right on schedule.
Is that true of other investments? My understanding is that someone who invests regularly in the stock market is likely ahead over a long period of time even if the market just crashed.
Not really. The majority of frequent stock traders inevitably lose money. But since the majority of stocks do generate positive returns over the long term, the majority of stock pickers make money if they buy and hold.
While those stock pickers come out positive on average, they usually do a little worse than if they had just purchased low-cost index funds.
You're mixing up two things: 1. How well do individual traders (people) perform? 2. How well do most investments perform?
The majority of people in the stock market do lose, because it's psychologically hard to buy and hold. A common outcome is to hold for years in a 401k and then panic sell at a big dip, or family emergency. Another is to buy hot stocks on peak years (word of mouth) and then lose (happening right now).
The same is true in cryptocurrency. If all you did was DCA buy and hold bitcoin over the past 3-8 years you are doing just fine.
I am also not equating stocks and cryptocurrency. Stocks give you a right to cash flow and coins do not. However, similar psychological challenges hinder all investors.
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"Vast Majority of People Who Invest Inevitably Lose Money". Yep. That's always held true. Speculators gonna speculate. Somehow the concept of cryptocurrency has been lost in all the scamming and speculating since 2015. If you just use cryptocurrency as a currency there's no problem at all.
It's the speculators with their completely off-chain normal finance hijinks that everyone gets upset and confused about. It's a shame that's what people think cryptocurrency is.
Is that true? At least in the US, the "vast majority of people who invest" are probably people with 401ks and not much else. In that case, most people who invest do not lose money.
Let's assume, for argument's sake, all investments lose money. People are still going to try and invest in the places where they expect to lose the least. Humans tend to be very loss averse. Hanging onto what they've got, to the greatest extent possible, may be their priority and doesn't necessarily disprove the earlier assertion.
If you rewrite half of the equation to be about real losses, of course that's true, but that wouldn't make sense to do. However, securities denominated in dollars are also affected by inflation, so the only way to discuss their losses coherently is also against the inflation-adjusted dollar.
e.g. lottery winnings are also affected by inflation.
> If you rewrite half of the equation to be about real losses
There is nothing in need of rewrite. The original claim was about money, not currency. As money is defined as the assets, property, or resources owned by someone (i.e. wealth), we can substitute currency with any other asset. Let's use cars, as is convention, and works well as they tend to decline in value much like currency does.
So, you trade your car for a security. Some years go by and you decide you want a car again, track down the guy who you sold your car to, and offer to trade the security back for the car. He agrees and now you've got your car back. You didn't lose any cars. You are back to one car, just like you had originally. However, the car is scratched up a little, needs new tires, etc. and as such isn't worth as much as it was when you first traded it. And so, while you haven't lost any cars, you have lost money. The car isn't what it used to be; your wealth has declined.
You might not lose any currency in an exchange of assets, you might even gain currency in the deal, but that doesn't necessarily mean you haven't lost money.
Cash is the investment where you expect to lose the most. Hedging against cash losses (also known as inflation) is largely why people chase other investment opportunities.
Cash is the easiest investment to hold. If it were stable it would be very attractive, but it is not. The monetary system works hard to ensure that it isn't stable, with mandated targets to ensure that cash holdings lose money every year.
If we're talking about securities that are losing money, they can't be beating inflation. You're talking about securities that are beating inflation.
i.e. iff your security is worth fewer dollars than it was worth some period of time ago, it is losing money. The fact that dollars have also lost value during the same time means you've lost more money, not less.
> You're talking about securities that are beating inflation.
I said no such thing...?
> iff your security is worth fewer dollars than it was worth some period of time ago, it is losing money.
And if it sells for more dollars than in the past, but not commensurate with the decline in value of those dollars, then you've still lost money. Less money lost than would have been by holding dollars, but still a loss.
Individual investors usually have terrible investment habits. They buy trendy stocks after hearing about them on the news, and then sell after they crash
This same crowd gets interested in Bitcoin at every ATH because of the news coverage. I got so many people asking me how to buy Bitcoin when it hit 20k in 2017 and 60k in 2021. That's when the vast majority of people buy.
Yes, if you put money in your 401k and don't take it out until retirement you will make money. That doesn't describe the vast majority of investors though
> That doesn't describe the vast majority of investors though
Doesn't it? My mother did it that way. Made regular payments into her selected cooperative low-risk mutual fund that built up a reasonable retirement pension. I know a lot of people that do that. I suppose the difference is that they don't think of themselves as investors.
> That doesn't describe the vast majority of investors though
I think you have a skewed view of the average investor. About 58% of Americans own stock, but only 35% of Americans own any outside their 401k. That means 40% of investors only have money in their 401k. I couldn’t find the numbers for how many of those investing outside of their 401k just owned index or mutual funds, but I even if it was only a small percentage it would mean a majority of investors aren’t buying individual stocks.
There is a vocal minority who invest speculatively. It makes sense that this number would seem larger than it actually is, because they are the ones who talk about investing. You don’t see questions or posts from people just investing in their 401k and index funds, but there are more of them than the speculators.
Bonds, stocks, private equity, futures, and real estate are cash flow producing assets. The expected rate of return of cash flow producing assets is positive. I don't mean statistically, I mean logically. People value having money now more than they value having money in the future, so people will sell you cash flow producing assets for less than they're worth over the long run.
Commodities and currencies (including crypto currencies) are not cash flow producing assets. There's no value in them that can't be accessed immediately, so no one's going to sell them to you for less than their long run worth.
So basically: the GGP's overgeneralization "Vast Majority of People Who Invest Inevitably Lose Money" was wrong, because they lumped all kinds of investments together and failed to make important distinctions.
The story is slightly more complicated than that. Most people who put money into their 401ks end up with positive real returns. If you invest in the whole market, you're going to get positive real returns in something like 96% of historical 30 year periods. [1] Most mutual funds/ETFs invest in a large enough portion of the market that this number isn't far off.
People who buy a small number of individual stocks end up in a different situation. While their average return is positive, those results have a large degree of skewness (meaning most stocks stagnate or fall, but the meteoric rise of those that do well makes up for it on average). If you picked a random stock in 1992, you'd quite likely have lost money by now.
Stock prices are tethered, albeit with unfortunate volatility, to the expected cash flow of real companies. Crypto only to the willingness of others to buy crypto.
No, it's always true in zero sum games. The stock market is not zero sum. Beating the stock market is, which is why most investors don't beat the stock market. But that's different from losing principal in even nominal terms.
Exactly. The stock market is positive sum, since companies on average create more value than they destroy. Bitcoin, though, is negative sum, since no new value is created and value is actively destroyed via mining.
Investing in BTC is like buying shares of stock in a company that produces nothing and has high ongoing costs that are only paid for by continuing to issue new shares.
It's investing in the confidence of the future of a network that can only handle 7 transactions a second, at the expense of a small country's use of electricity.
The existence of an online alternative to gold is potentially valuable (also potentially harmful but I would say the jury is still out), and it's hard to say if mining rewards counteract that.
Because they do so foolishly and with a bias toward the short-term.
All of the people losing money on Bitcoin and crypto were trying to get rich quick and predictably got burned. Just like people who only hold a stock for a few days or try to get in on an option play like GME or AMC at the last minute.
> "Vast Majority of People Who Invest Inevitably Lose Money"
I read this as: picking particular stock winners has been known for decades not to beat the market. Yet people still want to believe...
I don't think this is particular to crypto. Don't you see the same phenomenon with day traders? Something like 95+% are losing money, as I understand it.
To the later commentator: if you're investing in stocks and not beating the market average, then yeah, I think you should consider yourself to be losing money.
The difference is the composition: stocks are linked to something real and have regulatory oversight, which although not always sufficient does mean most people profit over time and the losses are usually not complete because there’s some kind of link to revenue other than stock. Day traders usually don’t make as much as they hoped but it doesn’t take a huge amount of skill to avoid major losses, either.
Contrast with cryptocurrencies where the value is only based on social consensus. Not being linked to an actual business means that sales can halt instantly and the floor is zero because people only make a disadvantageous transaction if they think it’s going to plummet.
> If you just use cryptocurrency as a currency there's no problem at all.
Apart from the delays in clearing transactions, the high volatility, the absence of legal recourse when things go wrong, the computer security risks, the high complexity and so on.
It's definitely no panacea. I've been using it regularly (monthly or more) since 2014 or so to pay for online services like VPS and to buy computer hardware. It works well. And it works even better than fiat in situations where authoritarian governments force payment processors to embargo journalists critical of them, and other such situations.
I'm not going to replace paying in cash for groceries with bitcoin. But it definitely has it's place as a currency. It's pretty annoying that the only things people ever hear cryptocurrency have almost nothing to do with cryptocurrency at all.
Except that it's impossible to just use it as a currency without speculating due to the volatility (and I get that that's probably the fault of the speculators, but that doesn't change the reality of it).
> If you just use cryptocurrency as a currency there's no problem at all.
Exactly, and then you realize there is a lot more difficulty using crypto as a currency than actual currency, and then think "that was dumb".
I'm probably one of the few people who has actually purchased real (legal) stuff with crypto (at least in one of the only ways that was really feasible at the time - converting crypto to a gift card at a real store). I remember waiting in the furniture store for nearly an hour hoping for my block to get confirmed to purchase a sofa. "Gosh", my non-tech spouse commented sarcastically, "this really is so much better than a credit card swipe where I'd be done in 10 seconds."
I think technology has advanced a lot since then. I see videos of peoples’ transactions on the lightning network being confirmed within a few seconds. It’s taken off in a lot of markets in poorer countries from what I understand.
This was my experience with it going on a decade ago. Then my buddy and I both got Coinbase accounts and had fun being able to instantly pay each other with bitcoin (off-chain) - hey here's that money I owe you for lunch... in bitcoin. Of course, since it's off-chain it sort of defeats the purpose of bitcoin, right?
> "Vast Majority of People Who Invest Inevitably Lose Money".
This is not true at all, unless you mean in the short term. There has never been a 20 year period where the S&P500 has lost money, and only a few 10 year periods where it has.
If you are a long term investor and you invest in a broad index, you will make money.
The stock market is not a zero sum game where on person has to lose for someone else to gain. The whole pie is getting bigger.
Past performance doesn’t guarantee anything, but it sure is a valuable tool for prediction. A 150 year track record means a lot more than a 10 year one.
> It's a shame that's what people think cryptocurrency is.
It's odd that people think the general use of cryptocurrency would be happening without them. The incentives to just use crypto as a means of transmitting value are exceptionally low, and before exchanges existed, mostly negative due to the difficulty of conversion.
Which is probably why only a small set of the criminally minded put any effort into using it as a currency in the first place.
I don't know anything about Bitcoin tech but assuming it's roughly like Ethereum it's a negative sum game due to transaction fees/mining. So even in a bull market it's a fundamental property of the system that people will collectively lose versus fiat. Furthermore, the more they trade the more they will - on average - lose.
True but this critique more or less applies to real money as well. Inflation does seem to be a naturally emergent property of every healthy monetary system ever created so I don't think that this is necessarily a problem. And transaction fees are a fact of life. The objection here is a matter of degree more than of kind.
> this critique more or less applies to real money as well
Currency is transparent about being negative sum per se. It's not designed to be held for long term, it's designed to create positive externalities by enabling trade. (The value-holding form of the U.S. dollar is the Treasury.)
What this paper finds is that (from 2015-2022), people tend to buy when BTC is making new peaks, and so they are buying high and then so far are not in a position to sell for a profit.
I strongly expect that if you tracked people who in the relatively recent past have bought any other asset that had a rise and then a big spike during the pandemic, you'd see something similar.
Framed this way (selecting for people who had bought an asset which had a rise and spike) this makes sense. But I think a key difference between BTC and more traditional assets is that for other assets, one typically has information from which to judge whether it is over or underpriced.
If in late 2021, I had two friends Alice and Bob, who were enthusiastic and so far successful in shoveling money into TSLA and BTC respectively, and who are both telling trying to convince me to follow their lead, how can I judge their suggestions? I can look at Tesla's quarterly reports, and rabbithole into information about other company's EV efforts, and see analysts try to make projections about future revenue. I'd be left with a lot of uncertainty, but I can make a good faith effort to try to judge what an appropriate price is based on future earnings, and whether the current price is too high or too low. With BTC one doesn't have that. Even if prices had increased lately, how would one judge whether that was high or low relative to where prices _should_ be? Today, after a period when prices have fallen a lot, are they high still? Would $10k be too high? $1k? About a decade ago it was roughly $11 and 2 years before that it was $0.20. There's no way to judge value, only price.
You have to disbelieve the efficient markets hypothesis to an unreasonable degree to imagine that the kind of information you're talking about isn't baked into TSLA.
And people certainly forecast -- with varying success -- the future of BTC. You can read their analyses and disagree/agree with them.
This isn't to imply that BTC isn't a volatile and risky asset. Of course it is! But some people want to buy volatile and risky assets.
Given that TSLA has come down by close to half in the past year, yeah I don't think available information was appropriately priced in. There was plenty of room for someone to say "This PE has the wrong number of digits." But because shares are claims on future revenue, their value can be grounded to _something_.
My point is not that BTC is volatile, but that it has no fundamentals. There is only the sentiment of other participants. Tulip bulbs can at least be planted.
Lots of assets have either no floor on their value or an incredibly low floor. Is it actually a comfort if you invest in gold that it can only lose 98% of its value instead of 100%? Are those two outcomes meaningfully different to you?
Companies can go bankrupt and zero the value of their stock. Bonds can be defaulted on. Are you out there evangelizing how stocks and bonds are bad investments?
Sure, a company can go bankrupt. A bond can be defaulted on. But one can evaluate those risks based on information about those companies and have a principled and fact-based approach to estimating a _value_ rather than merely guessing a _price_.
My objection to BTC is not that one can get burned. I don't know how to be more clear about this without repeating myself.
Suppose I start a new lottery and sell tickets. I announce nothing about the odds of any payout or perhaps even when the drawing will take place, but tickets are finite in number, and are transferable. If you can buy a ticket at auction, how much should you pay? In a different context, I hope people would complain that there is not enough information to answer. But on crypto exchanges, people seem happy to say "I just don't want to pay too much more than the last buyer."
In contrast, suppose my friend starts a raffle, selling tickets for a dollar, and makes clear that the pot is exactly one dollar per ticket sold. Yes, anyone buying a ticket can lose 100% of what they put in, but it's also easy to see that the expected value of a ticket is $1. If you have the opportunity to buy a 2nd hand ticket for less than $1, it's in some sense rational to do so, depending on your own risk tolerances. If I try to sell a ticket for $1.25, people can immediately see that it is overpriced. This is entirely consistent with the fact that the outcome for any particular ticketholder is highly variable.
I feel like you don't actually understand the efficient markets hypothesis.
The point of all this information being baked into the price of an asset is not that the market is particularly correct -- surprises certainly happen. It's that you don't really profit from all that knowledge. You say, "Oh, well, I know that this company has such-and-such a balance sheet." But everyone else knows that as well (and, in fact, knows more about the health of that company because they have access to semi-private information and/or just more expertise about that economic sector than you do), and if you go, "Hey, I want to buy this stock because their business seems strong," you already have to pay the premium for their business being strong, and their expected growth, such that you're pretty much purely buying risk now, not the strong company. If they profit, but not quite as much as expected, you lose money. Potentially a lot of money!
Meta is down 65% this year. That's on $27B in quarterly revenue and $4.39B in quarterly profit! And it's down 65%! Let's be real: you didn't look at Meta's financials at the beginning of this year and realize that your investment there would be down 65%. What's the floor on Meta? I mean, nobody actually knows. They have a lot of revenue, but you can always get a lot of debt and have that eat your revenue up. I'm inclined to be optimistic about Meta -- but so is the market, that's why it's at $310B market cap. If I buy now, could it lose another 65% value and be at a "mere" $100B market cap? Sure.
I understand and accept everything in your two paragraphs. Nowhere have I asserted that knowledge about a company's past performance is an assurance against future loss.
And yes, people with a lot more time, resources and information than I have bake a lot of information into their attempts to establish what an appropriate value is for a share of a publicly traded company. Nowhere in the preceding have I claimed an ability to out-predict wall street.
But the fact that people after examining the data can be left with real uncertainty about the future prospects of a company doesn't mean the data doesn't matter. The equivalent data simply does not exist for BTC.
Roughly, BTC is being used like shares in a company which owns no assets, has no revenue, gives no dividends, and writes no quarterly reports. Based solely on the price history, trading volume, number of shares outstanding (and constraints on shares issued in the future), and the press, people buy and sell it.
To pretend that this in no way limits the ability of people to price BTC in comparison to their ability to do the same for stocks, bonds or other traditional assets seems unhinged.
Anybody who doesn't "disbelieve the efficient markets hypothesis" isn't paying attention.
NRGV ("Energy Vault") was trading at a $2.4B market cap less than a year ago, and are now at $0.4B, still radically overpriced. Their product was an obvious scam before, then they pivoted to another obvious scam. The only way their stock could have any legitimate value would be if they still had $0.4B in cash, and could be prevented from squandering it. All perfectly legal, apparently.
Same for fusion startups. (It is just barely possible that Helion could have value.) Kyoto Fusioneering builds equipment to use in fusion startups' sham demos, and provides a conduit for dumb VC money into the pockets of startup founders and VCs who invest in it. All perfectly legal, apparently.
I know this is old now, but there are two possible answers here:
1. If you mean, "the market will not in fact go to the stock price that I think is correct in a time window that anyone can remain solvent for and perhaps ever," then what you are saying is you believe the EMH.
2. If you are instead saying that you are a small fish and big fish could play this scheme successfully, absorbing relatively small fluctuations, then, I mean, go pitch Jane Street in your brilliant approach of "look at the financials." (Obviously, you won't get anywhere because, spoiler warning, they already do this, and it's priced in).
Your conclusion in (1) does not follow. You don't know how long the price of (e.g.) NRGV will be irrationally inflated, so you cannot afford to bet on when it will collapse.
Your conclusion in (2) does not follow. Jane Street works on a time scale of, at most, milliseconds.
We may be sure that Berkshire Hathaway, which does operate on longer time scales, holds no NRGV shares.
Sure, Jane Street was the wrong example. A hedge fund, or as you say Berkshire Hathaway. But the point is, if you think that someone with deep pockets and somewhat long time horizons can reliably make money just by reading the publicly available financial information and making ordinary insurance from it, why aren't they?
And I think the answer that is confident with reality is, "actually, they do, and price in that information, such that there's no alpha left from it. Perhaps people with particular knowledge and expertise can synthesize that information with other knowledge to make useful predictions, but for an average layperson, is priced in."
There are exactly three possible outcomes: (1) most gain a little and a few lose a lot, (2) equal numbers gain and lose, or (3) a few win big and most people lose.
The system organization favors a few winning big, so the majority must ("inevitably") lose.
Um, no? If the asset price increases monotonically, everyone gains money. Obviously no asset price increases truly monotonically, and especially BTC doesn't, but this isn't a zero-sum game.
Um, no? Crypto currencies are not creating value. If crypto prices increased monotonically, it would only mean that the fiat currency in which you're denominating prices is losing value.
Non-zero-sum games require mechanisms that produce or unlock new value that becomes available to agents. An innovation lets a farmer produce more grain, such that the farmer makes more money and consumers pay less for the same amount of food. But a pile of transactions each of which just exchanges goods, fiat currency and crypto currency at varying prices does not produce net value.
Like, sure, on a whole-economy level, if nobody is creating value, then the economy isn't growing. But you aren't buying the whole economy, you're buying an asset, and that asset just needs to be desired in order for it to increase in value. There is no function where "if I gain money from BTC, you have to lose money from BTC." That's just... not at all how this works.
I wonder if we're somehow talking about different things.
If you realize gains from BTC, it's because you sold it to someone else who bought your BTC, presumably with dollars, yes? The crazy stipulation of "token price monotonically increases" for some crypto currency implies that people are actually exchanging ever larger quantities of some other currency for that asset. Of course this means that the other currency is losing value.
When the dollar goes up against the pound, or vice versa, no one thinks it's because some magical process is creating net wealth.
One is "what moves the price of an asset." What moves the price of an asset is supply and demand. In the case of BTC, the supply is (generally) predictable and limited (though I guess someone could reclaim one of those early big wallets that are assumed to be lost forever or something). So demand dominates the BTC price.
Note that this is completely irrespective of whether Bitcoin does or does not generate real economic value (like, the production of more goods or services that directly improve the lives of other people).
If the economy as a whole (in terms of, now, real value that is actually delivered to people's lives) is shrinking or stable, then for Bitcoin to be increasing in value, something else has to be shrinking in value. But if the economy as a whole is growing, then it is possible for some of that growth to land in Bitcoin such that everyone with Bitcoin is better off than before, and nobody is worse.
>But if the economy as a whole is growing, then it is possible for some of that growth to land in Bitcoin such that everyone with Bitcoin is better off than before, and nobody is worse
Not true. Value gain=Revenue-Costs. Revenue for Bitcoin as a whole is 0. Costs are positive. Therefore it is negative sum.
Compare with Coca cola stock. Revenue>Cost. So it is positive sum.
Notice that there is no "cosmological constant" term. The rest of the universe gaining or losing value has no bearing on a specific stock or crypto
But of course bitcoin is technically negative-sum, because miners don't pay in, but do cash out. And, some fraction of coin is lost and so not cashed out. Whoever can't cash out donated their stake.
When it gets where it has been more or less constantly falling for long enough, and everybody wants out, it will fall at an increasing rate, and everybody still holding donated their stake, too.
An investment is when you have a reasonable expectation of return. Bonds are an investment because the average bond pays out more than it costs. The same is true of the average share. That is because these instruments produce value by making capital available to people who need it.
By this definition, BTC is NOT an investment. Neither is Gold or land (unless you rent it) or commodities. Buying those things is just "speculation". Speculating is fine. It can be useful for the market. You might even make money.
But please please, stop reffering to these things as "investments". They're not investments any more than my buying a hamburger.
1) "I told you so."
2) "Yeah, but you just wait and see - It'll be different a year or two from now"
Crypto bulls and bears oscillate between 1/2, as the market turns hot/cold. Gizmodo is very clearly selling confirmation to the anti-crypto crowd currently looking for narratives to support their use of statement 1).
Anyone who is hyper-confident in either direction is usually wrong.
> Anyone who is hyper-confident in either direction is usually wrong.
Judgement about a particular subject should at the least rely on some detail about that subject. This is just an generalized appeal to the law of averages.
I'm unclear on what you're asking me to opine on, but if you're looking for me to state my stance, as differentiated from the two aforementioned parties, here it is.
TL;DR - Armchair experts on either side of the argument make poor investors.
The lack of barriers to creating, marketing, and hype-selling a new project inherently makes 99% of the projects in this space "vaporware". The terms "grift, rugpull, scam" etc. are appropriate.
Unsophisticated retail "investors" (and hell, even sophisticated speculators just subscribing to 'greater fool' investing - e.g., most VCs) are focused heavily on the upside in these types of projects, because the measure of success is "money made". There are people who respond to this by writing off the space entirely - "It's a ponzi scheme", "scam city", "tulips", etc. All fun memes to tout the "I told you so narrative"
My personal belief is that there is the potential for "ethical alpha" (subjective, perhaps - primarily meant to differentiate from 'get out before it implodes' alpha) to be had by investing long-term in the remaining projects with the combination of development attention, enterprise buy-in, and scaling capabilities that could deliver meaningful value to end-users. I'm not going to get into a debate over which projects meet these criteria, whether they exist, or any other debate which likely will revolve endlessly with no resolution.
I acknowledge there are risks associated with the broader technology being adopted in a meaningful sense, but subscribe to a perspective that there is yet-unrealized value in its application.
I'm confident that we should stop talking about crypto "currencies", because a currency where you get rich by just holding to it is the contrary of a good currency.
I create value in the real world and use the euro to exchange it against something else of value, which is very convenient, but the euro itself is not the goal.
Call it unregulated crypto gambling or something, that would be more honest.
You could say the same about any ponzi scheme until it collapses. The only way to make money on crypto is from some other sucker who buys in. Instead of the people running the ponzi taking a cut as in a traditional centralized ponzi, the miners take a cut in order to pay for energy consumption.
when I was messing around with day trading crypto my main strategy was actually to short btc. It was a long ride, I was up 500% on my initial invesment, I then lost 500%, made 50%, lost 50%, finally made 50% again and quit forever. Thankfully I cashed out before FTX went bust.
Lessons learnt:
- day trading is stressful
- I had no idea what I was doing most of the time
- if I replaced my shorts with longs I would've likely made 1000% at minimum. Any idiot could've day traded for a profit during the 20-21 boom
Almost certainly both true that people who invested in bitcoin 2016 or earlier made money and that most people who invested in bitcoin lost money. The most pessimistic numbers I’ve found has the number of bitcoin wallets 10X’d since 2016. And while there isn’t a one to one relationship between wallets and users, I’m sure people who only used exchanges instead of their own wallets in recent bull runs more than make up the difference there.
Agreed entirely. My point was that to emphasize that there can be reasonable value-investment cases in these odd asset classes.
The maxims of "price is what you pay, value is what you get" and "are you willing to buy this if the market were to stay closed for five years after the purchase?" have felt very helpful in guiding my decision-making.
It's pretty hard to estimate the number of users from just on-chain data, since change from a transaction usually goes to a fresh address. That makes every single transaction appear to create a fresh "wallet".
The problem is that exponentially fewer people qualify the latter condition.
Put it another way, for Bitcoin to retain its price, an exponentially increasingly number of people need to invest in it. Such a structure, when graphed, looks very similar to a certain geometric shape
I think the title is using the word 'inevitably' where they mean 'eventually' or 'ultimately'. It's not inevitable that people who invest in Bitcoin lose money, for example, they could have changed their mind and sold then next day, making it avoidable. What they mean to say is that most people who invest _end up_ losing money, not that it was unavoidable (the meaning of inevitable).
The headline is a pre-supposing statement, that relies on a false notion that people are all using bitcoin as an 'investment' rather than for other reasons such as a currency. Only a fool is using most currencies as an investment, except perhaps as part of some hedging scheme.
Bitcoin as represented in the white paper was never portrayed as an investment vehicle.
The disinflationary emission set it up to be a speculation vehicle.
For use as a currency, a fixed block subsidy, i.e. linear emission would have been far preferable.
For most cases I would not consider it the best option. However I have used bitcoin codebase based coins for transactions where the time-span was short enough that it was a reliable store of value. Reliable store of value really depends on how long you intend to hold it. Dollars are a terrible store of value over 100 years and decent over 2 years. Several crypto coins are a bad store of value over 1 week but a decent one over a couple hours.
There are certain circumstances where I think it may make sense for someone to pick an alternative currency; I'm not arguing it is superior to the rest of them.
> However I have used bitcoin codebase based coins for transactions where the time-span was short enough that it was a reliable store of value.
> Several crypto coins are a bad store of value over 1 week but a decent one over a couple hours.
What kind of (real world) transaction would need to rely on a cryptocurrency for value stability over a couple of hours time-span that wouldn't be served by fiat currency, which provides the same stability guarantees over that same time-span?
International transfer is a good use, as is irrevocable payment for purchased goods.
There is also a strong real world value in countries where local currency is less stable and secure than crypto. Not all places have access to USD or foreign currency.
There are interesting examples coming out of Argentina. Imagine living in a country where year over year inflation is ~100% and the government may periodically seize assets in your bank account.
I think it could make a useful underlying tool to enable this but to be used directly by end user customers it'd be a tough sell.
I've used Wise to transfer USD <-> CAD, if they use crypto to enable that (I don't think they do, but I guess they could), I couldn't really care less.
I don't think your run of the mill consumer is going to want to use crypto to do the same thing. With smaller amounts the difference in cost is probably negligible, with larger amounts you could theoretically save more to make the effort worth it, but you have higher pressure to have more "traditional" assurances that nothing goes wrong.
I had a domestic wire temporarily seized for 2 days because a bank wanted to KYC me a second time, even though I'd already KYC to open the account.
Yes I was made whole but it was unpleasant and I happily would have eaten the ~.30 of litecoin transaction fees and 0.1% crypto exchange fee to avoid that. Not to mention the wire cost me $15 in the first place and not everyone has ready access to a bank with free wires.
Depending on which country it is going to, that seems like an amount large enough to legitimately trip over some checks. In the US itself, last I heard all domestic transfers over 10k get reported.
I dont particularly care about what is reported. What I care about is being able to move my money when I need to. In this specific instance, it was a domestic transfer.
Getting locked out of your own money can cause major damage. I'm lucky that I was able to dig up another 100k. Someone else could have lost their 50k and be liable for hundreds of thousands more in liability to the seller.
Something like Wise works most of the time but if you have a cousin in Papau New Guinea in the jungle with a cellphone and no bank account IDK how the hell you would send them large value in under an hour without losing your shirt. Maybe there is something and if so I'm interested in what it is (know someone else there with lots of money who really trusts you?).
In any case ACH can be clawed back and it is my understanding in some exceptional circumstance a wire can too. The point never was crypto is always superior, it may be conventional is better 99.9% of the time but that 0.1% means a use case remains.
That's the first requirement of currency? I feel like you might have made that up. It seems to me that the general character of a currency is that it is a widely-accepted medium of exchange. There are loads of currencies around the world that serve their purpose without being an even slightly good store of value. The Turkish Lira, for example, has lost 90% of its value against the Dollar in 15 years, yet it is still the going currency in that country.
Edit: after reading my comment I realized it might not be clear that bitcoin is astonishingly bad at imitating currency. Almost without exception trading it for goods and services is impossible.
I use Bitcoin as a currency all the time. It is cash for the internet. If used correctly, it is the only reliable way to buy things online without giving a central company like Visa or Mastercard a log of everything you buy and where you buy it.
If you dollar cost average your acquisition of Bitcoin it smooths out the conversion risk and if anything the value against USD goes reliably up over a 3+ year window.
The great thing about Bitcoin is that it’s whatever the holder wants it to be, and nothing they don’t want it to be, while at the same time being the opposite of that to someone else, depending on what argument their trying to make and whether or not they’ve personally lost money.
Anytime someone speaks crypto to me now I feel like Adam Sandler floating past Clint Howard’s window in Little Nicky: I don’t want to be part of this, they don’t want me to be part of this, and all I can do is wish them luck while they tell me they don’t need it.
I personally lost a couple dollars on litecoin but saved 10s of dollars in transaction fees by not using a credit card. So the fact I lost money, technically, doesn't mean I didn't come out ahead versus the alternatives.
I had to work out in my head there how many transactions you’d need to make to have saved 10s of dollars on credit card fees, and then whether or not that was worth the hassle, let alone the loss of purchase protection.
If someone bought US Dollars($) a year ago and wanted it to be a store of value, it is certainly not "whatever the holder wants it to be" for that person.
A lot of currencies are not a good store of value the last 18 months.
> Only a fool is using most currencies as an investment, except perhaps as part of some hedging scheme.
Only a fool uses a currency that's experienced 5000% deflation?
Bitcoin is a long failed currency, I can't believe there are people still trying to push that notion.
Volatility is one thing, but deflation to a nonsensical degree means that using it as a way to pay for goods and services is heavily discouraged because of things like... having your $20 pizza be worth $165,000 if you had just not bought it.
I have used btc as a hedge against my government and the uncontrolled judicial system, and it has been phenomenally successful. Not everyone lives an upper-middle class existence with good rule of law.
This is actually exactly backward. What the paper is trying to quantify is how many people are trying to use bitcoin as an investment, versus how many are trying to use it as a currency or other financial tool (the whole thing about how many of the investors are underwater is a small point of the paper that Gizmodo is fixating on because of Gizmodo's preexisting hatred of crypto).
What the paper finds (and we can certainly quibble with any paper) is evidence that the majority of people who bought Bitcoin in the 2015-2022 period did so in patterns that suggest that they're interested in an investment asset, not in a currency.
> Look directly at the blockchain, and instead find 49.4% of the addresses were in profit
But those addresses probably include most of the estimated 20% (or more) of Bitcoins that are lost (because they were usually lost when Bitcoin was less valuable).
In those cases the address hasn't lost money, but the person lost it all.
Externalities matter. The report is showing people (and thus society) doing badly on average, and society overall is doing even worse because of the additional external costs.
Sure, agree. But I don't think that's the topic here, the general harm/good done by cryptocurrencies, the submission is talking exclusively about profits or the lack of them rather.
If I invest 100 USD in Facebook and the stock gains double its value, I now have profits, no matter how bad Facebook is for the world.
You’ll have unrealized gain. If, at the same time, some foreign government was sponsoring Facebook to dismantle the democracy, and successfully achieved that, overall, you might be worse off.
No, it is relevant. The switch to proof-of-stake is a recent one, there was plenty of CO2 emitted by mining ETH. And there is still infrastructure that supports it. These are negative externalities, just like the negative externalities of crypto fraud, black markets and money laundering.
And it seems there isn’t much to show on the good side, for all these negative externalities.
It's not relevant to the topic at hand, which is whether or not most investors have lost money on Bitcoin for a very specific definition of "lost money". We can't talk about all things at all times. The discussion about Bitcoin's environmental impact can happen elsewhere.
Most bitcoin investors never move their coins off the exchange and thus don't have a distinct address on the blockchain, so your sampling technique is probably just as flawed as time of app download, if not more so.
> Most bitcoin investors never move their coins off the exchange
Apart from having insider knowledge in how cryptocurrency exchanges operate and their data, how could you possibly know this?
One address on the blockchain can belong to one or more users, just like one user can have one or more addresses on the blockchain, so being able to compare feels impossible even if you had insider knowledge/data.
Because when you buy or sell crypto on a centralized exchange, no actual blockchain transactions take place, it's just shuffling bits in the exchange's local database.
Wait, what? So because trading cryptocurrency on a centralized exchange doesn't involve a blockchain, the conclusion is "Most bitcoin investors never move their coins off the exchange"? I'm missing some vital step in your reasoning here.
Yes that's pretty much the extent of the reasoning and I don't see what's wrong with that.
Bitcoin on a centralized exchange cannot be traded for goods and services until explicitly withdrawn, unlike most brokerage accounts where cash is cash and many will even give you a debit card so you can spend directly from the account. This strongly decouples bitcoin and most other cryptos from the total money supply.
When you're on Binance and you send them one BTC as a block chain transaction, you are receiving one Binance!BTC that does not exist outside of that walled garden.
In that case you "own" a paper bitcoin, which is much the same as not owning one at all. In this case, the "bitcoin" you own doesn't even exist (outside of the exchanges database) so you cannot use this to speculate on actual bitcoin in actual wallets.
Just look at FTX - some 1.8B in BTC liabilities but zero BTC assets
Just because you don't have a bearer bond doesn't mean you haven't invested in bonds. Modern finance isn't about holding an invested asset in your hands.
This splitting hairs over "true" ownership ignores the fact that the original investor analysis done by GP here premised on chain transactions is still semantically wrong.
many exchanges boast user stats and funding stats which don't match a corresponding increase in addresses, we can also corroborate this with the size of the exchange's known hot and cold wallets, and further corroborate this with periods of time later when many users do move funds to distinct addresses outside of exchanges, the difference with what remains on exchange we can (or have to) assume to be distinct users. finally, there have been periods of time when its not worth it to move funds off of exchange because the transaction fees would eat the small amounts that poorer/less capitalized users bought and hold.
that still leaves us with "most".
everyone knows the theoretical issues and incompleteness of this statistics collection - since there is no single public or verifiable stat to use - its pretty new to be a person that chooses assume its more likely that people are having distinct addresses on chain, than assume its more likely they're on an exchange
kind of funny how we go full circle here, but okay. hope that helps your reasoning. this article has no way of making its claims either, so there's really no point of appealing to either authority or bolster any opinion.
What if as part of bankruptcy proceedings, especially for a that business goes under due to fraud (effectively a failure of transparency/oversight), the business's datasets were opened up to regulators or the public domain rather than treating them as business assets to be sold for cheap to the next exploiter. Then one could actually run these kinds of reports on real data, that would otherwise be kept proprietary.
The issue of one's "private" data then becoming part of a public dataset could be alleviated with deidentification, plus a better acceptance that when companies accumulate data about you, it's generally going to get exploited in some way or another.
It doesn't matter if the "most" statement is correct. Some investors never move their coins off the exchange; therefore, the inference that 49.4% of investors have made money because you can see that in recorded transactions is based on a faulty premise. Unless you're arguing that only a negligible number of exchange users do this, which seems implausible and would also assume facts not in evidence.
FTX is one of the larger exchanges, and FTX bankruptcy headlines say they "may have 1 million creditors". See eg reuters.com/technology/ftx-officials-contact-with-us-regulators-filing-2022-11-15/
Edit: I'm trying to figure out if someone has actual stats or whether the statement is just intuitively guessing. There are so many bitcoin stats out there, it's hard to keep track of it all.
> There were about 40M non-zero addresses earlier this year.
An exchange, when depositing or withdrawing to a user or another exchange, uses a ton of address, sometimes leaving behind very small amounts. Same with users. I'm sure 75% of non-zero address have very, very little BTC in them.
Exchanges batch transactions specifically to avoid tons of transactions using ton's of addresses is perfectly fine however the address space is very very large.
>> Most bitcoin investors never move their coins off the exchange
>I'm curious: What is your source for this statistic?
They have no reason to.
Unless the investor is specifically working on some HFT arbitrage scheme between exchanges, then they don't even need to move crypto out of the exchange.
Also given the complexity of rolling your own wallet, it's just a risk that's not worth it when KYC exchanges are relatively stable.
This reads like a no-true-scotsman. If you exchange USD for bitcoin assets with the intent to sell later at a higher price, you're semantically a bitcoin investor.
I agree that my post reads like the no-true-scottsman fallacy, but I think I may be onto something. Compare the very similar phrases "You aren't a real stock investor unless you get your shares in physical paper" and "You aren't a real real estate investor if you buy the brooklyn bridge from a guy on a streetcorner in Harlem." The overwhelmingly common experience of "stock investors" that actually don't own the paper stock is that they are able to sell at market value when they decide to (although its not perfect, see trading halts etc.) I'd argue that the paper stock claim is a real no-true-scottsman. The overwhelmingly common experience of brooklyn bridge buyers is that they are not able to later sell the brooklyn bridge at market value- they did not succesfully invest in real estate. Buying "bitcoin" and trusting the exchange to hold it for you? Hard to say what the odds are but they don't seem good lately
Even a real estate deed or a stock certificate is just a piece of paper, though. At the end of the day, unless your investment is something you can physically hold in your hand, you're trusting that your claim on it will be honored.
"You aren't a real real estate investor if you buy the brooklyn bridge from a guy on a streetcorner in Harlem" is true because the claim on the bridge was never credible, not because you never physically took possession of the bridge itself. You could argue that the exchange's IOU was never credible, but that's different from saying that any BTC-based IOU is made of lies.
If you do not move your coins off an exchange to a wallet you alone control, then the coins were never yours to start with. All you owned is a kind of IOU for some coins that could vanish at any time. See MtGox, FTX.
Their investment/"investment" is still in relation to bitcoin. It doesn't seem entirely incongruous to call it "investing in bitcoin".
If I buy some shares in a company that does things with [X], I think it makes sense to say that by doing so I'm "investing in [X]", even if I don't e.g. have the necessary license needed to directly own any [X].
If I make a bet on the Cowboys winning a game, am I invested in the Cowboys, or merely dependent on them?
Did my bet have any effect on the Cowboys, even indirectly, in the way that buing a share of stock does?
Sure, one could and does say that, I'm just making a claim that we have to differentiate this better, not for being terminological pedants but because all the crashes of centralized exchanges will be used to regulate decentralized crypto while only allowing of centralized exchanges ...
> Look directly at the blockchain, and instead find 49.4% of the addresses were in profit as of the time this article was published
Someone can (and should) have multiple addresses. And most retail investors will actually keep the bitcoins in an exchange in order to not lose an obscene amount of money to fees when trading. So there isn't an 1:1 correspondence between addresses and people.
Realized profit? Or is the current value just above the value of the purchase date? I would believe the latter, as the value is still quite high.
However, realizing the profit is a different thing. That will work only for a few who invested early and deinvest early. Basically, btc is a pyramid scheme, the only difference to other pyramid schemes is that this fact is not obfuscated. Every investor knows that he is buying a fundamentally worthless good, but is hoping that someone else will eventually pay him a higher price.
That works well until the market is saturated and no one is willing to buy btc any more. Then, the price collapses.
Thus: even if most investors today have made profit, that simply means that the bottom of the pyramid has not been reached. At that point, most investors will have made loss.
And 99.9% of those who sit on physical cash-bills fiat lose value. Those that don't have a rare coin or bill or something. The point of bitcoin, if you intend to use it as a currency, is not appreciation.
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[ 5.1 ms ] story [ 280 ms ] thread>“Users [are] being drawn to Bitcoin by rising prices—rather than a dislike for traditional banks, the search for a store of value or distrust in public institutions,”
I'm convinced.
In other news, Foxes overwhelmingly support vulnerable hen-houses...
https://charts.woobull.com/bitcoin-mvrv-ratio/
Over a 3 year period... 10$ a month and BTC actually comes up ahead of many other forms of investments.
https://www.bitcoindollarcostaverage.com/
You would be up 60% if you DCAd for 5 years.
While those stock pickers come out positive on average, they usually do a little worse than if they had just purchased low-cost index funds.
It's always going to be true that the average Bitcoin buyer lost money even if people higher in the pyramid have made a lot of money
The majority of people in the stock market do lose, because it's psychologically hard to buy and hold. A common outcome is to hold for years in a 401k and then panic sell at a big dip, or family emergency. Another is to buy hot stocks on peak years (word of mouth) and then lose (happening right now).
The same is true in cryptocurrency. If all you did was DCA buy and hold bitcoin over the past 3-8 years you are doing just fine.
I am also not equating stocks and cryptocurrency. Stocks give you a right to cash flow and coins do not. However, similar psychological challenges hinder all investors.
{Further scam-tastic sales pitch here.}
{Nice-looking link to sucker-chute.pig-butcher.scam here.}
It's the speculators with their completely off-chain normal finance hijinks that everyone gets upset and confused about. It's a shame that's what people think cryptocurrency is.
I don't think that's true, otherwise people wouldn't pile so much money into stock funds in their 401ks.
e.g. if you are very loss averse, you don't buy lottery tickets at all. You don't just buy the safest ones where you expect to lose the least.
e.g. lottery winnings are also affected by inflation.
There is nothing in need of rewrite. The original claim was about money, not currency. As money is defined as the assets, property, or resources owned by someone (i.e. wealth), we can substitute currency with any other asset. Let's use cars, as is convention, and works well as they tend to decline in value much like currency does.
So, you trade your car for a security. Some years go by and you decide you want a car again, track down the guy who you sold your car to, and offer to trade the security back for the car. He agrees and now you've got your car back. You didn't lose any cars. You are back to one car, just like you had originally. However, the car is scratched up a little, needs new tires, etc. and as such isn't worth as much as it was when you first traded it. And so, while you haven't lost any cars, you have lost money. The car isn't what it used to be; your wealth has declined.
You might not lose any currency in an exchange of assets, you might even gain currency in the deal, but that doesn't necessarily mean you haven't lost money.
Cash is the easiest investment to hold. If it were stable it would be very attractive, but it is not. The monetary system works hard to ensure that it isn't stable, with mandated targets to ensure that cash holdings lose money every year.
i.e. iff your security is worth fewer dollars than it was worth some period of time ago, it is losing money. The fact that dollars have also lost value during the same time means you've lost more money, not less.
I said no such thing...?
> iff your security is worth fewer dollars than it was worth some period of time ago, it is losing money.
And if it sells for more dollars than in the past, but not commensurate with the decline in value of those dollars, then you've still lost money. Less money lost than would have been by holding dollars, but still a loss.
This same crowd gets interested in Bitcoin at every ATH because of the news coverage. I got so many people asking me how to buy Bitcoin when it hit 20k in 2017 and 60k in 2021. That's when the vast majority of people buy.
Yes, if you put money in your 401k and don't take it out until retirement you will make money. That doesn't describe the vast majority of investors though
Doesn't it? My mother did it that way. Made regular payments into her selected cooperative low-risk mutual fund that built up a reasonable retirement pension. I know a lot of people that do that. I suppose the difference is that they don't think of themselves as investors.
I think you have a skewed view of the average investor. About 58% of Americans own stock, but only 35% of Americans own any outside their 401k. That means 40% of investors only have money in their 401k. I couldn’t find the numbers for how many of those investing outside of their 401k just owned index or mutual funds, but I even if it was only a small percentage it would mean a majority of investors aren’t buying individual stocks.
There is a vocal minority who invest speculatively. It makes sense that this number would seem larger than it actually is, because they are the ones who talk about investing. You don’t see questions or posts from people just investing in their 401k and index funds, but there are more of them than the speculators.
https://news.gallup.com/poll/266807/percentage-americans-own...
https://www.pewresearch.org/fact-tank/2020/09/25/few-in-u-s-...
Commodities and currencies (including crypto currencies) are not cash flow producing assets. There's no value in them that can't be accessed immediately, so no one's going to sell them to you for less than their long run worth.
People who buy a small number of individual stocks end up in a different situation. While their average return is positive, those results have a large degree of skewness (meaning most stocks stagnate or fall, but the meteoric rise of those that do well makes up for it on average). If you picked a random stock in 1992, you'd quite likely have lost money by now.
[1]: https://rationalreminder.ca/podcast/224
No, it's always true in zero sum games. The stock market is not zero sum. Beating the stock market is, which is why most investors don't beat the stock market. But that's different from losing principal in even nominal terms.
Investing in BTC is like buying shares of stock in a company that produces nothing and has high ongoing costs that are only paid for by continuing to issue new shares.
All of the people losing money on Bitcoin and crypto were trying to get rich quick and predictably got burned. Just like people who only hold a stock for a few days or try to get in on an option play like GME or AMC at the last minute.
I read this as: picking particular stock winners has been known for decades not to beat the market. Yet people still want to believe...
I don't think this is particular to crypto. Don't you see the same phenomenon with day traders? Something like 95+% are losing money, as I understand it.
To the later commentator: if you're investing in stocks and not beating the market average, then yeah, I think you should consider yourself to be losing money.
Contrast with cryptocurrencies where the value is only based on social consensus. Not being linked to an actual business means that sales can halt instantly and the floor is zero because people only make a disadvantageous transaction if they think it’s going to plummet.
Apart from the delays in clearing transactions, the high volatility, the absence of legal recourse when things go wrong, the computer security risks, the high complexity and so on.
I'm not going to replace paying in cash for groceries with bitcoin. But it definitely has it's place as a currency. It's pretty annoying that the only things people ever hear cryptocurrency have almost nothing to do with cryptocurrency at all.
Exactly, and then you realize there is a lot more difficulty using crypto as a currency than actual currency, and then think "that was dumb".
I'm probably one of the few people who has actually purchased real (legal) stuff with crypto (at least in one of the only ways that was really feasible at the time - converting crypto to a gift card at a real store). I remember waiting in the furniture store for nearly an hour hoping for my block to get confirmed to purchase a sofa. "Gosh", my non-tech spouse commented sarcastically, "this really is so much better than a credit card swipe where I'd be done in 10 seconds."
This is not true at all, unless you mean in the short term. There has never been a 20 year period where the S&P500 has lost money, and only a few 10 year periods where it has.
If you are a long term investor and you invest in a broad index, you will make money.
The stock market is not a zero sum game where on person has to lose for someone else to gain. The whole pie is getting bigger.
Neither in crypto ;)
And of course past performance does not guarantee future results.
What do you expect when you set out to explicitly ignore and bypass everything ever done to prevent this kind of thing?
They owned bitcoin-equivalent on investing apps. These investors didn't control their own private keys and have their own coins.
It's odd that people think the general use of cryptocurrency would be happening without them. The incentives to just use crypto as a means of transmitting value are exceptionally low, and before exchanges existed, mostly negative due to the difficulty of conversion.
Which is probably why only a small set of the criminally minded put any effort into using it as a currency in the first place.
https://en.wikipedia.org/wiki/Extraordinary_Popular_Delusion...
https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929
https://en.wikipedia.org/wiki/Dot-com_bubble
Currency is transparent about being negative sum per se. It's not designed to be held for long term, it's designed to create positive externalities by enabling trade. (The value-holding form of the U.S. dollar is the Treasury.)
What this paper finds is that (from 2015-2022), people tend to buy when BTC is making new peaks, and so they are buying high and then so far are not in a position to sell for a profit.
I strongly expect that if you tracked people who in the relatively recent past have bought any other asset that had a rise and then a big spike during the pandemic, you'd see something similar.
If in late 2021, I had two friends Alice and Bob, who were enthusiastic and so far successful in shoveling money into TSLA and BTC respectively, and who are both telling trying to convince me to follow their lead, how can I judge their suggestions? I can look at Tesla's quarterly reports, and rabbithole into information about other company's EV efforts, and see analysts try to make projections about future revenue. I'd be left with a lot of uncertainty, but I can make a good faith effort to try to judge what an appropriate price is based on future earnings, and whether the current price is too high or too low. With BTC one doesn't have that. Even if prices had increased lately, how would one judge whether that was high or low relative to where prices _should_ be? Today, after a period when prices have fallen a lot, are they high still? Would $10k be too high? $1k? About a decade ago it was roughly $11 and 2 years before that it was $0.20. There's no way to judge value, only price.
And people certainly forecast -- with varying success -- the future of BTC. You can read their analyses and disagree/agree with them.
This isn't to imply that BTC isn't a volatile and risky asset. Of course it is! But some people want to buy volatile and risky assets.
My point is not that BTC is volatile, but that it has no fundamentals. There is only the sentiment of other participants. Tulip bulbs can at least be planted.
Companies can go bankrupt and zero the value of their stock. Bonds can be defaulted on. Are you out there evangelizing how stocks and bonds are bad investments?
My objection to BTC is not that one can get burned. I don't know how to be more clear about this without repeating myself.
Suppose I start a new lottery and sell tickets. I announce nothing about the odds of any payout or perhaps even when the drawing will take place, but tickets are finite in number, and are transferable. If you can buy a ticket at auction, how much should you pay? In a different context, I hope people would complain that there is not enough information to answer. But on crypto exchanges, people seem happy to say "I just don't want to pay too much more than the last buyer."
In contrast, suppose my friend starts a raffle, selling tickets for a dollar, and makes clear that the pot is exactly one dollar per ticket sold. Yes, anyone buying a ticket can lose 100% of what they put in, but it's also easy to see that the expected value of a ticket is $1. If you have the opportunity to buy a 2nd hand ticket for less than $1, it's in some sense rational to do so, depending on your own risk tolerances. If I try to sell a ticket for $1.25, people can immediately see that it is overpriced. This is entirely consistent with the fact that the outcome for any particular ticketholder is highly variable.
The point of all this information being baked into the price of an asset is not that the market is particularly correct -- surprises certainly happen. It's that you don't really profit from all that knowledge. You say, "Oh, well, I know that this company has such-and-such a balance sheet." But everyone else knows that as well (and, in fact, knows more about the health of that company because they have access to semi-private information and/or just more expertise about that economic sector than you do), and if you go, "Hey, I want to buy this stock because their business seems strong," you already have to pay the premium for their business being strong, and their expected growth, such that you're pretty much purely buying risk now, not the strong company. If they profit, but not quite as much as expected, you lose money. Potentially a lot of money!
Meta is down 65% this year. That's on $27B in quarterly revenue and $4.39B in quarterly profit! And it's down 65%! Let's be real: you didn't look at Meta's financials at the beginning of this year and realize that your investment there would be down 65%. What's the floor on Meta? I mean, nobody actually knows. They have a lot of revenue, but you can always get a lot of debt and have that eat your revenue up. I'm inclined to be optimistic about Meta -- but so is the market, that's why it's at $310B market cap. If I buy now, could it lose another 65% value and be at a "mere" $100B market cap? Sure.
And yes, people with a lot more time, resources and information than I have bake a lot of information into their attempts to establish what an appropriate value is for a share of a publicly traded company. Nowhere in the preceding have I claimed an ability to out-predict wall street.
But the fact that people after examining the data can be left with real uncertainty about the future prospects of a company doesn't mean the data doesn't matter. The equivalent data simply does not exist for BTC.
Roughly, BTC is being used like shares in a company which owns no assets, has no revenue, gives no dividends, and writes no quarterly reports. Based solely on the price history, trading volume, number of shares outstanding (and constraints on shares issued in the future), and the press, people buy and sell it.
To pretend that this in no way limits the ability of people to price BTC in comparison to their ability to do the same for stocks, bonds or other traditional assets seems unhinged.
NRGV ("Energy Vault") was trading at a $2.4B market cap less than a year ago, and are now at $0.4B, still radically overpriced. Their product was an obvious scam before, then they pivoted to another obvious scam. The only way their stock could have any legitimate value would be if they still had $0.4B in cash, and could be prevented from squandering it. All perfectly legal, apparently.
Same for fusion startups. (It is just barely possible that Helion could have value.) Kyoto Fusioneering builds equipment to use in fusion startups' sham demos, and provides a conduit for dumb VC money into the pockets of startup founders and VCs who invest in it. All perfectly legal, apparently.
Irrational is contrary to efficient.
1. If you mean, "the market will not in fact go to the stock price that I think is correct in a time window that anyone can remain solvent for and perhaps ever," then what you are saying is you believe the EMH.
2. If you are instead saying that you are a small fish and big fish could play this scheme successfully, absorbing relatively small fluctuations, then, I mean, go pitch Jane Street in your brilliant approach of "look at the financials." (Obviously, you won't get anywhere because, spoiler warning, they already do this, and it's priced in).
Your conclusion in (2) does not follow. Jane Street works on a time scale of, at most, milliseconds.
We may be sure that Berkshire Hathaway, which does operate on longer time scales, holds no NRGV shares.
And I think the answer that is confident with reality is, "actually, they do, and price in that information, such that there's no alpha left from it. Perhaps people with particular knowledge and expertise can synthesize that information with other knowledge to make useful predictions, but for an average layperson, is priced in."
The system organization favors a few winning big, so the majority must ("inevitably") lose.
Non-zero-sum games require mechanisms that produce or unlock new value that becomes available to agents. An innovation lets a farmer produce more grain, such that the farmer makes more money and consumers pay less for the same amount of food. But a pile of transactions each of which just exchanges goods, fiat currency and crypto currency at varying prices does not produce net value.
Like, sure, on a whole-economy level, if nobody is creating value, then the economy isn't growing. But you aren't buying the whole economy, you're buying an asset, and that asset just needs to be desired in order for it to increase in value. There is no function where "if I gain money from BTC, you have to lose money from BTC." That's just... not at all how this works.
If you realize gains from BTC, it's because you sold it to someone else who bought your BTC, presumably with dollars, yes? The crazy stipulation of "token price monotonically increases" for some crypto currency implies that people are actually exchanging ever larger quantities of some other currency for that asset. Of course this means that the other currency is losing value.
When the dollar goes up against the pound, or vice versa, no one thinks it's because some magical process is creating net wealth.
One is "what moves the price of an asset." What moves the price of an asset is supply and demand. In the case of BTC, the supply is (generally) predictable and limited (though I guess someone could reclaim one of those early big wallets that are assumed to be lost forever or something). So demand dominates the BTC price.
Note that this is completely irrespective of whether Bitcoin does or does not generate real economic value (like, the production of more goods or services that directly improve the lives of other people).
If the economy as a whole (in terms of, now, real value that is actually delivered to people's lives) is shrinking or stable, then for Bitcoin to be increasing in value, something else has to be shrinking in value. But if the economy as a whole is growing, then it is possible for some of that growth to land in Bitcoin such that everyone with Bitcoin is better off than before, and nobody is worse.
Not true. Value gain=Revenue-Costs. Revenue for Bitcoin as a whole is 0. Costs are positive. Therefore it is negative sum.
Compare with Coca cola stock. Revenue>Cost. So it is positive sum.
Notice that there is no "cosmological constant" term. The rest of the universe gaining or losing value has no bearing on a specific stock or crypto
But of course bitcoin is technically negative-sum, because miners don't pay in, but do cash out. And, some fraction of coin is lost and so not cashed out. Whoever can't cash out donated their stake.
When it gets where it has been more or less constantly falling for long enough, and everybody wants out, it will fall at an increasing rate, and everybody still holding donated their stake, too.
By this definition, BTC is NOT an investment. Neither is Gold or land (unless you rent it) or commodities. Buying those things is just "speculation". Speculating is fine. It can be useful for the market. You might even make money.
But please please, stop reffering to these things as "investments". They're not investments any more than my buying a hamburger.
Crypto bulls and bears oscillate between 1/2, as the market turns hot/cold. Gizmodo is very clearly selling confirmation to the anti-crypto crowd currently looking for narratives to support their use of statement 1).
Anyone who is hyper-confident in either direction is usually wrong.
Judgement about a particular subject should at the least rely on some detail about that subject. This is just an generalized appeal to the law of averages.
TL;DR - Armchair experts on either side of the argument make poor investors.
The lack of barriers to creating, marketing, and hype-selling a new project inherently makes 99% of the projects in this space "vaporware". The terms "grift, rugpull, scam" etc. are appropriate.
Unsophisticated retail "investors" (and hell, even sophisticated speculators just subscribing to 'greater fool' investing - e.g., most VCs) are focused heavily on the upside in these types of projects, because the measure of success is "money made". There are people who respond to this by writing off the space entirely - "It's a ponzi scheme", "scam city", "tulips", etc. All fun memes to tout the "I told you so narrative"
My personal belief is that there is the potential for "ethical alpha" (subjective, perhaps - primarily meant to differentiate from 'get out before it implodes' alpha) to be had by investing long-term in the remaining projects with the combination of development attention, enterprise buy-in, and scaling capabilities that could deliver meaningful value to end-users. I'm not going to get into a debate over which projects meet these criteria, whether they exist, or any other debate which likely will revolve endlessly with no resolution.
I acknowledge there are risks associated with the broader technology being adopted in a meaningful sense, but subscribe to a perspective that there is yet-unrealized value in its application.
I create value in the real world and use the euro to exchange it against something else of value, which is very convenient, but the euro itself is not the goal.
Call it unregulated crypto gambling or something, that would be more honest.
Back then, the bull case (market-cap approaching M1) was orders of magnitude stronger relative to the price than it is today.
The bear case remains the same (you lose all your money tomorrow when the hash is cracked or your government bans trading in it).
The maxims of "price is what you pay, value is what you get" and "are you willing to buy this if the market were to stay closed for five years after the purchase?" have felt very helpful in guiding my decision-making.
Today it's $17,000.
Today it's at $17,000.
So:
Do people lose money when they invest into crypto? Yes.
Do people lose money when they invest into Bitcoin? No (if their timespan is 5+ years).
Put it another way, for Bitcoin to retain its price, an exponentially increasingly number of people need to invest in it. Such a structure, when graphed, looks very similar to a certain geometric shape
> the report did assume that a user purchased bitcoin when they downloaded a crypto app.
Look directly at the blockchain, and instead find 49.4% of the addresses were in profit as of the time this article was published: https://www.yahoo.com/now/majority-bitcoin-addresses-now-los...
It looks like "inevitably" is more evitable than inevitable used to be.
[If anyone has a Glassnode subscription, the real-time readout is here: https://studio.glassnode.com/metrics?a=BTC&class=Addresses&m...]
Bitcoin as represented in the white paper was never portrayed as an investment vehicle.
It's fairly useless as far as currencies go. It literally fails at the first requirement: it's not a reliable store of value.
There are certain circumstances where I think it may make sense for someone to pick an alternative currency; I'm not arguing it is superior to the rest of them.
> Several crypto coins are a bad store of value over 1 week but a decent one over a couple hours.
What kind of (real world) transaction would need to rely on a cryptocurrency for value stability over a couple of hours time-span that wouldn't be served by fiat currency, which provides the same stability guarantees over that same time-span?
There is also a strong real world value in countries where local currency is less stable and secure than crypto. Not all places have access to USD or foreign currency.
There are interesting examples coming out of Argentina. Imagine living in a country where year over year inflation is ~100% and the government may periodically seize assets in your bank account.
I think it could make a useful underlying tool to enable this but to be used directly by end user customers it'd be a tough sell.
I've used Wise to transfer USD <-> CAD, if they use crypto to enable that (I don't think they do, but I guess they could), I couldn't really care less.
I don't think your run of the mill consumer is going to want to use crypto to do the same thing. With smaller amounts the difference in cost is probably negligible, with larger amounts you could theoretically save more to make the effort worth it, but you have higher pressure to have more "traditional" assurances that nothing goes wrong.
In what ways do cash bank transfers not work for international transfers or irrevocable payments?
Why would they do that? I've never had that happen to me when I send an international transfer.
But it's always been for innocuous things like "reimburse relative for vacation rental expenses"
Yes I was made whole but it was unpleasant and I happily would have eaten the ~.30 of litecoin transaction fees and 0.1% crypto exchange fee to avoid that. Not to mention the wire cost me $15 in the first place and not everyone has ready access to a bank with free wires.
Depending on which country it is going to, that seems like an amount large enough to legitimately trip over some checks. In the US itself, last I heard all domestic transfers over 10k get reported.
Getting locked out of your own money can cause major damage. I'm lucky that I was able to dig up another 100k. Someone else could have lost their 50k and be liable for hundreds of thousands more in liability to the seller.
In any case ACH can be clawed back and it is my understanding in some exceptional circumstance a wire can too. The point never was crypto is always superior, it may be conventional is better 99.9% of the time but that 0.1% means a use case remains.
Edit: after reading my comment I realized it might not be clear that bitcoin is astonishingly bad at imitating currency. Almost without exception trading it for goods and services is impossible.
If you dollar cost average your acquisition of Bitcoin it smooths out the conversion risk and if anything the value against USD goes reliably up over a 3+ year window.
Anytime someone speaks crypto to me now I feel like Adam Sandler floating past Clint Howard’s window in Little Nicky: I don’t want to be part of this, they don’t want me to be part of this, and all I can do is wish them luck while they tell me they don’t need it.
It was not.
If someone bought Bitcoin a year ago and wanted it to be a store of value, it is certainly not "whatever the holder wants it to be" for that person
A lot of currencies are not a good store of value the last 18 months.
They also seem to be a lot better at buying Bitcoin and Euros and S&P500, but a bit worse at buying lettuce.
No currency seems to be better at buying lettuce this year, though, perhaps the problem here is that there is a shortage of goods and labour...
Only a fool uses a currency that's experienced 5000% deflation?
Bitcoin is a long failed currency, I can't believe there are people still trying to push that notion.
Volatility is one thing, but deflation to a nonsensical degree means that using it as a way to pay for goods and services is heavily discouraged because of things like... having your $20 pizza be worth $165,000 if you had just not bought it.
You're making my point. It's not functioning as a currency anymore, it's an investment vehicle.
It'd be like if Forex was the main way that dollars got moved.
What the paper finds (and we can certainly quibble with any paper) is evidence that the majority of people who bought Bitcoin in the 2015-2022 period did so in patterns that suggest that they're interested in an investment asset, not in a currency.
But those addresses probably include most of the estimated 20% (or more) of Bitcoins that are lost (because they were usually lost when Bitcoin was less valuable).
In those cases the address hasn't lost money, but the person lost it all.
Sure, agree. But I don't think that's the topic here, the general harm/good done by cryptocurrencies, the submission is talking exclusively about profits or the lack of them rather.
If I invest 100 USD in Facebook and the stock gains double its value, I now have profits, no matter how bad Facebook is for the world.
And it seems there isn’t much to show on the good side, for all these negative externalities.
Apart from having insider knowledge in how cryptocurrency exchanges operate and their data, how could you possibly know this?
One address on the blockchain can belong to one or more users, just like one user can have one or more addresses on the blockchain, so being able to compare feels impossible even if you had insider knowledge/data.
Bitcoin on a centralized exchange cannot be traded for goods and services until explicitly withdrawn, unlike most brokerage accounts where cash is cash and many will even give you a debit card so you can spend directly from the account. This strongly decouples bitcoin and most other cryptos from the total money supply.
When you're on Binance and you send them one BTC as a block chain transaction, you are receiving one Binance!BTC that does not exist outside of that walled garden.
Just look at FTX - some 1.8B in BTC liabilities but zero BTC assets
This splitting hairs over "true" ownership ignores the fact that the original investor analysis done by GP here premised on chain transactions is still semantically wrong.
that still leaves us with "most".
everyone knows the theoretical issues and incompleteness of this statistics collection - since there is no single public or verifiable stat to use - its pretty new to be a person that chooses assume its more likely that people are having distinct addresses on chain, than assume its more likely they're on an exchange
kind of funny how we go full circle here, but okay. hope that helps your reasoning. this article has no way of making its claims either, so there's really no point of appealing to either authority or bolster any opinion.
The issue of one's "private" data then becoming part of a public dataset could be alleviated with deidentification, plus a better acceptance that when companies accumulate data about you, it's generally going to get exploited in some way or another.
Every cryptocurrency exchange would have to go bankrupt before you could make sweeping statements like that if so.
Is consistently proven to be a myth.
I'm curious: What is your source for this statistic?
For comparison: There were about 40M non-zero addresses earlier this year. See eg https://news.bitcoin.com/number-of-addresses-holding-btc-tap... [The current number is on Glassnode: https://studio.glassnode.com/metrics?%3Bm=blockchain.UtxoLos...]
FTX is one of the larger exchanges, and FTX bankruptcy headlines say they "may have 1 million creditors". See eg reuters.com/technology/ftx-officials-contact-with-us-regulators-filing-2022-11-15/
Edit: I'm trying to figure out if someone has actual stats or whether the statement is just intuitively guessing. There are so many bitcoin stats out there, it's hard to keep track of it all.
An exchange, when depositing or withdrawing to a user or another exchange, uses a ton of address, sometimes leaving behind very small amounts. Same with users. I'm sure 75% of non-zero address have very, very little BTC in them.
>I'm curious: What is your source for this statistic?
They have no reason to.
Unless the investor is specifically working on some HFT arbitrage scheme between exchanges, then they don't even need to move crypto out of the exchange.
Also given the complexity of rolling your own wallet, it's just a risk that's not worth it when KYC exchanges are relatively stable.
"You aren't a real real estate investor if you buy the brooklyn bridge from a guy on a streetcorner in Harlem" is true because the claim on the bridge was never credible, not because you never physically took possession of the bridge itself. You could argue that the exchange's IOU was never credible, but that's different from saying that any BTC-based IOU is made of lies.
If I buy some shares in a company that does things with [X], I think it makes sense to say that by doing so I'm "investing in [X]", even if I don't e.g. have the necessary license needed to directly own any [X].
Every trade has two sides, and transactions cost fees.
Someone can (and should) have multiple addresses. And most retail investors will actually keep the bitcoins in an exchange in order to not lose an obscene amount of money to fees when trading. So there isn't an 1:1 correspondence between addresses and people.
However, realizing the profit is a different thing. That will work only for a few who invested early and deinvest early. Basically, btc is a pyramid scheme, the only difference to other pyramid schemes is that this fact is not obfuscated. Every investor knows that he is buying a fundamentally worthless good, but is hoping that someone else will eventually pay him a higher price.
That works well until the market is saturated and no one is willing to buy btc any more. Then, the price collapses.
Thus: even if most investors today have made profit, that simply means that the bottom of the pyramid has not been reached. At that point, most investors will have made loss.
It also paid about a 2% yearly dividend over that time frame.