If there's 1 thing I've learned in the past 2 years, it's that experts can be deadly wrong (Trump being president, Brexit). They seem to be good at predicting things with known variables, but not with unknown unknowns.
I'm making a contrarian bet that experts are wrong this time as well (at least in the near term). People are jumping the gun, trying to look smart and predict the right outcome. The same people that never predicted bitcoin would be this popular. If I'm wrong, so be it, I'll lose a few % of my net wealth.
>If there's 1 thing I've learned in the past 2 years, it's that experts can be deadly wrong (Trump being president, Brexit).
Be very careful with those conclusions. In both cases the predictions were that the elections were very close. Trump winning the presidency when the best models we had gave him a 30% chance is not a failing of prediction at all.
> Trump winning the presidency when the best models we had gave him a 30% chance is not a failing of prediction at all.
How accurate the "best models" were isn't really relevant to the accuracy of the predictions of experts as a whole. The media was running that Clinton had a 98% chance of winning the morning of the race.
>How accurate the "best models" were isn't really relevant to the accuracy of the predictions of experts as a whole.
Only if you include random talking heads as experts. Then you get that 98% chance of Clinton winning result. But you can select actual experts to rely on before the outcome happens. The 538 forecast was extremely accurate the previous election and had the 30% outcome the day before. That's actually comparable to a poll of economists on bitcoin.
And to make it even more useful the polling of economists should ask them to give a probability instead of yes/no. It may be true that 96% say "yes it's in a bubble" and the average probability between them of Bitcoin going to 1M$ is actually 20% or more.
The data gave her 70%. We're in the 30% of universes where Trump won.
In this scenario, you might argue, these are just talking heads. But they are not being asked for a view in order to look popular on TV, they're looking at data and interpreting it in a way that they are happy to be professionally accountable for.
Wisdom of crowds in the context of talking heads shooting the odds on a media out is not going to be as accurate as wisdom of crowds for economists being asked about economic issues.
So, you know, be careful where you're drawing lines here.
Taleb wrote at long on the election models. TL;DR: A proper statistical analysis should have given around even odds (50:50), not 98:2.
"So back to the mechanism of the model, Taleb imposes a no-arbitrage condition (borrowed from options pricing) to impose time-varying consistency on the Brier score. This is a similar concept to financial options, where you can go bankrupt or make money even before the final event. In Taleb's world, if a guy like Nate Silver is creating forecasts that are varying largely over time prior to the election, this suggests he hasn't put any time dynamic constraints on his model."
People should be cautious when citing Taleb as an absolute authority. He envisions himself as an anti-intellectual, and doesn't mind talking out of his rear. I enjoyed his book Fooled by Randomness, but he repeatedly bashed "journalists" throughout---maybe an early indicator of the "fake news" movement even among those who should know better.
Anyone who proposed 98% certainty was ridiculous and should not be taken seriously either (there could be exceptions but I don't think so). It amounts to beating up a strawman.
But I just don't understand what that quoted paragraph means and how it proves that it was 50% or anything else. A forecast should go bankrupt before it gets to the final event, what? Dynamic time constraints meaning what exactly? I'm genuinely curious.
Maybe Taleb is just an intellectual god that my puny intellect will never completely understand, and I should just take him at his word, and I'm sure he would agree. But I remain skeptical of people who display open contempt for people (I used to follow him on Twitter) who require a better explanation to understand what they're saying.
> A forecast should go bankrupt before it gets to the final event, what?
Can go bankrupt, not should.
He is saying that if in finance someone would make such a ridiculous forecast, his forecast would be shorted into oblivion and he would have lost most of the money bet on the forecast before the event even took place.
Imagine two relatively matched football teams, but a bookie offering 10:1 bets on one of them. There would have been massive bets against that bookie.
Given the recent history of american elections and other factors, a 50:50 prediction is much more sensible than a 98:2 one. But because journalists don't actually put money on their predictions, they can spout whatever numbers.
He is also complaining that even with a lot of polls hovering around 50%-50%, that 98%-2% prediction was still on, which doesn't really make any (math) sense (binary options, delta, ...).
In his math paper he describes this in more precise form.
I don't think any of this explains the jargon in that paragraph from the paper, which is what I questioning. And Nate Silver didn't have a 98:2 forecast.
If I make a bad bet I don't go "bankrupt" or lose that money before the event happens. There's more than one way to structure betting on events than the way he proposes as well, so I still don't understand why his is an authoritative take.
"Given the recent history ... and other factors" is more of an explanation for why someone thought it was a coinflip, but doesn't represent "a proper statistical analysis" modeling 50:50.
> If there's 1 thing I've learned in the past 2 years, it's that experts can be deadly wrong
But most of the time, they are in fact right. I don't know why a couple instances of wrong-ness proves that experts are unreliable. Other than selection/confirmation bias.
Your reasoning is an example of failing to understand the difference between a random variable and an exposure to a random variable.
Experts are almost always right when the outcome is irrelevant. Economists can accurately predict next year's GDP growth most of time, sure. Except that time they're all somehow wrong at the same time and it's a massive miss and we enter a recession. This is really the only time we care about them being right ("Housing can't be in a bubble").
Until economists are financially harmed or benefited in proportion to how bad or good their predictions are, they won't understand this idea either.
Sounds like reverse survival bias to me. Experts are usually right, so people make financial decisions on that basis. When it turns out the experts were wrong, those decisions don't pan out. The worse the outcome, the more likely we are to hear about it. We don't hear about all the times that following expert advice doesn't lead to an economic disaster, even though it happens nearly every day.
He makes a discrimination between informed/uninformed times. "They seem to be good at predicting things with known variables, but not with unknown unknowns."
Bitcoin is a big unknown, for experts and enthusiasts alike.
The experts typically aren't experts in any sense of the word. Columnists get paid to write articles by the word to sell advertisements and get people riled up. Let's not glorify bloggers.
It's somewhat mythical that the "experts" got Trump and Brexit completely wrong. Fivethirtyeight, the most-famous among the poll aggregators, had Trump at 25% in their last prediction, for example.
That's not perfect, but they have literally written hundreds of articles trying to tell everyone that their predictions are just that, predictions. They also have an analysis showing that the polls were more accurate than in previous elections. That's not very helpful when +-0.5% can make all of the difference, but I'd expect HN of all places to have some appreciation for the concept of probabilities and uncertainty.
What's more important is that the experts got almost everything right in regard to, for example, the UK/EU negotiations. Which is why you can currently earn more money selling "Told you so!" t-shirts in Brussels than investing in Bitcoin.
But ultimately "is bitcoin a bubble?" isn't a popularity contest–it's a question of fact. It's the same as "is their any underlying value that makes a bitcoin worth $20,000?".
I'd argue the answer is almost certainly nope, because bitcoin has failed spectacularly at the mission it initially set out on. It is useless for transactions, as shown by $20 fees. It's far less secure than cash under your mattress. And it's not anonymous to any reasonable degree.
Basically all of bitcoin in active circulation is held for speculation, which sets it apart from other currencies. The only analogue is gold, and one could reasonably say that gold is in as much of a bubble as bitcoin. The only question remaining is if bitcoin can pull of becoming the second bubble-that-doesn't-pop.
It's not impossible. But my guess is the bubble pops as soon as BC stops being in the evening news every day. Take away the FOMO, and people will prefer a store of value they can touch.
"Predictably Irrational" is also a good read. People aren't good at calculating value differences and will go out of their way to save $1. That's why litecoin and ethereum are skyrocketing. It's simply cheaper in total dollars per coin than bitcoin so people are buying that expecting to to rise to the same dollar value as bitcoin.
Coinbase announced they are planning to add more coins to their service next year. Besides dash and monero most of these trade at a fraction of even litecoin. Once that happens expect even more dumb money to flow in with people buying 'cheap' coins because they're 'only' a few dollar a piece.
> They seem to be good at predicting things with known variables, but not with unknown unknowns.
Exactly. 96% consensus on a guess is just as good as 99% or a 1%. It doesn't matter how many experts agree if they base their decision on unreliable information.
Bitcoin might indeed be a bubble. But what about cryptocurrencies in general? I think that even these economist wouldn't be so sure if they'd been asked a broader question without pinpointing bitcoin.
In the grander scheme, it seems plausible that there will be one or a few cryptocurrencies of the current era that will withstand the test of time and emerge with large-scale adoption rates in various markets. But with BitCoins technical limitations I really don't see it being a mainstream medium of trade one or two decades down the line. With that conclusion in mind, it seems inevitable that the BTC market will cool off eventually. And my I would never put my money into something that I don't believe in over the long term. I would be more interested in an ETF or other derivative that tracked the value of a basket of viable cryptos.
Blockchain/cryptocurrency is going to be really useful and valuable. It would be an enormous coincidence if much of that value wound up being tied to bitcoin though.
it's not really a contrarian bet. If you follow stock bubbles, you'll know that stocks rise on a wall of worry, and fall on a slope of hope. Basically, when everyone is worried about it being a bubble, there's probably still room to grow. The time you gotta watch out is when everyone starts thinking bitcoin is going to keep going up.
Most of the time Ethereum is less than a penny for a simple value transfer, and it does more than twice as many transactions per day as Bitcoin. It's also pretty easy to implement simple payment channels:
I was just pulling up avg tx fees. I realize that tx cost on ETH varies highly, do you have a preferred site to tell what contracts are economically viable for what amounts?
For instance I would be happy to buy a cryptokitty or two at the ~1 USD price range, but if the tx fees are ~1 USD then it's obviously a no go.
It tells the lowest gas price you can use to be reasonably sure your transaction will go through, and how long it's likely to take. Using that gas price it also gives a dollar cost of a simple transfer, which at the moment is higher than I expected at 20 cents for a 20-minute wait, or 33 cents for a 3-minute wait.
For cryptokitties you'll have a higher gas cost; I don't really know how high but I think I've seen people complain about spending six bucks for cryptokitty transaction at a 60 gwei gas price.
The one justification for skyhigh valuations is believing there will be a deus ex machina technology solution that comes out to solve the scalability problems of crypto. Honestly, it could happen (https://lightning.network/ or something else, ideally for on-chain transactions), but in _my_ opinion, betting on that outcome at this time is just not worth it. I believe a more likely scenario is we have a major correction, and then grow from there.
In the worst case (1 tx per channel) LN would actually double the # of tx.
I am really looking forward to LN being really tested, but the thing that worries me is that the security model relies on txing before a certain block. If we see a large amount of the traffic move from on chain to LN then we could get ourselves into a situation where there is a run on the chain to close channels. If there is a large market maker that attempts to steal from a channel that is being used to route many others we could see a mass closing of channels which could push the fees high enough to make it cost prohibitive.
LN isn't a panacea it actually changes the security model.
It's not deus ex machina, because it's not unexpected. Lightning has a working alpha on Bitcoin, and Ethereum has something similar with Raiden, plus the Plasma paper and early code, a recently-published spec for the first version of sharding with a 100x throughput improvement, various special-purpose off-chain solutions like FunFair's fate channels, TrueBit for verifiable computation off chain, a simple multicore hack, and simulation code for full proof of stake.
I'm not saying there won't be a market correction, since they happen on a regular basis. Just a few months ago Ethereum dropped from $420 to $130.
Yes I am a long term believer in the technology, my gut just says the next correction that comes will be a bloodbath. Accordingly, I'd prefer to wait until that occurs before getting more involved.
If I'm wrong and "lose money" (ie don't get the gains) I'm okay with that too, since I've thought about this a fair amount and I'm confident my position is the most reasonable at this time.
Bitshares, STEEM, and the new project EOS all support them (EOS will have free transactions, and STEEM already does). Definitely check them out if you're interested in the space. Alot of people dismiss them because DPoS isn't proof of work, but if you dig into the philosophy behind it I feel like it makes alot of sense.
They've been lagging behind / undervalued for the last couple years IMO but the big money behind EOS is giving STEEM/BTS the attention they deserve.
I sent my friends 50 bucks worth of BTC for christmas time. At that point the fees for regular tx were ~5 bucks so I just bundled them and payed less than a dollar per send, making sure to send the change into a segwit address. I missed someone so I went ahead and sent a one off from a segwit address. That was only 1 buck tx fee. Totally doable for a $50 tx.
But if the valuations are anywhere close to proper we need to have significantly higher throughput.
If I can't send someone 10 bucks on bitcoin it loses a lot of value for me. I've previously used it to pay for lunch/poker w/e when I don't have my wallet and someone that I am with is interested in it. Even litecoin is hitting 1 USD avg tx fee.
And then there's RiaBlocks which looks the most promising currently. I hope it gets a rigorous security review though. IOTA, Byteball, Steem, BitShares etc. don't really cut it IMO. Cardano also has reasonable plans for scalability.
Vitalik thinks it's overvalued compared to what it can do today, but that just means the market is confident that it will be able to do much more later.
Bubble concerns worth listening to on crypto usually talk about the price getting to far ahead of the tech, network congestion, tx volume, scaling solutions, hard and soft forks, governance challenges, and regulatory uncertainty.
Bubble concerns not worth listening to talk about lack of transparency, the fact that not backed by anything, hacks, and of course tulips.
Since I can't view the WSJ Economist Survey crosstabs and filter on valid opinion vs hot take, I feel safe ignoring this result. While they're probably right, they're also probably right for the wrong reasons.
I agree. As soon as anyone starts comparing crypto currencies and Bitcoin to tulips I tune out. It is a sign that they clearly do not understand what they are talking about.
- Tulip mania was concentrated to specific parts of Europe vs. a global market.
- Tulip bulbs are perishable items that you have to repurchase when they go bad so they cannot store value.
- Tulip bulbs have an infinite supply since you can always grow more, Bitcoin has a maximum supply of 21 million and there will never be another.
- Anyone can plant seeds to grow a tulip bulb whereas mining a bitcoin has real costs associated with it ($800 to $2,000).
- Tulip bulbs cannot cure poverty and starvation in the world. Bitcoin has already been very useful in countries like Venezuela where inflation of their own currency is causing poverty. See https://mobile.nytimes.com/aponline/2017/12/13/world/america...
Also tulip mania itself is a poor comparison since it has spread like a game of telephone over the years. None of us were alive in the 1600s, and the actual events that unfolded were probably much less grand than the media plays it out to be:
https://www.smithsonianmag.com/history/there-never-was-real-...
Because bitcoin and tulips have nothing in common? Bitcoin is a commodity, tulips are a commodity. Tulips went through a particular phase of hype with a famous bubble (and crash). It's not irrational to look at bitcoin through that lens. Bitcoin might be new tech, but commodity markets and the human psychology and greed that drive them are old as dirt. Those who ignore history are doomed to repeat it.
In my understanding, bitcoin and its supporting technology is a monetary system. So, in my opinion, comparing bitcoins with tulips will be similar to comparing Fractional Reserve Banking with tulips.
In analyzing this, it doesn't matter what something purports to be, it matters what it is actually used as. By and large bitcoin is a digital commodity, not a currency. That may well change in the future, but that's not relevant to the analysis.
"Experts" predicting bitcoin's impending doom is nothing new. Does anyone remember Professor Mark Williams, a top economist who is so well regarded that he has been called to testify before Congress many times? In late 2013, he predicted that bitcoin would crash from $1200 to under $10 within the next 6 months [1]. After he was proven wrong, he revised his claim to say that the crash would happen eventually. I guess he was smart not to attach another date to his prediction, lest he be humiliated a second time.
Until these economists are willing to put testable specifics to their predictions (bitcoin will drop to under $X within Y weeks), or are at least taking short positions to back up their beliefs, no one should take them too seriously.
In contrast, the Winklevoss Twins correctly predicted Bitcoin's rise and become Bitcoin billionaires in the process. But they're not selling because they think it will go up much further [2]. Unlike the economists here, the Winklevii are putting their money where their mouths are.
This is true of every bubble ever. No one knew how to predict when the real estate bubble was going to collapse. And they wouldn't have been able to make any specific predictions, despite real estate being an obvious bubble.
It was very easy to see that the price did not reflect the fundamentals. And Bitcoin is similar. The fundamentals of Bitcoin do not support the price.
Also in terms of putting your money where your mouth is, there isn't any reliable way to profit off of bubble's unless you know the timing. And that's very hard. There are no laws of the universe that keep Bitcoin from rising for another 12 years, or tripling in value before it crashes.
I'm both someone who believes Bitcoin is in a bubble, and someone who holds a decent amount of it.
I never liked the word "Bubble" do describe these things because they rarely pop like bubbles. Physical bubbles inflate relatively gradually and pop very rapidly. Asset bubbles usually don't. The Nasdaq bubble took roughly 6 years to inflate and 3 years to "pop". The real estate bubble took about 11 years to inflate and 6 years to fully deflate. IMHO "balloon" might be a better term.
It's possible we could wake up tomorrow in a world where Bitcoin is trading for $10, but I doubt it. Even if today ends up representing the peak in hindsight, I'm (literally) betting that it will take years to fully deflate.
The gist of it is, is that if you look at the nature of the investor today, it is clear that this has become a giant speculative bubble. Investors do not understand what they are investing in. They are not sophisticated. They are not analyzing their investments. They are investing on the 'greater fool' theory.
All of the above does not preclude the possibility that Bitcoin survives, is useful, and perhaps is even still long-term undervalued despite the current bubble-aspects. But the nature of the investor today means that the dynamics of the price today are currently being driven by bubble-like factors, and are almost certain to have a large (50-90+%) drop at some point.
If you read crypto twitter, you will see that even the devs like Vitalik [0] and Vlad [1] are extremely wary of how much the price has risen given the level of development of the technology thus far.
I'm committing the cardinal sin of commenting before I'm done with the article, but whenever this discussion comes up, I feel like asking: why not both? Could it be that Bitcoin is currently overvalued and in a "bubble", but it or something like it still may have huge value and utility in the long run? The idea that the Bitcoin bubble is something more like the Dot Com bubble than Tulipomania seems plausible to me.
Yes. Internet stocks were in a bubble in the late 90's. It burst but the Internet turned out just fine. The question is, when the crypto bubble bursts, will Bitcoin recover, or will it be something else?
The Bitcoin bubble has already burst, multiple times in fact.
From the high point of $31 all the way to $2 in Dec 2011.
From $266 to $130 in May 2013.
From $1200 to $200 in Mar 2015.
From $5000 to $2900 in Sep 2017.
From $7300 to $5500 in Nov 2017.
From $18000 to $14000 in Dec 2017.
Having read a thousand rabid forum posts over the last week, I get the feeling people will hold for decades regardless of short term changes or regulation. They think there is unlimited upside as it eats into gold and fiat, so it's only rational told hold until the new world order comes and everyone in the world is using bitcoin. I'm hard pressed to disagree. But diversification is important. Best strategy I've seen so far is to take some bitcoin profit and put a chunk into altcoins and the rest into dividend producing equities.
I hold a diverse portfolio. In my experience when the price of bitcoin falls, the alts fall too. Additionally, if I'd held bitcoin only I'd have greater dollar value today. If my alts were protecting me I'd be happy to sacrifice the greater growth I could have seen but honestly I am not so sure that I am protected at all.
I believe in the usefulness of the blockchain and related technologies though, and I am certain that adoption among businesses of said technology will only keep rising.
I don't know if the crypto currencies have a future though. And even if they do I don't know if they will ever be priced as highly again as they are now. I hope they do, but if my portfolio fell to $0 tomorrow I'd be bummed out but it wouldn't be critical.
Raiblocks [1] offers zero fee transactions. It will be interesting to see if node operators can be motivated by the same decentralization/benevolence that causes people to run bitcoin nodes today.
RaiBlocks has PoS consensus so node operators are incentivized. It also has PoW as a spam prevention mechanism (transactions are not completely free (few seconds on commodity CPU), and you can also "cache" PoW). I think it makes sense, unlike IOTA for example.
I have to correct that actually PoS is voluntarist. Node operators don't collect fees in RaiBlocks. They operate just to secure the network and their own investment.
I have been following IOTA for a while now and while concept of IOTA is very neat, it appears that the community/leadership surrounding it are in shambles. The network is not really working unless you run a full node, and even then if you send your IOTA to an address you have transferred IOTA out of you can lose them forever. These issues make me very nervous about the whole project.
Long term, the price has increased exponentially. As expected. There have been a few bubbles, as well. And it's pretty clear, as you say, that it's currently in one now.
Tulipmania lasted 6 months. Bitcoin is now 8 years old.
Tulipmania includes the time it took for the belief that tulips were special and valuable to take hold, and the time it took for merchants to cross breed specific colors for the Dutch nobility. When you include the history behind the bubble and why it happened, tulipmania took decades.
That's not to say that Bitcoin will end the same way, but it is to say that bubbles don't start and end within 6 months.
The South Seas bubble is a more apt comparison. Many of the ICOs that are springing up are exactly like the fraudulent companies that arose in that era (some of them even sold tokens like ICOs!)
Believe it or not, tulip bulbs existed for a reaaaaaally long time before tulip mania. For the vast majority of Bitcoin's history, it has been known by virtually no-one outside of the tech circle, and its price was relatively stable/low [1]
This chart shows nothing interesting and is hardly scientific. Of course by lining up price charts of various speculative bubbles they will roughly line up. The chart also intentially discards the first 4 years of Bitcoin trading data (2010-2013) where Bitcoin has actually gained the most. None of the other assets in the chart even remotely compare to Bitcoin's gains in these 4 years. Also, it should really use a log scale: http://bitcoin.zorinaq.com/price/
> The chart also intentially discards the first 4 years of Bitcoin trading data (2010-2013) where Bitcoin has actually gained the most.
Sure, just like the comment being replied to discards several hundred years worth of tulip sales to say "Tulipmania lasted 6 months. Bitcoin is now 8 years old."
Bitcoin has, until this year, largely escaped widespread public notice beyond "isn't this odd/interesting" pieces in the media.
> For hacker news I expect people to be a lot smarter but apparently no one in the entire thread realized I said Tulipmania. Not Tulips.
Yes, and then you went and compared the tulip mania against the entire history of Bitcoin. The current orgy of speculation and people taking out mortgages to buy Bitcoin is a recent phenomenon.
Ok, since you don't seem to want to use the site as intended, I've banned the account. If you change your mind you're welcome to let us know at hn@ycombinator.com.
There were at least two previous Bitcoin manias and bubbles. I remember a lot of hype when it hit $70 (from single-digit prices), and then again when it hit $1000. Both times people said it was a bubble, and then the bubble popped.
The worst part of all of this Bitcoin speculation is that you have someone like the person you're replying to get on and talk out of their ass. Literally. And then they are the ones getting upvoted cause all the haters love to talk to trash with zero intellectual honesty.
Everyone that I've talked to seems to be aware of the (seemingly) inevitable price drop, but that doesn't seem to be stopping them from buying in. Most people just assume they'll be able to sell what they have when the price drops before all the 'dumb' people have a chance to do the same.
They just assume they'll be the lucky ones. I don't think everyone can be the lucky ones though.
I think after this all calms down and a reasonable price is reached it'll be a bit safer to use as an actual currency. Pretty sure we were all saying that when bitcoin was around $200 though so maybe it won't ever settle.
One caveat with Bitcoin is that the network is so slow (effectively just 3 transactions per second) that a crash would be spread out over time. If a panic starts you won't be able to get a slot to sell your bitcoins unless you pay an enormous transaction fee. It could be an interesting situation where the rich literally pay to get to the head of the line and avoid the crash.
The fact that you can only do 3 transactions per second is totally besides the point.
Selling things requires a buyer. In case of a crash, you are trying to sell to the lowest bidder. If one even exists. Everybody in a situation like that is trying to sell and no one is trying to buy.
> One caveat with Bitcoin is that the network is so slow (effectively just 3 transactions per second) that a crash would be spread out over time.
This is false, the majority of people selling already have their coins on coinbase or other exchanges and would not add to the transaction volume hitting the blockchain.
You don't understand how trading bitcoin works. Trading is not done on the chain, its the centralized exchanges which keep the books. Its instantaneous, with people who are involved in arbitrage between the exchanges keeping the prices level across all.
A bubble explosion would inevitably bankrupt the exchange platform first, then you. GDAX/Coinbase will never be able to create money out of thin air if everyone are selling and the BTC is dropping to $5. So even if you sell before everyone, even if you get your money on Coinbase virtually, they'll never honour the wire transfert.
Why will a bubble explosion bankrupt an exchange platform? The platform doesn't need to own any bitcoins and can be unaffected by price swings. The platform likely earns bitcoins through fees, but is free to trade them at any time. In principal all the bitcoins in the care of the exchange can be owned (or owed) to the traders.
I understand bitcoin are traded like this but it doesn't address this issue the parent raises. Also if you are trading through an exchange like this you are likely exposed to even greater risks.
If you buy some bitcoin from an exchange and you don't get the bitcoin in an address you control, you are effectively buying an IOU for the bitcoin. The value of the IOU depends not only on the value of bitcoin but also on the exchanges willingness/ability to repay it.
If the exchange doesn't own a similar amount of bitcoins as they have sold IOUs, at the current market value they couldn't possibly repay the IOUs they issued a month ago. If a significant amount of people they have issued IOUs want to redeem them, then they will surely need to sell some bitcoins to repay the IOUs they have issued.
By using a futures market they could limit their exposure price changes when buying or selling coins they don't have, but these markets are quite young and it's certainly not clear how much risk these exchanges are exposing themselves to.
As you apparently understand this better than we do, what do you think will happen on these exchanges if the value of bitcoin starts falling rapidly?
That assumes you have your coins on an exchange. If you have them in a wallet you would have to send them to the exchange before selling, and that process could take hours or days.
But only if you already have your bitcoins on the exchange. If you keep them in your own wallet you need a blockchain transaction to be able to trade them at all.
That will effectively put a limit on the amount of bitcoin that is able to be sold quickly in a crash.
Historically keeping your coins on an exchange is the most effective way to have them stolen. I would hope most bitcoin users would have learned their lesson by now.
It’s next to impossible to say who’s doing the buying. With regulated financial instruments like ETFs or mutual funds there’s a concept of inflows and outflows where fiat cash changes hands.
With Bitcoin exchanges a trade could be new money, formerly sitting as cash in a bank account, could be a miner converting his other currencies to BTC, could be a dude trading with himself with two accounts on the same exchange.
We have no clear indication of actual new money coming into the ecosystem.
I've always wondered this. Even if you have $10k USD worth of BTC, you still need to find someone to buy it? What if you wanted to cash out $100k or $500k? At that point you need legal contracts, escrows, 3rd party verification, etc..
Actually I don't think any wallet will let you do that. How ever, you can install breadwallet on another phone/device (don't mess with your existing one) and restore with your backup seed (12 or 24 words one). Electrum is another good wallet for desktop that supports all kinds of seed words where you can again import your seed words and re-spend them. The newly installed wallets will let you spend it again because it has no way of knowing that you already spent it.
It's obviously a bubble, just stop and think about it for a moment. P2P payments over the internet clearly have some utility, but the quantity of bitcoins owned has no relationship to its utility, thus, the incredible rise in price can be attributed almost entirely to speculation. The masses don't care about P2P payments (at least not as far as that concept might relate to cryptocurrency), they are engaged in a FOMO reaction to constant hype and the false narrative that bitcoin is going to be the future of money. It's not as if all these new bitcoin buyers are going to engage in some kind of novel economic activity or wealth creation, they are just going to hodl till they're ready to cash out. Certainly, it is clear that bitcoin's rise in price does not track with any sort of uptick in commercial activity by the masses... really, every sign points to a bubble.
I've seen a few estimates for what value Bitcoin would have if it did become a world currency (or suchlike), and they're all in the $500 000+ range. So the current price of around $20 000 is consistent with the theory that Bitcoin will succeed with probability 5% and go to zero with probability 95%. I don't think that's obviously wrong, so I'd say it's wrong to call it a bubble.
And even if Bitcoin does go to zero that still doesn't prove that we were in a bubble now. The market is already 95% sure that that's what's going to happen!
You cherry-picked one poor prediction from a single (shoddy) economist and somehow conclude that economists in aggregate are terrible at predictions.
That statement doesn’t even logically support a conclusion that Sean is terrible at predictions. It’s also entirely possible that Sean errs on the side of optimism given his 2007 prediction, in which case his alarmism over Bitcoin shouldn’t be immediately dismissed.
It's completely possible for Bitcoin to be in a speculative bubble but also not overvalued.
I'm somewhat bullish on Bitcoin, but there's no doubt that there's a speculative bubble -- people with no knowledge of Bitcoin other than its price history are getting more and more eager to invest to ride the wave. This is the definition of a speculative bubble.
The main question is what side of the bubble we're on -- where are we relative to the point where Bitcoin has passed its fundamentals.
So one of the items that keeps coming back to awareness is the potential implications of the Tether fraud. For those few that haven't heard of this by now, Bitfinex is tied closely structurally (in terms of management and ownership) to the company that created Tether, the altcoin that claims to be backed in a 1:1 basis with a USD.
Well, there've been mysterious USDT transactions, in regular intervals, that suggest that there's tens of millions of Tether being pumped into Bitfinex on a regular basis, which of course can be converted into BTC (and other coins). However, no one thinks it's likely due to the soured reputation of Bitfinex (their big hack, their inability to do business with a U.S. bank, among other things) that this is REAL USD being pumped into this suspicious company with ill-reputed owners. This has been mentioned on Bloomberg and other mainstream publications.
So (if this is all true) what in the world will it mean reputationally that people have been pouring 800M of counterfeit coins into Bitcoin, and what does it mean economically?
Well, we still have that apocalyptic "derivatives bubble" hanging over our heads, which is estimated to be around $1.5-2 quadrillion (with a q). I don't think Bitcoin is competing in the same league.
The author of that tweet (a researcher at a pension fund) polled his followers several times about whether they thought BTC was a bubble. The higher BTC's price, the fewer people believed it was a bubble.
In the end Bitcoin is so similar to Gold. It is a means of storing wealth and is valued on a shared belief of finite quantities and that it is an effective/secure means of storing wealth.
It is hard for me to call a shared belief a bubble, because there is a clear understanding I think now that there is no underlying fundamental asset value.
Gold has a floor value though, sure it has a value above that based on being used as a store of wealth but the whole thing is predicated on the fact that gold is actually useful and has thousands of years of human history of being valued.
People who do various illegal things hate volatility. They are already dealing with a number of risks, they don’t need another one added to the mix, where the supplier/boss can bust their kneecaps if the underlying cryptocurrency just went through a 5% “correction”.
I'll disagree. Gold once mined will be there for us forever. Bitcoin once mined will need us to perpetually mine it to exist.
Gold will survive a nuclear war. EMP blasts, Hard drive failures, viruses, quantum computing and the lack of an internet connection aren't real risks to gold.
In the throws of WWIII, with buildings burning to the ground off in the distance, as you cross the border to mexico with just the clothes on your back, which would you rather line the seams of your jacket with: gold? Or a piece of paper with some numbers that unlocked your 'virtual currency'?
Let's see how well that shared belief holds up then.
I don't think Bitcoin is like gold at all because I don't think there is a common belief that "it is an effective/secure means of storing wealth."
A small number of people think that now because Bitcoin is in a huge run up. If bitcoin crashes 90%, it suddenly stops being a "secure means of storing wealth" and, instead, is a means of throwing away your wealth.
If the market psychology changes, bitcoin becomes worthless.
Gold has the same problem, but has a huge historical record of actually being somewhat stable. And there is a price floor for practice demand of gold, though I'm not sure what that is.
How would someone classify Bitcoin’s rise from $0.08 to $31 from 2010 to 2011 before dropping to $2 or its rise from around $100 to around $1200 and subsequent crash to around $200 from 2013 to 2015?
I would say losing 85% to 95% of its value in a relatively short period of time after a large run up could be considered a bubble bursting. The thing that is interesting is that each time this has happened with Bitcoin the price settled somewhere ABOVE where it was before the last bubble.
I do think Bitcoin is in a bubble right now, but I think it could go much higher (maybe $50-100k?) before crashing, and I think the price after the crash will not go below $5k or $10k. The current wave began around $1000.
So what I think we are seeing is actually mass adoption of a new technology in waves that are increasing exponentially.
There has never been anything like Bitcoin so it is difficult to use lenses of Bubbles in the past to explain what is happening with it.
I really don't think cryptocurrency in general is a going anywhere; I don't think this is even the tip of the iceberg in terms of where this is going to lead. There are reason however, why bitcoin specifically might bubble and collapse. The main issue being the fact that at the moment its not reasonable to use bitcoin as if it were money, with the prime cause (in my eyes) being the cost of transactions. I do think bitcoin will collapse (not any time soon), but I think the contents of that bubble will find themselves in other, technically more useful cryptos. Not being able to move bitcoin around with out these ridiculous transaction fees is why bitcoin will eventually collapse. Its not (as) useful as a store of value in its current form than a store of value that doesn't have acost for its use.
We need to give up on the idea of bitcoin being used as money. It wasn't designed in a way that would encourage holder to spend it like money until a stable valuation is found when everyone in the world is holding it. As Yellen said, it's a highly speculative asset. Small chance of massive yield, large chance of small failure.
I'm curious how much of an understanding of coding and computer science gives you an edge here in terms of making money. It's weird seeing people on the news talking about different cryptocurrencies when they obviously don't understand the technical merits of each. For example, Litecoin and Bitcon differ by the block mining times and the hash function used and Ethereum allows more complex smart contracts etc. but these kinds of details aren't mentioned. Bitcoin seems to be facing scalability issues (in terms of the protocol and the community) but I'd be very surprised if the news picked this up.
Many economists also say that the current economic state may be a bubble, an even worse than that one that popped in 2008.
I think, Bitcoin is undervalued because it can provide a way out for unstable currencies (Venezuela, some African and Asian countries, maybe soon western countries) or to avoid regulations (China, Russia) and of course, for unlawful business (money laundry, blackhats, drugs). That's probably the real value drivers at the moment.
The biggest risk is regulation. Exchanges have to operate somewhere. But I guess, its hard to regulate something that is global (looking at you tax heavens).
Unless you have any predictive insight about when a bubble going to burst, it's essentially a meaningless term. Specifically, I mean, it doesn't tell you anything about what you should do. Suppose Bitcoin is a bubble but it won't burst until 2152. Well, in that case, I should buy it. If it's about to burst in the next few months to few years, then perhaps I should sell it. If you can't tell me when, then you can call it whatever you want, it's not an informative term.
There's a fallacy in there somewhere. It's like telling me that calling something gambling is a meaningless term because I can't tell you exactly when you will lose your money playing craps. I don't know exactly when. There's a random factor involved. There's even a chance you might come out ahead.
The fact that you don't know when it will burst is just one problem with bubbles. You don't know if it will be 2152 or now. If you know it is a bubble because of a strong irrationally motivated valuation but still buy in, then you are gambling on not "if" but "when" the bottom will fall out.
I don't agree with your analogy. If you play craps, then given the odds, we can predict that you will lose money on average if you play a large number of games. That's a pretty specific statement. Which specific statement are we making when we call something a bubble?
Bubble can be overused and become meaningless, but it can be a useful concept to consider when deciding if this is where you want to put your money. In my opinion, irrationally motivated valuation is key here.
People buying Bitcoin as the future are taking a leap of faith that only comes true if enough people take that leap and do not abandon it. There is no underlying asset or intrinsic value, there is no government force backing it up. There is nothing people can point out to express why this particular cryptocurrency has value.
This isn't an argument against the underlying technology, just the valuation of Bitcoin.
Perhaps, but there are all sorts of sophisticated people with all sorts of valuation models for crypto, etc. What you are saying is just disagreement about valuation. I mean, if bitcoin is irrationally priced, there is a way to express that view by shorting bitcoin futures.
Fiat currencies are still reasonably stable compared to actual goods right now. I know that can and has changed in the past (pre/post WWII germany), but at the moment, they are not in a bubble. Not at the same level that bitcoin is, anyway.
How do I know this? Well, because I can still get a gallon of milk or loaf of bread for ~$3. If I put that $3 into bitcoin, I'd get some fraction of a coin (roughly 0.0001). Which is all well and good until the bubble bursts, and suddenly milk is worth 0.1 bitcoins. Did milk suddenly become 1000x more valuable? No, bitcoin lost value.
This is something I don't understand about people who say they "cashed out of fiat currency". Fiat currency is still what everything is valued by. The value of a gallon is milk is relatively stable. Compared to this, fiat fluctuates a little, and bitcoin is a drunk on a rollercoaster.
Which, if you consider fiat currencies to be a bubble, would make me even more concerned for bitcoin as it is a bubble within a bubble.
Just a comment to chime in with some interesting info.
QE in the UK seems to have actually kicked into the inflation cycle. Commodity prices (butter was a big one, if I remember correctly, at >20% yoy) have been jumping alongside service costs (insurance). I'm sure that Brexit is _some_ sort of variable in this equation but I won't pretend to make heads or tails of how beyond that inflation is in fact happening in some places. [0][1]
Given the level of concern there is over the "missing inflation" in USD that causes so much headscratching by the Fed WRT rate raises, I think the OP is fair to say that we should be at least somewhat concerned about the state of currencies during QE (My intuition as someone not in finance is that it's simply been "absorbed" somewhere in the system that doesn't trickle down to normal consumers, such that it doesn't manifest like the inflation they're looking for; would be curious if someone more informed could speak to this.); and more importantly, the position that a multi-year ZIRP regime puts us in to respond to the next crisis.
Bitcoin is an obvious outlier for sure, and a correction would hurt. But compared to the populations currency exposure, bitcoin's pain would likely be much less widespread.
This. I'm amazed state currencies still have the slightest credibility. In the computer age, the least that can be asked about a currency is that the total amount in circulation should be public. And it's not. The monetary aggregates are only estimated, and we're supposed to trust the economists who do those estimations. And let's not forget about forgery : not later than today I was reading an article about fake euro coins, and there are lots of them. When you think about it, the fact that we still use pieces of non-precious metals and paper notes for money is ridiculous. They are certainly very easy to counterfeit for anyone with enough means and determination. The whole thing is a mess.
Cryptocurrencies can not be forged and their ledger is public. That alone makes me trust them more than I trust state currencies.
Bitcoin is designed to be a bubble. I mean, I love the concept and have profited from it, but looking at the mechanics, it almost makes sense to buy and hold, as the money supply doesn't grow much. This sort of puts a deflationary pressure on prices (of goods, not bitcoin - bitcoin becomes ever more valuable as the money supply tends towards a constant), meaning hoarders are rewarded, thereby reducing supply further. I don't know for sure, but mass deflation doesn't really sound all that sustainable. Couple that with hype driven demand, and you have yourself a perfect little bubble! I've personally sold a lot of my holding, but I'm very excited to see how this plays out in the next few months. There will be a lot of lessons to learn, but the end of bitcoin (should that happen) will not be the end of a decentralised money - I genuinely believe society needs this.
This WSJ survey is very deceptive. It worded the question to make it sound like they were asking if 2) was true, but the blog post title make it sound like 1). Let me explain: in my experience people mean two very different things by "bubble":
1) Bitcoin is a bubble: the entire technology is worthless and its long-term valuation is zero.
2) Bitcoin is in a bubble: currently in a bubble phase, will probably crash in the short-term, but the long-term potential and value of the technology is or may be real. (Just like there has been bubbles in the past: 2011, 2013, 2014: http://bitcoin.zorinaq.com/price/ they have been corrected, but the price ended up always surpassing previous peaks)
The one thing they aren't accounting for is that there really hasn't been anything like bitcoin. In most bubbles, eventually the whales start selling which triggers an avalanche, however bitcoin is distributed enough that this might not happen. Too many different people are interested in it doing well now. E.g. rich people in 3rd world countries, boy are they pumped for bitcoin.
I've mentioned it before, and I was kinda laughed at but I legit believe that certain economic truth need to be reevaluated for software and crypto. You know how at tech companies, the economics are different from other companies? I can imagine the same being the case for crypto.
Every crash is preceded by people saying everything, because there are billions of people in the world and it's easy to find any opinion. Thus, the mere presence (or lack thereof) of any particular opinion is not a useful barometer of what's actually happening.
Bitcoin is a bubble but that doesn’t mean that you can’t make money investing in it. All you need is someone else to be the “greater fool” to purchase it from you. Just don’t get stuck holding bitcoin when the bubble collapses.
“Old Baron Rothschild’s recipe for wealth winning applies with greater force than ever to speculation. Somebody asked him if making money in the Bourse was not a very difficult matter and he replied that, on the contrary, he thought that it was very easy… “I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon.”
I always wonder how an opinion piece from WSJ or the economist can change the direction(few billion $) of the market to some extent. Especially in these markets which are partly running on mass hysteria.
Look at the value of gold between 2001 and 2013[1]. There were multiple years with 20-30% gains.
I grant that a +1500% gain in 1 year is a different animal. But combine the store of value along with rapid technological innovation in all cryptocurrencies (ICOs, alt-coins, etc). I submit to you that there could be something here besides baseless mania.
If you think of it as a currency probably yes and i assume that is what most of these people are assuming it to be. But Bitcoin and other alt coins have suddenly become a way to hoard something digitally. Pretty sure if everyone wants to cash out their bitcoin "portfolio's" there is gonna be a lot of long term and short term plummets. Overvalued ? Over Hyped ? Over Sold ? Over Everything ? Sure , but a Bubble ? Lets wait till it all goes down shall we ?
Yes, it's a bubble but we've never had one where the whole world can be, and is, involved. This can go on for years before it falls. The key , for it to continue, is to make it VERY EASY for people to buy and sell. Once that's in place who knows when it will stop. All the naysayers can't see that.
It is still pioneers and early adopters time, people seeing bitcoin as the first possible single currency for the entire planet. We will see how it goes when the masses and legislators come. Utopian it is not anymore and even technically feasible nowadays, so we will have attempts.
Bitcoin is likely going to remain the most conservative of all the cryptocurrencies. Even the most liberial of them is having trouble scaling to the current demand. The current demand is really quite low.
My grandma bought some Bitcoin last week and she doesn’t even use the internet. Friends who are not tech-savvy are talking about Bitcoin often.
It most definitely is not still “pioneers and early adopters time”—that idea seems to be Bitcoin propaganda aimed at potential new Bitcoin buyers on the margin.
Oh dear. I don't own any bitcoins, but I sure af don't trust the judgement of people who invent fantasy signal processing strategies like fibonacci retracement [1], support and resistance levels [2] and Elliott Waves [3].
Sincerely, a dude who does actual signal processing for stuff that has to work.
I second your opinion about these goofy strategies. I have several friends and family members, who when they look at stock price charts see lots of patterns and think that you can analyze them using various kinds of simple formulas or rules and beat the market. This gets reinforced by people who have used these techniques "successfully" to make money. You usually don't hear from the sheepish retail investor who is losing 10% trying to swing trade; you hear from the few guys who got lucky. All of these approaches are just gambling with a pseudoscientific approach.
Gotta love how the negative crypto articles rise to the top on HN immediately. What's not understood is that crypto is a way for the un-banked (1/3 of the people on earth who barely have clean water, toilets or telephones, yes telephones and that make $1/day) now have access and participation in a global trading platform. Disruption for the first time is happening to both VCs and traditional investment bankers and they are rekt. Be a contrarian.
Yes. For right now, the demand for transactions is greatly outstripping the fixed supply of transactions that the network can provide. Nobody has convincingly solved the problem (IOTA, I'm looking at you...). Altcoins don't have this problem yet either because they are not as widely used and those that can do more transactions per second have blockchains that would be growing very quickly in size if the blocks were close to full.
None of the current globally distributed trustless ledgers cannot support a huge number of transactions per second. We will need new technologies, possibly on top of bitcoin, or through new technology.
I would be more willing to believe this if among many other things bitcoin price didn't rise so much. As it is, it is clearly mostly bought and not "traded" which suggest it is used as a store of value (or investment) and not currency.
It might be that cryptocoins will perform that role some time in the future, but this is not what is happening now.
I'm making a contrarian bet that experts are wrong this time as well (at least in the near term). People are jumping the gun, trying to look smart and predict the right outcome. The same people that never predicted bitcoin would be this popular. If I'm wrong, so be it, I'll lose a few % of my net wealth.