Crypto crazy

[robcat2075]

from an NYT article about the current crypto currency crunch...

Even by crypto’s often-surreal standards, Tether has a peculiar history. The company was founded in 2014 by Brock Pierce, a cryptocurrency evangelist who, as a child actor, starred in the “Mighty Ducks” movies. He and his partner, Reeve Collins, later handed control of the firm to a former plastic surgeon named Giancarlo Devasini, who has stored some of Tether’s assets in a bank in the Bahamas run by one of the creators of the “Inspector Gadget” cartoon.

It's reassuring to know artists are involved.

[tjonz]

Just to have some skin in the game I invested $5.00 in BTC about a year ago. It's worth $2.15 as I write this. I may not be able to buy that dude ranch in Montana after all.

[JohnL]

Just to have some skin in the game I invested $5.00 in BTC about a year ago. It's worth $2.15 as I write this. I may not be able to buy that dude ranch in Montana after all.

Only if the dudes are very, very small.

[harrisonreed]

Crypto is the silliest thing.

"Would you like to own something that isn't real, sort of like a stock, but unlike a stock doesn't even have a board of directors, employees, a dividend, a product, a business strategy, or any legal stake if it fails, and you basically just have trick someone into paying you more than you paid for it to make a profit?

Well, let me tell you about something wonderful!"

To future proof this, I feel the same way about physical money. It has no intrinsic value. At least a stock is a legal stake in an organization that obliges them to repay you in some way or another.

Any time someone at work talks about "investing" in crypto, I try explain the difference between investing and speculation/Ponzi schemes/gambling, but they don't get it.

[CharlieB]

Crypto is a bit of marketing genius.
You invent an imaginary coin that you super-hype on the Internet.
You convince investors to buy shares in this coin today because the value of those shares will skyrocket tomorrow.
It worked. Some investors have made millions of dollars.
But when the Crypto house of cards collapses (and it will), woe be the Crypto owners who didn't get out in time.

Our U.S. dollar is now not unlike Crypto.
In the beginning, the paper dollar was essentially a receipt that could be exchanged for a fixed amount of gold on demand. It was a convenience that replaced carrying around a pouch full of gold dust or a sack of gold coins.
Fort Knox held enough gold to cover an exchange of every paper dollar for a set weight of gold.
Then, our politicians took away the right to exchange green dollars for gold. Now the Fort Knox gold is just an illusion. Wait ! Isn't that the same as Crypto coin ?

The illusion works only as long as the number of dollars printed remains constant. Printing more and more paper dollars to cover an otherwise unaffordable budget leads to devaluing every dollar. In 1923, Germany tried to print their way out of financial trouble, and people needed wheelbarrows full of money to buy groceries. China had a similar problem.

I agree with harrisonreed above:
To future proof this, I feel the same way about physical money. It has no intrinsic value. At least a stock is a legal stake in an organization that obliges them to repay you in some way or another.
(Maybe I should invest in wheelbarrows.)

[BGuttman]

A dollar is backed by commercial paper (loans) rather than hard metal. What is crypto backed by?

[robcat2075]

To future proof this, I feel the same way about physical money. It has no intrinsic value. At least a stock is a legal stake in an organization that obliges them to repay you in some way or another.

It's a legal stake but the obligation to repay you is insignificant.

If a company is liquidated, the assets that remain after taxes and creditors are satisfied are used to pay off the stock holders but... companies that get liquidated get liquidated for a reason and there is rarely much left after taxes and creditors get their due.

Aside from that, once you buy a stock no one is obligated to buy it back from you. Not the company, not the "market". The value of that stock is what ever someone else deems it to be worth, if they deem it worth anything at all. Stocks are a speculative investment like... crypto... except that real companies are required to give regular reports on their financial situation, giving investors some clue about whether they are worth holding a stake in.

US currency has the advantage of a longer unbroken track record of stability and market-worthiness and reliablility than any stock or crypto. If inflation should hit even 10% that would be historically very unusual, whereas corporate stocks can gain or lose more than 10% of their value in months or weeks or days.

MSFT.jpg

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[CharlieB]

A six month snapshot of the stock market doesn't work for me.
Go here and click "MAX" for the big picture, going back 50 years.
https://www.barchart.com/stocks/quotes/$DOWI/overview

[tjonz]

Bruce asks:

> A dollar is backed by commercial paper
> (loans) rather than hard metal. What is
> crypto backed by?

A class of cryptocurrencies known as "stablecoins" are backed in a variety of ways, including fiat currencies and exchange traded commodities like precious metals. Cryptocurrencies like these are as safe as investments in the assets that back them (e.g. the USDC and USDT coins backed by the U.S. dollars are still subject to the effects of inflation.) Some so-called stablecoins are backed by other cryptocurrencies and computer algorithms and are far more risky. See "https://en.wikipedia.org/wiki/Stablecoin" for a good overview.

Why invest in stablecoins? Decentralized control, lower transaction fees, and a public journal via which transaction can be verified are a few of the advantages ascribed to cryptocurrencies in general and apply to stablecoins as well. You can find a decent overview at "https://medium.com/cryptocurrency-secre ... c247f4d22b".

A lot of the opinions expressed here are based on a cursory understanding of a complex financial system as presented by mainstream media, which tends to demonize the field based almost entirely on the wild instability of Bitcoin. Not all cryptocurrencies are created equal; some even enable new concepts in finance like so-called "smart contracts". The belief that all cryptocurrencies are pyramid schemes or scams is just plain wrong.

Note that I'm not advocating for cryptocurrencies here, merely trying to clarify a few poorly understood concepts. After taking a Stanford class via Coursera about the technical foundation on which Bitcoin is built I decided I'd risk up to $100 in cryptocurrencies as an educational exercise, not as a speculative investment. This has given me first hand experience in exchange rates, transaction fees, "hot" and "cold" wallets, etc. It won't happen overnight, but I think there's a good chance that *some* digital currencies like these will become mainstream in the future, and I've found the experience of having a bit of skin in the game quite valuable.

[harrisonreed]

To future proof this, I feel the same way about physical money. It has no intrinsic value. At least a stock is a legal stake in an organization that obliges them to repay you in some way or another.

It's a legal stake but the obligation to repay you is insignificant.

...once you buy a stock no one is obligated to buy it back from you. Not the company, not the "market". The value of that stock is what ever someone else deems it to be worth, if they deem it worth anything at all. Stocks are a speculative investment like... crypto... except that real companies are required to give regular reports on their financial situation, giving investors some clue about whether they are worth holding a stake in.

Rob, who said anything about selling a stock? "Investing", to me anyway, is not buying a stock low and then selling it to someone else at a higher price. That is borderline speculation. I'm talking about the obligation of a company to repay the investor in some way, and you mention liquidation of assets, and give a 6 month chart showing that the stock market is down...

Have you heard of a dividend? Even the simplest investment imaginable, Vanguard's VOO ETF, can illustrate exactly the difference between investing in companies, and speculation in crypto. Look at VOO for the past 5 years, on a chart that shows dividend payouts. VOO represents a slice of the biggest companies in America, which all are working hard to increase their value as companies. Yes, the share price increases as their profits or market share increases. Sure, I could sell it to someone else and make "a profit" (VOO is way up over the last 5 years). But VOO has also paid out a 2-3% dividend annually. As the share price goes up, that percentage has basically stayed the same, so the payout of just dividends alone has doubled along with the share price over the last 5 years. To me, that is investing, Rob. Not tricking others into buying a stock off you, but getting into the market at key times (now could be one of them), staying in the market during tough times, and reinvesting dividends.

On the other side, a Bitcoin does not exist. There is no dividend because there are no employees working to produce anything. The value is completely tied to what other speculators are willing to pay you for it. That's all the difference anyone needs to know about it.

Your charts are cool and it's true that the market is down short term, but you're forgetting that US companies will be working like dogs to get the share price back up and increase their value. You have to take a bit of risk and see this as an opportunity to get in.

A class of cryptocurrencies known as "stablecoins" are backed in a variety of ways, including fiat currencies and exchange traded commodities like precious metals. Cryptocurrencies like these are as safe as investments in the assets that back them (e.g. the USDC and USDT coins backed by the U.S. dollars are still subject to the effects of inflation.) Some so-called stablecoins are backed by other cryptocurrencies and computer algorithms and are far more risky. See "https://en.wikipedia.org/wiki/Stablecoin" for a good overview.

You can technically "invest" in fiat currencies and gold or oil, but again, these are inert things that produce nothing and don't do any work by themselves. Gold is not actively working to increase its value as gold. It's an inert object that sits in a vault. A stablecoin is a poor investment in this regard, because not only does it not exist, but it is supposedly "backed" by inert objects (which do zero work) or fiat currencies (which only notionally exist) and still produces nothing.

In other words, it is firmly on the speculation side of the house, and not investing. Show me a stablecoin's financial reports so we can analyse it as a company.

Anyways, I'm actually really passionate about investing and the whole Boglehead movement. My financial plan has been to consistently buy into index funds, and increase what I buy when the market is down. I reinvest all my dividends. The end goal is to have a big enough portfolio that I can just retire on dividend payments and not sell any stock.

[Burgerbob]

-for-beginners/advantages-and-disadvantages-of-cryptocurrency-99c247f4d22b".

A lot of the opinions expressed here are based on a cursory understanding of a complex financial system as presented by mainstream media, which tends to demonize the field based almost entirely on the wild instability of Bitcoin.

Even the stablecoins (like Tether) aren't even remaining stable. Sorry, crypto is just inventing the banking system all over again, but even worse.

[harrisonreed]

-for-beginners/advantages-and-disadvantages-of-cryptocurrency-99c247f4d22b".

A lot of the opinions expressed here are based on a cursory understanding of a complex financial system as presented by mainstream media, which tends to demonize the field based almost entirely on the wild instability of Bitcoin.

Even the stablecoins (like Tether) aren't even remaining stable. Sorry, crypto is just inventing the banking system all over again, but even worse.

That's the thing! The idea of a "decentralized" stablecoin currency that is somehow backed by USD or gold bars does not compute. Backing any currency with gold would centralize it.

To say nothing of the people paying taxes on capital gains from their supposedly decentralized and anonymous Bitcoin forays.

[Matt K]

One of the reasons for so called stable coins was supposed to be an easy intermediary for other coins. So you could trade btc for eth via usd coin rather than converting to actual USD, incurring a capita gain, and then buying ETH. IIRC, the primary stable coins were actually on the ETH blockchain or something. So it was supppsed to serve a purpose but when the backers are over leveraged on an asset that falls 30% in one day, well…

[CharlieB]

[ dividends.
Anyways, I'm actually really passionate about investing and the whole Boglehead movement. My financial plan has been to consistently buy into index funds, and increase what I buy when the market is down. I reinvest all my dividends. The end goal is to have a big enough portfolio that I can just retire on dividend payments and not sell any stock.

I had to Google-up Boglehead.
Never heard the term before, but it is exactly the way I was taught to invest many years ago.
That was before the origin of Index Funds, so the recommendations then were for a widely diversified portfolio of "Old Maid" high dividend stocks.......pretty much the same as buying an Index Fund. IT WORKED... EXTREMELY WELL. For all If my 45 year working life, I "Bogleheaded." Now that I am retired, the dividends comfortably support me. Also, the increased value of the portfolio over time is there to cover any unforeseen emergency, or to pass on to my heirs.

[muschem]

Interesting discussion.

I happen to work in the crypto industry, so I almost certainly have more bias on the subject than most. I agree that we've seen a lot of scams, as well as more legit-leaning but severely over-leveraged approaches washing out recently... as well they should. For crypto as an "investment"... as with most things, if it looks/sounds/smells too good to be true, it probably is. When stable coins are not 100% backed by hard currency, and they instead rely on algorithms for maintaining the peg to value, they aren't inherently "stable". When exchanges offer almost 19% returns without adequate support on their balance sheets, you have to wonder where that's coming from. Personalities pumping meme coins, hodlers stoking the fires of fomo and pressing to buy now before it's too late... grifters using the same old grifts with a different mask - capitalizing on limited understanding of new trends and technology and a desire to get rich quick. Caveat emptor.

Personally, I think there's a place for defi and blockchain-enabled tech in finance, but I think it absolutely needs to be regulated appropriately, and we aren't yet seeing that . Is defi just "reinventing banking"... maybe, but you could use similar analogies for disruptive tech in other areas throughout history. Were cars reinventing the horse and buggy? In a way, sure, but the advancement of tech enabled new and interesting things to happen as a result. Motor vehicles transformed how we approach transportation, and new options for supply chains and new ways of doing business and of living emerged. Did unregulated use of motor vehicles result in large negative repercussions? Absolutely. Regulation can help put bounds/guide-rails on new and emergent technology, such that we employ it in ways that are generally safer (saf-ER, not 100% "safe" - operating a motor vehicle is still one of the riskier endeavors many of us perform routinely), while still reaping the benefits it offers. Until it is widely regulated, there will be disproportional risk to the crypto space as well, but I think once regulations catch up to the tech, there are some benefits to be had, and I look forward to seeing risk balanced so that more people can benefit in a safer way.

[robcat2075]

Have you heard of a dividend?

Your assertion was that buying the stake in the company created some obligation on them to pay you.

No company is required to pay a dividend. Some companies do pay a dividend. Most do not.

If a company is paying a dividend today, nothing obligates them to continue paying a dividend tomorrow.

I have several that have "suspended" their dividend with no resumption in sight. Disney used to pay a dividend. Not anymore... "COVID"!

There is something called a Real Estate Investment Trust (REIT) that IS required to pass on most of the profits to the shareholders, but there is no requirement that they make a profit. I have one that has sold off almost all its real estate portfolio, resulting in nearly zero income, resulting in nearly zero profit to pay a dividend with.

[elmsandr]

...
Personally, I think there's a place for defi and blockchain-enabled tech in finance, but I think it absolutely needs to be regulated appropriately, and we aren't yet seeing that .
...

I find this downright hilarious compared to the large number of libertarian minded Crypto folks who pretty much believe the entire worth is wrapped up in the LACK of regulation.

Watching them discover a need for regulation in real time has been interesting.

I have yet to see any value proposition in any blockchain technology, but I imagine the value will come from some unintended use. Certainly not NFTs...

Cheers,
Andy

[muschem]

I find this downright hilarious compared to the large number of libertarian minded Crypto folks who pretty much believe the entire worth is wrapped up in the LACK of regulation.

Political ideologies aside, in my experience, anyone arguing strongly against consumer protections for a good or service is often trying to sell something you'd be wise to steer clear of. Beyond that generalization, the notion that lack of regulation underpins worth here seems silly to me. Crypto is not inherently immune to regulation. I believe we'll see this more broadly applied in the future, but there are already companies operating in this space as regulated entities - not many, but they do exist. It *can* be done. I submit that it *should* be done.

I have yet to see any value proposition in any blockchain technology, but I imagine the value will come from some unintended use. Certainly not NFTs...

I'm not a fan of NFTs - I think they were a silly trend - again, something promoted as an "investment opportunity" by grifters. The concept of tokenizing assets for digital transactions can be interesting in different contexts, but I'm not sad to see the downward trend in popularity of NFTs.

There are many benefits to be realized with blockchain tech in finance. Take settlement, for example. Large international transactions are currently settled on a time-scale of days, and funds shift through a tangled and typically opaque web of intermediaries, with multiple transaction fees along the way. Crypto transactions settle in a matter of minutes or even seconds, depending on the particular blockchain. You also have the possibility of conducting transactions directly between two parties dealing in crypto, without intermediaries required. So, settlement speed and efficiency are at least a couple of benefits. There are more, but I don't know that anyone wants me to drone on about potential/perceived benefits of the tech

[CharlieB]

If you value lifetime security, invest in solid assets.
If you're hoping for a fast home-run payout, damn the torpedoes and go Crypto......or Las Vegas.
If you're unsure which way to go, just wait awhile.
There's currently a good chance that the 10 year treasury bond rate will soon approach the 1980 rate shown here:
https://www.macrotrends.net/2016/10-yea ... ield-chart

[harrisonreed]

Have you heard of a dividend?

Your assertion was that buying the stake in the company created some obligation on them to pay you.

No company is required to pay a dividend. Some companies do pay a dividend. Most do not.

If a company is paying a dividend today, nothing obligates them to continue paying a dividend tomorrow.

I have several that have "suspended" their dividend with no resumption in sight. Disney used to pay a dividend. Not anymore... "COVID"!

There is something called a Real Estate Investment Trust (REIT) that IS required to pass on most of the profits to the shareholders, but there is no requirement that they make a profit. I have one that has sold off almost all its real estate portfolio, resulting in nearly zero income, resulting in nearly zero profit to pay a dividend with.

No, I said they are obliged to either pay a dividend or increase the value of the company. Obviously they can fail at this -- that's why there is risk involved in investing.

Before you say, "they are not legally obligated", let me remind you of the final difference between a stock a crypto: a common share in a company gives the owner voting rights. Obviously, owning a single share of Disney gives you ZERO voting control, but the fact that owning a lot of shares does give voting control answers the issue of your Disney dividend -- someone with a huge stake in the company thought cutting it would be best for the value of the company. So again, yes, the company is working to increase its value.

I do know about REITs, but also know about the current housing bubble. I'm hesitant to invest heavily there, as I don't know how the impending housing collapse will affect them. People still gotta live somewhere, but rents might drop.

I know you're older than me, so the last six months probably hit you a lot harder than me, but you're also definitely old enough to know that this too shall pass. The six month charts you put up are silly in the context you used them -- "the track record of the US Dollar over time, etc" "stocks can lose 10% in a day" , like, come on man! The track record of the us stock market as a whole over the last 80 years (not individual companies, we're not fund managers here) is what you should look at when you compare it to the inflation of the USD over the same time span (you asked us to look for 10% inflation). And, over time, stocks are the best hedge against inflation to begin with because they get you out of USD and into companies that track their product prices with inflation.

[tjonz]

elmsandr writes:

> I have yet to see any value proposition
> in any blockchain technology

After watching some documentaries recently about fraud in the art world I got to wondering if perhaps a public blockchain of sales transactions maintained by a consortium of reputable art dealers might alleviate the potential for fraud due to an object's questionable provenance. Just a thought...

[robcat2075]

No, I said they are obliged to either pay a dividend or increase the value of the company.

If by "obliged" you mean "they know we hope they do this thing" then I'd say that's not how the rest of us use the word "obliged". Not when talking about finances

The number of corporate CEOs in jail for not paying a dividend and not increasing the value of their company is likely zero.

Every corporate quarterly report has a several paragraphs of disclaimer that boils down to "we're not promising to ever do anything of value ever again even if anyone said we were."

[BGuttman]

I think the issue is that the crypto currencies are attempting to create a "fiat" currency out of thin air. I guess you could call it "Luftgelt". Real currencies, even fiat currencies, are based on some kind of tangible, whether metal, salt, or commercial paper. Cryptos appear to be based on a bunch of computer calculations stored "somewhere".

[spencercarran]

I think the issue is that the crypto currencies are attempting to create a "fiat" currency out of thin air. I guess you could call it "Luftgelt". Real currencies, even fiat currencies, are based on some kind of tangible, whether metal, salt, or commercial paper. Cryptos appear to be based on a bunch of computer calculations stored "somewhere".

And in practical terms, your tax bill is generally denominated in the fiat currency issued by your country's government, which means if you want to live/work in the US you need to use dollars. This guarantees a sustained "demand" for that currency in a way that cryptocurrency, without any official endorsement, does not have.

[Dennis]

Crypto is the silliest thing.

To future proof this, I feel the same way about physical money. It has no intrinsic value. At least a stock is a legal stake in an organization that obliges them to repay you in some way or another.

Physical money has value only as a medium of exchange. (I'm going to ignore the value of the metal in coinage and whatever value paper money may have as fiber.)

However (unlike cryptocurrency), physical money has two things going for it. First, it is backed by a government and its taxing authority. Second, the same government authorizes it as legal tender for both public (i.e., taxes) and private debts.