Many people who are held up as experts, especially in the field of cryptocurrency, are not that smart. They make glaring logical and factual errors. These are the same people who say to buy Bitcoin and that Bitcoin will go to $100,000 or some other improbably high target.
— Steven Bull From the Diep (@DiepSanh) November 14, 2019
Except that any exponential growth process, such as stock returns, will appear like a bubble. This is because the derivative of an exponential function is a constant times itself. Even compounded interest from risk-free cash will look like a bubble if one zooms out enough and the x and y axis are chosen appropriately. So the sequence 1,2,4 will seem as much of a bubble as the sequence 4,8,16. This is why log charts are used for plotting long-term stock prices, because the parabolic shape is converted to a line.
Also, in each the prior three instances when the market peaked (1987, 2000, and 2007), interest rates were much higher than they are now. This suggests stocks have much more upside, as I wrote last week.
I stopped recommending Bitcoin after learning more about the technology and risks involved. Bitcoin is not an investment, but rather is more analogous to a commodity. This means it is driven not by a quantifiable value such as profits and earnings or EPS, but purely by supply and demand. But unlike a company, such as Google, in which there is a fixed number of shares, the supply of a commodity is monotonically increasing, such as oil production or gold production, and thus as prices rise, so does the rate of new supply added to the market, eventually depressing prices until an equilibrium is reached. Increased demand for Google stock does not mean more shares of Google are created. Cash flow generated by Google’s ad business is distributed to a fixed number of shares, thus increasing shareholder equity. This explains why stocks have vastly outperformed commodities over the long-term:
Commodities over the long-run track inflation and do not produce the sort of inflation-adjusted excess returns that stocks do. This means that Bitcoin, in spite of large gains from 2010-2013 and from 2015-2017, is guaranteed to be a shitty investment. That is already happening, and had you bought Bitcoin 2 years ago you would already be down about 20% on your investment, whereas the S&P 500 is up 20% by comparison. These astronomical early Bitcoin gains can be treated as an anomaly arising from a price discovery process that will never be repeated. It’s similar to the discovery of gold. Some ancient peoples happened across some scarce shiny mineral that had some aesthetically pleasing properties but had no idea what to value it at, so initially it was very cheap until it settled at some fixed rate such as maybe 1 lump of gold equals a cart of rocks or something like that. The cavemen that bought gold at the price of a single rock felt very smart, but subsequent investors made little in terms of rock-adjusted returns. The irony is that although gold is equated with wealth and a symbol of wealth, no one gets rich with gold. When Bitcoin debuted, hardly anyone knew anything about it or what it was worth, and the market was tiny. So going from $0 to $100 was comparably easy and required little capital, versus going from $100 to $10,000. I don’t think Bitcoin will be worthless, but the odds of it ever making new highs are vanishingly small, IMHO.
Nassim Taleb, who is another example of an overrated expert, supports Bitcoin because of its supposed anti-fragile properties, writing, “Bitcoin is an excellent idea. It fulfills the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide on its fate. It is owned by the crowd, its users. And it has now a track record of several years, enough for it to be an animal in its own right.”
But Bitcoin is very fragile and has many points of failure (this goes for all coins and tokens, not just Bitcoin). If I go the bank and wish to transfer a lot of money at once, such as $100,000, I know with a high degree of certainty the money will go to the destination I intend it to. The bank teller and I confirm the transaction, and it works. In the extremely unlikely event there is a mistake (such as the money accidentally going to Bob’s account instead of to Sue), the bank is on the hook, as all the evidence is documented such as receipts clearly showing the money was supposed to go to Sue. But in the world of crypto, your money does sometimes go to Bob, such as because of hacks and other exploits, in which case you’re fucked. Despite how code is supposed to be immutable and how Bitcoin is mathematically sound, this sort of stuff happens all the time [a Reddit search shows tons of examples of similar incidents, of coins being stolen or sent to wrong addresses], not because of a failure of the protocol, by rather because of all the second-layer aspects of it that are used to interface with the protocol, such as browsers, websites, computers, and wallets.
It even happened to me last year in which I sent $15 to the wrong address due to a malicious Chrome plugin. So if it happened to me you can be sure thousands of other people have been victims of similar attacks. So this is supposed to be anti-fragile and a better alternative to banking, where your money sometimes goes to the wrong destination and there is no recourse, according to Tooleb. Doesn’t banking have risks. Obviously, as the events of 2008 showed, but the nice thing about banking is that individual risks, such as money going to the wrong destination or credit card theft, are nicely rolled-up into something called insurance, in which all these tiny risks are quantified and covered by a small fee paid for by customers or the FDIC. The same for credit cards. So each customer pays a small fee to cover the small but definite risk of risk of failure, which is a good compromise and eliminates or significantly reduces the risk incurred by the individual customer, that is instead transferred to the bank. The inability to hedge the definite risk inherit to owning and using Bitcoin is a major reason why it will never see mass adoption, and is why there are so many efforts to try to make Bitcoin more cash-like, such as increasing regulation. But this also defeats the purpose of it too.
In conclusion, Bitcoin and other coins still have close to zero mainstream adoption even after a decade. By comparison, it took only five years for the world wide web to catch on. These coins were pumped on the lie that the US financial system is broken and can only be fixed with Bitcoin. But when was the last time your bank or or credit card did not work because it was broken.
From the post Bitcoin idiot Tom Lee finally outed for being wrong about Tom lee, who is yet another bitcoin hypester and fool who has been outed:
Others say the banking system is broken. It’s like some people enjoy making shit up. When you go to the food store, notice how everything seems to work. You hand the cashier your money or use your card, and he or she gives you change. How often does this fail? Almost never. Or you go to the bank, put your card in, push some buttons, and money comes out. Again, these are not symptoms of a financial system that is broken or in distress (or at least not to me). One could argue 2008 was a close call, but one must put it the proper context: in the past 100 years, there have only been two banking crisis (2008 and 1929), so crisis is very rare historically speaking. But even in 2008, it is a myth that the banks were going to run out of money. The debt was due to mark-to-market losses in the real estate and certain commercial sectors, not the consumer banking side. The consumer sectors were solvent. Bank of America’s mortgage losses were isolated from its banking operations, which worked fine. It’s not like there was a cash shortage and the ATMs would run out of money.
The only thing that is broken are the hopes and dreams and accounts of the people who believed these conmen. Again, I am not saying Bitcoin will be worthless. It has found a niche in underground markets,gaming, and misc. transactions, but for the above reasons will not become mainstream.