FUD, FOMO and Bitcoin

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After last week’s rather amusing debate about crypto-currencies, I thought it’d be interesting to keep the conversation going by examining two rather interesting reactions that came out of that in the comments: FUD and FOMO.

What are FUD and FOMO?

FUD stands for Fear, Uncertainity, and Doubt. I first heard this term from salespeople in the high tech sector, who used the strategy of spreading rumours about rival companies (“I heard their chips catch fire all the time”) in order to make their companies’ products look better by comparison, but it also applies in the investment world too.

Basically, when nasty rumors or unsubstantiated claims about a company gets shared via social media, this may cause enough people to freak out and sell their holdings in that company, which could drop the price of the stock. This is known as “spreading FUD,” and was what I was widely accused of doing on my last Monday article.

FOMO stands for Fear Of Missing Out, and was first used to describe people looking at their friends’ posts on social media documenting their awesome lives and then feeling anxiety that their life isn’t nearly as interesting (“Why can’t I be at Coachella? Life is unfair!”)

In the investing world, FOMO is what happens when an investment rockets up in value and people get anxious that they’re not participating in that upside.

At the end of the day, though, FUD and FOMO are simply two different manifestations of the same emotion: Fear. FUD is the fear that something you own will go down, and FOMO is the fear that something you don’t own will go up. People who feel FUD or FOMO fear not only the monetary losses (or unrealized gains) in their bank accounts, but often fear the imagined ridicule they will face by not acting on that information. “Everyone else is making a fortune, and they’re going to point and laugh at stupid ol’ me because I didn’t have the balls to come along.”

Why Are FUD & FOMO Bad For Your Finances

If that doesn’t sound like fun, that’s because it’s not. Fear is an extremely powerful emotion, and studies have shown that investors feel the sensation of fear about twice as strongly as they feel the sensation of greed or hope.

In fact, there’s an entire field in economics that studies this phenomenon known as Behavioural Finance. Classical economics theory is based on the Efficient Market Hypothesis, which is basically the idea that all traders in the stock market act perfectly rationally, and once information about a stock becomes available, the market always correctly and perfectly prices in that data.

But we of course know that bubbles can and do form, and when they pop it can lead to a very painful correction. Behavioural Finances tries to explain why this happens, and here’s an explanation of what they found, re-enacted by cats.

For a bit of background on the following pictures, we were at a cat cafe a few months ago, and there were a bunch of cats lazing about, as cats do. There was this paper shopping bag lying on the ground and FIRECracker decided to open it up and stand it upright.

One cat took notice of the now-totally-interesting paper bag.

What sorcery is this?

Soon ALL the cats were crowding around it.

A fight breaks out…

And finally one cat emerges victorious, the proud owner of a paper bag that they had now decided to use as a house.

I haz house now.

Behavioural finance calls this “herd mentality.” Basically, the behaviour of one trader tends to mimic the behaviour of the herd, so when one cat got really interested in this previously-worthless paper bag, FOMO set in, causing a stampede to own it.

Similarly, when FUD propogates into enough people, they panic and run for the exits.

This also, by the way, happened in our cat cafe example, because soon after these pictures were taken, another customer accidentally stepped on the bag not knowing there was a cat inside. The cat yelped, realizing that paper bags are NOT effective houses, and ran away. None of the other cats wanted anything to do with the bag after that. Sadly, I did not get that on camera 🙁

Anyway, the point was that herd mentality, caused mostly by FUD and FOMO, hurts investors because it encourages the wrong behaviour. People ran in and bought things when they were pricey (since everyone else was doing it), and sold when they were cheap (since everyone else was also selling). In other words, they bought high and sold low. This is the opposite of good investing.

The most successful investors, they found, were able to successfully tame their reactions to FUD and FOMO, and in some cases were able to do the opposite that their lizard-brain instincts were telling them to do. And speaking from previous experience, this is incredibly hard to do.

I still vividly remember what it felt like to have nearly all my net worth invested when the stock market crash of 2008 happened. The stock market was falling so rapidly that I would put in $1000, only to have my balance go down by over $1000 the next day. It literally felt like I was lighting money on fire. The media was screaming about the collapse of the global financial system, so you literally couldn’t turn a corner without getting FUD smashed into your face.

But I ignored my emotions, and continued buying into the storm. A year later I had recovered all my money, and almost a decade later I quit my job with a million bucks to travel the world.

Being able to control your emotions in the face of extreme FUD or FOMO is one of the keys to being a good investor.

So Shouldn’t I Ignore FUD When It Comes to Bitcoin?

Some of you are probably thinking “Well then OK, tough guy. If you’re so good at ignoring FUD, why don’t you ignore the FUD when it comes to Bitcoin and buy into it huh? HUH?”

That’s actually a fair question, so let me address that.

Being able to control your emotions in the face of FUD or FOMO is one of the keys to being a good investor, but it’s not the only key. You still have to understand how to evaluate what an investment’s worth. If you just blindly do the opposite of what everyone else is doing, you’re still being controlled by the emotional whims of the masses. So let’s talk a little bit about how to figure out an investment’s value.

In the world of finances, there are two basic ways to evaluate an investment: Technical Analysis and Fundamental Analysis. Technical Analysts are known as “chartists” because they sit around all day and stare at charts. “Stock ABC is exhibiting an Inverted Head-And-Shoulders pattern while Stock XYZ is starting to form a Death Cross! Buy ABC and Sell XYZ!

These people look for patterns in stock price movements and use that to gauge investor sentiment. Each support and resistance level in Technical Analysis acts like a voting mechanism where competing traders argue about the price of a share. Sometimes a breakthrough happens, meaning one side overwhelms the other causing the share’s price to either smash through a support level downwards or bust through a resistance level upwards.

In other words, Technical Analysts stare at charts and use patterns to try to predict when enough FUD or FOMO will build up to cause a major change in price, and they in turn use that information to profit.

It’s an interesting field of study, but I don’t think it works for average investors like us.

We don’t have access to the news feeds, the supercomputers that calculate and trade on this information, or the time & energy it takes to stare at a chart all day trying to outguess a moving line.

Instead, I evaluate an investment based on Fundamental Analysis, which measures a stock’s value using metrics that measure the health of the underlying company. Metrics like price-to-book (P/B) ratios, price-to-earnings (P/E) ratios, and dividend yields.

These actually look at the long-term value of the underlying asset, rather than the short-term gyrations of its price. And what I’ve concluded is that the index funds of major economies like the U.S., the E.U., Australia, Canada, etc. have really, really good Fundamentals. That’s because they invest in many different companies, some of which may soar and become the next Apple and some of which may crash to zero, but on the whole the index continues to profit and grind higher and higher.

Index funds, in other words, own so many companies with so much intrinsic value because those companies generate so much profit that it’s practically impossible to lose owning them.

Cryptocurrencies, on the other hand, have no instrinsic value.

What Is a Bitcoin Actually Worth?

Cryptos have fascinated me because unlike most investments, they are purely speculative.

Every other investment out there has some instrinsic worth. A stock in a company is worth a multiple of how much it earns. A house is worth the rent saved by living in it. Even gold can be melted down and turned into really overpriced HDMI cables.

But a Bitcoin? It has zero instrinsic worth. It’s just a series of bits that represents a solution to a mathematical equation. I can’t use it for anything, nor can I exchange it for a sandwich.

As a result, I can’t evaluate it’s worth based on any fundamental analysis technique. Forex traders of fiat currencies can use purchasing power, or interest rates, or whatever to assign a value to a US dollar, Euro, or Malaysian ringit. None of those techniques work, so from a fundamentals point of view, a Bitcoin is worth zero.

But if I were to go to an exchange right now, they would report that a Bitcoin is worth about $7000 USD.

But what they’re reporting is its speculative value. A Bitcoin is worth about $7000 USD not because it’s actually valuable but because another trader on the crypto markets thinks it’s worth $7000 USD.

So that means if Fundamental Analysis doesn’t apply, the only valuation technique that works for Bitcoins is Technical. This is why FUD and FOMO have such huge effects on the price of cryptocurrencies like Bitcoin. Without any way of valuating underlying value, market sentiment and investor emotions make up 100% of the Bitcoin’s price. And since investor emotions are, by nature, extremely volatile, that’s why Bitcoin’s price is equally volatile.

I wrote last week that the lack of regulation on the exchanges was why I completely abandoned the crypto space. But one day that might change. A government may step in, formally recognize crypto as a currency and properly regulate it. Countries such as Japan and Malta are already starting to do that.

However, even if that day comes that crypto can be safely traded without fear of hacks or exchange failures, I still don’t think I’ll be coming back. Because I can’t figure out how to valuate the damned things!

All my investing success thus far was because I was able to ignore the FUD and FOMO, whether it was during the stock market crash, or with real estate, or whatever. I made my investment decisions instead by MATHING SHIT UP.

I can’t MATH SHIT UP with crypto. So I don’t think I could ever own it again.

What do you think? Is there a way to evaluate the value of a Bitcoin that doesn’t involve just reacting to FUD or FOMO? Let’s hear it in the comments below!

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51 thoughts on “FUD, FOMO and Bitcoin”

  1. The simplest use case and value for bitcoin is when it is treated as a currency (think foreign exchange). If I live in a country with crazy inflation or a less than stable local currency, I can move some funds into bitcoin to hopefully save some buying power.

    And yes, you absolutely can buy a sandwich with bitcoin. There are dozens of companies that offer debit cards that instantly convert your bitcoin back to local currency for spending.

    1. Sad part is, Bitcoin is not physical money. I kinda feel funny about affiliating with it because anyone can tap into my account and steal it.

    2. In such a case, you could also move funds to a more stable currency, like USD, which is also way more convertible than bitcoin. If you’re living in a country with hyper-inflation, like Zimbabwe’s case where (per wiki) hyperinflation was 180 BILLION percent in November 2008, then I suspect you’d likely have much bigger immediate problems.

    3. “…that instantly convert your bitcoin back to local currency for spending.”

      So, you’re not buying a sandwich with bitcoin, you’re buying local currency which you then use to buy a sandwich. I don’t have to make a currency exchange/conversion to buy my sandwich, I directly exchange my $5 for a sandwich worth $5.

  2. It’s sooo speculative. Moreover, even if you own some, I think “investors” aren’t diversifying their portfolios to enough to manage risk – all their net work or a significant portion in cryto – what the what?!. Therefore, if you own cryptos, keeping the balance a small percentage (5%?) of your net worth might be acceptable. If it spikes, rebalance. If falls, um maybe keep a lower percentage 🙂

  3. I don’t have too much of a good feeling about Bitcoin. Therefore, I’ll slide on that. Especially when online extortionists tried to extort me for almost $900 in Bitcoin.

      1. I suspect Russians trying to extort me for money by sending me crazy messages and allegedly pressuring me to send them almost $900 in Bitcoin. Ignored them.

  4. When you can pay 2.5 BC for a Starbucks coffee (consider everything that statement means), it might be time to reconsider… maybe. Until then, one theoretical $7k number stream doesn’t have any practical application.

      1. The entrance of Fidelity is an interesting development. That would give a lot more stability to the exchange systems, but my understanding is that it’s not going to be available to retail investors, so I’m not sure how useful that will be.

  5. Well value assigned to any present fiat dollar economic model is based in the end on belief and faith too. You can even compare it to earlier days of Facebook where user adoption rate was growing rapidly yet the company did not figure out yet how to monetise it into revenue. Same thing with YouTube during its early days. But funny thing is early investors pre-IPO pumped in hundreds of millions to invest in FB. Google bought out YT fir a billion dollars I believe and they were ridiculed for that amount on a no-revenue company!

    You are too short sighted when viewing cryptos as having zero intrinsic value. In several years when your subscribers start paying for your subscription services in crypto and you do not get ripped off for 3% in PayPal or credit card fees or you can purchase your stocks and real estate using tokenized crypto securities then you might kick yourself for making naive and uneducated statements such as bitcoin/crypto offering no real purpose or having any value.

    The irony is that your target demographic group of millennials is what is going to drive up mass adoption of crypto currencies.

    1. I’m not a millennial. I’m also not into crypto. I come here mainly for the investment sharing and secondarily for the dick jokes. By the way Wanderer, it’s been a while since you added a couple dick jokes into your posts. Please and thank you! ?

    2. Yeah, and when Youtube and FB had no revenue model those companies were highly speculative too. I don’t invest in speculative stocks either.

  6. you’re being shortsighted to think there’s no speculation going on in “fundamental analysis”

    stock prices account for what they assume as future cash flows – speculating on the potential of the company and the market. when there’s a mismatch, we get bubbles or corrections. i’m not promoting crypto but simply pointing out you haven’t shielded yourself from “non intrinsic” value simply by avoiding crypto. an abstract future potential is priced into everything

    1. Wouldn’t that be one of the reasons to stick to index funds? With so much diversification, the bubbles and corrections of individual stocks are absorbed by the index fund and it just maintains its steady climb.

    2. Oh I know there’s speculation for fundamentals too. But speculation on earnings is “I think this company’s going to earn $1B vs $1.1B.”

      Speculation on Bitcoin is “It could be worth $10k or nothing. Who knows.”

      Big difference.

      1. Kodak, Enron, Lehman Brothers, Blockbuster, General Motors … the list goes on. All were worth billions and now worth nothing. this bull run has really left our generation of investors to think equities rarely go down or that if they do, it’ll only be for a couple years tops before it must surely recover.

  7. I agree valuing Bitcoin is hard and generally is merely subjective and assumed. Common perspective is that Bitcoin will be the digital gold, but whether that will be possible will depend on the will of the powers that be. Rest assured if Bitcoin has no place in their plan, it would have died for real within the first few years of existence judging by its various limitations, such as scaling, governance, etc. But Bitcoin is not what I am most optimistic about. Ethereum is. And with built-in smart contract capabilities, a world of possibilities is there. And when it comes to valuing Ethereum, I do not wish to do that because the case is too bullish to be responsible, seriously. All I can suggest is to buy and hold.

    1. Ethereum, or some other crypto with some actual use like smart contracts, is far more likely to dominate the space eventually. Also given that there’s a limited amount of bitcoin even to be mined.

      It’s like buying a really expensive lottery ticket at this point. So yeah, buy and hold definitely!

  8. There’s another finance writer (name not recalled) who advises to, if you’re going to invest in Bitcoin, simply use your “Vegas money.” I’ve lost a few $ of Vegas money at times–except that it was in Panama & Macao–and I never missed those $2 rolls of nickels (my ABSOLUTE limit!) at the Hilton in Panama. I would play my entire roll and generally win enough to pay for a movie at the MultiCine and some eats at PizzAmigo. If I played my winnings, I tended to lose the entire roll!

    Anyway: thoughts on investing only Vegas (or Panama or Macao) money in Bitcoins (BTW, it’s hard for me to say or type “Bitcoin” without inserting a “ch!!!”)?

    Dan V
    Taipei, Taiwan

  9. I believe you’re thinking about Bitcoin incorrectly. It is not an investment, it is money. The best money in the world. The only form of money not subject to inflation and not controlled by a central authority.

    Learn how to take ownership of your private keys with a proper hardware wallet and you will become a Freeman, individually sovereign. When done properly you can’t be randomly hacked.

    There is enough Bitcoin for it to become the universal currency, since it is infinitely divisible. When all are mined there will be 0.003 Bitcoin for each person on the planet. (That’s 21 million divided by 7 billion). So if you own just 1 Bitcoin you will be very wealthy relative to most others, who will strive to save up 0.1 Bitcoin in a working lifetime.

    The price relative to fiat currencies will have to rise over time, as recognition of its status as perfect money becomes more widely recognized (or rather, as fiat currency’s insidious theft through inflation becomes more widely known).

    Stop getting your money slowly stolen by the Fed, ECB, or whatever central bank/government you’re beholden to. Place your cash in Bitcoin and witness the wonders of real, deflationary money; whose buying power increases over time.

    1. Okay, so much wrong here.

      First off, while you’re right about the issues of inflationary fiat currencies, Bitcoin is no better. Commodity-based money is real money. Cryptocurrency like Bitcoin is as much fiat currency as the USD.

      There’s no such thing as a “finite amount” of any cryptocurrency. There is currently a set amount of Bitcoin……..that was willed into place with a few keystrokes. What’s stopping the inventor of Bitcoin from “finding” more stores of Bitcoin.

      And if you’re one of the people who keep their entire net worth in Bitcoin, well remember that Bitcoin is supposed to be money. Digital cash. So you’re just keeping your entire net worth in CASH. And not even in a bank account which is protected. No, you’re keeping your entire net worth in digital CASH. And cash has ZERO protections.

      Also, an individual sovereign? Are you one of those Sovereign Citizens? Those people who make up their own driver’s licenses because state driver’s licenses supposedly infringe on their right to travel, assert that they are both a separate natural and legal entity for liability and immunity purposes, believe that cops as public servants have to obey their orders even while in handcuffs, and try to assert that laws don’t apply to them by quoting what are allegedly passages from the Articles of Confederation?

      Because the medical field actually has an official term for Sovereign Citizens. It’s “f***ing crazy”.

      Just askin’.

      ARB–Angry Retail Banker

      1. Fiat = backed by government. Infinite supply. Printable on demand by the Central Bank or the Federal Reserve. Backed by the military might of the United States of America (who is going to go to war with the US?, and anybody who does is going to lose, that’s why the US Dollar is reserve currency of the world; also the favored paper cash of criminal syndicates and drug dealers and international money launderers like off shore banks and HSBC.)

        The US Dollar is worth what it is because they say so. And you other countries that have sanctions, we don’t want to trade with you so no one else is allowed to, under threat of the might and power of the US military.

        Bitcoin = Not fiat. Not backed by government. Limited supply. No way to create new bitcoins out of thin air. No way to change the consensus rules without *everyone* agreeing to do so.

        The CEO of Goldman Sachs Lloyd Blankfein used the term “consensus currencies” in his recent interview: https://www.cnbc.com/2018/06/20/bitcoin-is-not-for-me-goldman-sachs-ceo-lloyd-blankfein-says.html

        The inventor of bitcoin made rules 10 years ago, they will not change, at least not the ones relevant to the supply. There will only be less than 21 million bitcoins. The last one will be mined in the year 2140, if bitcoin survives that long. Either between May 2140 to October 2140, depending on who’s estimate you want to believe. Hashpower changes over time, but the average difficulty adjustment is always about every 2 weeks.

        The exact maximum number is 20999999.97690000 bitcoins. Unless someone burns a few away, and we know there are at least 1 million lost because people forgot or died or disappeared or threw away their computers. The total spendable supply is always lower than the theoretical total supply, and is subject to accidental loss, willful destruction, and technical peculiarities.

        Although about 99% will have been mined by 2036 or 2040. There are 17 million bitcoins now. For all intents and purposes, and for easier calculation, consider the supply capped at 20 million.

        So admittedly, “magic internet money” does not have a very good reputation. But that behooves you to investigate why Fidelity is getting into it, why ICE / Bakkt is getting into it, why the Winklevoss brothers are into it, why the CEO of Twitter is into it … and on an unrelated note, why did Warren Buffet buy some Amazon stocks just recently …

        So, you have something that is capped at 21 million, no censorship, open-source, permissionless, pseudonymous, fungible, and irreversible transactions.

        To the question, “What’s stopping the inventor of bitcoin from “doing anything”?, the answer is “math.”

        1. I’ll admit the slight misuse of the word “fiat” on my part, but only slight. The issue with fiat currencies–and why I consider Bitcoin and cryptocurrencies in general to be fiat currencies–remains the same.

          I also want to clarify that I’m not 100% bearish on Bitcoin (or crypto in general, which I will use interchangeably just for the purposes of this comment), believe it or not. I’m not saying it WILL collapse or it CAN’T become a major currency or that EVERYONE who has Bitcoin will go bankrupt.

          But as you yourself have pointed out in another comment–and others have said before–it all boils down to the question of whether Bitcoin will become a universally recognized global currency. You said it yourself in another comment: The answer is elusive.

          So at it’s absolute best, Bitcoin is just a big question mark. One that neither pays you to wait like a dividend stock, a bond, or a rental property, nor one that has any account protections (because, again, it’s just digital CASH. Bitcoin is CASH. Your physical cash has no protections because, well, cash has no protections).

          As far as fiat currency goes, you’re absolutely right and you and I have long been in agreement with what makes fiat money so problematic. Fiat currencies aren’t backed by a physical commodity with a stable value. A single entity declared its value and willed it into existence.

          Bitcoin doesn’t come off to me as being any fundamentally different. It didn’t exist until Satoshi Nakamoto sat down at his computer and created it. There’s a finite supply of 21 million Bitcoin? How? Says who? Says Satoshi Nakamoto, the guy who created it.

          You say it yourself in another comment: “Created by an anonymous developer.”

          That’s the problem. It’s just as much artificially created by someone as the Euro is. How’s that any better than a government? At least if I wanted to evaluate the value of a traditional currency, I can look to a nation’s economic and political health to sort of gauge whether a currency will take off, remain stable, or collapse (ex. Canadian dollar is probably more stable than the Venezuelan currency right now). How am I supposed to evaluate Bitcoin, on its own or compared to the thousands of other cryptocurrencies that someone just invented, often as jokes?

          Being backed only by a government isn’t much, but these cryptocurrencies can’t even claim that!

          And no, there is no “finite supply” of Bitcoin. Unless I’m to believe that Bitcoin is a naturally occurring phenomena that’s been on Earth since the first computer was invented and only discovered ten years ago, then no there isn’t a finite supply. The person who created those 21 million Bitcoin can create 21 million more if need be. He’s already created Bitcoin from nothing. Suddenly he can’t do it again? If that’s the case, then it really is “magic Internet money”.

          And this isn’t just me pontificating. There apparently has been serious discussion by the powers that be regarding increasing the Bitcoin supply past 21 million: https://www.newsbtc.com/2019/02/07/satoshis-roundtable-crypto-cries-heresy-bitcoin-supply-cap-hike-mentioned/

          Yeah, so apparently, they CAN do that. They can actually engage in Quantitative Easing for Bitcoin just as they can with the USD, CAD, or any other fiat currency.

          I’ll be fair and concede that, logistically, it’s not likely that one person would sit down and just hit the MORE BITCOIN button on the wall. That it requires a bureaucratic process and some measure of a consensus with different stakeholders. But that’s no different than with most stable countries like the United States that have fiat currencies. There’s still a legislative or consensus/political process and a bureaucratic process involving various different stakeholders (different political parties, different departments, a quasi-public central bank, the White House).

          Like I said, I don’t think that cryptocurrencies are GOING to fail. I don’t think that Bitcoin CAN’T become a universally accepted currency.

          I’m just saying the arguments in its favor are dubious at best. Best case scenario, the question of whether Bitcoin will become the great global currency is “Who knows?”.

          And if it does, it will become the favored cyrptocurrency of “criminal syndicates and drug dealers and international money launderers like off shore banks and HSBC”. Hell, the Dark Web already runs on Bitcoin.

          Also, honest question here, are you one of those “preppers”? I ask because phrases like “also the favored paper cash of criminal syndicates and drug dealers and international money launderers like off shore banks and HSBC” are usually the types used by the preppers, who tend to view the neighborhood bank and the money in their wallet as greater threats than the gang violence right around the corner and a more vile criminal enterprise than the human trafficking organizations that operate worldwide. I’ve done a small bit of research on the prepper communities while debunking an article regarding some AML myths, and this included browsing their forums. I’m not attacking you, but lines like the one I quoted could have been copied and pasted right out of their comment sites.

          By the way, don’t go onto these prepper sites. These people, legit, are f***ing terrifying. I’m pretty sure about half of them are in some sort of militia, and a significantly greater than zero number of them have probably killed someone in the last year. Just the vibe I get from them.

          Er, not to lump you into THAT group of crazies…….

          ARB–Angry Retail Banker

          1. I’m not a prepper as normally defined by those sites. I’ve got nothing prepared actually, altho we should have some at emergency kit at least.

            I like to watch those doomsday prepper type shows on National Geography.

            I do have military experience, so I know what they are talking about. Mostly what we used to do were medical missions in impoverished parts of my country, some had actual rebel presence (who we’ve since convinced or converted back into normal society through our helpful actions.)

            But to answer the issue about the 21 million capped limit, the chances of you winning the lotto are higher. The chance of you getting hit by lightning twice in one day are higher.

            Its semantics. For all practical purposes, no, no one can will any more bitcoins (the original BTC anyway) than is stated by consensus rules that have been in effect since it started. Those rules are carved in stone, etched in steel, or whatever analogy best fits the scenario.

            No one can change it.

            Its bittorrent meets paypal. Its like trying to shut down the pirate bay. Thats even easier to do since its a website.

            Bitcoin can not be shut down. No one can create more coins than what the emmission schedule allows. It’s impossible.

            Or put another way, as possible as the heat death of the universe tomorrow.

            Again, its “math”.

            1. *edit*

              You really have to either read up on it or do a little more research about the coin supply and how it works. The creator unleashed something even he (or they) can not change.

              Who he, she, it, or they actually are is irrelevant at this point, and probably for the better that no one knows who he, she, or they are today. Bitcoin was effectively abandoned by Satoshi since 2011 and it has survived everything thrown at it up to today.

              As for its value, well … no one knows, everyone is still trying to figure it out, and I lost over a million dollars over the past couple of years, and I’ve been in it since around 2012. So I’ve made some mistakes and that’s personal.

              Past performance does not mean future performance, but that’s the only thing we have about it. I bought litecoin at $20 and sold at $40. I bought bitcoin at $200 and got other altcoins or sold them at $1000. You win some, you lose some.

              As a billionaire once said, it wouldn’t (or shouldn’t) hurt you to put 1% of your portfolio into crypto. (That billionaire did go on to “lose” a hundred million dollars this year.)

              My personal belief in the technology is what drives me, even if I’m not a developer myself. The value is secondary. Because I’ve been into IT since I was a kid, and now I have three kids of my own.

  10. How can you not math shit up, when bitcoin is all math, no shit. Consensus rules were put in place 10 years ago, and those are not ever going to change.

    We know the current supply and the future supply.

    What we don’t know is the value, which is still in it’s price discovery stage, even after 10 years. What we can speculate on, is that this will go up or down. It is also very volatile.

    It’s intrinsic value is that it is a unit of account, a medium of exchange, and store of value. It has properties like gold. It has all the other things any beginner introduction video can show you. It has over ten thousand full nodes all over the world that validate the transactions of users and the blocks generated by the miners according to the rules, which I have just said, just do not change, or if they do change, very slowly.

    It is immutable, which is both good and bad, because once a transaction is confirmed in a block, it is very difficult or impossible to erase that history. The deeper the transaction is buried in blocks (or the more confirmations it has) the harder, such that after 1 hour, think of it like a check (or cheque) that clears in an hour and is irreversible … maybe like wire transfers or etransfers.

    The author is not spreading FUD intentionally. He is simply ignorant of the industry. A year dabbling in small amounts is nothing. You need to spend years in it.

    I have gained and lost (unrealized gains and unrealized losses) millions of dollars, and it is actually because of bitcoin that I found Millenial Revolution and other FIRE websites, as I was looking for “safer” investments, not that I consider crypto to be an investment.

    There is also a cost to production. You could ask the miners, but estimates at this time put it around $3000. Which is why it is worth $7000 on the exchanges, as miners will not sell it below cost of production.

    As mathematician George Box said, “All models are wrong, some are useful.” We have set out to construct a framework for pricing bitcoin but it is important to understand the variables. From our thinking, it seems possible that bitcoin could eventually increase in price by orders of magnitude, but it all depends on bitcoin’s level of adoption. The most important question is “Will people use bitcoin?”

    You would think the answer would be obvious, but instead it is remarkably elusive. Never before in the history of commerce has a speculative bubble developed around an asset that had no clear intrinsic value.

    It has one, we just all don’t agree on what it is.

    And that … is the mystery. Created by an anonymous developer, not controlled by any single government entity (Gemini is an example of a regulated exchange, and ICE the parent company of the NYSE and Bakkt are also regulated.), … etc etc etc You can probably research this all up.

    Remember, that as distributed technology, people were finding prime numbers, looking for aliens, or searching for a cure for cancer through folding, by using their computers, for FREE. It was a matter of pride. No one cracked RSA for the money, they did it because they were mathematicians and cryptographers who had a point to prove.

    Bitcoin is the only one where the goal is mine them for profit. It actually all started the same way, because geeks had a point to prove when bitcoins could only buy pizza in 2011.

    I didn’t comment on the other earlier post, because reasons. But now that you made this post, I think I can add a little more perspective.

  11. “Index funds, in other words, own so many companies with so much intrinsic value because those companies generate so much profit that it’s practically impossible to lose owning them.”

    This is dangerous thinking which doesn’t fully appreciate the risks of owning equities (even diversified ones). Just ask any Japanese who invested in Nikkei Index 30 years ago which tracks hundreds of good companies too. they’re still looking to just break even today

    1. it’s also a good example of how what you probably perceive as reliable “intrinsic value” in stock prices is just as much infused with speculative assumptions on future potential as crypto is. Japan was expected to take over the world then and priced accordingly, it just never materialized.

    2. Well, don’t diversify into just one country. An individual country’s policies can and will screw over their economy. That’s why you diversify across the entire world.

      1. missing the point. even if you did, calling global indices “impossible to lose” is quite irresponsible for a financial advice blog and really underappreciating equity risk. as it is, your global index fund is likely 60%+ US anyways – so there’s that too.

        that’s why all these assumptions about 7% annual growth or whatever as if they happen like clockwork doesn’t properly acknowledge the huge standard deviations involved to arrive at such an “average”. even if equities were always up in the long term, it could still be well past any time frame you are able to withstand or plan for and this is a key point that shouldn’t be lost on investors.

      1. Actually there are some in North America. There is one in Vancouver and I know there is also one in Seattle as well. Unfortunately the one in Vancouver is not as good since, due to service of food regulations, you have to buy your food and drink separate and then take it into the cat area so it’s not really a “cafe” as such. The ones in Europe are way better. From the pictures the ones in Asia look much better also!

  12. Working in the space I have very mixed feelings but I have some play money in the game.

    When people ask me how to “invest” — I ask if they currently speculate in USD to JPY flows, or USD to MXN. If they are not currency traders now then I ask why they would do the same now with crypto currency.

    Wander nailed this when he mentioned only technical analysis being available. And ARBs concerns on having even less signal on currency prices than from Central banks (via interest rates, bond purchases, etc). These are things to think about carefully.

    One thing wrong with ARBs claims is that it really is not a single entities choice as to change the circulating currency.
    I think this caused some reaction but was not explicitly called out.

    ARB, the reason you can’t, and even Satoshi can’t, change the number of bitcoins to be eventually created is because doing so requires a vote by the participants running the software (miners) with a new maximum currency, or rate of inflation (aka block reward). And you know the Internet — you’re more likely to end up with a fork of Bitcoin than an agreement (see Bitcoin Cash and friends).

    Is crypto currency is highly speculative and not an investment? Correct.

    Does it lack intrinsic value? I think this is a misunderstanding of the nature of money. Money is just an idea and depends on acceptance and a few other properties (portability, divisibility, fungibility).

    But “intrinsic value”, Wanderer that’s very Rand-ian of you. I’m surprised. But I suppose many of us are carrying the weight of having read Atlas Shrugged young ;).

    My personal conclusion — put your money elsewhere. Crypto currency is purely a fun money, gambling account kind of game.

  13. Funny is that most people from the younger generations are learning so much about investing right now due to bitcoin (and you know, bitcoin is just the tip, there are so many others out there…) that in the future they will lead the markets, the shares, commodities and the crypto…. live and learn.

    Warren Buffet is to old to understand it, you should be smarter than that.

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