Thoughts on Bitcoin

Hi Snazzy,

Thanks for the link. Bitcoin and Crypto in general is a foreign area for me. On one hand, I see the potential of crypto for instant settlement of transactions and instant payment for work done (imagine if folks living hand to mouth could get paid instantly and daily in crypto), on the other hand, it’s hard to know which currencies will win out. I view Crypto more as a replacement for something like gold. Even then, I fell crypto and gold don’t retain their earnings so I am more equity investing biased.

Nevertheless, I was recently forwarded a great youtube link to Gary Gensler’s MIT class on Crypto: https://www.youtube.com/watch?v=EH6vE97qIP4

Very informative.

Anish

1 Like

Anish/all - for me, you touch on one of many confusions at the heart of the Bitcoin debate - confusions which are nurtured and exploited (sometimes consciously, sometimes less so) by multiple actors with agendas which are in some cases misguided, more often ulterior.

First, and foremost, the inherent confusion between the potential utility of crypto (not just Bitcoin) as a means of exchange - and its supposed investment potential. Though in practical terms, I struggle to see what it can do which “traditional” digital currency exchange cannot (and already does) - with crypto failing to pass even the basic tests required for legitimate and credible currency status (including, not least, price stability).

And then, there is the “justification” for the exponential rise of the “value” (or at least price) of an entity, based on its supposed scarcity (always, to me, an essentially artificial construct for Bitcoin) - which conveniently sets aside the argument that Bitcoin is merely one of many (potentially, limitless in number) cryptocurrencies which could, in theory, deliver this same utility.

It is impossible not to see the classic “bubble” trajectory, as has played out countless times throughout history. At its heart, of course, human nature… fear and greed…

An “asset” starts going up, people get interested, drawn in by that innate profit instinct… the more it keeps going up, the more people get interested, and increasingly more of them the financially ignorant and/or uninitiated. And the longer this continues, the more that some of these people are able to buy then sell at a handsome profit (whether by luck or judgement), which of course lends credence (if not actually credibility) to the “investment” potential - which in turn merely sucks in more people, and pushes the price ever higher…

And all the way along, there are those who encourage this, oiling the works of the machine now in motion - a quiet word here, a youtube video there - playing upon the confusion with superficial plausibility and smoothness of presentation. All the while confident their ability, to have the nous (and it’s all relative) to get in and out ahead of those whom they are at the same time seducing…

I guess one key question for me - if Bitcoin halves in price tomorrow, do you buy it because it is cheap - or dump it before it halves again, and again, and again? If you struggle to answer that question - then you have actually already answered it.

And so it goes… with the ultimate realisation that “there will be another one along in a minute”. Which of course holds true whether you are talking “investment” bubbles, cryptocurrencies, nefarious actors with ulterior motives… or mugs.

4 Likes

Hi Bill,

You have made some great points. On your point on bubble trajectory, it feels like the public is playing the “greater fool” game with cryptocurrencies. I recall in the latest Fundsmith meeting Terry Smith providing this example of one problem with bitcoin: If I pay you 1 bitcoin for a 50,000 pound car, and then bitcoin doubles in value, now you have just paid 100,000 for something that had a retail price originally of 50,000. This is a big problem.

Your point about Bitcoin halving is a good one. These cryptocurrencies are at the end of the day still currency, and currencies have not faired well against assets like stocks due to inflation over time. There is no earnings stream or retained earnings with crypto.

1 Like

Anish - yes, agreed all round. I am with you and Terry here - and I strongly suspect that Terry is being pretty measured in what he says about it in public (he knows it is an emotive subject - which in itself makes me suspicious), I would like to hear what he really thinks.

Ultimately, that is my issue with the Bitcoin “phenomenon” - it is the same people arguing that you should take it seriously as a currency, who also try to persuade you to keep on buying it. Conveniently avoiding the fundamental point that by doing the latter, you are effectively disproving the former… I know “cakeism” is all the rage, but this one really takes the … er, cake!

I would mind a lot less anyone making the case for why it is indeed a credible and grown-up currency of the future (which by the way, it isn’t) - while counselling you to beware its over-heating price. Or conversely, making the case for why it is (still) a great “investment” which will keep on going up forever (which by the way, it isn’t, either) - but that you should ignore the “currency” debate as an irrelevant sideshow. Maybe it’s just me, but there doesn’t seem to be many of those people active in the debate… as in, any.

It really cannot be both of these things, by their actual definition - the fact that (for me) it is neither of them is merely a subsidiary argument…

The “greater fool” game, indeed - and sadly, for all the (to my mind) blatancy of contradictions and charlatanism at play here, there will always be a great number of “greater fools”. And in the end, we know what happens to fools and their money…

yes, this is par the issue. On the other hand, if you owned 1 bitcoin valued at £50,000 you may be reluctant to part with it if you equally feel tomorrow it could be worth £100,000, So, once again, the transaction doesn’t take place.

1 Like

i am so dubious of bitcoin and crypto right now

a mate sent me this. he put £100 into dogecoin one day and the next it was worth over £700

john authors mentions this on the Coinbase IPO

I am on a chat channel with other investors, and one of the most popular seems to be the Bitcoin miners. Soo much money going into these. Here is an example (from https://twitter.com/markdukeyboy/status/1382656229886066693)

But the point above might be that the original ‘asset’ is already flagging, and now attention turns to t he picks and shovels plays, or the exchanges themselves.

To me the whole space of Crypto is very akin to the 2000’s tech boom and crash.

dotcom age crypto age
many new companies IPOing that get bought on the name or hype many new coin variants issued that people punt on with no idea of prospects
very hard to value businesses and no track record coins that are bought just on the thesis they will go higher or ‘To The Moon’ but hard to find any underlying asset rationale
lots of new money chasing the highs and hearsay lots of younger investors and the ability to gamify trading through modern apps and social networking
classic and traditional value stocks lagging behind the loss makers likes of BTC, crypto advance far excess of the traditional market, as well as spurious investments by fashionable names (TSLA) into crypto
2 Likes

Riccie, Worth? – Or priced at?

Isn’t the concept of a digital currency based on the possibility that FIAT currencies have failed given the propensity for Central Banks to print (QE) ad infinitum?
There is some merit in this theory, but the idea that so many different digital currencies will replace FIAT is ludicrous in the extreme, given it seems unlikely that many of them can exist as a medium of exchange due to price instability as Terry has intimated.

Bitcoin seems like the main character in the Shakespearean play because of its originality, but even here there is a problem – suppose governments ban its use or confiscate it on the basis of loss of control of the economy? It happened with gold.

It’s a gamble, one that has paid off for many – will it last, I dunno?

They do say markets can stay irrational longer than one can stay liquid.

I think I will just try to stick with a few good companies (and in some cases some not so good) and let the medium of exchange play its merry tune.

Games
PS : The one idea floated by Facebook of a currency based on a worldwide basket of currencies seemed like a good idea, in that it would be more stable than a single currency and must deviate the least assuming a wide basket is adopted. The credibility and security of this being associated with Facebook is the key issue I suspect. As Facebook is my third largest investment after PayPal and Microsoft, I’d be interested to see it develop of course.