Bitcoin - Part 2

[Craig B]

... it seems to me that when waitresses are talking about it, it's a clear sell.

That's the Joe Jennedy shoe shine boy principle from 1929, that I've already referred to. It worked for Joe (if it is a genuine event).

Joe Kennedy decided to stop to have his shoes shined before he started his day's work at the office. When the boy finished, he offered Kennedy a stock tip: "Buy Hindenburg." Kennedy soon sold off his stocks, thinking:
"You know it's time to sell when shoeshine boys give you stock tips. This bull market is over."​

 

[Craig B]

Not exactly a ftfy but that is the argument ever since these threads began.

What do you mean? Buying something of unknown intrinsic value at $17 isn't quite the same thing as buying it at $17,000. If you get in early you may well make money. Where does that profit come from? Regular income generated by the asset, or "greater fools" willing to pay higher and higher prices? When the supply of such fools runs out, the bubble will go pop. The price has changed since these threads began, so buying has become more risky.

Again I ask you: are you saying this is going to go up forever, so the price you pay doesn't matter? Is this the God Bubble? The eternal cornucopia? Well if it isn't, $17,000 is a risky price. And now it's at around $13,200.

 

[psionl0]

What do you mean? Buying something of unknown intrinsic value at $17 isn't quite the same thing as buying it at $17,000.

Somebody else who doesn't understand the concept of price x quantity.

 

[Craig B]

Somebody else who doesn't understand the concept of price x quantity.

I understand it perfectly well. What you don't understand - seemingly refuse to permit access to your brain - is the concept of maximum price - purchase price. That is the figure that requires to be multiplied by the quantity purchased, in order to calculate potential maximum capital gain.

I say this again in the vain hope that your mind may at last be receptive to it.

Unless the price increase is without end, there is a potential maximum price. To make a profit your buying price needs to be less than that maximum. That is, price difference. There is more space for that price difference to fit into when the asset is bought at $17 than when it is bought at $17,000 unless the maximum is infinity. So buying at the higher price is more risky. Please tell me you comprehend this.

The current price of $13,100 would entail a substantial gain for a purchaser who paid $17, but a significant loss to someone who bought at the maximum past level of $19,666. That fact of gain or loss is not in any way altered by the volume purchased, although the total gained or lost is a function of volume.

 

[psionl0]

Unless the price increase is without end, there is a potential maximum price.

The maximum price will may cease increasing when the market reaches saturation level. When will that be?

 

[Samson]

11900

Winklevoss bros are frantically looking for their keys to the boxes.Sellotaping the codes back together.

 

[Craig B]

The maximum price will may cease increasing when the market reaches saturation level. When will that be?

It may will cease increasing when the supply of greater fools or the supply of these fools' spare cash is finally exhausted. That is what saturation level means in a bubble, as there is no limit to propensity to purchase; because the motive for purchase is capital gain, not usufruct which may become less desirable or appetite for consumption which might be satiated. Pure capital gain. There is no saturation level for that. Only exhaustion of funds available to be invested, by ever-increasingly ill-advised punters.

Now here is the interesting bit. If something is being held only for capital gain, and otherwise yields no or no significant income, and provides no function to its holder, what happens when the price stops rising? The holders sell. Because they have no prospect of further gain. Or if they are leveraged they are forced to sell by their creditors. There is no stable price level. The bubble pops.

But we can't know in advance when that will happen. It depends on what people think will happen, which introduces random elements into the calculation. Here's why. Suppose I have a magic algorithm (in principle it would be available to everyone), and I feed in the data and they tell me, Bitcoin is going to fall by forty percent on the tenth of January 2018. Then it wouldn't, because people would sell in advance of that date before the price was predicted to fall. So it would fall at a different time and by a different amount, from the time predicted mathematically, even if the maths gave a correct forecast in the first place.

The knowledge and predictions of the investors randomise the future, making it unpredictable in practice, even if you could devise a way of predicting it in principle. If a prediction has an effect on the system whose behaviour is being predicted then that future is in practice inscrutable in detail. But if the system is inherently unstable then its future behaviour, whether predictable or not, will be unstable. And if it is finite in principle, as bubbles are, its future will be limited in time.

 

[psionl0]

It may will cease increasing when the supply of greater fools or the supply of these fools' spare cash is finally exhausted.

This argument is identical to the one used in 2011 and every year since. So far the only "greater fools" are the ones who cashed out and there is absolutely no sign that this situation is going to change for many years to come.

You are so unoriginal that you are boring.

 

[angrysoba]

This argument is identical to the one used in 2011 and every year since. So far the only "greater fools" are the ones who cashed out and there is absolutely no sign that this situation is going to change for many years to come.

You are so unoriginal that you are boring.

psion, I don't think we are getting anywhere here.

Even if the argument is the same, it doesn't mean the argument is incorrect.

It might be true that people who cashed out earlier are kicking themselves for not buying more and waiting until...now? But we have no reason for thinking they are the greater fools. The greater fools could be those waiting for the price to get to 100,000 dollars a Bitcoin and hoping to sell the Bitcoins they went into debt to buy.

Or it could be those who didn't sell at 19,000 dollars and who are waiting for it to get back to that level.

We don't know.

But that doesn't alter the fact that the argument is Bitcoin is only priced so highly because of speculation and not because it has any actual value beyond that.

Here's a question. Say if I had a spare 40,000 dollars on me, would you advise me to buy two Bitcoins so that I could make loads of guaranteed money if I just wait a few years?

 

[Craig B]

This argument is identical to the one used in 2011 and every year since. So far the only "greater fools" are the ones who cashed out and there is absolutely no sign that this situation is going to change for many years to come.

You are so unoriginal that you are boring.

That's a prediction. Anyone who cashes out for many years into the future is foolish. Fine. That is precise, and if it is false, it will be visibly so. OK.

 

[psionl0]

That's a prediction.

Only to people who don't understand words like "probability" or phrases like "no sign of".

 

[Craig B]

Only to people who don't understand words like "probability" or phrases like "no sign of".

I can't find these expressions here.

This argument is identical to the one used in 2011 and every year since. So far the only "greater fools" are the ones who cashed out and there is absolutely no sign that this situation is going to change for many years to come.

 

[psionl0]

I can't find pretend that these expressions are not here.

What I can say with a high degree of probability is that at some point in the not too far distant future, bitcoin prices will be such that whenever you remember the posts you are making now you will blush with embarrassment.

This argument is identical to the one used in 2011 and every year since. So far the only "greater fools" are the ones who cashed out and there is absolutely no sign that this situation is going to change for many years to come.

ftfy.

 

[PartSkeptic]

And if you have nothing to hide then you shouldn't mind the government having all your banking passwords or having the government install surveillance cameras and microphones in your house.

Personal privacy and public privacy are two entirely different issues.

Example you can take a picture of a person standing on the street and post it on a neighborhood watch. You cannot do that if the person is standing on their private property.

 

[PartSkeptic]

Not too long ago, a person I knew bought some bitcoin. At the time it was starting to skyrocket. I told him it was a bubble and to get out. Luckily he did - and made a slight profit. If he had stayed in, he would have lost a lot.

Some predictions are easy. I saw the 1987 crash and the 2008 crash just months before they happened. The signs were there.

With the 2008 crash, a website had been saying since 2003 the crash would come. In 2007 they gave up, saying that they could not believe they had been wrong every year. And yet it took just one more year. When the fundamentals are giving strong warning signs, there WILL be problems ahead.

The thing with a Ponzi scheme is that the early buy-ins will make a ton of money. That money will come from those hoping to get in soon enough to make a killing, but misjudging when and how quickly the end will happen. And then we have all the exchanges and miners who will have reaped their own piece of the pie - all from the late losers.

 

[PartSkeptic]

Today a person asked if they should buy some Steinhoff shares now that they have dropped from R6,000 a share to about R500 a share with most of the drop being very rapid.

They said that the assets of the company were greater than the share valuation. My argument was that they should not trust the statement of assets if there was so much fraud in the accounting. If one bought at R4,000 then holding the share in the hope it would rise is reasonable - selling would lock in the loss.

Market value of an asset on the books is not the same as a forced real asset fire-sale.

What assets does bitcoin have?

 

[PartSkeptic]

Sorry, I am tired. The Steinhoff graph was in ZAC (cents) not Rands.

 

[psionl0]

The thing with a Ponzi scheme .........

Why would you call the stock market a "ponzi scheme"?

Key features of a <insert bad name> scheme are that the must be run by somebody and a false belief must be created about whatever is being marketed. Individual stocks (especially the lesser known ones) can indeed be the subject of any number of fraudulent schemes. But the stock market as a whole can not be gamed. There are just too many players.

Likewise bitcoin is wholly decentralized and can not be gamed. Shysters might be able to get you to part with your bitcoins for nothing or promise bitcoins for something and not deliver. However, this is true of currencies as well so it is a case of "nothing new".

It is bad enough that we have to deal with yet another doomsday prophet who has no facts. Don't tell me that we have to go through pages of posts debunking the "bitcoin is a scam" meme yet again!

 

[Craig B]

Why would you call the stock market a "ponzi scheme"? <snip for space> ... It is bad enough that we have to deal with yet another doomsday prophet who has no facts. Don't tell me that we have to go through pages of posts debunking the "bitcoin is a scam" meme yet again!

what was stated was this

The thing with a Ponzi scheme is that the early buy-ins will make a ton of money. That money will come from those hoping to get in soon enough to make a killing, but misjudging when and how quickly the end will happen.And then we have all the exchanges and miners who will have reaped their own piece of the pie - all from the late losers.​

That is true. It applies to Ponzi schemes, pyramid schemes and speculative bubbles. Any process in which the only value entering the system is people buying for capital gain. For every penny gained, another is lost in the final liquidation. They are zero sum games. The stock market as a whole is not a Ponzi scheme, and nobody is saying that it is, because certificates of ownership in a real enterprise engaged in production or service provision have a real value and generate real income for their owners. They have a "price to earnings ratio". May I ask, what is bitcoin's P-E ratio?

Like tulip bulbs, they can get caught up in a bubble, and the price loses all contact with the real value, but that happens only from time to time. May I ask, what is bitcoin's real value?

Between 2003 and 2008 there was even a house price bubble in the U.K. Are houses a scam? Of course not, but they can get caught up in speculative mania.

ETA Bitcoin is now at about $12,900. Day's range 12,166 to 13,399. Will it perform a turnaround and rise again? Maybe. Rise to $100,000? I would be very surprised indeed.

 

[PartSkeptic]

Why would you call the stock market a "ponzi scheme"?

Key features of a <insert bad name> scheme are that the must be run by somebody and a false belief must be created about whatever is being marketed. Individual stocks (especially the lesser known ones) can indeed be the subject of any number of fraudulent schemes. But the stock market as a whole can not be gamed. There are just too many players.

Likewise bitcoin is wholly decentralized and can not be gamed. Shysters might be able to get you to part with your bitcoins for nothing or promise bitcoins for something and not deliver. However, this is true of currencies as well so it is a case of "nothing new".

It is bad enough that we have to deal with yet another doomsday prophet who has no facts. Don't tell me that we have to go through pages of posts debunking the "bitcoin is a scam" meme yet again!

I did not call the stock market a Ponzi scheme. I called bitcoin a Ponzi scheme.

A Ponzi scheme is one in which no value is created with which to pay out the winners. The winnings are transferred from the losers to the winners and then the whole scheme collapses.

In the stock market, if one buys a stock through a broker who invests in a portfolio of his preferred picks, one gets a return on investment due to the profits and growth of the companies in the portfolio. When the market is doing well, the returns are good, and when the market is bad the returns drop.

Bernie Madoff ran a Ponzi scheme in which his returns were consistently high (about 12 per cent per year I think). No matter how clever he was this was impossible. He himself said his clients knew he was running a fraud because the returns were not possible. They bought in anyway. Such is greed (and a lack of morals).

People are buying bitcoin as an investment hoping the value will go up, and they can sell at a profit. Where does that profit come from? New buyers. Not from a performing asset. That is a key aspect of a Ponzi scheme. When new buyers dry up because of concerns about the underlying principles and the exposing of the scheme, the value will start dropping. As it drops, people will sell because either they have to, or they want to mitigate their losses.

A key weakness are the nodes on which the public ledger is kept. There is no profit motive to do so. As nodes close, the scheme must also fail.

In this case I am no doomsday prophet - just analytical. Others are telling you the same thing.

I see the second dead cat bounce is starting. Its peak will be less than the previous dead cat bounce peak. The trend is downward. The roller coaster ride will end where it began - at zero.