Bitcoin - Part 2

[PartSkeptic]

(snip) May I ask, what is bitcoin's P-E ratio?

(snip)

You posted as I posted my reply.

I will repeat your query.

 

[Samson]

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.

I agree with every word.
A week ago I said because CBOE and CME had engaged Cryptos would be with us forever. However I now consider this a red herring.
Their value is so obviously zero it is purely a matter of time.

 

[psionl0]

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.

Doesn't that presuppose that somebody is running the "scheme"? The whole point is that nobody is running bitcoin.

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 exactly the same thing that happens with any commodity like gold, silver, diamonds etc. Admittedly these substances have some industrial or aesthetic value but most of the value comes from pure speculation.

That is a key aspect of a Ponzi scheme.

Pure RUBBISH! You are just making up your own pet definition of a "ponzi scheme" so that you can call bitcoin a "ponzi scheme". Posters have been doing this for years.

In this case I am no doomsday prophet -

BUT

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.

 

[Samson]

I might invest in this because I wanna get in before it's too late

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[angrysoba]

That is exactly the same thing that happens with any commodity like gold, silver, diamonds etc. Admittedly these substances have some industrial or aesthetic value but most of the value comes from pure speculation.

I don't think gold, silver and diamonds are merely invested in because they go up forever, but rather because they retain their value well (and yes, because they are aesthically pleasing), because of the properties of the substances themselves.

In other words they are less volatile either in terms of their physical properties (they aren't gases or liquids, or too reactive), and sufficiently rare that they cannnot be easily mass produced or synthesized. Effectively, these substances have a value that can be easily agreed upon.

Is this the same for Bitcoin? No. And one reason is that Bitcoin is frankly too weird for general acceptance. And far too volatile. Ultimately it has all of the flaws of any currency or commodity without any of the benefits.

I don't think you have to be a doomsayer to point out that Bitcoin will eventually become less volatile when it finds its correct value of practically nothing.

 

[Thabiguy]

Doesn't that presuppose that somebody is running the "scheme"? The whole point is that nobody is running bitcoin.

No. The fact that no value is created and the winnings are transferred solely from the losers to the winners certainly doesn't presuppose that someone must be "running" the scheme. That is conclusively shown by the example of common pyramid schemes, which, after being started, continue completely decentralized and out of control of anyone in particular, proving that no central authority is required for such a scheme to thrive.

Pure RUBBISH! You are just making up your own pet definition of a "ponzi scheme" so that you can call bitcoin a "ponzi scheme". Posters have been doing this for years.

From Wikipedia:

A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading

Note that the highlighted part is exactly the key aspect that PartSkeptic referred to. This directly disproves your allegation that it is a made up pet definition.

 

[psionl0]

From Wikipedia:

A Ponzi scheme is a fraudulent investment operation where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading

Note that the highlighted part is exactly the key aspect that I referred to.

 

[Craig B]

Note that the highlighted part is exactly the key aspect that I referred to.

You can see the aspect of the scheme that other people are referring to, and it is the primary characteristic. There is an inflation of price with no input of real value. In the same way, a bubble inflates in diameter, but no solid mass is entering it. That's why the metaphor is appropriate.

An intentional single malign operator, like Madoff, may well be present, but that isn't necessary for a bubble to form. Which individual directed the tulipomania? None. It was basically a spontaneous movement.

So Bitcoin can expand and collapse without being under the direction of an individual operator.

 

[psionl0]

Which individual directed the tulipomania?

Who says that tulipmania was a "ponzi scheme"?

 

[Thabiguy]

Note that the highlighted part is exactly the key aspect that I referred to.

That's quite irrelevant. I believe that when you exclaimed "pure RUBBISH", you were talking about what PartSkeptic referred to (revenue goes from losers to winners, no value created), not about something else that you mentioned somewhere else.

 

[Craig B]

Who says that tulipmania was a "ponzi scheme"?

It was a bubble. The thing speculative bubbles have in common with Ponzi schemes is the essential one, inflation of price without input of real value.

That is a feature of the Bitcoin bubble, as of tulipomania, or essentially of the railway mania, although of course individual swindlers are attracted to these episodes like flies to dung, because they supply the raw material favoured by crooks: greedy idiots with money to spend.

 

[psionl0]

That's quite irrelevant.

You claimed that a ponzi scheme didn't need an operator then quoted a source that said that a ponzi scheme has an operator. That makes it VERY relevant.

I believe that when you exclaimed "pure RUBBISH", you were talking about what PartSkeptic referred to (revenue goes from losers to winners, no value created), not about something else that you mentioned somewhere else.

The highlighted part was so ridiculous that it didn't warrant a response. But just to make it clear, investment is not a zero sum game and there is no such thing a "value" - only demand.

 

[psionl0]

It was a bubble.

A bubble is not a ponzi scheme otherwise every time the stock market overheats you would have to describe it as suddenly a ponzi scheme.

The thing speculative bubbles have in common with Ponzi schemes is the essential one, inflation of price without input of real value.

Read the Wikipedia definition of ponzi scheme as provided by Thabiguy and you won't have to embarrass yourself with your public display of ignorance.

 

[Craig B]

A bubble is not a ponzi scheme otherwise every time the stock market overheats you would have to describe it as suddenly a ponzi scheme.



Read the Wikipedia definition of ponzi scheme as provided by Thabiguy and you won't have to embarrass yourself with your public display of ignorance.

Don't be concerned about anything of that kind. The only thing that disturbs me is the thought that you may personally be invested in Bitcoin waiting for it to go up to $100k. If you're not, I am at ease. I know what Ponzi schemes and bubbles are, and I have referred to the important feature they have in common.

 

[PartSkeptic]

Don't be concerned about anything of that kind. The only thing that disturbs me is the thought that you may personally be invested in Bitcoin waiting for it to go up to $100k. If you're not, I am at ease. I know what Ponzi schemes and bubbles are, and I have referred to the important feature they have in common.

You articulated what I was thinking earlier. He may just have drunk the Koolaid and is now in desperate denial.

 

[Thabiguy]

You claimed that a ponzi scheme didn't need an operator...

No, I didn't. If you look above at what I said, you will find that I claimed, I quote, "The fact that no value is created and the winnings are transferred solely from the losers to the winners certainly doesn't presuppose that someone must be 'running' the scheme."

That is not a statement about a Ponzi scheme specifically - indeed, there's no mention of "Ponzi" at all in that sentence - but instead a statement about any general scheme where no value is created and the winnings are transferred solely from the losers to the winners.

And indeed, it is true that a general scheme like that doesn't need an operator, and I even provided a specific example proving that (a common pyramid scheme).

... then quoted a source that said that a ponzi scheme has an operator. That makes it VERY relevant.

Again, no. My quote of the Wikipedia definition was a specific response to your false allegation that PartSkeptic's correct claim ("Where does that profit come from? New buyers. Not from a performing asset. That is a key aspect of a Ponzi scheme.") was rubbish and a made up pet definition. By quoting the Wikipedia definition, I showed that you were wrong in your accusation and that what PartSkeptic said was indeed one of the defining aspects of a Ponzi scheme.

I agree that in the specific aspect of having/not having an operator, bitcoin is closer to for example a pyramid scheme than a Ponzi scheme. But that doesn't make you any less wrong about denying that what PartSkeptic said was a key aspect of a Ponzi scheme.

What is unclear to me is why you have such a problem with admitting that you were wrong about that. That's not embarrassing; I respect those who can admit that they were wrong about something, because it shows that they are capable of critically reevaluating their own views. What's embarrassing is refusing to admit that you were wrong, when everyone can see that you were.

 

[Thabiguy]

But just to make it clear, investment is not a zero sum game and there is no such thing a "value" - only demand.

I agree that investment is not necessarily a zero-sum game. But speculation (in which the only means of gain is selling the asset at a different price than it was purchased at) is. It's not difficult to prove that mathematically. And when exchange fees are considered, it's actually a negative sum game.

 

[Tippit]

Is this the same for Bitcoin? No. And one reason is that Bitcoin is frankly too weird for general acceptance. And far too volatile. Ultimately it has all of the flaws of any currency or commodity without any of the benefits.

What you think is "weird" is subjective, and irrelevant. Bitcoin certainly is volatile.

I don't think you have to be a doomsayer to point out that Bitcoin will eventually become less volatile when it finds its correct value of practically nothing.

Bitcoin has zero intrinsic value, just like all central bank sponsored fiat currencies happen to have. The extrinsic value of bitcoin is that people who are willing to accept its market risk and volatility can move large values of wealth around or overseas evading thieves and tyrannical government employees (like US customs, for instance).

Does anyone actually read this thread?

 

[Tippit]

Don't be concerned about anything of that kind. The only thing that disturbs me is the thought that you may personally be invested in Bitcoin waiting for it to go up to $100k. If you're not, I am at ease. I know what Ponzi schemes and bubbles are, and I have referred to the important feature they have in common.

You express an unusual amount of concern for the well being of the investment portfolios of strangers on the internet. I do not believe that this concern is real.

 

[psionl0]

My quote of the Wikipedia definition was a specific response to your false allegation that PartSkeptic's correct claim ("Where does that profit come from? New buyers. Not from a performing asset. That is a key aspect of a Ponzi scheme.") was rubbish and a made up pet definition.

This trick has been attempted many times through the years. Find a bad word, call bitcoin that bad word and use any similarities - no matter how slight nor how many other forms of investment/speculation share those similarities - and say, Q.E.D.

In this case the bad word is "ponzi scheme" (in spite of your denials). The "logic" is invariably the same:

Bitcoin is bad.
Ponzi schemes are bad.
Therefore bitcoin is a ponzi scheme.
Therefore bitcoin is bad.

Of course, you have to re-work the definition of a ponzi scheme to make it seem reasonable. A ponzi scheme is where somebody takes money from suckers and keeps it for themself. There may not even be anything that the money is invested in, it's not necessary. They payout some money to early "investors" to keep the scam going a little bit longer but sooner or later the scam must collapse. Since bitcoin itself is nothing like that, people like you focus on "winners and losers" as if that proves something.

The key feature of ponzi schemes and other related schemes is FRAUD. That is why bitcoin doesn't fit the description.
- Everybody can find out the bitcoin price history.
- The risks of entrusting your bitcoins to a third party (exchange) have been well documented.
- Anybody hoping to make a quick buck from bitcoin can find out how risky that strategy is.
- Nobody can manipulate the supply of bitcoins nor interfere with confirmed transactions.
- If a user takes proper security precautions then nobody can steal their bitcoins.

In short, your argument was a crock in 2011, it was a crock in every subsequent year that it was raised (as if nobody ever thought of it before) and it is a crock today.