JimBowerman
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Posts posted by JimBowerman
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By this definition, I would put only the dot com stocks in the late 1990's and the housing market in 2005 as a bubble. Others cases do not meet the criteria.
Vinod
IMO there's a lot of monday morning quarterbacking going on with the 2005 housing bubble. Most simply sight the case shiller chart, but by that logic, why did Australian Housing prices keep going up? Its really tough to identify a bubble in real time.
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Is this a good time to buy Bitcoin? What price would you say? Do you have a preference of Bitcoin versus Ether?
Read from around page 12 onwards. The inference is only buy in a collapse, only buy Bitcoin, and it'll be your kids who collect
https://s3.eu-west-2.amazonaws.com/john-pfeffer/An+Investor%27s+Take+on+Cryptoassets+v6.pdf
SD
interesting paper, but here's a slight critique which i'd agree with
Also, thinking outloud about potential markets....If (big if/wildly unrealistic) bitcoin were to become a functional currency. Assume population increases at 1% a year, and productivity increases at 2% a year. With a fixed supply currency, each unit of currency appreciates 3% a year in real terms. Folks assume that gold had this property, but during the gold standard, prices (CPI) remained flat from 1800 to 1900. This would imply that gold discoveries matched this productivity + population growth number (ie gold supply was not fixed but was rising 3% a year using numbers in this example). With bitcoin, the CPI would've DEflated at 3% a year from 1800 to 1900.
Various Scenarios:
3% inflation (Money Supply increases 6% a year in nominal terms) - Most modern day economies
CPI in 1800 = 100
CPI in 1900 = 1800
0% Inflation (Money supply increases at 3% a year) - 19th century Gold Standard
CPI in 1800 = 100
CPI in 1900 = 100
Bitcoin (Fixed Supply)
CPI in 1800 = 100
CPI in 1900 = 5
leads to the potential conclusion that potential market for bitcoin is not just world M2 money supply but also other government "near monies"...ie all treasuries that yield less than 3%/inflation rate? Anyone have a good source on $ amount of bonds oustanding world wide by yield? As I recall total M2 for the entire world is $90T and government debt outstanding is $80T or so ($170 T) in total. Obviously under even the most rosy scenarios, bitcoin only takes over a small fraction of that, but interesting to think about. I had always only looked at M2, but seems that government debt should be included in these calcs the more I think about it.
Probably oversimplistic/unrealistic, but interesting thought experiment...
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I think there is one limitation of cryptocurrecies that strikes at the core of its value proposition. The primary strength is its decentralization and its independence from any state or organization. However, it requires a global computer network, i.e., the Internet, for it to work. The problem is that the infrastructure that provides the Internet is centralized and owned by states / corporations. So the bedrock on which the blockchain network lives on is not decentralized and independent.
Also, if you are cut off from the network, you cannot participate in this. Just think of the citizens of North Korea - they cannot participate in any Bitcoin transactions because they cannot even access the public Internet.
I think if the internet goes down we have bigger problems, but that said, long term there may be ways around the issues you mentioned. I've seen research talking about broadcasting bitcoin trasnsactions over radio signals.
In addition, the IPFS protocol hopes to get around the problem on interent centralization you mentioned.
https://www.technologyreview.com/s/427413/how-china-blocks-the-tor-anonymity-network/
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So you should ask yourself, what has changed to cryptos in the span of 12 months to justify such move?
Cardboard
Couldn't the same question be asked of bezos when he invested in google in 1998 at 6 cents a share? What changed at google form 1998 to 2000 or 2005 for that matter? Sure they changed/added things (gmail etc) but in general the basic structure of google was kinda there in 1998 (superior search engine, which is naturally winner take all and then selling ad revenue based on that). You just had to be an accredited investor and believe in their roadmap. Same thing with amazon...roadmap was laid out in 1997. angel investors, if they believed bezos, coulda seen the roadmap even earlier. Then it was a matter of: 1) will the internet take off and 2) will amazon be a leader in that space. Thats still kinda the same basic thesis all these years later. The details have evolved but its still basically that.
I think with crypto you kinda have a similar thing: 1) will cryptos in general ever be big? 2) if so, which one is likely to be the leader.
The nature of a lot of investing is naturally going to be that price rises PROCEED actual product developments. No way you could justify amazon's stock price in 2000 based on what it had implemented at the time. But investors are able to look forward and time has shown that even those who top ticked amazon in the 2000 bubble had the big picture right (ie internet has turned into a big thing, and amazon has retained leadership)
investors all learn about new tech etc gradually. I think what youre seeing is more that most investors are finally learning about crypto and taking it seriously instead of blowing it off (which is what most did when they first heard about it in the 2013 bubble). In the real world ideas need to sit with investors for a while. IMO thats the reason for the recent price rise, because your right, the nothing has changed significantly in crypt in the last 12 months...or at least nothing that wasn't fairly predictable back in 2015. That said, the main ideas were there back in 2010, but i wouldnt' expect an instant price rise to a 1T market cap back in 2010 because ideas take time to percolate thorugh society. As they do i'd expect price rises like we saw in the last 12 months even without fundamental changes to the product.
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Finally, when something goes up 20 times in any given year, it should give a pause to most rational players. That is at least what I would expect from participants on a website who know one thing or two about value investing.
My problem with this is that "something going up 20x" doesn't account for fundamentals. Many value investors simply say its overvalued because of recent price action. Aren't we supposed to largely ignore past price movements in value investing and instead focus on fundamentals (% of gold market cap, % of world money supply, etc)?
I think what is really happening here is that crypto in general eliminates the IPO phase of investments. In its first 9 years as a company, Google went from $0 to $100B+, but people were less likely to call it a bubble because most of the price rise (in % terms ) was pre-IPO. The IPO market cap was around $20B, but if you chart gains in the pre IPO price of google shares they'd look almost exactly like crypto prices. Its largely optics imo.
Not saying crypto is a great investment or that it can't fall severly from here, but I don't see a lot of fundamental analysis from value investors going on in regards to crypto (both on the bullish and bearish side).
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@rk
this was not a gold question. i am only pointing out that the proliferation of blockchain doesnt necessarily mean that digital coins will do well if digital fiat is introduced into the blockchain...which i expect is what the fed/treasury will eventually want
There isn't much point in switching to government issued digital currencies. I can already pay instantly with Apple Pay. I can pay almost instantly with credit/debit cards and if I pay my balance every month (which I do), not only does it not cost me anything, but they pay me to do it. Why would I care if there was a fedcoin dollar or not? What makes people care about Bitcoin is that it is digital gold and not state/corporate controlled.
i am not saying you would care. i am saying that the fed/treasury would care
Why would the Fed need to create Fedcoin on a blockchain? Blockchains are much less efficient than simple SQL databases and are really only useful if you don't have a trusted 3rd party. In the case of Fedcoin, the fed is clearly the trusted third party so all they would need to do is run it on a SQL database (much faster tx and less expensive).
Flowchart on whether you need blockchain --> https://pbs.twimg.com/media/Cn3XX0yWYAEw1vJ.png
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POW scales very well because the difficulty adapts to the perceived value in the system. This is exactly the intention.
Funny how people always want to fix things that aren't broken ...
The neverending quest for a free lunch continues. TANSTAAFL!
for those reading, here is a counter argument which argues against POW and for Proof of Stake:
https://medium.com/@VitalikButerin/a-proof-of-stake-design-philosophy-506585978d51
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Lightening network and/or sharding, etc make 100k tx/s fairly easy. We are a long way from bitcoin being needed to buy a cup of coffee. But technically it’s not a big problem
Yes, it is. There have been hundreds of different coins created, none of which even comes within two orders of magnitude of 100K tx/s. It's certainly a big technical problem, even if it's a problem for which people have proposed solutions.
Richard
Fair enough...however my point is that it is disingenuous to say "Bitcoin can't even process 10 transactions per second." While technically true at the moment, no reasonable person in the community (whether big blocker or small blocker) believes that in 5 years we will still be limited to 10tx per second. This is still a new space and many teams are taking a precautionary approach to implementing new features (good thing). That said, do you see any technical reasons why at least lightning network won't be able to add at least 100x improvement to tx rates (as well as doing transactions for a few pennies per tx)? Its been in test net for a while and seems to be working fairly well. Furthermore, I know many on here are anti ethereum, but I believe there's a decent chance that sharding ends up working. I think the whole "tx limited to 10 per second and at $20 per tx" is a bit like yelling "where are my streaming movies over the internet?" in 1995. You gotta give it time.
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Don’t disagree with you on the store of value calculation though I’d be curious why you think bitcoin can’t eventually become a currency?
Bitcoin can't even process 10 transactions per second. (In contrast, Visa has processed 47,000 transactions per second.) To actually do a transaction, it costs $6-20.
If the network can't handle people purchasing stuff with bitcoin, and people get charged huge amounts to actually make a purchase, it seems unlikely to ever be a currency.
Have to skate to where the puck is going on this one. Lightening network and/or sharding, etc make 100k tx/s fairly easy. We are a long way from bitcoin being needed to buy a cup of coffee. But technically it’s not a big problem
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The problem with that is that it's much less a currency than it is a store of value comodity such as gold. I don't think your formula applies to such a situation or does it?
Replacing gold is the only true target. Perhaps one order of magnitude higher due to the benefits it has over gold. Then apply a probability of that happening and calculate your EV (there is a margin of safety in this calculation as we are disregarding all situations in which it only partially offsets gold). Think the probability is extremely low? Then this is probably a bad bet and vice versa.
Don’t disagree with you on the store of value calculation though I’d be curious why you think bitcoin can’t eventually become a currency? Skabo and other have written about how medium of exchanges (bitcoin now or bitcoin when lightening is implemented) can gradually and eventually become a unit of account. Unit of account is in my thinking a bit of a spectrum.
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Well there is no way to value it, so basically you are trying to estimate demand, hence it is Keynes's beauty contest problem.
In that case you are not judging what contestant you think is beautiful rather, you are try to guess what contestant other judges will deem beautiful, then trying to assess what they assess others will find beautiful, and so on recursively. In hindsight everything is of course is obvious, but prospectively....
something like other forms of M1 or M2 money supply i'd argue would let us get an approximate value. I think MV =PQ gets you close. If you told me that the entire world was using bitcoin as a currency, i could get a pretty accurate fair value. Next step is to guess what the final number is for "% of world using btc" and chances of that happening.
it won't be exact but you'll get the right order or magnitude
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You need to be very clear why you are in these things, and what your thesis is.
You also need to mindful that the distributed security of Bitcoin isn't really working as claimed anymore, as >50% of miners are under the same 'controlling mind'.
SD
The switching costs are quite low for mining pools. If there was rampant abuse by a certain pool, I believe most miners would quickly switch mining pools.
The Fed and interest rates
in General Discussion
Posted
The fed can certainly affect LT rates. What would happen to LT rates if $100T was printed tomorrow? What would happen to LT rates if fed shrunk MB by 99% tomorrow? (extreme examples, but they are helpful thought experiments)
All of this gets confusing, but the effect is usually the opposite of what most people think. Most think that low interest rates are a sign of easy money when in fact, as Milton Friedman said, low interest rates are a sign of TIGHT money.