Cryptocurrencies

[rkbabang]

that's true. 

 

one thing I don't understand about gold and bitcoin is how the price can be so much higher than the cost to mine.  shouldn't the two converge over time?

 

Price is subjective and completely a function of supply and demand, not cost or labor. Marx had the same theory and was wrong.

[JRM]

that's true. 

 

one thing I don't understand about gold and bitcoin is how the price can be so much higher than the cost to mine.  shouldn't the two converge over time?

 

Price is subjective and completely a function of supply and demand, not cost or labor. Marx had the same theory and was wrong.

 

You don't think the difference arbitrages away over time?

[thepupil]

that's true. 

 

one thing I don't understand about gold and bitcoin is how the price can be so much higher than the cost to mine.  shouldn't the two converge over time?

 

The supply of above ground gold is much larger than the amount mined every year (since gold is durable and rarely lost/destroyed and has been mined for 1000’s of years). Gold price is more driven by changes in demand than changes in  supply (vs a mix of both) unlike say a consumable hydrocarbon or almonds.

 

Here’s a source that estimates 197K tons ever mined vs 2-3k / year

https://www.gold.org/about-gold/gold-supply/gold-mining/how-much-gold

[JRM]

that's true. 

 

one thing I don't understand about gold and bitcoin is how the price can be so much higher than the cost to mine.  shouldn't the two converge over time?

 

The supply of above ground gold is much larger than the amount mined every year (since gold is durable and rarely lost/destroyed and has been mined for 1000’s of years). Gold price is more driven by changes in demand than changes in  supply (vs a mix of both) unlike say a consumable hydrocarbon or almonds.

 

Here’s a source that estimates 197K tons ever mined vs 2-3k / year

https://www.gold.org/about-gold/gold-supply/gold-mining/how-much-gold

 

Isn't there still some basic economics at work, though?  Over time the AISC to mine the gold goes up, and will continue to go up unless new reserves are discovered.  A miner will not mine the gold unless they can sell it at a profit.  If the spot price is way above the AISC then miners can make a profit on the harder to get stuff.  Isn't this what plays out every cycle?  Then the spot price drops and a bunch of miners get wiped out.

[thepupil]

Oh yes, economics absolutely apply. I’m just saying it’s different than other commodities given the ratio of that which is above ground to being produced.

 

Gold has responded to big supply growth in the past (digging deep here but I recall the Spaniards encountering this issue when they raped the Americas of gold/silver and experiencing inflation (because of too much money which was then gold and silver)). I think a similar thing happened in the California gold rush.

 

Here it is. My AP Euro teacher would be so proud right now:

https://en.m.wikipedia.org/wiki/Price_revolution#Background

 

My point is it’s not as pure of a commodity supply/demand dynamic like a consumable(food, o&g, etc). That’s all. I’m not trying to say economics does not apply.

 

For the same reason, if gold were below its cost of production, I don’t think it would be a good argument to be long of gold, because if no one wants to buy the cubic Olympic swimming pool of above ground gold, the cost to produce it doesn’t matter.

[SharperDingaan]

When folks think of Gold and BTC being functional equivalents, the implied assumption is that 1oz Gold = 1 BTC. The reality of course is that the Gold/BTC 'exchange rate' is NOT 1.0000, and NOT stable. Plot the exchange rate over time, and you get a nice 'options like' curve. Point? Gold/BTC are just different asset classes in the same 'demand' space - and NOT equivalents.

 

Price has nothing to do with production cost, it is simply current demand divided by (new supply + change in float). Float simply being the quantity of gold/BTC available for trading, versus the total quantity of gold/BTC ever mined since day-1. In the BTC world every time a whale sells, the float dramatically increases, and price drops like a brick.

 

Most folks don't recognize that the 'market' is BOTH the physical (physical, mutual funds, etf's) AND the paper market (derivatives). Obvious, to those with experience from the commodities markets; not so much to most other people in this space. And material, because many of these forms include different degrees of leverage.

 

Not for everyone, so pick your spots accordingly.

 

SD

 

 

 

 

[rkbabang]

that's true. 

 

one thing I don't understand about gold and bitcoin is how the price can be so much higher than the cost to mine.  shouldn't the two converge over time?

 

Price is subjective and completely a function of supply and demand, not cost or labor. Marx had the same theory and was wrong.

 

You don't think the difference arbitrages away over time?

 

No.  Gold has been around as long as civilization (probably long before) and it hasn't yet.  How much time are you talking?

[rkbabang]

that's true. 

 

one thing I don't understand about gold and bitcoin is how the price can be so much higher than the cost to mine.  shouldn't the two converge over time?

 

Price is subjective and completely a function of supply and demand, not cost or labor. Marx had the same theory and was wrong.

 

You don't think the difference arbitrages away over time?

 

No.  Gold has been around as long as civilization (probably long before) and it hasn't yet.  How much time are you talking?

 

To expand on this a little.  Price is subjective.  Read that again.  Price is subjective.  For everything. All commodities, BTC, stocks, goods, services, metals, gems, labor.    Cost comes into play when you are trying to figure out whether or not it is worth producing it.  If your cost to produce it is more than you could get for it then it probably isn't a good idea to produce more.  If your cost is less than you can get it might be a good idea to produce more.  But your cost of production has no effect on value.  Producing more can effect how people value it because it increases the supply, but no one cares how much it costs to produce (other than the producer himself).

 

[Seanzy]

JRM, I highly recommend reading "The Bitcoin Standard", in it, they discuss the ratio of stock to flow of gold, bitcoin, and others.

[JRM]

JRM, I highly recommend reading "The Bitcoin Standard", in it, they discuss the ratio of stock to flow of gold, bitcoin, and others.

 

Thanks.  I've read a couple of books on Bitcoin, haven't read that one yet.

[Seanzy]

Question:

I remember reading Warren Buffett made money in gold and his rationale was that he was by buying it at a price below its cost to pull it out of the ground. Why was this sound investment reasoning? If cost to produce doesn't really affect value/market price of gold, then was he also anticipating some sort of rise in the price of gold?

 

[thepupil]

Question:

I remember reading Warren Buffett made money in gold and his rationale was that he was by buying it at a price below its cost to pull it out of the ground. Why was this sound investment reasoning? If cost to produce doesn't really affect value/market price of gold, then was he also anticipating some sort of rise in the price of gold?

 

I don't recall Buffett ever buying gold the commodity (Berkshire (probably not buffett) did buy GOLD (Barrick Gold) recently)

 

Are you thinking of this? He made a little in silver back in the day.

https://www.gurufocus.com/news/906807/warren-buffetts-giant-silver-trade-

[simplefocus]

MSTR is the best risk/reward for Bitcoin.  1/3 of the company's market cap is in Bitcoin, and the software business alone is worth the current market cap.

 

Citron Research has a target price $700.

 

https://citronresearch.com/wp-content/uploads/2020/11/MicroStrategy-The-Best-Way-To-Own-Bitcoin.pdf

[TwoCitiesCapital]

Question:

I remember reading Warren Buffett made money in gold and his rationale was that he was by buying it at a price below its cost to pull it out of the ground. Why was this sound investment reasoning? If cost to produce doesn't really affect value/market price of gold, then was he also anticipating some sort of rise in the price of gold?

 

The cost of production matters assuming that there is demand for the product.

 

Demand is the ultimate concern, but once you ascertain that there is demand, it can't be supplied unless prices provide the incentive to provide it. The price creates/incentives the supply.

 

Who cares if it costs $800/oz to take gold out of the ground if no one wants to own it. Nobody

 

But it matters a lot if people do want to own it, because the price can't stay below $800/oz in order to provide it.

 

 

[Gregmal]

Elon Musk is probably the only person in the world who could start a gold mining company and find a way to make money selling gold that cost $800 an oz to get out of the ground, for $300 an oz. This may in fact be the fallback for Boring...should flamethrowers cease being profitable. Unless he's planning to use SpaceX to mine asteroids...which would be a game changer!

[rkbabang]

Elon Musk is probably the only person in the world who could start a gold mining company and find a way to make money selling gold that cost $800 an oz to get out of the ground, for $300 an oz. This may in fact be the fallback for Boring...should flamethrowers cease being profitable. Unless he's planning to use SpaceX to mine asteroids...which would be a game changer!

 

Even if he just broke even or even operated at a loss he'd be able to issue stock and raise billions.

[JRM]

Entertaining on multiple levels:

 

https://twitter.com/elonmusk/status/1340573003579617280?source=content_type%3Areact%7Cfirst_level_url%3Anews%7Csection%3Amain_content%7Cbutton%3Abody_link

[Gregmal]

https://fortune.com/2020/12/21/ripple-to-be-sued-by-sec-cryptocurrency-xrp/

 

Probably why you dont want to pay for XRP if you are buying Ripple shares....

[SharperDingaan]

The only way out is to prove that Ripple is either a Utility Token, on a Non-Fungible Token - and it is clearly neither.

Sadly it's not really practical to short it unless you already have it, and intend to swing trade.

 

Now a swift lad, with a pretty good idea as to when the rabbit was coming out ....  :)

Sometimes it's just better to walk away!

 

SD

 

[rkbabang]

XRP certainly isn't a cryptocurrency, it sounds like they are trying to make the case that XRP is their product, not a security.  That seems like a reasonable claim.

 

"Ripple has pushed back aggressively for years on the notion that XRP is a security. The company notes it does not have discretion to tap the reserve funds as it wishes, and that XRP has become increasingly decentralized as banks and other merchants use it as a bridge currency in cross-border transactions. According to Garlinghouse, the SEC regarding XRP as a security controlled by Ripple is akin to viewing oil as a security controlled by Exxon."

[TwoCitiesCapital]

The premium on GBTC surpassed 35% early this morning. 30-35% has signalled short-term tops in sentiment in recent months, but that doesn't mean it couldn't go higher in a frenzy like 2017 OR that you'd lose money buying it today if BTC keeps on keeping on.

 

Just the first indicator I watch for overly bullish sentiment. I noted back around ~18k that even after the 80% rally we'd seen, that its NAV was still within reasonable bounds of recent history and not bubbly - now we're getting there.

 

Mayer multiple is 1.88 (multiple to 200 day moving average). 2.4 is the typical sell signal in a euphoric rise - though it has gone much higher (like 3x+ in 2017) before they bust. Keeping in mind that the 200 day moving average is rising every day, 2.4x sell signal will likely be triggered around ~30-35k if it happens in the next 2-3 months.

 

It's better for all of us if it takes its sweet time in getting there though - makes the stock to flow forecast of 100k by the end of 2021 a more reasonable topping point if the 200 DMA is given time to rise to 25-30k instead of trying to make it there when its currently at 12k.

 

Happy trading all

 

Following up on this - GBTC premium has traded up around 35-40% for the last few days before closing today ~30%. Too soon to say if this is the reversion in sentiment starting, but going to guess that the shirt term top is in for BTC @ 24k and we'll see some profit taking and consolidation for the next few weeks.

 

Maybe I'm wrong as I recognize stimulus checks of $600-$2000 might still be coming and used to speculate - but the expansion/contraction in GBTC premium has been pretty predictive of overall sentiment and price direction in the past.

 

Has also provided wonderful trading opportunities (buying @ a 10% premium and selling between 25-40% premiums gave me an extra 100% return on top of the underlying BTC price), but I'd probably going away ina few months with Vanguard pushing for a BTC ETF.

[rkbabang]

A lot of Christmas Bitcoin buying.

[Gregmal]

Just wait til the poor people get their $2000 checks! BTC to $40k! That guy Trump who is only out for himself seems to be fighting pretty hard for those losers to get their checks. Even though they hate him. Doesnt make a whole lot of sense. I mean, its not like they can spend them at Mar a Lago.

[Aberhound]

Did any other board members get into CEL tokens this year? In March I realized that  the impact of Covid would cause a financial debt crisis then a Monetary system crisis as massive debts would be added and GDP would contract in an already over indebted economy. As Hayek says governments will have a choice of a severe downturn or collapsing the monetary system.

 

So I asked myself, as people increasingly lose confidence where in a fiat system would they feel safe holding their wealth? Eventually confidence in central banks and governments will collapse triggering the crises. Anyone using leverage will suffer.

 

I discovered Celsius Network run by Alex Mashinsky. He has created a company designed to replace banks. They pay 80% of revenues to depositors. Assets have grown over 7 fold this year to from $450M to $3.3B. As the assets have grown they become increasingly profitable as the same number of people can earn more in the business of secured lending of assets. They are the ones lending BTC to many institutions for arbitrage etc.. Celsius uses no leverage so will be a major beneficiary of the collapse in confidence.

 

Most of the value accrues to CEL token holders although shareholders benefit indirectly by holding almost half of the CEL tokens.

 

Anyone invested has made 10 to 40 fold returns this year. Next year likely will be significantly better as you have the 4 year BTC cycle summer period overlaid on a company growing rapidly and starting to rise up the early adopter phase. It will be interesting to see the two cycles overlay in BTC winter. Which will predominate? Celsius Network constantly buys CEL tokens to pay the weekly interest due to depositors. They buy most dips which has prevented whale attack price manipulation. Celsius is in the early adopter phase of the S curve of technological adoption with 93,694 active wallets. Celsius publishes most pertinent data, much of it real time and has been increasing transparency. Their business model is simple and has been fully explained and only slightly varied. Alex explains it as "doing well by doing well for others" which is very close to Adam Smith's "invisible hand". Capitalism would have much broader support if more CEOs emulate Alex Mashinsky.

 

Alex teaches prudent saving in his weekly AMAs. Anyone following his advice will no longer be poor no matter whether they can save $10 or $10,000. 93% of Celsians HODL their CEL due to strong incentives. If you earn in CEL and include compound gains your returns are 30 to 60% APR on crypto deposits during BTC spring and summer. In BTC winter probably switch to stablecoins including stablecoin gold where you can earn 4 to 5% interest on gold deposits. The have paid $161 million in interest on crypto deposits and no one is close. They are already big enough that they already have the first mover advantage locked in where they get the best deals with the least risk. By the end of next year they likely will be the biggest BTC miners in the US. For most people holding assets with Celsius is likely much safer for themselves and their heirs than holding the assets themselves in hardware wallets. For those who believe that "no key means no crypto" ask yourself if the returns are sufficient to offset the risk of someone else holding your key and what will happen if you die? At least with Celsius your executor can retrieve your deposits with a copy of the will, a death certificate and depending on jurisdiction probate, much like bank deposits.

 

The Celsius approach is what will bring millions into cryptocurrencies which is one of Alex's goals. He is one of the best CEOs who I predict will be the fastest to create a trillion dollar increase in value for investors and depositors.

 

[undervalued]

Just wait til the poor people get their $2000 checks! BTC to $40k! That guy Trump who is only out for himself seems to be fighting pretty hard for those losers to get their checks. Even though they hate him. Doesnt make a whole lot of sense. I mean, its not like they can spend them at Mar a Lago.

 

I love it lol