Cryptocurrencies

[Parsad]

7 hours ago, SharperDingaan said:

Like it or not, the crypto meltdown is proving the value of BTC and ETH under hostile conditions; they haven't gone to 'zero', and most would also argue that they are unlikely to. That reality is being rubbed in our faces, and we don't like what we see; BTC and ETH clearly have 'value' - and we can't calculate it !!! 

 

The crypto ecosystem is going through its first real shakedown, and there will be failures/collapses - good! We all find out just how robust the various 'pegs', 'tethers', digital-dollar, and BTC/ETH futures/options actually are. Proof of concept under hostile conditions; and a material de-risking that is long overdue.

 

CBDC, and re-plumbed securities trade/confirm/settlement is in the wings, waiting to go. Most would also think that once the futures/options market pass the test, CB's will be in the market - doing a little stress test 'nudging' here and there. There is a reason why regulatory oversight is reactive, and not proactive. 

 

BTC is the Yin to CBDC Yang. Venereal disease (BTC) has been with mankind since the beginning of time, and despite every effort known to man - it is still with us today. BTC is not going away!

 

SD

 

 

 

Well that's that!  I'm not touching BTC if you're equating it with crabs or herpes!  

 

SharperDingaan says bitcoin like gonorrhea...rhea today, gonor tomorrow!  Cheers!

[Parsad]

7 hours ago, Gregmal said:

I mean Charlie has a lot of awesome advice. He and his followers also got nailed on BABA? Why is losing tons of money on baba different than losing money on BTC? Is it just because we have a greater comfort level with the framework needed to lose money on baba?

 

Losing money is losing money...no difference.  Personally, I wouldn't touch BABA or any Chinese stock...just too much political risk for my taste. 

 

The end game for both BABA and BTC have not been written yet.  Charlie made his bet based on the cash flow generating power of the business.  The price a buyer pays for BTC is not based on any calculation, but simply what the market bears or suggests it is worth. 

 

Cheers! 

[rkbabang]

16 minutes ago, Parsad said:

 

Nah, gold is not useless.  Apart from jewelry, we use it in computers, electronics, dentistry, medicine, aerospace, glassmaking, architecture/construction, etc.  It has significant utility value unlike BTC.  Cheers!

 

Gold would have very little value if used only for its industrial uses.  It would be priced much lower and used much more if it wasn't valued as money or a store of value.

 

[Parsad]

7 hours ago, TwoCitiesCapital said:

 

Said differently - 

 

Every commodity is worthless since it doesn't produce cash flows AND the only thing of value in this world is the legal corporate structures. 

 

 

Ex. My personal residence produces no cash flows and thus anyone willing to pay more than 0 for it is insane. 

 

Got it.

 

That's not an accurate description of the asset.  You live in your house.  It is made up of materials that are of value.  You can rent your house to others and generate cash flow.  The land underneath your house has value because other people want to build houses on that land and it is scarce.  Even if there was no house, the land could be used to grow crops and sell in the market.  You could tear down the house and put up a commercial building and generate rental income and run a business from it.  You could turn it into a parking lot and generate fees.  There are a multitude of ways to generate cash flow and the underlying asset has a base intrinsic value.  Very different than cryptocurrencies.  Cheers!

[Parsad]

5 hours ago, Xerxes said:

 

Oh Elon!  That was so God damn funny.  I'm crying with laughter at my desk!  Cheers!

[Gregmal]

3 minutes ago, rkbabang said:

 

Gold would have very little value if used only for its industrial uses.  It would be priced much lower and used much more if it wasn't valued as money or a store of value.

 

Silver has more utility than gold so if solely based on that, gold is overvalued by like 99%.

[rkbabang]

6 minutes ago, Parsad said:

Losing money is losing money...no difference.  Personally, I wouldn't touch BABA or any Chinese stock...just too much political risk for my taste. 

 

The end game for both BABA and BTC have not been written yet.  Charlie made his bet based on the cash flow generating power of the business.  The price a buyer pays for BTC is not based on any calculation, but simply what the market bears or suggests it is worth. 

 

I don't know what the ultimate value of BTC will be, or even should be.  No one does, but that doesn't mean it isn't calculable.  There are 21M BTC (I know some have been lost, so 21M at most).  The wealth which it will need to ultimately store is in the tens (maybe hundreds) of trillions USD.   You can get a rough number from that.  You don't need to be exact just roughly right.  If I am correct it will reach a point where it is stable and grow only with the productivity of the economy.  It will be a roller coaster until then as money is as much a cultural thing as it is a market or political thing.  It will take time.

 

[Parsad]

5 hours ago, TwoCitiesCapital said:

 

+1

 

All the respect in the world for Charlie and Warren. But they've entirely missed the boat on basically all things tech related historically. I don't know why I'd expect this to be anything different for them. 

 

You don't have to invest in everything to do well!

 

By the way, you guys do know that Buffett's best friend is a guy named Bill Gates?  If you think Buffett doesn't know about technology, you're probably greatly mistaken. 

 

Also, Munger was way ahead of everyone when he invested in BYD...well before the Tesla wagon jumpers joined and the technology gurus espousing green energy, etc.  Buffett also made 3,000% on his BYD investment that he bought 13 years ago!

 

Two old farts who are always underestimated!

 

Cheers!

[rkbabang]

6 minutes ago, Gregmal said:

Silver has more utility than gold so if solely based on that, gold is overvalued by like 99%.

 

 

Not an exact comparison, since silver tarnishes and gold doesn't. Aluminum would actually be a better comparison.  Gold however is far more rare than silver or aluminum.   So maybe the over valuation isn't quite 99%, but you are in the ball park. 

[Parsad]

14 minutes ago, rkbabang said:

 

Gold would have very little value if used only for its industrial uses.  It would be priced much lower and used much more if it wasn't valued as money or a store of value.

 

 

That's my whole point!  It's arbitrary like crypto.  But at least gold has some utility and would have some underlying intrinsic value...even if it's a lot lower.  Crypto has no underlying value, no assets backing it, no utility, no revenues, nothing!  You can't even enjoy looking at it.

 

It's a much lesser form of gold, collectibles or art!  Cheers!

[rkbabang]

Just now, Parsad said:

 

That's my whole point!  It's arbitrary like crypto.  But at least gold has some utility and would have some underlying intrinsic value...even if it's a lot lower.  Crypto has no underlying value, no assets backing it, no utility, no revenues, nothing!  You can't even enjoy looking at it.

 

It's a much lesser form of gold, collectibles or art!  Cheers!

 

I look at it differently.  The money / store of value function of gold IS its utility.  This is something humanity needs, same as we need transportation, communications, food, water, etc, etc.   BTC is a pure play store of value, better at it than gold, without the other uses complicating things.

 

[TwoCitiesCapital]

50 minutes ago, Parsad said:

 

That's not an accurate description of the asset.  You live in your house.  It is made up of materials that are of value.  You can rent your house to others and generate cash flow.  The land underneath your house has value because other people want to build houses on that land and it is scarce.  Even if there was no house, the land could be used to grow crops and sell in the market.  You could tear down the house and put up a commercial building and generate rental income and run a business from it.  You could turn it into a parking lot and generate fees.  There are a multitude of ways to generate cash flow and the underlying asset has a base intrinsic value.  Very different than cryptocurrencies.  Cheers!

 

Those materials produce no cash flows, thus by his definition are of no value. They're simply inputs into a house. The house COULd produce cash flows, but doesn't (actual a net cash drag with the mortgage). So it's of negative value to me or to anyone who buys it as a primary residence? Or is it only worth it's option value of those projects? 

 

The other thing are POSSIBLE but not probable. To do them you'd need to buy the majority of the units in the building, vote to sell the building, vote to abolish the HOA, kick everyone else out, and then demolish it to rebuild. Nobody is going to do that in a city alreadt overbuilt for it's population. So should my place be worth $0, or less, based on this analysis. 

 

Or can we all just agree this is a stupid exercise to try to value your primary residence on a DCF basis? 

 

DCF is for valuing distributable profits from a corporate entity. Not commodities. Not homes. Not even all real estate as demonstrated by plenty of people doing well enough with negative cash flow properties in places like NYC. 

 

 

Edited November 14, 2022 by TwoCitiesCapital

[Longnose]

I listened to some stuff by this guy not to long ago and he had some interesting takes on how PoW (proof of work) established by BTC mining has created one of the strongest security protocols out there and it is a self reinforcing security protocol. 

 

https://twitter.com/JasonPLowery/status/1592276525633916928?s=20&t=ZcYhZbjNzVDrha8EDmDsdQ

[TwoCitiesCapital]

1 hour ago, Surya said:

Two common sense questions that come two my mind when i see the comment's in this thread.

 

1. Printing Money out of thin air and spending tax money collected from public is the power of any sovereign nation and their elected officials, why would they let that power taken away 

 

2. Why nobody talks about using crypto to buy pack of cigarettes or dozen eggs as nakomoto intended

 

 

1) is as good of question as any. My general guess would be hubris and ignorance as they obviously don't feel threatened by it. Let me ask you a question in return, of all the prior reserve currencies that failed, which were the ones the government "let" power be taken away? 

 

2) you've obviously never heard anyone talk about the lightning network which was developed specifically for this application, or El Salvador adopting it as a currency specifically for this application, or Square allowing any payments/receipt to be processed in BTC specifically for this application. So the premise of your question is wrong - plenty of people are talking about this, and developing solutions to do this, and using it. But why not more? Good money drives out bad - I'd rather spend my USD first. 

Edited November 14, 2022 by TwoCitiesCapital

[Ross812]

Gold has a 6000+ year history as a store of value and use as a hard currency. BTC has a 13 year history. 

 

@rkbabang as for valuing BTC by total Fiat/ total BTC - LOL. At best BTC, is an alternative asset class. 

 

During WW2 fiat was worthless for international trade between governments and gold was used as THE hard currency. It was worth about $750/ounce in 2022 dollars. Total world gold reserves amounted to 1.2B ounces in 1950. The total war effort cost $4T in today's dollars and the peak market cap of gold was $900B.    

[TwoCitiesCapital]

42 minutes ago, Parsad said:

 

You don't have to invest in everything to do well!

 

By the way, you guys do know that Buffett's best friend is a guy named Bill Gates?  If you think Buffett doesn't know about technology, you're probably greatly mistaken. 

 

Also, Munger was way ahead of everyone when he invested in BYD...well before the Tesla wagon jumpers joined and the technology gurus espousing green energy, etc.  Buffett also made 3,000% on his BYD investment that he bought 13 years ago!

 

Two old farts who are always underestimated!

 

Cheers!

 

Agreed you don't have to invest in everything. It wasn't a knock against Buffet's track record - just his understanding of tech.

 

The very fact he was so close to Gates and STILL missed investing in Microsoft is even more damning than anything I said if I'm being honest. 

[Parsad]

29 minutes ago, TwoCitiesCapital said:

 

Those materials produce no cash flows, thus by his definition are of no value. They're simply inputs into a house. The house COULd produce cash flows, but doesn't (actual a net cash drag with the mortgage). So it's of negative value to me or to anyone who buys it as a primary residence? Or is it only worth it's option value of those projects? 

 

The other thing are POSSIBLE but not probable. To do them you'd need to buy the majority of the units in the building, vote to sell the building, vote to abolish the HOA, kick everyone else out, and then demolish it to rebuild. Nobody is going to do that in a city alreadt overbuilt for it's population. So should my place be worth $0, or less, based on this analysis. 

 

Or can we all just agree this is a stupid exercise to try to value your primary residence on a DCF basis? 

 

DCF is for valuing distributable profits from a corporate entity. Not commodities. Not homes. Not even all real estate as demonstrated by plenty of people doing well enough with negative cash flow properties in places like NYC. 

 

 

 

You can also determine an investment's intrinsic value by doing a liquidation analysis...sum of the parts.  Graham, Buffett, Munger, they all talk about that too.  Not just DCF. 

 

DCF is Buffett's simple analogy for how corporate valuations can also be done similar to fixed income analysis to determine a fair price to pay.  But it's not the only way to calculate intrinsic value. 

 

Cheers!

[Parsad]

13 minutes ago, TwoCitiesCapital said:

 

Agreed you don't have to invest in everything. It wasn't a knock against Buffet's track record - just his understanding of tech.

 

The very fact he was so close to Gates and STILL missed investing in Microsoft is even more damning than anything I said if I'm being honest. 

 

He also missed Walmart.  Doesn't mean he didn't understand retail.  You don't usually catch all of the fish, including the big ones!  Cheers!

[Spekulatius]

2 hours ago, Gregmal said:

Silver has more utility than gold so if solely based on that, gold is overvalued by like 99%.

This is correct, but Silver is also way more abundant than Gold, which tends to make Gold more valuable. The better comparison would be a platinum or Palladium which have many industrial uses and also tend to be about as rare in the earth crust than Gold.

Edited November 15, 2022 by Spekulatius

[Spooky]

We can all argue about if Bitcoin has value indefinitely. Does it matter? Is it the best use of our limited capital? If it is either a currency (i.e. a replacement to the dollar) or a store of value (i.e. gold), then the historical comparison is not very flattering from a return perspective. See the chart below from Li Lu's value investing in China paper (or stocks for the long run).

 

Why buy Bitcoin over the S&P 500 or the Vanguard Total World Stock Index Fund ETF?

 

 

[TwoCitiesCapital]

3 minutes ago, Spooky said:

We can all argue about if Bitcoin has value indefinitely. Does it matter? Is it the best use of our limited capital? If it is either a currency (i.e. a replacement to the dollar) or a store of value (i.e. gold), then the historical comparison is not very flattering from a return perspective. See the chart below from Li Lu's value investing in China paper (or stocks for the long run).

 

Why buy Bitcoin over the S&P 500 or the Vanguard Total World Stock Index Fund ETF?

 

 

Bitcoin is disinflationary/deflationary by design. No currency/store of value on that chart is so comparing to historical returns for currencies and commodities will be misleading. 

 

As to why to own it, the same reason you'd own any commodity. Demand is expected to outstrip supply - most of bulls think long term BTC adoption will continue while available supply slows be design.

 

This is an entirely inelastic asset class which results in massive swings in price given that inelasticity. Historically those books have lead to higher highs and the busts to higher lows because this is a secular growth trend and not a bubble. 

 

Nobody is telling you to own it instead of an ETF. I'm not in the business of single asset allocations - I own a ton of stocks. I also have a ton of exposure to real estate via my home. And now I have a ton of exposure to crypto too. 

[Spooky]

4 minutes ago, TwoCitiesCapital said:

Bitcoin is disinflationary/deflationary by design. No currency/store of value on that chart is so comparing to historical returns for currencies and commodities will be misleading.

 

Explain this to me like I'm 5. There is a limited supply of gold in the world, how is Bitcoin any different in that regard (just some of it is underground)? If they never printed additional USD, holding it still wouldn't get you a real return.

 

What is the source of the demand for Bitcoin? It is not a commodity which is used for industrial applications. Demand for payments? From what I've seen over the last 10 years Bitcoin adoption for payments hasn't gone very far.

 

What is the case why Bitcoin would outperform the S&P over the long term? With the S&P you own a slice of the 500 largest / most profitable companies in the US which are compounding in value and increasing their earning power over time (regardless if they receive payment in Bitcoin or USD).

 

 

[dealraker]

5 hours ago, TwoCitiesCapital said:

 

What cash flow does aluminum produce? Or is aluminum an input into things manufactured and later sold by corporate entities to produce said cash flows. 

 

Is aluminum valued on a DCF basis? Or just the corporations that produce it and the things that it goes into?

 

If the latter, does that mean aluminum shouldn't have a price? Or does it have a price because its value to someone for something that isn't strictly tangible in a DCF model unto the commodity itself? 

 

And if the latter, why aren't the savings for payments considered in the value proposition of BTC. Surely paying a few pennies instead of 2% of every electronic transaction over a lifetime has value. Surely saving 10-15% on international remittances and currency conversions has value? Surely the ability to self-custody and participate in the electronic payments eco system without the need for an established banking intermediary has value? Surely being able to carry your wealth with you across borders and in a secure manner has value? Surely it's scarcity alone provides some value like any collectible? 

 

But few of these things can be valued by a DCF model because that's an incredibly limited model by which view of the world. 

 

The value is the network - not unlike Facebook's value being its network. It just converts that value to USD via advertising. The BTC network has value too - and it that value is "converted" to $ via the secularly rising price of a BTC. 

 

As far as comparing BTC to a commodity - it's not a new idea. As a matter of the fact, the existing regulatory bodies all believe it is one. Go figure!

 

Disagree with virtually every word you write.   We have a market!

[Dalal.Holdings]

"Bitcoin is disinflationary/deflationary by design."

 

Yet over the last 12 mo, the value of the dollar has declined at rapid rate and Bitcoin's dollar value is waay down...

 

Why? Interest Rates.

 

Rising rates are the nail in the coffin for this and everything like it. Buyer beware.

[Cigarbutt]

1 hour ago, Ross812 said:

Gold has a 6000+ year history as a store of value and use as a hard currency. BTC has a 13 year history. 

 

@rkbabang as for valuing BTC by total Fiat/ total BTC - LOL. At best BTC, is an alternative asset class. 

 

During WW2 fiat was worthless for international trade between governments and gold was used as THE hard currency. It was worth about $750/ounce in 2022 dollars. Total world gold reserves amounted to 1.2B ounces in 1950. The total war effort cost $4T in today's dollars and the peak market cap of gold was $900B.    

Gold becoming a standard was related to its intrinsic characteristics but also and mostly because of recognition of such by (older days) the ruling class and then by social convention (more democratic type). 

In 1717 England, the Glorious Revolution was followed by a financial revolution and, in 1717, the Master of the Mint (Sir Isaac Newton!), the guy behind calculus miscalculated the relative value of silver and gold and while aiming to maintain a bimetallic standard sort of accidentally established the gold standard as social convention came to know it.

Now the responsible fiscal capacity of nations has replaced the gold standard, mostly as a result of domestic primacy. It's been messy and the 'standard' is in terrible need of institutional reform but that does not automatically mean that alternative ideas will reach a sufficient level of recognition as a social convention, given the extreme importance of shared values for units of exchange, stores of value etc. 

Mark Carney (of central bank fame) wrote a book recently titled Values and discusses this aspect. Obviously, he has a certain frame of mind but there are some values that need to be shared. What is value anyway?