Bitcoin - Lets see if WCI's head explodes

[docnews]

Just because something is limited and rare does not mean it has value. If I go create a few Lordosis Nickles I doubt I would get much for them. It is only worth what someone is willing to pay for it. Right now people are willing to pay for Bitcoin. I do not have confidence that it will continue.

Why were people willing to buy Bitcoin first? Maybe they saw value. You probably own part of PayPal through an index fund. How does such a company create value by assisting transactions but not selling or owning any product? Bitcoin is a mutually owned service company much like Vanguard. It has some intrinsic value otherwise it wouldn't have started to gain in value. It may be superseded by another but it's hard to ignore it has some value now.

[bullsdoc]

Why were people willing to buy Bitcoin first? Maybe they saw value. You probably own part of PayPal through an index fund. How does such a company create value by assisting transactions but not selling or owning any product? Bitcoin is a mutually owned service company much like Vanguard. It has some intrinsic value otherwise it wouldn't have started to gain in value. It may be superseded by another but it's hard to ignore it has some value now.

Are a Bitcoin expert? Because Paypal and Vanguard are companies that do actual things. If this is a line being pushed by people familiar with Bitcoin...I would come up with a different strategy

[docnews]

Are a Bitcoin expert? Because Paypal and Vanguard are companies that do actual things. If this is a line being pushed by people familiar with Bitcoin...I would come up with a different strategy

No I'm no expert. Bitcoin does actual things too but I realize it's easier to see for those companies I was using as an analogy because they have people on payroll. It is not as comprehensive as the dollar but it has it's uses. Best cases are those in financially unsound and restrictive countries with limited access to the US dollar. Most of what Vanguard does is automated and the value it creates is primarily given back to its users. In a similar fashion Bitcoin has a few who provide computer service for it but mostly the value others see in it translates into more value for it's users.

[Perry Ict]

Why do people keep saying that Bitcoin doesn't track with the market when...it's been tracking with the market? Am I missing something here? (Apologize if missed this discussion earlier in the thread).

I don't care one way or another, but just out of curiosity I peaked at a couple charts and to me, bitcoin does not appear to track with the market, particularly long term (to the extent you can look long term, anyway).

[jacoavlu]

comparing bitcoin to PayPal or Vanguard or any other company makes no sense.

When you buy shares of a company you are becoming a fractional owner, you are purchasing a proportionate claim on the future earnings of the company, which may be paid to you as periodic cash dividends and or reflected in an increase in the intrinsic value of the company by retained earnings and growth and long term should result in an increase in the value of your owned shares

none of that applies to bitcoin

If you’re a bitcoin investor you must believe that someone else will pay you more for your bitcoins than what you buy them for. This may in fact happen, for one or more reasons. Those investing in bitcoin should be able to provide one or more reasons why they believe this to be the case.

[docnews]

comparing bitcoin to PayPal or Vanguard or any other company makes no sense.

When you buy shares of a company you are becoming a fractional owner, you are purchasing a proportionate claim on the future earnings of the company, which may be paid to you as periodic cash dividends and or reflected in an increase in the intrinsic value of the company by retained earnings and growth and long term should result in an increase in the value of your owned shares

none of that applies to bitcoin

If you’re a bitcoin investor you must believe that someone else will pay you more for your bitcoins than what you buy them for. This may in fact happen, for one or more reasons. Those investing in bitcoin should be able to provide one or more reasons why they believe this to be the case.

It was more of an analogy since if you own Bitcoin
"you are purchasing a proportionate claim on the future" value of the system. If another company finds a better way to index don't you think stock in Vanguard would go down? Or if another company did a much better job of online credit card purchasing wouldn't PayPal tank? Not all equity has eternal value. The physical value of Vanguard/PayPal is miniscule especially if everyone stopped using their services. Same for Bitcoin.

There have been many use cases but obviously many of them are outside the US dollar domain. Do you really think all people who bought Bitcoin are pure speculation? If so, why didn't it collapse after the bubble burst? Many people are in situations where they are underbanked or can't trust their currency or are having trouble moving money between countries. Block chain tech has value and so far Bitcoin is the best implementation.

I promise I'm not some crazy stock picker or gambler. Most of my money is in Vanguard funds. I don't have debt other than a 15 year mortgage. I just see some value here but I'm not as confident as the OP to say it will reach any certain value. It's definitely an interesting tool.

[jacoavlu]

It was more of an analogy since if you own Bitcoin
"you are purchasing a proportionate claim on the future" value of the system. If another company finds a better way to index don't you think stock in Vanguard would go down? Or if another company did a much better job of online credit card purchasing wouldn't PayPal tank? Not all equity has eternal value. The physical value of Vanguard/PayPal is miniscule especially if everyone stopped using their services. Same for Bitcoin.

Vanguard is not publicly traded. Schwab is a better example. They do all sorts of stuff. Banking products, financial advise (salesmen), brokerage products and services, etc. They generated over $10B in revenue last year.

Paypal provides a service as an intermediary in money transfers, allows me to pay my neighbor with a credit card if I want to, and charges a fee for doing so. They built their business processing payments for ebay purchases. They have data centers and employees and I'm sure do a lot more than I know of. They generated over $18B in revenue last year

What was bitcoin's revenue last year? And net income? Did bitcoin pay a dividend? Or retain capital for growth projects? Or repurchase stock, resulting in your fractional ownership increasing?


I like how you took my phase and put it in quotes followed by "value of the system" . That's kind of my point, that doesn't really mean anything. "Value" in the way you seem to be using it is not the same as a known revenue stream such as those provided by the companies you've stated.


An analogy to gold is much closer. It doesn't provide a revenue stream and you can't really do much with it. But it's considered by many to be worth something so it functions as a store of value.

But clearly bitcoin can do a lot more than gold. There is potential. But that's not based on the same principles of equities investment.

[Perry Ict]

If you’re a bitcoin investor you must believe that someone else will pay you more for your bitcoins than what you buy them for.

I would argue that this applies to any non-dividend paying stocks also.

[jacoavlu]

I would argue that this applies to any non-dividend paying stocks also.

sure. And there’s more than a century’s worth of data times thousands of companies that this has been true for. On average and over time this is precisely what happens. And for good reason. Companies grow, they innovate, they earn more and more money, thus it costs you or someone else more to buy a piece of it.

thats easy to understand.

you can’t use the same reason to explain why bitcoin will be worth more in the future. It might be worth more, for other reasons. Or it might be worth nothing.

[G]

Bitcoin conversations always crack me up. I mean, what possible information would arise that could cause one side of the debate to switch opinions?

How come we can't have 8 page threads about whisky?

[Cubicle]

To me, bitcoin is like gold; it's value is all perception. Among people who have opposite interests. One wants a high value, one wants a low value.

If I own 1 out of 1,000,000 shares of a company that makes 1,000,000 pizzas per year, I own the resources/capability & production of 1 pizza per year. There is a tangible product (or service) that can be traced from my holding.

Before mentioning any company can go bankrupt, any cryptocurrency can crash. Without warning. Both have happened.

Company fraud? Theft/hacking of cryptocurrency. Without warning. Both have happened.

I am a proponent that if I cannot understand an investment within 5 minutes, I personally cannot be comfortable holding/owning it. If it takes a dedicated person several years to just start getting into it, & they (or anyone else for the matter) cannot convey succinct reasoning in plain language, then good luck to you. I'll be happy with my nominal 4-5% returns.

I'm not lucky or smart enough to make quick easy money. That's why I'm not retired or married to a wealthy wife.

Such a small portion of a portfolio doesn't show much commitment.

[Perry Ict]

sure. And there’s more than a century’s worth of data times thousands of companies that this has been true for. On average and over time this is precisely what happens. And for good reason. Companies grow, they innovate, they earn more and more money, thus it costs you or someone else more to buy a piece of it.

thats easy to understand.

In an ideal world that's what happens. In a real life market full of irrational behavior, you are trading pieces of paper with prices that can swing wildly from extreme to extreme often without any significant change in fundamentals of the corresponding company. For all intents and purposes, you don't really own "a piece of it", you are just along for the ride hoping to sell it to a "greater fool" at the right time.

On the other hand, in my opinion, that doesn't quite apply the same way if you own a dividend paying company, since, in principle, you are receiving a cut of their earnings or cash flow for your ownership, regardless of what the market price is doing.

[bullsdoc]

To me, bitcoin is like gold; it's value is all perception. Among people who have opposite interests. One wants a high value, one wants a low value.

If I own 1 out of 1,000,000 shares of a company that makes 1,000,000 pizzas per year, I own the resources/capability & production of 1 pizza per year. There is a tangible product (or service) that can be traced from my holding.

Before mentioning any company can go bankrupt, any cryptocurrency can crash. Without warning. Both have happened.

Company fraud? Theft/hacking of cryptocurrency. Without warning. Both have happened.

I am a proponent that if I cannot understand an investment within 5 minutes, I personally cannot be comfortable holding/owning it. If it takes a dedicated person several years to just start getting into it, & they (or anyone else for the matter) cannot convey succinct reasoning in plain language, then good luck to you. I'll be happy with my nominal 4-5% returns.

I'm not lucky or smart enough to make quick easy money. That's why I'm not retired or married to a wealthy wife.

Such a small portion of a portfolio doesn't show much commitment.

I would argue that Bitcoin is significantly less stable and less easy to understand than gold. Gold actually makes a lot of sense and you could make an argument holds a place as a small percentage of some portfolios as a hedge during periods of instability when bonds are just completely tanked up (Not unlike now, honestly). Bitcoin, the underlying fundamentals of blockchain hold great promise, but the currency itself is so dangerous and so potentially manipulated, its nothing more than gambling. And there is nothing necessarily wrong with gambling in the way there is nothing wrong with going to Las Vegas. But its not investing, not for now.

[jacoavlu]

In an ideal world that's what happens. In a real life market full of irrational behavior, you are trading pieces of paper with prices that can swing wildly from extreme to extreme often without any significant change in fundamentals of the corresponding company. For all intents and purposes, you don't really own "a piece of it", you are just along for the ride hoping to sell it to a "greater fool" at the right time.

short term, anything can happen, but longer term, that's just not the case. The famous quote attributed to Benjamin Graham is

In the short run, the market is a voting machine, but in the long run, it is a weighing machine.

On the other hand, in my opinion, that doesn't quite apply the same way if you own a dividend paying company, since, in principle, you are receiving a cut of their earnings or cash flow for your ownership, regardless of what the market price is doing.

we can just agree to disagree on this, the dividend argument has been f'd out already

[Perry Ict]

short term, anything can happen, but longer term, that's just not the case. The famous quote attributed to Benjamin Graham is

In the short run, the market is a voting machine, but in the long run, it is a weighing machine.

Long term, anything can happen too. What happened to polaroid? Webvan? What will happen to Nvidia at a PE closing in on the triple digits and a price to sales ratio closing in on 20? Is that going up or down long term? What you say might apply to the market overall, but not necessarily to individual companies.