Let's talk about cryptocurrency...

[Zaphod]

Raddoc123 wrote:

I’ve been a buy and hold 3 fund indexer for 10 years.  I became intrigued by cryptocurrencies recently after doing some research and made a small investment (about .5% of portfolio).    I realize that the idea may fall flat on its face as there are issues with scale and governments are certainly going to intervene at some point.  But the idea is compelling and has a chance of being revolutionary.  What would people think of the internet, personal computers, index funds in the 60s?  We have exposure to most industries through our index funds but little to digital currencies.    I did some research and am using coinbase and a vault within coinbase for extra protection.  I am fully ready for bitcoin and etherium to go to 0, but I believe there is a chance that we are seeing the internet of the finance world being born.

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There is a small chance there is some revolutionary technological aspect to it for sure. However, it is highly unlikely to be within any of the currently proposed use cases that have the most support. Almost every single one of the ideas they float about has more friction, is slower and more costly than the current way.

Whats hilarious is it now branching out into financialization of everything, and people that are apparently totally ignorant of I guess that markets exist and how they work getting all excited at the "tokenization" of everything where one can participate, trade, invest in anything using tokens. Yes! Great idea, so great they invented that hundreds of years ago, its called the market and equity, etc...

Like any early market, it will be rife with mostly fraud, and the base case of best utilization is not likely even appreciated right now.

[Raddoc123]

Cryptocurrencies like bitcoin are internet gold. A way of storing value without 3rd party involvement or central control. Technology- blockchain behind it may one day revolutionize the finance world like internet did for information transfer. No one know what will happen for sure. But every year since bitcoin started (now 8 yrs) many have predicted its death. Here we are closing in on 5k a coin, more applications by the day, acceptance world wide, and soon traditonal investment vehicles like etfs available. Should be fun to see what happens!

[Zaphod]

Raddoc123 wrote:

Cryptocurrencies like bitcoin are internet gold. A way of storing value without 3rd party involvement or central control. Technology- blockchain behind it may one day revolutionize the finance world like internet did for information transfer. No one know what will happen for sure. But every year since bitcoin started (now 8 yrs) many have predicted its death. Here we are closing in on 5k a coin, more applications by the day, acceptance world wide, and soon traditonal investment vehicles like etfs available. Should be fun to see what happens!

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I am not disagreeing with anything except the hyperbolic nature of the talk. For example, how is bitcoin de-centralized, and in some places a third party is what gives things legitimacy and safety. People talk about clearinghouses etc...which is a third party, and again, we already have these structures in place. There are a couple good use cases, the rest of the "press button to apply ICO to issue" is simple bubble behavior and mania. When that goes kaput, whats leftover will be the cases where its actually going to be successful, which will be a much more limited scope and some novel ideas we havent considered yet.

 

And again, you say one day etfs, etc...basically reinventing the wheel with a slower more costly vehicle, we have a wheel.

[Raddoc123]

I think the value in these cryptocurrencies is a store of value outside the system which is controlled by governments that can tax you, confiscate your assets, print money causing hyperinflation etc.  A bonus is that it is liquid and you can convert it back to local currency or pay someone else with the cryptocurrency.  On top of that, the block chain technology behind these coins is exciting and has a lot of potential.

 

Having said that, owning total us and total international index funds would probably be enough to reap the benefits in the future.  But, I don't think it is wrong to take some play money and buy some coins.  Some are even considering cryptocurrency a new asst class: http://research.ark-invest.com/hubfs/1_Download_Files_ARK-Invest/White_Papers/Bitcoin-Ringing-The-Bell-For-A-New-Asset-Class.pdf

[Zaphod]

Raddoc123 wrote:

I think the value in these cryptocurrencies is a store of value outside the system which is controlled by governments that can tax you, confiscate your assets, print money causing hyperinflation etc.  A bonus is that it is liquid and you can convert it back to local currency or pay someone else with the cryptocurrency.  On top of that, the block chain technology behind these coins is exciting and has a lot of potential.

 

Having said that, owning total us and total international index funds would probably be enough to reap the benefits in the future.  But, I don’t think it is wrong to take some play money and buy some coins.  Some are even considering cryptocurrency a new asst class: http://research.ark-invest.com/hubfs/1_Download_Files_ARK-Invest/White_Papers/Bitcoin-Ringing-The-Bell-For-A-New-Asset-Class.pdf

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Thats the same argument as gold of course. Converting back to local currency then negates those benefits, but maybe different situations.

Theres nothing wrong with trying to ride a bubble and seeing what happens with an appropriately small negative expected value portion of your portfolio. Just have a plan and treat accordingly.

The dot com bust was huge, and all these places and basically fake businesses went under yet the promise of those companies and hype behind them did in fact become a reality. Just took longer and it wasnt necessarily where people thought, etc...