Digital currency Bitcoin hits new high before losing S$200 in value in one day

[chialc88]

you mean like this:



On the bubble curve, where are we now?
1) Smart Money
2) Institutional investors
3) Public


On its way to USD 100K.

7th Nov 2017 - an actress asked about the future of bitcoin 
(on behalf of her brother who is a trader)

[yeokiwi]

https://webb-site.com/articles/bitcoinponzi.asp

Let's try to explain, in simple terms, why Bitcoin and other digital pseudo-currencies will fail. Bitcoin is the World's first distributed, decentralised Ponzi scheme. No single operator is running it, and everyone has a chance to participate in it, but its value is determined purely by the weight of money coming into it and the willingness of holders to sell it. Like any Ponzi scheme, earlier participants came in at lower cost, and are now receiving much of the billions of dollars (yes, really) that newcomers are putting in.
Some members of the scheme spend their time telling their friends how they should get in on this Big New Thing and how much money they have already made "on paper", or more accurately "on screen". If your Bitcoins are now "worth" more than you paid for them then you may feel successful, but if you haven't yet cashed out as much as you've put in, then you're still a potential victim. On the other hand, if you've got your cash back or more, then you're already a paid-up and paid-out member of the Bitcoin Ponzi Scheme. And unlike Bernie Madoff, you're probably not going to jail, although some of the self-serving promoters of Bitcoin are skating dangerously close to that if it can be proven that they knew their claims were false and/or were simultaneously selling. Also, unlike the beneficiaries who cashed out of Madoff's funds before he crashed, you probably won't have to pay anything back. That's the beauty of a decentralised Ponzi scheme.
Most of the larger participants will privately admit, if only to themselves, that Bitcoin is a bubble, but they also believe that they can get out before it crashes, or don't much care because they have already cashed out far more than they put in. But just remember this: Bitcoin is essentially a zero-sum game. At any point in time, the cumulative sum of all net cash put in by losers will equal the cumulative sum of all net cash taken out by winners (excluding mining costs).

[Wildreamz]

@yeokiwi

That is certainly a valid analogy.

Another perspective will be that the early investors took the risk to buy in when the technology is nascent; hence they are now rewarded when the technology matures and demand for the virtual asset picks up.

One similar example would be an early investor of Google, buying it when the market cap was small, and it was not certain that the company would take off. Now that the company matures and rakes in boatloads of cash, it disproportionately benefits the early investors that took the equity risk to invest in the company.

Both Google shares and Bitcoin do not pay out dividends, and on top of that, Google shares are structured in a way that gives their founders disproportionate amount of voting rights. Hence, the publicly traded shares is intrinsically almost worthless (unless Larry Page is fighting Sergey Brin for control over the company).

[Wildreamz]

What can we do to protect ourselves from our exposure in stock market ?

I try to exercise proper asset allocation, invest in companies that is likely to be much more successful 5-10 years from now, and pay attention to the news.

[holymage]

"Most people who aren't student of history find it hard to appreciate gold."

What if everyone in the future aren't students of history? What if Asteroid mining makes Gold worthless in the future?

IMO, both gold price and bitcoin price are only victims of supply and demand, nothing less, nothing more.

(not vested in Gold or Bitcoin)

To answer these questions of risk, we have to look possibilities. For example,

1) "What if everyone in the future aren't students of history?"
Is it possible that history will be abandoned in totality? I read somewhere that historically, most people's portfolio will typically have 5-10% weightage in gold. This is to provide a hedge due to the low correlation of gold against other asset classes. Today? It is close to zero portfolio allocation as gold doesn't provide any yield and "does nothing". Despite gold being misunderstood by today's general public, gold price increased from $250 in 2001 to $1260 in 2017 (peaked at $1900 in 2011). This is an annual return of 10%. Central banks still own tons of gold. Why do Central Banks do so when most countries' citizens trust their fiat currencies. Maybe, understanding how the US dollar obtained the status of the world's reserve currency is able to provide an explanation.

2) "What if Asteroid mining makes Gold worthless in the future?"
In fact, gold can be created from other elements using nuclear reactions by altering the atomic structure (protons) of an atom. But are asteroid mining and gold alchemy feasible? Will the cost of energy consumption justify the creation of gold? No. Simply because these are inefficient and expensive compared to current gold prices. There is a very low possibility in the next 50 years that creation of gold will be economically feasible. This is akin to saying "Why invest in stocks or properties when an Asteroid will befall upon earth and unlucky strike the assets you own". That being said, this is definitely one point to take note of as scarcity is a property of money.

Lastly, the value of most assets in this world is a function of supply and demand, nothing less, nothing more. 
The same goes for stocks, bonds, property, gold, cryptocurrencies, tulips etc.
For example, "Why share price of a company increase? Most likely because earnings increase and future dividends could possibly increase and so more people desire ownership of the company, and thus the share price will be impacted".

[corydorus]

Gold still got ornaments and electronic usage. Fiat currency is for goods exchange. And there is government control to prevent inflation and managing economy. Yes, everything is demand/supply but Bitcoins do not have the Value it can do for us. Is simply a virtual currency with no regulatory control. Why do we need it when we have our own currency ?

Cory

[Wildreamz]

To answer these questions of risk, we have to look possibilities. For example,

1) "What if everyone in the future aren't students of history?"
Is it possible that history will be abandoned in totality? I read somewhere that historically, most people's portfolio will typically have 5-10% weightage in gold. This is to provide a hedge due to the low correlation of gold against other asset classes. Today? It is close to zero portfolio allocation as gold doesn't provide any yield and "does nothing". Despite gold being misunderstood by today's general public, gold price increased from $250 in 2001 to $1260 in 2017 (peaked at $1900 in 2011). This is an annual return of 10%. Central banks still own tons of gold. Why do Central Banks do so when most countries' citizens trust their fiat currencies. Maybe, understanding how the US dollar obtained the status of the world's reserve currency is able to provide an explanation.

2) "What if Asteroid mining makes Gold worthless in the future?"
In fact, gold can be created from other elements using nuclear reactions by altering the atomic structure (protons) of an atom. But are asteroid mining and gold alchemy feasible? Will the cost of energy consumption justify the creation of gold? No. Simply because these are inefficient and expensive compared to current gold prices. There is a very low possibility in the next 50 years that creation of gold will be economically feasible. This is akin to saying "Why invest in stocks or properties when an Asteroid will befall upon earth and unlucky strike the assets you own". That being said, this is definitely one point to take note of as scarcity is a property of money.

Lastly, the value of most assets in this world is a function of supply and demand, nothing less, nothing more. 
The same goes for stocks, bonds, property, gold, cryptocurrencies, tulips etc.
For example, "Why share price of a company increase? Most likely because earnings increase and future dividends could possibly increase and so more people desire ownership of the company, and thus the share price will be impacted".

Gold Price: I'm agnostic regarding Gold Price. I'm just providing the perspective that Gold may not be as revere as before as a storage of value to people today. Sure, people will likely continue to study history, but they may draw different conclusions from them. Just because Gold price has been growing throughout history, doesn't mean it will repeat in similar fashion to the future. In fact, in the case of gold financial instruments (with some form of fees involved, like GLD), most likely Gold price would under-perform inflation over extended periods of time. AT BEST, gold retains value over the last 50 years, inflation adjusted (https://goldprice.org/inflation-adjusted...price.html)

Asteroid Mining may be closer than you give it credit for in your reply, the advances in Space Exploration has been tremendous in recent years with the advent of SpaceX, Blue Origin and other private sector companies. https://en.wikipedia.org/wiki/Asteroid_mining

Value of Asset: I disagree; "Price" may be a function of supply and demand, the "Value" however can be determined to some degree of accuracy for productive assets like Bond, Stocks and Property.

[Wildreamz]

Gold still got ornaments and electronic usage. Fiat currency is for goods exchange. And there is government control to prevent inflation and managing economy. Yes, everything is demand/supply but Bitcoins do not have the Value it can do for us. Is simply a virtual currency with no regulatory control. Why do we need it when we have our own currency ?

Cory

Gold has industrial and electronic usage agreed. How to assign value to that is complex though.

Fiat Currency is backed by government, however, it is only as good as "this piece of paper is worth S$1, I guarantee it." I do not know if there is any definition of what $1 is supposed to be able to buy, ever since major currencies abandoned the Gold Standard. In theory, the government can print lot's of $1 tomorrow, and deflate the value.

In this sense, Bitcoin is very much like Fiat currency, it has no "intrinsic value" and is only worth as much as what the next person is willing to pay. With the exception that the "value" of Fiat Currency is still somewhat within the government's control (monetary policy etc), and the price of Bitcoin is entirely based on Supply and Demand.

[holymage]

As with all asset classes, they swing from undervalued to fairly-valued to overvalued. Gold may retain value at best over a very long period of time, but if the investor knows when is the right opportunity to invest, he is able to make a decent return in his gold investment. I highly doubt that gold's 10% return from 2001 to 2017 is the rate of inflation. In fact, most investors use 10% as their target returns. From hindsight, gold price in 2001 is clearly undervalued. Is it a mere coincidence that Central Banks are executing Quantitative Easing from 2001 onwards? Same goes for stocks, bonds, properties etc, buy when undervalued, sell when overvalued. Agree with you that gold may not be as revere as before as a storage of value to people today.

I think the key word that was missed out was economically feasible. Quoting the article from the link, "Due to the high launch and transportation costs of spaceflight, inaccurate identification of asteroids suitable for mining, and in-situ ore extraction challenges, terrestrial mining remains the only means of raw mineral acquisition today." Energy/weight are always key issues with regards to space. The amount of energy to send the equipment into space, the tremendous amount of energy to mine in space, and the energy to ferry the payload back to earth. If companies can't even make it economically viable for mass-market space tourism, I highly doubt the economic viability of asteroid mining. Much more advances in technology is required to pack more energy per cubic meter.

Sorry, typed wrongly, I meant price not value. Afterall, in the short run the market is a voting machine. 

Anyhow, gold can be valuated to some degree of accuracy as well. The most commonly used measurement would be gold price to money supply (M0). There are other variations of relative valuation, like gold price to S&P500 etc. But I find the following indicator to be the most reliable - when gold price is less than the cost of gold production. That is when one should take a hard look at gold as an investment.

One of the biggest argument for Bitcoin is that it is digital gold (by Winklevoss Twins) and is a gold-like asset. But unfortunately Bitcoin has no real utility and it is unproven as money. Fiat currency only work because of the government's mandate (fiat) and people's blind faith in fiat currency. Another big argument is Bitcoin is unregulated and government cannot manipulate/devaluate Bitcoin (ever wonder why things get more expensive over time?). But unfortunately, governments always want control. In addition, Bitcoin is a huge waste of earth's resources that could be put to better use or reduce the destruction of the environment (energy consumption in mining). Which is why I suspect many countries ban crytocurrencies and deem them illegal. Also the supply of crytocurrencies is not  limited, there can be numerous competing crytocurrencies or even spinoffs of Bitcoin, point in case - Bitcoin Cash.

Hope this helps.

[Wildreamz]

Gold: Indeed, if you took specifically from 2001 to 2017, Gold had a good run, but if you took almost any other year in the past 50 years, you would be hard-pressed to find a starting date where by Gold Beats out inflation. Which supports the point that I'm trying to make that Gold is not a good store of value, it is not even a good hedge against inflation, over long time periods, especially given that most people pay fees for investing in Gold.

Does gold has some intrinsic value? Perhaps, since physical gold has some practical application. But I do not know how to value them.

Buying when Gold is priced below production cost is indeed a good strategy, and it also goes to show that Gold is subjected to the laws of supply and demand. When what it cost to produce gold is way below the market price of gold, more people would mine gold, causing the cost to produce gold to raise, or the increased supply of gold would cause the price to gold to fall. This process would continue until equilibrium is reached.

Are there investment opportunities to be made from gold? Sure, but it is not my game.

Asteroid mining: The link I posted was just a reference to how much Asteroid mining has advanced and the growing commercial interest in the private sector. Another part of the equation in determining the economic feasibility will be the cost of launch, which has been coming down quite dramatically over the recent years, and is projected to continue falling in the future:

https://en.wikipedia.org/wiki/Space_laun...ompetition

Following the first successful landing and recovery of a SpaceX Falcon 9 first stage in December 2015, equity analysts at investment bank Jefferies estimated that launch costs to satellite operators using Falcon 9 launch vehicles may decline by about 40 percent of SpaceX' typical US$61 million per launch,[33] although SpaceX has only forecast an approximately 30 percent launch price reduction from the use of a reused first stage.[34]

In March 2017, SpaceX reflew an orbital booster stage that had been previously launched, landed and recovered, stating that the cost to the company of doing so "was substantially less than half the cost" of a new first stage. COO Gwynne Shotwell said that the cost savings "came even though SpaceX did extensive work to examine and refurbish the stage. We did way more on this one than [is planned for future recovered stages]."[35]

It is not only possible that Asteroid mining would be come economically feasible in the future. It is also probable that the day would come sooner than most people think if industry trends continue. I give it 50 years tops.

Bitcoin: Are there any real utility to Bitcoin? None besides a store of value and a medium of transfer. It also holds the interesting and unique property that no 1 single central authority or government can shut it down. That's about it.