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Author Topic: 2013-04-09 Blodget: Why Bitcoin Speculators Are Laughing at Bubble Callers  (Read 1274 times)
n8rwJeTt8TrrLKPa55eU
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April 10, 2013, 01:44:37 AM
 #1

Another good piece by Blodget unemotionally analyzing the risk-reward calculation for rational speculators.
 
Here's Why Bitcoin Speculators Are Just Laughing At Anyone Who Calls It A Bubble
http://www.businessinsider.com/why-bitcoin-speculators-laugh-at-anyone-who-calls-it-a-bubble-2013-4
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April 10, 2013, 02:13:12 AM
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I love this guy.
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April 10, 2013, 02:15:28 AM
 #3

Another good piece by Blodget unemotionally analyzing the risk-reward calculation for rational speculators.
 
Here's Why Bitcoin Speculators Are Just Laughing At Anyone Who Calls It A Bubble
http://www.businessinsider.com/why-bitcoin-speculators-laugh-at-anyone-who-calls-it-a-bubble-2013-4

You must have quit reading before you got to the last paragraph.

Quote
(Yes, this is classic bubble logic. Yes, someday, many Bitcoin speculators will probably lose their shirts. And, no, there's no way to determine what Bitcoins are "actually worth." That's why I call Bitcoin the "perfect bubble." But what many folks who snicker smugly about "bubbles" don't seem to understand is that before some Bitcoin speculators lose their shirts, some other Bitcoin speculators are going to, well, coin it.)

In other words, his article is mocking both the people that claim bitcoin is in a bubble and the people that claim that it is not.

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April 10, 2013, 03:44:34 AM
 #4

In other words, his article was mocking both the people that claim bitcoin is in a bubble and the people that claim that it is not.

I think his argument is basically correct.  Anyone who uses the term bubble, asserting or denying it based on valuation arguments, is probably thinking about Bitcoin incorrectly.  They are assuming that there exists an objective "intrinsic" BTC value from which you can calculate a deviation.  Flawed assumption.

What is a bubble?  It's when the current price of an asset exceeds the present value of its future cash flows.  If you can't specify those flows, as is the case for BTC, Gold, Silver, USD cash, etc. then talking about bubbles in those assets is meaningless, pro or con.  You cannot establish an objective value for an asset consisting mostly of a monetary premium; that premium is entirely based on subjective demand and sentiment.   Both of which can go up and down instantly due to external unpredicable factors.

The most that can be debated about Bitcoin (or gold, or USD, or any other asset mostly made up of monetary demand) is whether its future demand/supply will increase, or decrease.  Increases in demand, absent similar increase in supply, will lead to increases in price, and viceversa.  Adjectives like bubble, overvalued, undervalued, or anything else that implies comparison against some mythical "fair" objective valuation, are technically based on a false premise and guaranteed to lower the quality of the discourse.

The price of BTC is neither a bubble, nor a non-bubble.  It's just a price.  A reflection of supply and demand at any given moment.  The only useful debate worth having, is whether supply and demand in the future will go down, or up.

I happen to think, based on its properties, that demand for Bitcoin will continue to increase, due to its utility and advantages over other forms of money.  And that that increase, coupled with limited supply, will in turn lead to a rising price, measured in many digits in the best case scenario.  No bubble analysis or defence necessary.

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April 10, 2013, 05:06:05 AM
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The bubble, ponzi, and tulip comparisons that are frequently parroted just don't fit because bitcoin is a (presumably) non-expirable commodity.

It's a token for a transaction, so no matter what its value, as long as it has an agreed upon value between two parties at the time the transaction occurs, its useful. The censorship resistant, real time transfer of wealth around the globe will always have value.

I liken it more to fine art. It could be worth a lot less tomorrow than it is today, but the genie is out of the bottle, I doubt it can ever crash to extinction.

Just to play devil's advocate, assuming it did crash and the VC and ETF managers took their money and went home, we'd be right back to bitcoin being the official currency of Wikileaks, Tor and Silk Road, which have been getting months of free publicity. There's like a gazillion potheads out there who have just perked up with, 'I can buy drugs anonymously on the Internet?!?!?!'

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-- H.L. Mencken (1918)
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April 10, 2013, 05:38:19 AM
 #6

In other words, his article was mocking both the people that claim bitcoin is in a bubble and the people that claim that it is not.
I think his argument is basically correct.  Anyone who uses the term bubble, asserting or denying it based on valuation arguments, is probably thinking about Bitcoin incorrectly.  They are assuming that there exists an objective "intrinsic" BTC value from which you can calculate a deviation.  Flawed assumption.

What is a bubble?  It's when the current price of an asset exceeds the present value of its future cash flows.  If you can't specify those flows, as is the case for BTC, Gold, Silver, USD cash, etc. then talking about bubbles in those assets is meaningless, pro or con.  You cannot establish an objective value for an asset consisting mostly of a monetary premium; that premium is entirely based on subjective demand and sentiment.   Both of which can go up and down instantly due to external unpredicable factors.

The most that can be debated about Bitcoin (or gold, or USD, or any other asset mostly made up of monetary demand) is whether its future demand/supply will increase, or decrease.  Increases in demand, absent similar increase in supply, will lead to increases in price, and viceversa.  Adjectives like bubble, overvalued, undervalued, or anything else that implies comparison against some mythical "fair" objective valuation, are technically based on a false premise and guaranteed to lower the quality of the discourse.

The price of BTC is neither a bubble, nor a non-bubble.  It's just a price.  A reflection of supply and demand at any given moment.  The only useful debate worth having, is whether supply and demand in the future will go down, or up.

I happen to think, based on its properties, that demand for Bitcoin will continue to increase, due to its utility and advantages over other forms of money.  And that that increase, coupled with limited supply, will in turn lead to a rising price, measured in many digits in the best case scenario.  No bubble analysis or defence necessary.
Wow.  Thank you for the ideas.  Love the concept of "monetary premium"; it's much more concise than saying "if 90%+ of gold's value is because of its utility as a money, why is it such a stretch that Bitcoin derives 100% of its value from that?"

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April 10, 2013, 05:46:54 AM
 #7

In other words, his article was mocking both the people that claim bitcoin is in a bubble and the people that claim that it is not.

I think his argument is basically correct.
No. the guy makes the wrong case. Just because something offers a high return doesn't mean you should invest. That's PONZI logic. It's not a 50:50 bet. If something is certain to fail, it could have infinite return - it will still fail.

That said - as long as the upswing continues it's a speculators market. But so is any other bubble.

Be warned: "Be prepared for anything, Executor" [Aldaris]

The ASICMINER Project https://bitcointalk.org/index.php?topic=99497.0
"The way you solve things is by making it politically profitable for the wrong people to do the right thing.", Milton Friedman
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April 10, 2013, 05:56:11 AM
 #8

All or nothing strategy implies that you invest only a fraction of your money that you can afford to lose. So it might be a good idea to buy couple bitcoins and forget about them for several years. But it is too risky to sell your house and borrow money to invest in it.

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April 10, 2013, 06:21:33 AM
 #9

All or nothing strategy implies that you invest only a fraction of your money that you can afford to lose. So it might be a good idea to buy couple bitcoins and forget about them for several years. But it is too risky to sell your house and borrow money to invest in it.
throwing seeds on a parking lot will lead you nowhere. You need to apply some smarts in any event.

The ASICMINER Project https://bitcointalk.org/index.php?topic=99497.0
"The way you solve things is by making it politically profitable for the wrong people to do the right thing.", Milton Friedman
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