Derivatives like futures will be great for bitcoin, before they destroy it

[ktabb]

You got everything right in the first paragraph. Yes, I am saying that the value of the underlying asset is not there. Bitcoin has the POTENTIAL to be valuable because of its properties as a currency

That's not the only thing that gives Bitcoin its value. Its potential as a deflationary store of value is another. Doesn't have to be completely stable for that function to work either, look at Gold and Silver. Look at real estate, collectables, art, etc. Also, Bitcoin is decentralized, permissionless, trustless, borderless, censorship-resistant, no-middleman transactions, etc. the list of other attributes that give it value goes on and on.

People paid crazy amounts for tulips

This ignorant myth needs to die. Seriously. READ:
https://www.reddit.com/r/Bitcoin/comments/76fg7j/bitcoin_aint_tulips_in_fact_tulips_aint_tulips/
More reading:
https://stratechery.com/2017/tulips-myths-and-cryptocurrencies/

I’ll read your link about tulips later.

As to your first point, commodities have intrinsic value and physical use. I would argue that bitcoin’s intrinsic value is very low. It’s value comes from its properties as a currency, and it has PLENTY of competition. All of crypto, however, is currently not viable as either a currency or store of value because of its insane volatility.

What makes bitcoin so much better than all other alt coins that it warrants a 100+ billion market cap? Why can’t I just create a new coin any one I want, that has all the good qualities that make bitcoin useful?

[1714860193]

1714860193

[Torque]

What makes bitcoin so much better than all other alt coins that it warrants a 100+ billion market cap? Why can’t I just create a new coin any one I want, that has all the good qualities that make bitcoin useful?

Belief. Belief (on a collective, mass scale) is what separates one thing of value from another similar thing that has less or none of that same value.

What separates Gold's value from that of "fools gold"? Belief, further reinforced by it's attributes. That eventually becomes a self-reinforcing feedback loop that grows to a mass scale. That's it.

How did Gold get it's value as money and store of value in the first place? The first 100 people that started using Gold as a barter/money first believed in it, when no one else around them did. And then the discovery of Gold's attributes further validated that belief. And then the belief spread to 1000, then 10,000, then 100,000 people. Then around the world.

[TheQuin]

You could get the value of a CDO back by simply selling the CDO.

OK, I give up trying to explain it to you.

Furthermore, you could get the value back in the actual houses themselves, which were selling at crazy values. By that standard, the “value” was there. The issue was that the houses weren’t actually worth that much despite the fact that you could find some schmuck who would take out an adjustable rate mortgage and pay you a crazy amount of money for it, and then turn around and sell that mortgage to a bank who puts it in another CDO. The market was willing to pay that much, but that doesn’t mean the houses are worth that much.

No, the problem really was that you couldn't sell the assets for anywhere what they were valued at in the CDOs.

That’s what I fear will happen with bitcoin as people start trading derivatives and using leverage. I don’t think bitcoin is any different in the sense of the underlying asset potentially being overvalued.

It's totally different. You can sell a bitcoin instantly for its publically known price. The value of properties in the CDOs was unknown to the investors and assumed to be far greater than it actually was.

As to your second point, I could see the crypto market reaching trillions as a whole at some point, but I don’t think it will be justified.

The value a market gives to something is the sum of the opinions of all of that market's participants. Individual opinions will vary. Whether you or I think it is justified is irrelevant on its own. It is what the market as a whole thinks is justified that matters.

[ktabb]

What makes bitcoin so much better than all other alt coins that it warrants a 100+ billion market cap? Why can’t I just create a new coin any one I want, that has all the good qualities that make bitcoin useful?

Belief. Belief (on a collective, mass scale) is what separates one thing of value from another similar thing that has less or none of that same value.

What separates Gold's value from that of "fools gold"? Belief, further reinforced by it's attributes. That eventually becomes a self-reinforcing feedback loop that grows to a mass scale. That's it.

How did Gold get it's value as money and store of value in the first place? The first 100 people that started using Gold as a barter/money first believed in it, when no one else around them did. And then the discovery of Gold's attributes further validated that belief. And then the belief spread to 1000, then 10,000, then 100,000 people. Then around the world.

Belief is not what gives value to gold or anything else. Gold has value because of its intrinsic properties and rarity. It is useful for making jewelry, among other purposes in different industries. Fool’s gold does not have this value and it is far more common.

This feedback loop that you described is 100% real in many assets, including bitcoin. You are spot on in your description of how it works, but you failed to mention that if price is driven up simply by demand (or “belief”) and not by intrinsic value, then that is how bubbles form (and eventually, inevitably pop).

[Torque]

Belief is not what gives value to gold or anything else.

And with that idiotic failure of recognition at the heart of the argument, I'm out.

TheQuin summarized it beautifully:

The value a market gives to something is the sum of the opinions of all of that market's participants [which is belief on a mass collective scale!]. Individual opinions will vary. Whether you or I think it is justified is irrelevant on its own. It is what the market as a whole thinks is justified that matters.

Have fun trolling.

/ignore

[ktabb]

You could get the value of a CDO back by simply selling the CDO.

OK, I give up trying to explain it to you.

Furthermore, you could get the value back in the actual houses themselves, which were selling at crazy values. By that standard, the “value” was there. The issue was that the houses weren’t actually worth that much despite the fact that you could find some schmuck who would take out an adjustable rate mortgage and pay you a crazy amount of money for it, and then turn around and sell that mortgage to a bank who puts it in another CDO. The market was willing to pay that much, but that doesn’t mean the houses are worth that much.

No, the problem really was that you couldn't sell the assets for anywhere what they were valued at in the CDOs.

That’s what I fear will happen with bitcoin as people start trading derivatives and using leverage. I don’t think bitcoin is any different in the sense of the underlying asset potentially being overvalued.

It's totally different. You can sell a bitcoin instantly for its publically known price. The value of properties in the CDOs was unknown to the investors and assumed to be far greater than it actually was.

As to your second point, I could see the crypto market reaching trillions as a whole at some point, but I don’t think it will be justified.

The value a market gives to something is the sum of the opinions of all of that market's participants. Individual opinions will vary. Whether you or I think it is justified is irrelevant on its own. It is what the market as a whole thinks is justified that matters.

The state of the housing crisis hat you are describing is after the market was already collapsing. I’m sorry man but you are wrong here.

First of all, let’s make sure that you understand the analogy correctly. Bitcoin is the equivalent of a CDO in this analogy, and bitcoin derivatives are the equivalent of a synthetic CDO. You are arguing that bitcoin derivatives are different because the underlying asset (bitcoin) can be sold at the current price easily. However, before he housing bubble popped, CDOs could ALSO be sold on the market easily, at whatever the going rate was. Furthermore, the individual mortgages could be sold easily (even though they were crap) and EVEN FURHERMORE, the houses that those mortgages were secured by could be sold easily themselves, at the very high value of the pre crisis housing market.

I understand that the borrowers were eventually going to default, but this is not relevant to the fact that their loans could be bundled and sold easily, just like bitcoin is sold easily today. I am arguing that in both cases, the asset itself was overvalued (bitcoin and the crappy CDOs).

And to your last point, the market thought that housing prices were justified in 2006. Clearly they weren’t. Value is not as simple as supply and demand in the current moment.

[ktabb]

Belief is not what gives value to gold or anything else.

And with that idiotic failure of recognition at the heart of the argument, I'm out.

TheQuin summarized it beautifully:

The value a market gives to something is the sum of the opinions of all of that market's participants[which is belief]. Individual opinions will vary. Whether you or I think it is justified is irrelevant on its own. It is what the market as a whole thinks is justified that matters.

Have fun trolling.

/ignore

Looks like you didn’t read the rest. Your statements here are objectively wrong. You are way oversimplifying the concept of value, and you provide no counter points to what I said at all.

[Stedsm]

Belief is not what gives value to gold or anything else.

And with that idiotic failure of recognition at the heart of the argument, I'm out.

TheQuin summarized it beautifully:

The value a market gives to something is the sum of the opinions of all of that market's participants[which is belief]. Individual opinions will vary. Whether you or I think it is justified is irrelevant on its own. It is what the market as a whole thinks is justified that matters.

Have fun trolling.

/ignore

Looks like you didn’t read the rest. Your statements here are objectively wrong. You are way oversimplifying the concept of value, and you provide no counter points to what I said at all.

Wait, objectively wrong? About the "belief" part?
Don't tell me that if I give you a million bucks, you won't believe because they are just 100 USD x 10,000 bills, right?
We trust fiat because of that "number" that's on it, "believe" that it's worth what's written over it.
I am from India, we recently went through an extremely worst situation that's called "demonetization" where the currency valued at 500 and 1000 Rupee based on the numbers written on it, became dust the minute our PM declared that such bills won't be acceptable for use from the date.
But with Bitcoins, the case is not the same because nobody from either the world or the Galaxy could intervene to tell you whether your Bitcoins are worth this or that, but you can set it at your own "belief". So, what else do you need to understand about the "belief" theory?

Belief is the only reason why we are seeing "users" coming in through mainstream and investing with a belief to turn their investment into something better with a "safe-haven" asset. Don't try to make Bitcoin a currency, we really don't want it now as we don't want it to get governed by some bullshit governments, and consist the fear of losing on it by letting them "demonetize" the usage of Bitcoins itself.

[ktabb]

Belief is not what gives value to gold or anything else.

And with that idiotic failure of recognition at the heart of the argument, I'm out.

TheQuin summarized it beautifully:

The value a market gives to something is the sum of the opinions of all of that market's participants[which is belief]. Individual opinions will vary. Whether you or I think it is justified is irrelevant on its own. It is what the market as a whole thinks is justified that matters.

Have fun trolling.

/ignore

Looks like you didn’t read the rest. Your statements here are objectively wrong. You are way oversimplifying the concept of value, and you provide no counter points to what I said at all.

Wait, objectively wrong? About the "belief" part?
Don't tell me that if I give you a million bucks, you won't believe because they are just 100 USD x 10,000 bills, right?
We trust fiat because of that "number" that's on it, "believe" that it's worth what's written over it.
I am from India, we recently went through an extremely worst situation that's called "demonetization" where the currency valued at 500 and 1000 Rupee based on the numbers written on it, became dust the minute our PM declared that such bills won't be acceptable for use from the date.
But with Bitcoins, the case is not the same because nobody from either the world or the Galaxy could intervene to tell you whether your Bitcoins are worth this or that, but you can set it at your own "belief". So, what else do you need to understand about the "belief" theory?

Honestly you could argue that USD no longer has value since abandoning the gold standard... but it is backed by the US government and accepted everywhere. Furthermore it is a fantastic store of value due to its high liquidity. This separates it from bitcoin, which cannot be used at all as a store of value due to its lack of liquidity and extreme volatility.

Basically it comes down to this: USD is backed by the US gov, and bitcoin is backed by its block chain. You can argue that both of them get their value from belief, but I would argue that the backing of the US gov gives it more intrinsic value that is not based on belief, but based on the power and influence of the US gov to regulate USD as a currency. Bitcoin’s value comes from its properties as a currency, and its price is not in line with its value. Price is determined by belief, value is determined by its properties. Bitcoin price is high because everyone is trying to get rich by pushing bitcoin price up - not because itnis genuinely undervalued.

[TheQuin]

First of all, let’s make sure that you understand the analogy correctly. Bitcoin is the equivalent of a CDO in this analogy, and bitcoin derivatives are the equivalent of a synthetic CDO.

This where you are completely wrong.

Bitcoin will be the underlying asset to any futures contract. CDOs are a derivative, synthetic CDOs are a derivative of a derivative. Property is the underlying asset to CDOs, synthetic just added another layer and is irrelevant. When you finally get your head around that you will see there is no similarity at all in the two situations.

And to your last point, the market thought that housing prices were justified in 2006. Clearly they weren’t. Value is not as simple as supply and demand in the current moment.

When discussing whether the introduction of a derivative can cause an economic meltdown the market value of the underlying asset at any moment in time and whether it can be easily redeemed is all that matters.

Torque summarized it beautifully:

And with that idiotic failure of recognition at the heart of the argument, I'm out.

If you can't even grasp the fundamental difference between an asset and a derivative then I'm wasting my time here.

[Stedsm]

Honestly you could argue that USD no longer has value since abandoning the gold standard... but it is backed by the US government and accepted everywhere. Furthermore it is a fantastic store of value due to its high liquidity. This separates it from bitcoin, which cannot be used at all as a store of value due to its lack of liquidity and extreme volatility.

Bitcoin goes stable everytime it reaches a specific point, but if everyone here is about to become rich only, they must be dumping it down to hell.
USD is backed by government, and so are your finances which doesn't allow you to store it "anonymously" without showing it to your government.
I believe Bitcoin is one of the best ways to save taxes and even if we pay on it, why to worry here as your "money is making you money over it".

Basically it comes down to this: USD is backed by the US gov, and bitcoin is backed by its block chain. You can argue that both of them get their value from belief, but I would argue that the backing of the US gov gives it more intrinsic value that is not based on belief, but based on the power and influence of the US gov to regulate USD as a currency.

If you are so concerned about regulations, you shouldn't be here. No, this place and Bitcoins both are not for you, dude! 

Bitcoin’s value comes from its properties as a currency, and its price is not in line with its value. Price is determined by belief, value is determined by its properties. Bitcoin price is high because everyone is trying to get rich by pushing bitcoin price up - not because itnis genuinely undervalued.

Knock knock, forgot something? To push the price up too, those who are ^trying to get rich^ need to buy it through fiat in which your "government-backed USD" comes at the top. So, it's typically being destroyed against the "value" of Bitcoins while Bitcoin is gaining over it.

Anything more left to say, eh?!

[Denker]

Ok right now I've read all comments of this thread and it seems like that the OP is either a complete dummy and doesn't even understand the basics of what he tries "intelligently" to talk about and prove, or he is just a troll.
I'm not even sure if he really understands basics of Bitcoin and why it won't be used as a currency in first place.
Torque and TheQuin brought up all necessary points and arguments.
Contiuing arguing with the OP is a complete waste of time. He does not get it!

[ktabb]

First of all, let’s make sure that you understand the analogy correctly. Bitcoin is the equivalent of a CDO in this analogy, and bitcoin derivatives are the equivalent of a synthetic CDO.

This where you are completely wrong.

Bitcoin will be the underlying asset to any futures contract. CDOs are a derivative, synthetic CDOs are a derivative of a derivative. Property is the underlying asset to CDOs, synthetic just added another layer and is irrelevant. When you finally get your head around that you will see there is no similarity at all in the two situations.

And to your last point, the market thought that housing prices were justified in 2006. Clearly they weren’t. Value is not as simple as supply and demand in the current moment.

When discussing whether the introduction of a derivative can cause an economic meltdown the market value of the underlying asset at any moment in time and whether it can be easily redeemed is all that matters.

Torque summarized it beautifully:

And with that idiotic failure of recognition at the heart of the argument, I'm out.

If you can't even grasp the fundamental difference between an asset and a derivative then I'm wasting my time here.

Yeah you are 100% objectively and demonstrably wrong. You don't know what a CDO or even a derivative is. Here is your definition, bud:

https://en.wikipedia.org/wiki/Credit_derivative

"...a CDO made up of loans is merely a securitizing of loans that is then tranched based on its credit rating. This particular securitization is known as a collateralized loan obligation (CLO) and the investor receives the cash flow that accompanies the paying of the debtor to the creditor. Essentially, a CDO is held up by a pool of assets that generate cash. A CDO only becomes a derivative when it is used in conjunction with credit default swaps (CDS), in which case it becomes a Synthetic CDO. "

That being said, even in your analogy you are still wrong, as I already explained. If bitcoin is the equivalent of the loan, or even the house, then it still does not have the advantage you were arguing. You were saying bitcoin can be sold easily but the mortgages and homes in the CDOs could not. This is just flat out false. They COULD be sold easily at very high prices, which is why there was a bubble. The problem is they weren't worth that much, and many of the people taking out these loans would not be able to pay them eventually.

The above paragraph is completely irrelevant though because you have shown that you have no understanding of what CDOs or derivatives are. Go to investopedia and wikipedia, do some reading, do some research, and come back when you've learned a little bit more about this topic. You'll realize that there is no argument here. You might as well be arguing that 2 + 2 = 9.

[ktabb]

Ok right now I've read all comments of this thread and it seems like that the OP is either a complete dummy and doesn't even understand the basics of what he tries "intelligently" to talk about and prove, or he is just a troll.
I'm not even sure if he really understands basics of Bitcoin and why it won't be used as a currency in first place.
Torque and TheQuin brought up all necessary points and arguments.
Contiuing arguing with the OP is a complete waste of time. He does not get it!

Explain why you think it has intrinsic value that cannot be easily replicated and improved. Bitcoin's value comes from its use as a currency and store of value, but it is currently 100% useless as both due to its volatility. In order for something to be a good store of value, it 100% HAS to be very illiquid, like USD or other government backed currencies.

Or you can just sit here and hurl insults.

I'm not arguing that crypto itself is useless and will never have a place in society, bitcoin does not warrant current prices.

[ktabb]

Honestly you could argue that USD no longer has value since abandoning the gold standard... but it is backed by the US government and accepted everywhere. Furthermore it is a fantastic store of value due to its high liquidity. This separates it from bitcoin, which cannot be used at all as a store of value due to its lack of liquidity and extreme volatility.

Bitcoin goes stable everytime it reaches a specific point, but if everyone here is about to become rich only, they must be dumping it down to hell.
USD is backed by government, and so are your finances which doesn't allow you to store it "anonymously" without showing it to your government.
I believe Bitcoin is one of the best ways to save taxes and even if we pay on it, why to worry here as your "money is making you money over it".

Basically it comes down to this: USD is backed by the US gov, and bitcoin is backed by its block chain. You can argue that both of them get their value from belief, but I would argue that the backing of the US gov gives it more intrinsic value that is not based on belief, but based on the power and influence of the US gov to regulate USD as a currency.

If you are so concerned about regulations, you shouldn't be here. No, this place and Bitcoins both are not for you, dude! 

Bitcoin’s value comes from its properties as a currency, and its price is not in line with its value. Price is determined by belief, value is determined by its properties. Bitcoin price is high because everyone is trying to get rich by pushing bitcoin price up - not because itnis genuinely undervalued.

Knock knock, forgot something? To push the price up too, those who are ^trying to get rich^ need to buy it through fiat in which your "government-backed USD" comes at the top. So, it's typically being destroyed against the "value" of Bitcoins while Bitcoin is gaining over it.

Anything more left to say, eh?!

This is horribly written and barely coherent English but I'm going to try to take a crack at your last point (the first points didn't make any sense and it is not clear at all what you were trying to say).

USD is not being destroyed in value against bitcoin. Bitcoin is flying ridiculously high to unjustifiable levels. USD value hardly changes compared to bitcoin. If you honestly believe that a cryptocurrency is impacting a real government backed currency with a market cap in the tens of trillions of dollars, if not higher, then you don't understand money at all.

Honestly you need to just go back and rewrite your argument because it makes no sense and I have no idea what you are trying to say. It's very poorly written and pretty much incoherent.

[stompix]

first of all Bitcoin will never can be used as a currency,
at best it will only be an online payment,
it can not be used as a currency because it does not have a physical form.

Check how things are in Sweden.
Less than 2% of transactions occur in physically form with "cash".
I'm probably making more than 75% of my shopping with a cc card and I would increase this if merchants weren't so keen on tax evasion around here.

No you get it wrong mate,
Bitcoin can not be a 'Currency',that mean it can not be used as a payment in our real life.
but right now we can use it to pay something,which mean it has an usability as a payment system.
payment system and currency are totally different mate,
currency need a physical form because it will be used in the real life,
online payment system did not need it at all,for example paypal,neteller and something like that.
in other words,it has a value because it can be used as a payment,but it will never can be a 'currency'.

Currency = Fiat ( Dollar,Pound,Bath,etc etc)
Payment Point/Online payment = Bitcoin or something similiar to that.

You really are confused and your explanations are even worse...
You don't pay with paypal or netelller or bitpay, you still pay with dollars and euros in digital form.
If you use a bitcoin debitcard in germany (you being from the us), what do you pay with?

Belief is not what gives value to gold or anything else.

We can check this out pretty easy.
Try giving your girlfriend /wife a gold ring and one made out of chocolate wrapper.
Since she obviously won't chose the golden one for it's thermal conductivity I wonder what would be her reason

[ktabb]

Belief is not what gives value to gold or anything else.

We can check this out pretty easy.
Try giving your girlfriend /wife a gold ring and one made out of chocolate wrapper.
Since she obviously won't chose the golden one for it's thermal conductivity I wonder what would be her reason

LOL wtf this argument makes zero sense at all. Chocolate wrapper jewelry? What are you even talking about or trying to say? That the only thing that makes gold more valuable than chocolate wrappers is belief? Not the fact that it is infinitely more useful? I'm sorry dude this argument is unbelievably dumb.

[TheQuin]

Yeah you are 100% objectively and demonstrably wrong. You don't know what a CDO or even a derivative is. Here is your definition, bud:

https://en.wikipedia.org/wiki/Credit_derivative

Because Wikipedia and Investopedia are so authoritative.

I'm a professional futures trader and have many years of experience in the City and on Wall Street. I am fully aware what a derivative is, but for those that don't know (including the muppets at Wikipedia and Investopedia), the Oxford English Dictionary is the definative authority on the English language.

https://en.oxforddictionaries.com/definition/derivative

2 Finance

attributive (of a product) having a value deriving from an underlying variable asset.

‘equity-based derivative products’

A CDO derives its value from the underlying value of the property that the loans are secured upon.

Bitcoin is the underlying asset.

Hence they are not comparable.

You just made my ignore list, or should that be the ignorant list. Goodbye.

[ktabb]

Yeah you are 100% objectively and demonstrably wrong. You don't know what a CDO or even a derivative is. Here is your definition, bud:

https://en.wikipedia.org/wiki/Credit_derivative

Because Wikipedia and Investopedia are so authoritative.

I'm a professional futures trader and have many years of experience in the City and on Wall Street. I am fully aware what a derivative is, but for those that don't know (including the muppets at Wikipedia and Investopedia), the Oxford English Dictionary is the definative authority on the English language.

https://en.oxforddictionaries.com/definition/derivative

2 Finance

attributive (of a product) having a value deriving from an underlying variable asset.

‘equity-based derivative products’

A CDO derives its value from the underlying value of the property that the loans are secured upon.

Bitcoin is the underlying asset.

Hence they are not comparable.

You just made my ignore list, or should that be the ignorant list. Goodbye.

You are grasping at straws here. If you really think a CDO is a derivative then you must think that index funds and mutual funds are derivatives too. CDOs are bundled collections of mortgages. Index/mutual funds are collections of stocks. These are NOT derivatives. Derivatives are securities that are separated from the underlying asset by an additional degree. If you buy index options, those are derivatives. If you buy credit default swaps, that is a derivative. Investing in the derivative means that your money is not going directly into the underlying asset. With CDOs, your money is going directly towards buying mortgages.

Once again, this is not a debatable topic. You are wrong, even by your own definition from oxford dictionary. Furthermore, if you think Investopedia and Wikipedia are unreliable sources then you are simply denying the clear truth. They are absolutely reliable sources of information. So is Oxford Dictionary. They all support what I have said.

You are not even subscribing to alternative facts here - you're just making up your own. I think you are starting to understand that I am right, but I know you will never admit it. I don't expect you to, but I expect that you will slowly admit it to yourself eventually.

[ktabb]

Yeah you are 100% objectively and demonstrably wrong. You don't know what a CDO or even a derivative is. Here is your definition, bud:

https://en.wikipedia.org/wiki/Credit_derivative

Because Wikipedia and Investopedia are so authoritative.

I'm a professional futures trader and have many years of experience in the City and on Wall Street. I am fully aware what a derivative is, but for those that don't know (including the muppets at Wikipedia and Investopedia), the Oxford English Dictionary is the definative authority on the English language.

https://en.oxforddictionaries.com/definition/derivative

2 Finance

attributive (of a product) having a value deriving from an underlying variable asset.

‘equity-based derivative products’

A CDO derives its value from the underlying value of the property that the loans are secured upon.

Bitcoin is the underlying asset.

Hence they are not comparable.

You just made my ignore list, or should that be the ignorant list. Goodbye.

literally the definition that you provided clearly 100% supports my argument:

"An arrangement or product (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying asset, such as a commodity, currency, or security."

A CDO is just a collection of mortgages. It doesn't derive value from mortgages, it IS mortgages.