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Author Topic: Another reason bitcoin will succeed: US to target Putin's $40 billion stash  (Read 5489 times)
dead_bit
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April 21, 2014, 11:03:10 PM
 #61

Ok if I bought in a few months ago at 800 - 900 USD I would now be at a 50% loss. Is that a store of value? No, it's not.

This is the sunk-cost fallacy: http://en.wikipedia.org/wiki/Sunk_costs

Billionaire Bob moved a portion of his wealth into bitcoin as a hedge to reduce the variance of his wealth moving forward in time.  He could have had his assets siezed and the dollar-collapse event could have happened.  The fact that it didn't doesn't mean that the hedge was unwise.  In fact, if he reanalyses the situation from today moving forward, he may conclude that he should actually now move more wealth into bitcoin.  

If you buy fire insurance on your house and it never burns down did you waste your money?
Nice argument sir. You're correct.

If you invested a lot in gold before the price collapsed, is that a store of value?
Stop looking at bitcoin the wrong way, this can happen with just about anything.

I'm enjoying vodka on my last day off and I'm lacking in the ability to really articulate what I mean. Better to concede.

@ Peter R

That analysis has so many flaws

(1) You assume that Bob has only 2 choices (BTC yes or no) when he could diversify his portfolio in many asset classes

(2) Standard deviation is determined by using historical data not random numbers projected into the future

(3) Probability isn't randomly calculated like that.  5% lose all money vs 95% not lose all money?  Say what? 

(4) I think someone else defined "store of value" = low volatility.   I'm not sure how you are defining "store of value".  Sounds like you are saying BTC is a store of value because it could go to x20 or not.  This sounds like a "speculative" bet not a "store of value" bet.  You are speculating that demise of USD will drive up BTC price. 

(5) Buying BTC is not a hedge against USD.  That's not how hedges work.  A hedge is when you take trade AND you also take the opposite of that trade to mitigate your risk.  The easiest way to hedge is using options.  But there is no options market on BTC so the point is moot

"but I have never found a rational case where it is not wise to store at least a small portion of your wealth in bit coin" 

How about in the case the price crashes and you lose your money?  If you have the assumption BTC will forever go up in price then by all means invest.  But don't claim that the price can't crash or even go to zero. 

This is a bit more what I was leaning towards.

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jonald_fyookball
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April 21, 2014, 11:08:43 PM
 #62

@ Peter R

That analysis has so many flaws

(1) You assume that Bob has only 2 choices (BTC yes or no) when he could diversify his portfolio in many asset classes

(2) Standard deviation is determined by using historical data not random numbers projected into the future

(3) Probability isn't randomly calculated like that.  5% lose all money vs 95% not lose all money?  Say what?  

(4) I think someone else defined "store of value" = low volatility.   I'm not sure how you are defining "store of value".  Sounds like you are saying BTC is a store of value because it could go to x20 or not.  This sounds like a "speculative" bet not a "store of value" bet.  You are speculating that demise of USD will drive up BTC price.  

(5) Buying BTC is not a hedge against USD.  That's not how hedges work.  A hedge is when you take trade AND you also take the opposite of that trade to mitigate your risk.  The easiest way to hedge is using options.  But there is no options market on BTC so the point is moot

"but I have never found a rational case where it is not wise to store at least a small portion of your wealth in bit coin"  

How about in the case the price crashes and you lose your money?  If you have the assumption BTC will forever go up in price then by all means invest.  But don't claim that the price can't crash or even go to zero.  

I would argue that buying BTC is in fact a hedge against USD.  Many people have used Gold as a hedge in the same way.
Since BTC (and Gold) are priced in USD, you are in effect "taking the other side of the trade".  On the one hand,
you hope your USD holds its value.  But if it doesn't, your BTC increase. 


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April 21, 2014, 11:09:24 PM
 #63

@ Peter R  That analysis has so many flaws...

The analysis was hugely simplified to illustrate the benefit of hedging using simple math.  I explained that in the post.  

I also showed that even if you assign a 95% probability to the value of bitcoin going to zero, it can still be useful as part of a wealth-preservation strategy. 

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April 21, 2014, 11:30:12 PM
 #64



I would argue that buying BTC is in fact a hedge against USD.  Many people have used Gold as a hedge in the same way.
Since BTC (and Gold) are priced in USD, you are in effect "taking the other side of the trade".  On the one hand,
you hope your USD holds its value.  But if it doesn't, your BTC increase. 



Gold isn't used as a hedge against USD.  You are thinking of rotation.  When investors rotate or re-allocate their funds on the belief of rising or falling prices amongst different asset classes.  A lot of investors rotate from equities to gold & vice versa. 

"Taking other side of trade" is literal.  Its being both long & short on a trade simultaneously.  Normally your initial position is long term and your hedge is short term.

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April 21, 2014, 11:34:04 PM
 #65

The word hedge can be used more loosely (i.e. hedge your bets).

From Investopedia:

Definition of 'Hedge'

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

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April 21, 2014, 11:45:25 PM
 #66

A slightly better word than hedge is diversification. Diversification is valuable even if the asset you are diversifying from has higher expected return. In fact that is always the case, otherwise you would allocate 100% to the one asset with the highest expected return.

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April 21, 2014, 11:51:56 PM
 #67

True.

I think the distinction here is the  negative correlation.

Using twiifm's strict definition of opposite positions on the same instrument,
there is 100% negative correlation.

However, there is still strong counter correlation for a denominated
asset (Gold or Bitcoin).

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April 21, 2014, 11:54:12 PM
 #68

@ Peter R  That analysis has so many flaws...

The analysis was hugely simplified to illustrate the benefit of hedging using simple math.  I explained that in the post.  

I also showed that even if you assign a 95% probability to the value of bitcoin going to zero, it can still be useful as part of a wealth-preservation strategy. 


That's not how probabilities work though.  You didn't show anything except you made up some random numbers and drew conclusions from them.

All you said was if you invested 5% of your portfolio in BTC today it could return 20X or zero.  You came up w 5% because you believe thats an appropriate amount of risk attributed to random probabilities 5% vs 95%.

Buying BTC is not a hedge against demise of USD.  If you think USD will fall then you should short USD.  If you think BTC will rise then you should long BTC.  There is no correlation as a trade

It's actually hard to price USD without being paired to something.  Its easier if you compaired BTC to gold or some other commodity so you can analyze the prices in USD.  Throw up 2 charts and see if there is correlation or not.

I think the only reason you believe there is a correlation of BTC & USD is because the propaganda of BTC is anti-Central Banking.  BTC pumpers always talk about demise of fiat money.  Gold pumpers say the same thing to pump gold price.


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April 22, 2014, 12:00:32 AM
 #69

its not just propoganda though...look what happened to BTC during cypress.

if the USD falls, it will be the financial news of the century,
and it is quite likely there will be a massive interest in bitcoin.

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April 22, 2014, 12:04:22 AM
 #70

I think the only reason you believe there is a correlation of BTC & USD is because the propaganda of BTC is anti-Central Banking.

If there is no correlation then it is still useful for diversification. Negative correlation would be better, of course, but zero correlation makes his argument valid as well.

In order to argue that it isn't useful for diversification you would have to show it has perfect correlation.


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April 22, 2014, 12:11:27 AM
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its not just propoganda though...look what happened to BTC during cypress.

if the USD falls, it will be the financial news of the century,
and it is quite likely there will be a massive interest in bitcoin.

That's due to a bank run.  Had nothing to do with failure of Euro.  People were worried they couldn't get their money out of the banks if banks became insolvent.

The reason there was a crisis in Cyprus is because their debt is denominated in Euros and ECB didn't bail them out

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April 22, 2014, 12:14:11 AM
 #72

People were worried they couldn't get their money

EXACTLY.

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April 22, 2014, 12:54:50 AM
 #73

@ Peter R

That analysis has so many flaws

(1) You assume that Bob has only 2 choices (BTC yes or no) when he could diversify his portfolio in many asset classes

(2) Standard deviation is determined by using historical data not random numbers projected into the future

(3) Probability isn't randomly calculated like that.  5% lose all money vs 95% not lose all money?  Say what?  

(4) I think someone else defined "store of value" = low volatility.   I'm not sure how you are defining "store of value".  Sounds like you are saying BTC is a store of value because it could go to x20 or not.  This sounds like a "speculative" bet not a "store of value" bet.  You are speculating that demise of USD will drive up BTC price.  

(5) Buying BTC is not a hedge against USD.  That's not how hedges work.  A hedge is when you take trade AND you also take the opposite of that trade to mitigate your risk.  The easiest way to hedge is using options.  But there is no options market on BTC so the point is moot

"but I have never found a rational case where it is not wise to store at least a small portion of your wealth in bit coin"  

How about in the case the price crashes and you lose your money?  If you have the assumption BTC will forever go up in price then by all means invest.  But don't claim that the price can't crash or even go to zero.  


Bitcoin is the only asset class with its extraordinarily useful attributes. In terms of portability, security, spendability, transferability, and divisibility, Bitcoin is miles better than gold, gems, real estate, rare art, or any other asset I can think of.
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April 22, 2014, 01:01:47 AM
 #74


Buying BTC is not a hedge against demise of USD.  If you think USD will fall then you should short USD.  If you think BTC will rise then you should long BTC.  There is no correlation as a trade


Says the NYC financial industry.  They want to keep you paying in their court. 

To say that Bitcoin is not a possible hedge against the dropping dollar means you do not understand Bitcoin. 

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April 22, 2014, 01:23:07 AM
 #75

Lol, V Putin can easily holds his assets in one of the Russian based banks. He even open account in a bank that was sanctioned and now this bank said they are going to operate in rubbles only. China and Russia are about to topple dollar and they are likely to promote yuan and rubble.
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April 22, 2014, 01:39:38 AM
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Lol, V Putin can easily holds his assets in one of the Russian based banks. He even open account in a bank that was sanctioned and now this bank said they are going to operate in rubbles only. China and Russia are about to topple dollar and they are likely to promote yuan and rubble.

Putin was not the best example. A better one would have been an oligarch who has to fear not only U.S. sanctions but Putin himself.
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April 22, 2014, 01:58:36 AM
 #77

Buying BTC is not a hedge against demise of USD.  If you think USD will fall then you should short USD.  If you think BTC will rise then you should long BTC.  There is no correlation as a trade.


Twiifm: "I'll show those greedy bitcoiners.  I'm gonna short BTC/USD but I'll diversify by going long USD/BTC since there is no correlation.  Mu ha ha ha."    




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April 22, 2014, 02:17:54 AM
 #78

i doubt he understands BTC or cares about it.

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April 22, 2014, 02:27:22 AM
 #79

Lol, V Putin can easily holds his assets in one of the Russian based banks. He even open account in a bank that was sanctioned and now this bank said they are going to operate in rubbles only. China and Russia are about to topple dollar and they are likely to promote yuan and rubble.

Putin was not the best example. A better one would have been an oligarch who has to fear not only U.S. sanctions but Putin himself.

Yes, Putin just happens to be in the spotlight in a way that will get other elite thinking about the likelihood of their own wealth being seized.  

But I wouldn't actually say he's that bad of an example either.  Putin can continue to hold his ruble assets in Russian banks.  But I believe a lot of other financial assets could still be targeted.  This is over my pay grade, but I think USD moved into Russian banks could be frozen by sanctions affecting the bank's access to the SWIFT network, correct?  If you don't have access to SWIFT, I think you are limited to trading physical US $100 dollar bills and old US treasury bearer bonds (which the US stopped selling in 1982 "because their anonymous nature made them a haven for tax evaders").  

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April 22, 2014, 03:36:50 AM
 #80

Well probably above my pay grade too, but I'll give my 2 cents anyway as I always do, lol.

SWIFT is mostly just a protocol to help banks find other bank's identities and format payment orders, it is not needed when big money is involved because the central banks have relationships with and can talk directly to other central banks.  If US sanctions Russia, I think not being able to use SWIFT codes would be the least of Putin's problems.  

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