What always frustrates me about the “bitcoin/AMC/GameStop/FTT/whatever is sticking it to the man to solve millennials’ problems” is that the problems are almost never actually caused by a lack of demand - if everyone somehow made a fortune on some financial bubble, they’d just bid up the price of housing further! It’s a solution to YOU PERSONALLY not having the money to buy a house, but scamming money from the financially illiterate is in no way an actual solution to rising housing prices.
I agree that Bitcoin is lousy as an investment. I think it could have value as a currency which is not subject to a government’s manipulation. But in order for that to be the case, it would have to function as a currency and not as a vehicle for speculation. And at this point, it has almost entirely functioned as a vehicle for speculation.
I think the ideological aspect of crypto is an argument for letting it die on its own without regulation. Most people buying it are basically just speculating (a lot of the crypto people I know were the same people who played too much online poker during college), but there probably is a significant minority buying it as an explicitly anti-establishment statement. The response to both of those is to let it die on its own merits, which I think it basically will.
I would like to hear your "Investments Are Not Ideological Statements" take extended out to ESG.
I've heard some folks from the affected industries industries (fossil fuel, tobacco, various defense contractors) complain about ESG. But if you believe in any version of efficient markets, isn't ESG just an opportunity to profit by buying the anti-ESG index? It's a weird thing that I see on a regular basis.
I would suggest that for those who crashed and burned in the 2020s with Bitcoin, the early adopters who obtained Bitcoin in 2013 (and before) are the “parents’ generation”.
I own less than $1000 worth of crypto (I believe at its high point the total dollar value of my crypto "investments" reached $1500), but personally I find the extreme certainty of Josh's anti-crypto position really unconvincing. Complaining that certain crypto transactions are illegal rings hollow when the legal alternatives are unjust, e.g.: https://www.econtalk.org/devon-zuegel-on-inflation-argentina-and-crypto/ I find the "but where are the practical applications after X years" objections about "Web3" or smart contracts unconvincing, so long as those people didn't have a corresponding complaint about neural nets that ran from the 1980s until AlexNet.
I don't have any kind of strong personal prediction about "right" value for BTC or ETH, as evidenced by the fact that my net worth is in a total stock market index fund and my house, but I immediately distrust the strident anti-crypto position as much as I distrust the pro-crypto "banks will all be dead" position. Even if the crypto people are right about the future they might be wrong about the details and their preferred coins might go to zero anyway. But I think even if you strongly lean one way or the other, you should at least hedge a tiny bit against the possibility that you are wrong.
Confidence-related footnote: Misspelling "Ethereum" in the footnote is not helpful for confidence in analysis!
Wait, why would he still buy it if it went to 0? He talks about it as a good investment, then suddenly zags to imply owning it is good even if it's worthless... Perhaps he just means that he would still expect its value to rise again...?
I'll cop to owning a small position in crypto (mainly ETH) and I am not a millennial (but have millennial kids). The problem I have with yours and others' crypto criticism is the "ha ha, what dopes! Crypto should die" quality to it. And that's about as in-depth as it gets. No thoughts about the different kinds of coins and what they exist for. No discussion of the future of blockchain. Bitcoin is something no one can figure out, and I dont own more than literally $100 (which is probably 30 bucks now!). I've invested in the stock market for years and have just as many sad stories (and returns) as being in the crypto market. In fact I am embarrassed to say I bought (and still own) GrubHub at its peak and have regretted it ever since. But it's a balanced portfolio so I'm not sweating it. You have pointed out the many flaws with the crypto market and I agree: no central authority, no way to predict anything or attach it to any other market movements, ie it's not a hedge, it's not gold, not a safe haven -- it's basically not safe at all. It also attracts ne'er-do-wells -- but they're a part of its origin story of sorts. That said, some coins, like ETH, have a purpose, an idea. I'm betting ETH will be important to a variety of things in the future, like payments, contracts, and even as the backbone of other currencies, it'll hopefully save time and money. My bet could be totally wrong. The other thing I'd like to point out is that our entire economic system is built on an idea, too -- granted a very strong, stable and wonderful idea: the full faith and credit of the US government and other governments worldwide. Still, our currency is fiat, which means it's backed by nothing but the aforementioned trust in the US government and its stability. The US imploding or going belly up probably won't happen (or happen soon!) but if it when it does, we'll be wiping ourselves with dollar bills. So I'm no expert but think crypto or digital or whatever you want to call it, have a future in our economy. It'll never escape the confines of the structured, regulated economies of the world -- they're conquering crypto fast. But like any conquering enemy, they adopt some of the native habits and one of those will crypto and the blockchain behind it.
I completely agree with Josh's take about crypto being a scam. The only real-world value created is in facilitating black-market transactions that are, by definition, illegal. I hated crypto long before it was fashionable, glad the rest of the world is catching up.
It's always struck me that I couldn't find a plausible theory of why Bitcoin should have any particular price, but my thought immediately after is why any currency should have a particular price? My best answer is that it derives from the economic output and policy of the country/area that the currency relates to, but this feels vague and hand-wavy rather than solid economic theory. I'm sure there is a good answer, but I've never had that light bulb moment when it's suddenly clicked and made sense.
As an aside, I graduated at the same time as your brave reader, failed to get funding for the PhD I wanted to do and fell into a big four accountancy graduate scheme by accident instead (they'd under-recruited and were doing some good old panic hiring). It was a very strange time, and although it worked out well for me in the end (I definitely don't regret not doing the PhD) I can totally relate to the economic reality he and his brother face, as me and my siblings face the same here over in the UK. However, I've never been drawn to purchasing bitcoin as a solution - mostly because I'm very risk averse (almost certainly too much so). I think the solution needs to be (at least for the UK) some fairly seismic changes, including what the government spends money on and how we build housing, but none of the UK political parties since the financial crash have offered anything I could enthusiastically advocate for that might address these issues.
I own a nontrivial amount of crypto because I bought a Bitcoin as a goof back when it was $100 and it’s been funny money ever since. I used it briefly to buy some things (back in 2013 when you actually could do that) tried (and usually failed) to give it to people who didn’t want any part of the goof, and then dumped most of it when it hit 30k or whatever and started to become stressful rather than funny.
I was interested in it from a purely technical perspective and to a lesser extent an economic one, and as a consequence I seem to know more about it than 99% of the true believers out there, most of whom have a very thin understanding of how it all works. I find talking with the these people to be an absolutely maddening experience because they rarely ever have any reasoned arguments to discuss.
Excellent explanation. I will print this out and memorize it. I need this handy to help my younger colleagues understand the issues you so very clearly identified.
What always frustrates me about the “bitcoin/AMC/GameStop/FTT/whatever is sticking it to the man to solve millennials’ problems” is that the problems are almost never actually caused by a lack of demand - if everyone somehow made a fortune on some financial bubble, they’d just bid up the price of housing further! It’s a solution to YOU PERSONALLY not having the money to buy a house, but scamming money from the financially illiterate is in no way an actual solution to rising housing prices.
I agree that Bitcoin is lousy as an investment. I think it could have value as a currency which is not subject to a government’s manipulation. But in order for that to be the case, it would have to function as a currency and not as a vehicle for speculation. And at this point, it has almost entirely functioned as a vehicle for speculation.
I think the ideological aspect of crypto is an argument for letting it die on its own without regulation. Most people buying it are basically just speculating (a lot of the crypto people I know were the same people who played too much online poker during college), but there probably is a significant minority buying it as an explicitly anti-establishment statement. The response to both of those is to let it die on its own merits, which I think it basically will.
I would like to hear your "Investments Are Not Ideological Statements" take extended out to ESG.
I've heard some folks from the affected industries industries (fossil fuel, tobacco, various defense contractors) complain about ESG. But if you believe in any version of efficient markets, isn't ESG just an opportunity to profit by buying the anti-ESG index? It's a weird thing that I see on a regular basis.
This brave reader's message is uhh....interesting? Each sentence is more concerning than the preceding one.
I would suggest that for those who crashed and burned in the 2020s with Bitcoin, the early adopters who obtained Bitcoin in 2013 (and before) are the “parents’ generation”.
I own less than $1000 worth of crypto (I believe at its high point the total dollar value of my crypto "investments" reached $1500), but personally I find the extreme certainty of Josh's anti-crypto position really unconvincing. Complaining that certain crypto transactions are illegal rings hollow when the legal alternatives are unjust, e.g.: https://www.econtalk.org/devon-zuegel-on-inflation-argentina-and-crypto/ I find the "but where are the practical applications after X years" objections about "Web3" or smart contracts unconvincing, so long as those people didn't have a corresponding complaint about neural nets that ran from the 1980s until AlexNet.
I don't have any kind of strong personal prediction about "right" value for BTC or ETH, as evidenced by the fact that my net worth is in a total stock market index fund and my house, but I immediately distrust the strident anti-crypto position as much as I distrust the pro-crypto "banks will all be dead" position. Even if the crypto people are right about the future they might be wrong about the details and their preferred coins might go to zero anyway. But I think even if you strongly lean one way or the other, you should at least hedge a tiny bit against the possibility that you are wrong.
Confidence-related footnote: Misspelling "Ethereum" in the footnote is not helpful for confidence in analysis!
Wait, why would he still buy it if it went to 0? He talks about it as a good investment, then suddenly zags to imply owning it is good even if it's worthless... Perhaps he just means that he would still expect its value to rise again...?
Would love to know his explanation.
I'll cop to owning a small position in crypto (mainly ETH) and I am not a millennial (but have millennial kids). The problem I have with yours and others' crypto criticism is the "ha ha, what dopes! Crypto should die" quality to it. And that's about as in-depth as it gets. No thoughts about the different kinds of coins and what they exist for. No discussion of the future of blockchain. Bitcoin is something no one can figure out, and I dont own more than literally $100 (which is probably 30 bucks now!). I've invested in the stock market for years and have just as many sad stories (and returns) as being in the crypto market. In fact I am embarrassed to say I bought (and still own) GrubHub at its peak and have regretted it ever since. But it's a balanced portfolio so I'm not sweating it. You have pointed out the many flaws with the crypto market and I agree: no central authority, no way to predict anything or attach it to any other market movements, ie it's not a hedge, it's not gold, not a safe haven -- it's basically not safe at all. It also attracts ne'er-do-wells -- but they're a part of its origin story of sorts. That said, some coins, like ETH, have a purpose, an idea. I'm betting ETH will be important to a variety of things in the future, like payments, contracts, and even as the backbone of other currencies, it'll hopefully save time and money. My bet could be totally wrong. The other thing I'd like to point out is that our entire economic system is built on an idea, too -- granted a very strong, stable and wonderful idea: the full faith and credit of the US government and other governments worldwide. Still, our currency is fiat, which means it's backed by nothing but the aforementioned trust in the US government and its stability. The US imploding or going belly up probably won't happen (or happen soon!) but if it when it does, we'll be wiping ourselves with dollar bills. So I'm no expert but think crypto or digital or whatever you want to call it, have a future in our economy. It'll never escape the confines of the structured, regulated economies of the world -- they're conquering crypto fast. But like any conquering enemy, they adopt some of the native habits and one of those will crypto and the blockchain behind it.
I completely agree with Josh's take about crypto being a scam. The only real-world value created is in facilitating black-market transactions that are, by definition, illegal. I hated crypto long before it was fashionable, glad the rest of the world is catching up.
Also, https://www.buttcoinfoundation.org/what-are-buttcoins/
It's always struck me that I couldn't find a plausible theory of why Bitcoin should have any particular price, but my thought immediately after is why any currency should have a particular price? My best answer is that it derives from the economic output and policy of the country/area that the currency relates to, but this feels vague and hand-wavy rather than solid economic theory. I'm sure there is a good answer, but I've never had that light bulb moment when it's suddenly clicked and made sense.
As an aside, I graduated at the same time as your brave reader, failed to get funding for the PhD I wanted to do and fell into a big four accountancy graduate scheme by accident instead (they'd under-recruited and were doing some good old panic hiring). It was a very strange time, and although it worked out well for me in the end (I definitely don't regret not doing the PhD) I can totally relate to the economic reality he and his brother face, as me and my siblings face the same here over in the UK. However, I've never been drawn to purchasing bitcoin as a solution - mostly because I'm very risk averse (almost certainly too much so). I think the solution needs to be (at least for the UK) some fairly seismic changes, including what the government spends money on and how we build housing, but none of the UK political parties since the financial crash have offered anything I could enthusiastically advocate for that might address these issues.
I am not a crypto enthusiast.
Don't have any.
Don't expect to.
But answer me this please.
If crypto went up on hype and hope (always a bad financial model), what caused it to crater?
Why not just keep up the smoke and mirrors?
Or at some point is there actually real money involved?
I own a nontrivial amount of crypto because I bought a Bitcoin as a goof back when it was $100 and it’s been funny money ever since. I used it briefly to buy some things (back in 2013 when you actually could do that) tried (and usually failed) to give it to people who didn’t want any part of the goof, and then dumped most of it when it hit 30k or whatever and started to become stressful rather than funny.
I was interested in it from a purely technical perspective and to a lesser extent an economic one, and as a consequence I seem to know more about it than 99% of the true believers out there, most of whom have a very thin understanding of how it all works. I find talking with the these people to be an absolutely maddening experience because they rarely ever have any reasoned arguments to discuss.
I appreciate your posts on crypto so please keep them coming! I need people who know this stuff to help me parse it intelligently
Excellent explanation. I will print this out and memorize it. I need this handy to help my younger colleagues understand the issues you so very clearly identified.
Excellent post.