Are Bogleheads dinosaurs when it comes to Bitcoin?

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dru808
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by dru808 »

MinnGuyInvesting wrote: Mon Jan 04, 2021 10:35 am
Prahasaurus wrote: Mon Jan 04, 2021 8:34 am
Seasonal wrote: Mon Jan 04, 2021 7:31 am BTC, early this morning. Reaction to fundamentals?

Image
Haha. This thread is comedy gold.
This is Example A of Dinosaur thinking regarding bitcoin.
That’s just a regular hour in the crypto world. V
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Monster99
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Monster99 »

spanky123 wrote: Sun Jan 03, 2021 1:51 pm
However it does seem the patient investor has skyrocketed their investment (if they sold today.)
Yea - $100 invested in 2011 is worth $3,257,100. :moneybag
Unlikely that the exchange it was invested in still exists or that the bitcoins still are in the same hands.... wild west for bitcoin way back then.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by DetroitRick »

The original post is pretty much a perfect example of why I seldom discuss money, investments or finance with friends and family. There are certain exceptions that I will make, but not many. I could care less how other members of the general public invest. Unless the magnitude and duration of their mistakes present me with opportunity. But I don't yet have that feeling about crypto.

So, there are many worthwhile asset classes that have made people rich, and that I am not willing to invest in myself. My criteria in choosing is simply whether I am confident that I can make money doing so. If that barrier to my success just involves education, I'll fix it and reconsider. But this still leaves lots of potential investments that I don't care to touch. Again, these are investments that have made others rich.

I find Bitcoin interesting and can see many ultimate uses. Micropayments, privacy, touchless payments, safety from certain types of currency risk in some countries, and much more. I hope that it, and its successors, are highly successful. But I can't sit here and make a case whether my current investment today will yield results for me. Regular currency trading is challenging enough. I understand that area, but still choose not to partake.

I plan to establish a few small positions in crypto this year, when my time allows. Just to acclimate and understand. Should be much more enjoyable than just repeating tulip bulb analogies. But I won't be a crypto investor in any material way as things currently stand. Dinosaur? Maybe. I don't care about the label, as long as I'm learning and adapting and enjoying life.
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MinnGuyInvesting
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by MinnGuyInvesting »

dru808 wrote: Mon Jan 04, 2021 10:36 am
MinnGuyInvesting wrote: Mon Jan 04, 2021 10:35 am

This is Example A of Dinosaur thinking regarding bitcoin.
That’s just a regular hour in the crypto world. V
Literally 2 weeks ago it was in the 23k.
Evidently this recent "crash" according to the graph really sank all of those investors who bought in at the peak at 34,000 and then quickly gave up on their investment theory 5 hours later and sold.
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TheTimeLord
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by TheTimeLord »

Forester wrote: Mon Jan 04, 2021 5:17 am
Forester wrote: Mon Jan 04, 2021 5:16 am Below $30k now. Looks like a rush for the exits.
Below $28k.
Forester Affect still in full force I am seeing Bitcoin just below $32,000.
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Valuethinker
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Valuethinker »

ohboy! wrote: Sun Jan 03, 2021 1:51 pm
Valuethinker wrote: Sun Jan 03, 2021 1:50 pm
ohboy! wrote: Sun Jan 03, 2021 1:47 pm
Skeeter1 wrote: Sun Jan 03, 2021 1:39 pm
hunoraut wrote: Sun Jan 03, 2021 1:33 pm

Because traditional financial institutions have never been hacked, robbed, engaged in fraud, charged for currency exchange, or for providing other banking services....
+1 But also Bogelheads are used to dealing in valuations, P/E, etc. There is no baseline to compare vs pure gambling and speculation.
I don't think bogleheads care much about p/e ratios or valuations in determining if they hold the market from what I've seen here. I believe current p/e ratio of s&p 500 is 35 years profit. Imagine if I had a small business that made $50k and I could sell it for 1.75m. Because someday my business will grow right? Sure we may make the comparison to baseline, but fundamentally the numbers do not make sense as a business.
Does that PE ratio include loss makers? By lowering total EPS, that would increase the PE.

It all depends on expected EPS growth. In addition, the opportunity cost of investing is very low, as 10 year US Treasury bonds are giving negative real yields.

Thus any speculative asset goes up. It just so happens that there are companies, in the S&P500, that will double their EPS in 10 years. And with a very low interest rate, the market is legit to look 10, 20 years out.
All of your justifications apply to bitcoin :sharebeer
Not in the least.

A stock represents ownership. Cash flows accrue to owners. Eventually they will be paid out - either right now or in 30 years time. Either via dividends and stock buybacks, or via a takeover.

None of that is true of Bitcoin. Its entire value depends on someone else valuing at more in the future.

Yes the price of Bitcoin has risen because of low interest rates. That's true of all assets with a speculative component. Stocks with cash flows 30 years in the future have risen on the same logic. But with those stocks, there still is an expectation of maturity and payout of cash flow.

With Bitcoin you don't have any of that.

Can you explain your logic?
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by alfaspider »

Millennial investor here.

There a few reasons why I haven't gotten into bitcoin, but the biggest is just that it doesn't fit my risk/reward profile. I suspect that is the primary reason why most BH don't go for BTC, not because they are technophobic. We are a get modestly rich slowly bunch, not a get rich quick bunch. Story time:

Back in 2010, I read the now infamous article when someone bought a pizza for 10,000BTC. I had a fairly powerful (for the time) gaming computer and thought about setting it up to mine. At that time, mining didn't require specialized hardware to produce a significant number of coins and I could have conceivably mined enough BTC to buy that pizza just by putting my PC to work. However, I was finishing up law school and had other things on my mind so never got around to it. Plus, my roommates at the time would have been rather annoyed by the sudden electricity bill spike. Theoretically, I could have $300MM worth of bitcoin today.

But if I'm honest with myself, I know that would have never happened. It's not in my constitution. Even if I had set up to mine bitcoin, and mined 10,000 coins, I would likely have sold them all as soon as they were worth a few thousand dollars. Psychologically, I'm not primed for 1000%+ gains- I'm naturally suspicious of anything that provides extraordinary returns.

Today, it's even more difficult psychologically, because I'd have to put real money on the line to gain meaningful exposure to bitcoin. I can stomach a bear market, but the prospect of an 80% loss (as has happened in recent history in the BTC market) is more than I'm willing to entertain. And that's not even getting into the fact that BTC "investing" is 100% reliant on "greater fool" theory rather than a real underlying business.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by dru808 »

TheTimeLord wrote: Mon Jan 04, 2021 10:50 am
Forester wrote: Mon Jan 04, 2021 5:17 am
Forester wrote: Mon Jan 04, 2021 5:16 am Below $30k now. Looks like a rush for the exits.
Below $28k.
Forester Affect still in full force I am seeing Bitcoin just below $32,000.
Lol, Please forester, keep up the lc us stock, bitcoin bearishness :sharebeer
Last edited by dru808 on Mon Jan 04, 2021 10:56 am, edited 1 time in total.
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Valuethinker
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Valuethinker »

SpaceMonkey wrote: Mon Jan 04, 2021 10:30 am My 70 year old mother-in-law, who is otherwise a very conservative investor, asked me about Bitcoin the other day. I figure that means we're near the top of this cycle's crypto bubble.

I advised her against it.
But does she operate an elevator?

In all of the bear markets I have encountered personally as an investor - early 80s, Crash of 1987, 1990, 2000-03, 2008-09, 2020 - I have yet to meet an elevator operator who told me about his stock portfolio.

I therefore declare the Bernard Baruch indicator to be null and void ;-).
oldfort
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by oldfort »

firebirdparts wrote: Mon Jan 04, 2021 12:39 am
oldfort wrote: Sun Jan 03, 2021 9:13 pm
The Bitcoin community has given up on making Bitcoin a usable means of transacting business, which is why you hear it referred to as digital gold. As someone mentioned up thread, no one except Ron Paul thinks gold is ever going to replace fiat money. BTC has a well known scalability problem.

https://en.wikipedia.org/wiki/Bitcoin_s ... ty_problem
Well, good. I'm glad to hear about this and I sure hope it's true. I don't mind people shilling their collectibles, but I swear I think the best shills are the ones that don't understand it themselves.

It is what it is.
The history of Bitcoin Cash can be seen as a dispute between those who see Bitcoin as digital gold and those who wanted Bitcoin to be a medium of exchange. The supporters of Bitcoin as a medium of exchange lost and were driven into a hard fork.
https://en.wikipedia.org/wiki/Bitcoin_C ... Bitcoin_SV
rockstar
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by rockstar »

BogleBuddy12 wrote: Sun Jan 03, 2021 1:00 pm Preface: Jack Bogle is my hero and the Bogleheads community has changed my life.
However I have friends and family asking me the question: “Are Bogleheads dinosaurs when it comes to Bitcoin?” They question my unwillingness to embrace cryptocurrencies. They claim it’s the future, and the investing opportunity of a lifetime.

Clearly, Bitcoin is pure speculation. This is not debatable in my view. As Larry Swedroe points out here, there are tons of risks and question marks, and little to no logic for the price movements: https://www.etf.com/sections/index-inv ... nopaging=1

However it does seem the patient investor has skyrocketed their investment (if they sold today.)

I am sticking to my ways. But I have trouble articulating my positions when debating with the Bitcoin enthusiast. They seem to “know it all.” (If you’ve ever talked with a Bitcoin lover, you will know what I mean. There seems to be a certain personality that goes along with a speculative investor.)
My problem with bitcoin is that I have no clue how to value it. That doesn't mean it won't go up in price. I just don't know how much to pay for it.
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MinnGuyInvesting
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by MinnGuyInvesting »

rockstar wrote: Mon Jan 04, 2021 11:00 am
BogleBuddy12 wrote: Sun Jan 03, 2021 1:00 pm Preface: Jack Bogle is my hero and the Bogleheads community has changed my life.
However I have friends and family asking me the question: “Are Bogleheads dinosaurs when it comes to Bitcoin?” They question my unwillingness to embrace cryptocurrencies. They claim it’s the future, and the investing opportunity of a lifetime.

Clearly, Bitcoin is pure speculation. This is not debatable in my view. As Larry Swedroe points out here, there are tons of risks and question marks, and little to no logic for the price movements: https://www.etf.com/sections/index-inv ... nopaging=1

However it does seem the patient investor has skyrocketed their investment (if they sold today.)

I am sticking to my ways. But I have trouble articulating my positions when debating with the Bitcoin enthusiast. They seem to “know it all.” (If you’ve ever talked with a Bitcoin lover, you will know what I mean. There seems to be a certain personality that goes along with a speculative investor.)
My problem with bitcoin is that I have no clue how to value it. That doesn't mean it won't go up in price. I just don't know how much to pay for it.
Question 1 - Part A:
How do you know how much to pay for a stock or index fund?


Question 1 - Part B:
How do you know how much to pay with the changing value of the dollar?
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Prahasaurus »

runninginvestor wrote: Mon Jan 04, 2021 9:04 am
Prahasaurus wrote: Mon Jan 04, 2021 2:35 am Let me give you one scenario that is perfect for blockchain: Bogleheads style portfolio investing and (especially) rebalancing.

(1) How it’s done now is so archaic, it’s totally dinosaur. You need to manually rebalance your portfolio. You often need to work through multiple, centralized entities: Vanguard, your bank, perhaps a 3rd broker, etc. You rebalance how often, quarterly, yearly? What is better? How do you know? Switching from one centralized entity (Vanguard) to another is not trivial, and of course they love this. You are locked in.

(2) But of this can be done automatically, without having to be “all in” with Vanguard or some other entity (locked in to their system and their fees), it can be done based on machine learning algorithms to maximize gain reflecting various factors (age, location, earning potential, etc.), and it can incorporate an infinite number of low cost services on the blockchain. This is already being built today on Ethereum (not Bitcoin!). There are still steps to work out, but it’s clear this is very possible and will certainly happen. Trends like the tokenization of all assets including equities, homes, cars, etc. will further accelerate this model.

(3) Will it be allowed in the USA? Definitely not in the beginning, because of financial regulation. This is really what blockchain addresses, the onerous and innovation killing regulators. But if the US tries to block this innovation, it will happen in other parts of the world first. The innovation will simply be exported back to the USA, over time. This is what is already happening in crypto in general, and that will simply accelerate.

(4) Why blockchain for portfolio management? Because of the low fees and ability to integrate everything together, seamlessly. The ease in integrating AI into these processes. Nobody will trust a centralized entity for this, but a decentralized blockchain is the perfect infrastructure over which to build this, once people truly understand how the technology works. You can again think of the internet as a decentralized information exchange machine. The internet is not (yet?) controlled by any one government or entity, and we all trust it to send money, etc. The same will happen with blockchain. And advanced financial applications are already being built, are already running with millions of transactions per day, on Ethereum. But 99% of the people here have never heard of it, which is amazing (and why Ethereum is still so massively undervalued).

(5) Why not just keep doing it the old fashioned way? Well, it’s inefficient, innovation is slow, it’s still too costly, options are limited. It’s also rather elitist. A lot of people still don’t understand the power of Bogleheads’ type investing, and most of those people are less educated, perhaps don’t have enough money (in their minds) to start something like this. Blockchain will automate this process, so even the college intern or Walmart cashier making minimum wage can start to invest the proper way. It’s also limited to people in more advanced countries, but using Ethereum will change that. It’s available to anyone, anywhere (think addressable market!).

(6) Crypto is where the internet was in 1990, still too complex, still misunderstood, still viewed as very niche infrastructure. Yet today the internet is the backbone of everything. Decentralized blockchain, likely on Ethereum, will see similar growth, and become just as integral to our lives. But this will play out over the next 20 years. It’s still very, very early.
Good response. I numbered the paragraphs for easier tracking my questions and thoughts. These are sincere questions. Others can help shed light too.

1. "Balanced" funds already exist with auto rebalancing. There are also brokerages that will do this. Many retirement plans I've been in also allow rebalancing in their service. Are you referring to blockchain smart contracts that govern all of this on the specific blockchain? Or what specifically about blockchain will make this an advantage over existing programs in brokerages/robo-advisors?

2. Are you saying the blockchain technology would shift your money around to the most advantageous brokerage/investment? Won't some company just charge for this technology like existing robo-advidors, just more meta?

3. I hear you on this. Although if it survives regulation by authorities, I'm sure there will be no shortage of businesses capitalizing on storage, transaction, etc costs and fees. As the currency side, I can't imagine the mass in the US would carry their wallet with them, or keep it at home, in fear of losing it or robberies.

4. I will never overestimate the ability for the masses to truly understand, well, anything. For a lot of people, they already trust a bank and (if they have it) a credit card company with all of the money/assets they own (loans on houses, cars). So don't a lot of people already trust quasi-centralized places storing the bulk of their assets? This is mainly for developed economies where the marginal trust benefit needed to unseat the system is high compared to un-banked countries. I've mentioned I believe blockchain technology has benefits on the back-end, and companies are already exploring solutions.

5. Is less efficient transaction processing a bug or a feature? A large reason existing transactions are slow across institutions are money-laundering type laws IIRC. Blockchain could speed that up, but will be regulated to account for non-anonimity. As for auto investing, I agree people should save more, but college students would get a better return paying off loans and minimum wage workers are likely living at the tip of the surrounding cost of living. Are you hinting that the tech, to stay on these two groups of people, would auto transfer incoming funds to investments so money doesn't sit idle?

6. I'd imagine there are people in this forum who don't understand (which is valid) and do understand (which is also valid) various aspects of crypto as blockchain technology. I'd imagine there would be less pushback in this forum on company adoption of blockchain technology as it adds value to the business, versus cryptocurrency as I don't ever see much about folks investing in currency in general.

General question, you need access to the internet (or decentralized network) to use any of this on a transaction basis, right? If so, has there been anything studied on potential difficulties of implementation in say rural vs urban areas? I think of it analogous to the difficulties some rural areas have had with remote learning due to lack of reliable internet access in the area. I suppose a 20 year timeframe, internet access will be expanded further.

Wordy, Thanks for reading.
I’m going to try to be brief:

1 - Sure, rebalancing exists, provided you work with one centralized provider (e.g. Vanguard), and accept their limited options. Take it or leave it. What I’m describing would open this up to many, many options, even where your cash option is with one provider, savings with another, equity investments with another, bonds, etc. Unlike now, where you are stuck with Vanguard. It also opens up the possibility of data analytics across all of those entities, as blockchains are open and can hence do a ton of analysis on performance. This introduces AI into the process. Costs should come down with the competition and ease of moving around. In fact, blockchain solutions now will automatically select applications based on price, e.g. 1inch for token swaps, etc.

2 - Yes, but costs will be lower, as everything will be automated.

3 - Wallet technology will advance significantly. We are very early here. This could also be how centralized entities participate in this process, through custody of assets to reduce risk, plus insurance on top of those assets. So perhaps Wells or Vanguard are still the front end, but all of this is fully automated in the backend. But now Wells no longer needs to provide banking infrastructure, it’s done through Ethereum. All banks could dramatically reduce their costs by moving to Ethereum, focusing on customer management, retention, regulatory compliance.

4 - See my answer (3) above. I agree with you, it’s likely the bado end that will allow for centralized entities to continue to play a key role, and perhaps satisfy regulators to some degree. But as I said, they now focus on branding, customer service, insurance, and “custody” of assets (even though those assets are on the blockchain).

5 - Sadly, surveillance will be built into the system. Governments will push for that. Blockchains are now completely open, you see every transaction. The issue will be obfuscating certain transactions, to hide identity. But again, there are ways to do this. And yes, I’m implying solutions will help young people (and old people) better allocate their money to productive assets, savings, etc., based on various algorithms. Of course there will be freedom to screw up, but it should make it easier for the waitress or struggling student to more efficiently manage his or her money. You wouldn’t have to be fortunate enough to stumble upon Bogleheads website, approaches of this type will be built into how their money is managed automatically, so long as they choose this option. Again, there will no longer be silos (bank, cash, brokerage, etc., but seamless and real-time availability of their complete financial picture.

Yes, internet access is critical. Fortunately, that is improving worldwide. Mobile technology will continue to help.

And remember, for the 28 year old engineer in Nigeria who has no chance (currently) to invest in the US stock market, what I’m describing will change that. There are already blockchain solutions (e.g. Synthetix on Ethereum) that will soon allow derivatives investing with no KYC that includes US stocks. Previously it was incredibly difficult for foreigners to invest in US stocks, unless they had money. So for the first time, that Nigerian engineer can put together a portfolio that includes US stocks, bonds, whatever (Japanese stocks, etc.). Hell, his 17 year old younger brother can do it. This is going to revolutionize finance, and could bring huge gains to people all over the world, especially in countries or regions where investment opportunities of this type were previously limited.

I admit this is highly speculative, but I think this is the direction things will go. We already have rebalancing solutions on Ethereum, e.g. Balancer: https://balancer.finance/

Yes, their focus is on maintaining a balanced portfolio of crypto assets, e.g. 50% BTC, 25% ETH, 25% DAI (cash). And this is adjusted automatically. Basically a Bogleheads type fully automated balancing application in real time. But I’m talking about expanding this to more assets, which will be possible as crypto expands into traditional banking and investment infrastructure. My guess is crypto banks like Aave (https://aave.com/) will being to provide more traditional banking services, while traditional banks will provide more crypto services (full disclosure, I own shares - tokens - of Aave). Eventually these hybrid solutions will start to move to 100% crypto infrastructure. Just like voice providers started to offer IP calls in certain circumstances, but eventually moved to fully IP. But that process took a decade or more.

When Bogleheads discuss crypto, they are thinking Western Union - “Gosh, how much does it cost to send Bitcoin to another person, is there really any benefit there?” This was fine for 2016, but we are in a completely different world now, especially with the rise of Ethereum (which is still not really well understood). It’s unbelievable what is happening on Ethereum, the rate of innovation is unlike I’ve ever seen in 20+ years of working in the software industry. They are creating a completely new and 1000x better financial system, with existing applications today (Uniswap has similar volumes to Coinbase, but it’s 10 guys). And yes, one that will clash sooner or later with regulators, at least in some parts of the world (definitely the USA). But no matter, the die has been cast. These super intelligent, mainly young programmers and financial wiz kids are going to succeed, one way or another, in some form or another.

I’m rambling now, so I’ll stop.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by silent_john »

Let me know when there's a cheap, diverse index fund of crypto available in my IRA. Until then, I have no interest creating an account on yet another website, buying bitcoin, transferring to an encrypted harddrive, driving to the mohave desert, burying the HD in the ground, encrypting the GPS coordinates and tattooing on my foot, all for a fee, to enjoy a speculative asset. Maybe I'm stupid and missing it ... I've missed everything in the investing world and my portfolio is just fine and growing. :beer
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midareff
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by midareff »

Just call me dino.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by rockstar »

MinnGuyInvesting wrote: Mon Jan 04, 2021 11:15 am
rockstar wrote: Mon Jan 04, 2021 11:00 am
BogleBuddy12 wrote: Sun Jan 03, 2021 1:00 pm Preface: Jack Bogle is my hero and the Bogleheads community has changed my life.
However I have friends and family asking me the question: “Are Bogleheads dinosaurs when it comes to Bitcoin?” They question my unwillingness to embrace cryptocurrencies. They claim it’s the future, and the investing opportunity of a lifetime.

Clearly, Bitcoin is pure speculation. This is not debatable in my view. As Larry Swedroe points out here, there are tons of risks and question marks, and little to no logic for the price movements: https://www.etf.com/sections/index-inv ... nopaging=1

However it does seem the patient investor has skyrocketed their investment (if they sold today.)

I am sticking to my ways. But I have trouble articulating my positions when debating with the Bitcoin enthusiast. They seem to “know it all.” (If you’ve ever talked with a Bitcoin lover, you will know what I mean. There seems to be a certain personality that goes along with a speculative investor.)
My problem with bitcoin is that I have no clue how to value it. That doesn't mean it won't go up in price. I just don't know how much to pay for it.
Question 1 - Part A:
How do you know how much to pay for a stock or index fund?


Question 1 - Part B:
How do you know how much to pay with the changing value of the dollar?
I can discount back dividends from an index fund to get to a fundamental value. Also, companies have balance sheets with assets. You can figure out the value from the company from those assets. There are tangible things to review.

The dollar isn't changing value unless you compare it to foreign currencies. Buying power is a different story.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Prahasaurus »

rockstar wrote: Mon Jan 04, 2021 11:00 am
BogleBuddy12 wrote: Sun Jan 03, 2021 1:00 pm Preface: Jack Bogle is my hero and the Bogleheads community has changed my life.
However I have friends and family asking me the question: “Are Bogleheads dinosaurs when it comes to Bitcoin?” They question my unwillingness to embrace cryptocurrencies. They claim it’s the future, and the investing opportunity of a lifetime.

Clearly, Bitcoin is pure speculation. This is not debatable in my view. As Larry Swedroe points out here, there are tons of risks and question marks, and little to no logic for the price movements: https://www.etf.com/sections/index-inv ... nopaging=1

However it does seem the patient investor has skyrocketed their investment (if they sold today.)

I am sticking to my ways. But I have trouble articulating my positions when debating with the Bitcoin enthusiast. They seem to “know it all.” (If you’ve ever talked with a Bitcoin lover, you will know what I mean. There seems to be a certain personality that goes along with a speculative investor.)
My problem with bitcoin is that I have no clue how to value it. That doesn't mean it won't go up in price. I just don't know how much to pay for it.
Great point.

Here’s one way, but I admit is quite crude and highly speculative:

Bitcoin will continue to evolve into a store of value, replacing gold. Bitcoin has superior features to gold in almost all categories. It only lacks the longer history, and the ability to make ear rings out of Bitcoin. For everything else, Bitcoin is superior. Nobody under 30 is going to buy gold, but they will buy Bitcoin. For the over 30 crowd, it’s mixed. For the over 60 crowd, it’s more the dinosaur approach of shiny metals. But the future is with Bitcoin, without a doubt.

In any case, let’s assume Bitcoin does eventually replace gold. Current market value of gold is 10 trillion. Let’s say half of that is for shiny earrings, the rest is value storage. So 5 trillion. But gold is no longer what is was for investors, we are in a very abnormal time (past 50 years). There is a decent chance we will go back to some hard “currency” standard in some form or another, and then the value of gold (or whatever asset or basket of assets is used for this hard currency) should increase significantly.

But even if you take Bitcoin’s addressable market as 5 trillion USD only, the value of 1 BTC = 5 trillion USD / 21 million BTC (max supply) = 238k USD. Bitcoin proponents will say Bitcoin can do much more outside of value storage. And hence 238k is the minimum. For example we already see Bitcoin being used as collateral in decentralized financial applications. More and more people will use bitcoin as collateral to buy a home, etc. So it’s going to have more uses than what we see today from old fashioned gold. Bitcoin proponents will also say macroeconomic conditions will see gold (and hence Bitcoin, which will mimic and later replace gold) rise significantly in value over the coming decade. For example, we’ll likely see a universal basic income introduced in wester countries, which are already wallowing in debt. All of this money printing will have consequences, Bitcoin proponents claim. So again, that 238k USD is an absolute minimum, a floor price if you will.

That is one way to value it.
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ohboy!
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by ohboy! »

Valuethinker wrote: Mon Jan 04, 2021 10:53 am
ohboy! wrote: Sun Jan 03, 2021 1:51 pm
Valuethinker wrote: Sun Jan 03, 2021 1:50 pm
ohboy! wrote: Sun Jan 03, 2021 1:47 pm
Skeeter1 wrote: Sun Jan 03, 2021 1:39 pm
+1 But also Bogelheads are used to dealing in valuations, P/E, etc. There is no baseline to compare vs pure gambling and speculation.
I don't think bogleheads care much about p/e ratios or valuations in determining if they hold the market from what I've seen here. I believe current p/e ratio of s&p 500 is 35 years profit. Imagine if I had a small business that made $50k and I could sell it for 1.75m. Because someday my business will grow right? Sure we may make the comparison to baseline, but fundamentally the numbers do not make sense as a business.
Does that PE ratio include loss makers? By lowering total EPS, that would increase the PE.

It all depends on expected EPS growth. In addition, the opportunity cost of investing is very low, as 10 year US Treasury bonds are giving negative real yields.

Thus any speculative asset goes up. It just so happens that there are companies, in the S&P500, that will double their EPS in 10 years. And with a very low interest rate, the market is legit to look 10, 20 years out.
All of your justifications apply to bitcoin :sharebeer
Not in the least.

A stock represents ownership. Cash flows accrue to owners. Eventually they will be paid out - either right now or in 30 years time. Either via dividends and stock buybacks, or via a takeover.

None of that is true of Bitcoin. Its entire value depends on someone else valuing at more in the future.

Yes the price of Bitcoin has risen because of low interest rates. That's true of all assets with a speculative component. Stocks with cash flows 30 years in the future have risen on the same logic. But with those stocks, there still is an expectation of maturity and payout of cash flow.

With Bitcoin you don't have any of that.

Can you explain your logic?
I'm earning 6% on my bitcoin holdings now. My Ethereum is also staked generating a return for essentially making it easier on the network to verify transactions. A lot has changed with crypto since the last big run-up. One of the major changes is that there are a lot of opportunities to earn a return on holdings as well as easily get loans with crypto. Current returns for US dollar stable coins like USDC or DAI are earning over 10% in interest. If I want to access the money I have invested in crypto I can get a loan in a matter of clicks easier than applying for a credit card and these loans are collateralized (unlike traditional finance).

Is Bitcoin making a profit? No, but that hardly seems a requisite for equity investment these days. It's almost like companies are more valued on how much they can borrow.

Decades ago stocks represented ownership more than they do today. With the proliferation of index investing there is far less shareholder interest in voting. From what I see, billion and trillion dollar corporations, even some of the most profitable in the world, don't pay a dividend. Will they some day? Seems speculative. Do dividends and buybacks and takeovers generate the 10% a year market returns or is it value that is disconnected from fundamentals?

I was addressing your points - fixed income is lousy so investors want alternatives. And if we are pricing the market 10-20 years out, my forecast for equity investing is dismal for the next 10-20 years. Of course, what do I know, I have plenty of low cost total market funds I'm hoping will hold some value in the future. I just think that a lot is being overlooked as to the "why crypto" and in doing so there is a lack of introspection on the "why equities".
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Valuethinker »

ohboy! wrote: Mon Jan 04, 2021 11:52 am
Valuethinker wrote: Mon Jan 04, 2021 10:53 am
ohboy! wrote: Sun Jan 03, 2021 1:51 pm
Valuethinker wrote: Sun Jan 03, 2021 1:50 pm
ohboy! wrote: Sun Jan 03, 2021 1:47 pm
I don't think bogleheads care much about p/e ratios or valuations in determining if they hold the market from what I've seen here. I believe current p/e ratio of s&p 500 is 35 years profit. Imagine if I had a small business that made $50k and I could sell it for 1.75m. Because someday my business will grow right? Sure we may make the comparison to baseline, but fundamentally the numbers do not make sense as a business.
Does that PE ratio include loss makers? By lowering total EPS, that would increase the PE.

It all depends on expected EPS growth. In addition, the opportunity cost of investing is very low, as 10 year US Treasury bonds are giving negative real yields.

Thus any speculative asset goes up. It just so happens that there are companies, in the S&P500, that will double their EPS in 10 years. And with a very low interest rate, the market is legit to look 10, 20 years out.
All of your justifications apply to bitcoin :sharebeer
Not in the least.

A stock represents ownership. Cash flows accrue to owners. Eventually they will be paid out - either right now or in 30 years time. Either via dividends and stock buybacks, or via a takeover.

None of that is true of Bitcoin. Its entire value depends on someone else valuing at more in the future.

Yes the price of Bitcoin has risen because of low interest rates. That's true of all assets with a speculative component. Stocks with cash flows 30 years in the future have risen on the same logic. But with those stocks, there still is an expectation of maturity and payout of cash flow.

With Bitcoin you don't have any of that.

Can you explain your logic?
I'm earning 6% on my bitcoin holdings now.
But how? How does a digital currency "earn" 6%?
My Ethereum is also staked generating a return for essentially making it easier on the network to verify transactions. A lot has changed with crypto since the last big run-up. One of the major changes is that there are a lot of opportunities to earn a return on holdings as well as easily get loans with crypto. Current returns for US dollar stable coins like USDC or DAI are earning over 10% in interest. If I want to access the money I have invested in crypto I can get a loan in a matter of clicks easier than applying for a credit card and these loans are collateralized (unlike traditional finance).
That isn't telling me where the cash flow is coming from?
Is Bitcoin making a profit? No, but that hardly seems a requisite for equity investment these days. It's almost like companies are more valued on how much they can borrow.
Modigliani and Miller. In the absence of taxes (and agency/ information costs) the value of the firm is independent from its capital structure (debt/ equity split).

Just a general comment that that kind of logic "how much they can borrow" is bubble logic- it will come crashing down at one point. It's also not true - all of the FAANG companies (except Netflix) have lowish or nil gearing (without checking MS balance sheet; Apple has the largest pool of net cash every accumulated by a corporation).
Decades ago stocks represented ownership more than they do today. With the proliferation of index investing there is far less shareholder interest in voting. From what I see, billion and trillion dollar corporations, even some of the most profitable in the world, don't pay a dividend. Will they some day? Seems speculative. Do dividends and buybacks and takeovers generate the 10% a year market returns or is it value that is disconnected from fundamentals?
Again Modigliani and Miller. ex taxes, the shareholder is indifferent between dividends and buybacks. The existence of taxes tilts shareholder preference towards buybacks.

As to the 10% return. That's a rational response to very low costs of capital. The "out years" become more highly valued. If you look at the acquisition multiples being paid for private assets, implying much lower Internal Rates of Return (IRR is how these things are evaluated), that's very clear.

I happen to think that equity markets are in the Cinderella world, and midnight will come. But that's a normal market cycle of excessive optimism followed by pessimism.

I was addressing your points - fixed income is lousy so investors want alternatives. And if we are pricing the market 10-20 years out, my forecast for equity investing is dismal for the next 10-20 years. Of course, what do I know, I have plenty of low cost total market funds I'm hoping will hold some value in the future. I just think that a lot is being overlooked as to the "why crypto" and in doing so there is a lack of introspection on the "why equities".
Questioning the value of equities is not a justification for "investing" in crypto currencies. The return is purely speculative - the bet that someone in the future will pay more for the item than now. Whereas I can hold on to Alphabet, say, until it becomes this incredibly dull supercorporation, paying a widows & orphan annual dividend (or buying back all its stock). Think Berkshire Hathaway, which is incredibly dull in its portfolio (other than c 20% of its value being underpinned by Apple), and does not pay dividends (but does buyback shares) for reasons Buffett has outlined very well in one of his shareholder letters.

There's a separate question whether these things (crypto) will prove to be useful. I think blockchain technology is pretty neat, and I can see how it might solve problems regarding, say, securities trades. As a currency? Only if one is using dark money, I suspect*, does it offer clear advantages over existing payment mechanisms. And that's precisely what will be, in time, regulated and controlled.

* if you live in a controlled currency country, there's definitely a case for having bitcoin stored on some server somewhere else, than your own country's currency. Ditto as a way to bypass, say, Western Union.
Last edited by Valuethinker on Mon Jan 04, 2021 12:07 pm, edited 1 time in total.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Anon9001 »

One must wonder when these things will become mainstream? It's been 11ish years since Bitcoin was first invented and it still is not used by mainstream for anything other than speculation. I don't think the Early Internet took this long to become useful.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Valuethinker »

Anon9001 wrote: Mon Jan 04, 2021 12:06 pm One must wonder when these things will become mainstream? It's been 11ish years since Bitcoin was first invented and it still is not used by mainstream for anything other than speculation. I don't think the Early Internet took this long to become useful.
You are quite right, it took far longer.

Internet was invented 1969 (from memory, without checking). WWW was 1990 (Sir Tim Berners-Lee, an English physicist at CERN). Amazon was I think 1994.

Internet was "useful" in the 1980s as a place to discuss scientific results (and also to have flame wars ;-)).
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by willthrill81 »

BHs are, for the most part, a very financially conservative bunch. That was evident well before BTC ever became a 'thing'.

BHs like assets with long histories that are relatively easily understood. That disqualifies BTC right off the bat in the minds of many BHs.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Anon9001 »

The proponents need these things to become mainstream for them to profit off it due to the valuations being insane (1 billion market cap for DOGE a joke coin). This is why I only have tiny percentages in these things. There is no guarantee that they will move beyond niche uses that they have currently. Also there is a risk that Tether could make these things worthless.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by ohboy! »

Valuethinker wrote: Mon Jan 04, 2021 12:03 pm
ohboy! wrote: Mon Jan 04, 2021 11:52 am
Valuethinker wrote: Mon Jan 04, 2021 10:53 am
ohboy! wrote: Sun Jan 03, 2021 1:51 pm
Valuethinker wrote: Sun Jan 03, 2021 1:50 pm

Does that PE ratio include loss makers? By lowering total EPS, that would increase the PE.

It all depends on expected EPS growth. In addition, the opportunity cost of investing is very low, as 10 year US Treasury bonds are giving negative real yields.

Thus any speculative asset goes up. It just so happens that there are companies, in the S&P500, that will double their EPS in 10 years. And with a very low interest rate, the market is legit to look 10, 20 years out.
All of your justifications apply to bitcoin :sharebeer
Not in the least.

A stock represents ownership. Cash flows accrue to owners. Eventually they will be paid out - either right now or in 30 years time. Either via dividends and stock buybacks, or via a takeover.

None of that is true of Bitcoin. Its entire value depends on someone else valuing at more in the future.

Yes the price of Bitcoin has risen because of low interest rates. That's true of all assets with a speculative component. Stocks with cash flows 30 years in the future have risen on the same logic. But with those stocks, there still is an expectation of maturity and payout of cash flow.

With Bitcoin you don't have any of that.

Can you explain your logic?
I'm earning 6% on my bitcoin holdings now.
But how? How does a digital currency "earn" 6%?
My Ethereum is also staked generating a return for essentially making it easier on the network to verify transactions. A lot has changed with crypto since the last big run-up. One of the major changes is that there are a lot of opportunities to earn a return on holdings as well as easily get loans with crypto. Current returns for US dollar stable coins like USDC or DAI are earning over 10% in interest. If I want to access the money I have invested in crypto I can get a loan in a matter of clicks easier than applying for a credit card and these loans are collateralized (unlike traditional finance).
That isn't telling me where the cash flow is coming from?
Is Bitcoin making a profit? No, but that hardly seems a requisite for equity investment these days. It's almost like companies are more valued on how much they can borrow.
Modigliani and Miller. In the absence of taxes (and agency/ information costs) the value of the firm is independent from its capital structure (debt/ equity split).

Just a general comment that that kind of logic "how much they can borrow" is bubble logic- it will come crashing down at one point. It's also not true - all of the FAANG companies (except Netflix) have lowish or nil gearing (without checking MS balance sheet; Apple has the largest pool of net cash every accumulated by a corporation).
Decades ago stocks represented ownership more than they do today. With the proliferation of index investing there is far less shareholder interest in voting. From what I see, billion and trillion dollar corporations, even some of the most profitable in the world, don't pay a dividend. Will they some day? Seems speculative. Do dividends and buybacks and takeovers generate the 10% a year market returns or is it value that is disconnected from fundamentals?
Again Modigliani and Miller. ex taxes, the shareholder is indifferent between dividends and buybacks. The existence of taxes tilts shareholder preference towards buybacks.

As to the 10% return. That's a rational response to very low costs of capital. The "out years" become more highly valued. If you look at the acquisition multiples being paid for private assets, implying much lower Internal Rates of Return (IRR is how these things are evaluated), that's very clear.

I happen to think that equity markets are in the Cinderella world, and midnight will come. But that's a normal market cycle of excessive optimism followed by pessimism.

I was addressing your points - fixed income is lousy so investors want alternatives. And if we are pricing the market 10-20 years out, my forecast for equity investing is dismal for the next 10-20 years. Of course, what do I know, I have plenty of low cost total market funds I'm hoping will hold some value in the future. I just think that a lot is being overlooked as to the "why crypto" and in doing so there is a lack of introspection on the "why equities".
Questioning the value of equities is not a justification for "investing" in crypto currencies. The return is purely speculative - the bet that someone in the future will pay more for the item than now. Whereas I can hold on to Alphabet, say, until it becomes this incredibly dull supercorporation, paying a widows & orphan annual dividend (or buying back all its stock). Think Berkshire Hathaway, which is incredibly dull in its portfolio (other than c 20% of its value being underpinned by Apple), and does not pay dividends (but does buyback shares) for reasons Buffett has outlined very well in one of his shareholder letters.

There's a separate question whether these things (crypto) will prove to be useful. I think blockchain technology is pretty neat, and I can see how it might solve problems regarding, say, securities trades. As a currency? Only if one is using dark money, I suspect*, does it offer clear advantages over existing payment mechanisms. And that's precisely what will be, in time, regulated and controlled.

* if you live in a controlled currency country, there's definitely a case for having bitcoin stored on some server somewhere else, than your own country's currency. Ditto as a way to bypass, say, Western Union.
I have Bitcoin at BlockFi, but there are tons of options. Separately, I just put $20k on Coinbase and converted it to their stable coin which is fully backed by dollars USDC. Free conversion. Then I moved it to their wallet (you could use any wallet though) and that cost $4. Then I assign it to decentralized Compound and dYdX for (collateralized lending contracts) and am earning 6.8% on compound and 9.1% on dYdX. More risky than FDIC insured high yield savings, sure, more risky than equities, not in my opinion.

The cash flow of staking is similar to mining, you are being rewarded for adding transaction power.

If you do not see how crypto is useful then you are not opening your eyes to it. There is a big difference between what's useful to you now, and what's generally useful. The darkweb stuff is more politics against bitcoin. Bitcoin is a public ledger. There are much better privacy coins for that (monero), but everything I have read recently says the share of crypto for illegal activity has declined. Also illegal activity is par for the course in any financial realm.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by runninginvestor »

Prahasaurus wrote: Mon Jan 04, 2021 11:27 am
runninginvestor wrote: Mon Jan 04, 2021 9:04 am
Prahasaurus wrote: Mon Jan 04, 2021 2:35 am.
I’m going to try to be brief:
(.....)
Thanks for the replies to my questions. It's fascinating. I'll have to dive a little deeper into the sources and ideas you linked.
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MinnGuyInvesting
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by MinnGuyInvesting »

rockstar wrote: Mon Jan 04, 2021 11:45 am
MinnGuyInvesting wrote: Mon Jan 04, 2021 11:15 am

Question 1 - Part A:
How do you know how much to pay for a stock or index fund?


Question 1 - Part B:
How do you know how much to pay with the changing value of the dollar?
I can discount back dividends from an index fund to get to a fundamental value. Also, companies have balance sheets with assets. You can figure out the value from the company from those assets. There are tangible things to review.

The dollar isn't changing value unless you compare it to foreign currencies. Buying power is a different story.
Are you reviewing the major companies inside each index fund you invest in?

Some of those companies are going to have stronger balance sheets than others. Do you just assume since they are in the index, the companies are fine, or do you have some indexes you won't purchae because a few companies have weak balance sheets?

I can understand the assumption of "all companies have assets and income" so I feel fine investing in that, but the value of an index is largely based on it's stock price which MAY (and MAY NOT) have any corresponding value to it's balance sheet or income statement. If stock price was driven just on those factors, it would be far easier to predict stock returns going forward.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Prahasaurus »

runninginvestor wrote: Mon Jan 04, 2021 12:37 pm
Prahasaurus wrote: Mon Jan 04, 2021 11:27 am
runninginvestor wrote: Mon Jan 04, 2021 9:04 am
Prahasaurus wrote: Mon Jan 04, 2021 2:35 am.
I’m going to try to be brief:
(.....)
Thanks for the replies to my questions. It's fascinating. I'll have to dive a little deeper into the sources and ideas you linked.
Thank you for the intelligent questions. Much appreciated. I’m not expert on crypto, I’m also learning. I fell down the Ethereum rabbit hole in early 2020, and have been investing and using applications on Ethereum since. It has blown me away. I really feel as if I’m looking at the future of finance. Even though I realize there are many issues to overcome. But we are very, very early still.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by rockstar »

MinnGuyInvesting wrote: Mon Jan 04, 2021 12:40 pm
rockstar wrote: Mon Jan 04, 2021 11:45 am
MinnGuyInvesting wrote: Mon Jan 04, 2021 11:15 am

Question 1 - Part A:
How do you know how much to pay for a stock or index fund?


Question 1 - Part B:
How do you know how much to pay with the changing value of the dollar?
I can discount back dividends from an index fund to get to a fundamental value. Also, companies have balance sheets with assets. You can figure out the value from the company from those assets. There are tangible things to review.

The dollar isn't changing value unless you compare it to foreign currencies. Buying power is a different story.
Are you reviewing the major companies inside each index fund you invest in?

Some of those companies are going to have stronger balance sheets than others. Do you just assume since they are in the index, the companies are fine, or do you have some indexes you won't purchae because a few companies have weak balance sheets?

I can understand the assumption of "all companies have assets and income" so I feel fine investing in that, but the value of an index is largely based on it's stock price which MAY (and MAY NOT) have any corresponding value to it's balance sheet or income statement. If stock price was driven just on those factors, it would be far easier to predict stock returns going forward.
Indexes reflect some multiple of earnings. This is the speculation built into the price.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by corn18 »

Quick page 5 poll: How many BHs have changed their mind based on this thread?
Don't do something, just stand there!
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by 552BB »

Good morning Bogleheads,





[=Valuethinker post_id=5710503 time=1609780130 user_id=1968]
Anon9001 wrote: Mon Jan 04, 2021 12:06 pm One must wonder when these things will become mainstream? It's been 11ish years since Bitcoin was first invented and it still is not used by mainstream for anything other than speculation. I don't think the Early Internet took this long to become useful.
You are quite right, it took far longer.

Internet was invented 1969 (from memory, without checking). WWW was 1990 (Sir Tim Berners-Lee, an English physicist at CERN). Amazon was I think 1994.

Internet was "useful" in the 1980s as a place to discuss scientific results (and also to have flame wars ;-)).
[/quote]





Hello valuethinker

You are quite correct. And make a very valid point. A seemingly long time can pass before a technology finally takes hold. And then it can seemingly take off.

I fly for a living.

Human flight was conceived many centuries ago.

Leonardo Davinchi drew many concept flying aircraft.

At the beginning of the 20th century most educated scientists knew that human flight would not be likely and certainly not ever practical.

1903 two American bicycle mechanics,Orville and Wilber Wright invented the first controllable human flying machine called the Wright flyer One.

About a half century later, we are in the jet age, and putting a man on the moon in 1969.

Like I said, I fly for a living, but I’m still in awe of thIs human feat.



Will bitcoin and the idea of a decentralized immutable borderless store of value work.

Will the concept take hold.



Like many here, I’ve been a sceptic, and I still have no crypto.

The current run of Bitcoin did catch my attention.

My current study’s of Bitcoin and the concept of crypto currency have me very intrigued

I will be reading and watching quite a bit.



:sharebeer
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by MinnGuyInvesting »

corn18 wrote: Mon Jan 04, 2021 1:03 pm Quick page 5 poll: How many BHs have changed their mind based on this thread?
I've learned a lot.
That's the purpose of forums.
Learning.
Index ETF's 41% |ARK Funds 39% | AAPL 5% | TSLA 3% | GOOGL 1% | AMZN 1% |Other stocks 5% | BTC/ETH 5% | | | Tracking my porfolio: https://www.bogleheads.org/forum/viewtopic.php?p=5745280#p5745280
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Register44 »

Okay this has been a good discussion. I am trying to be open minded here. So for those that believe in bitcoin where will the price be 10 years from now?

Whether Bitcoin is great or not, don't we have to expect that part of its "allure" is how much money it made for the early investors? Does anyone still think it can return another 10,000%? If so does that mean it goes to 30 million a coin? Its market cap then goes to 1 quadrillion?
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by sd323232 »

ohboy! wrote: Mon Jan 04, 2021 12:28 pm
Valuethinker wrote: Mon Jan 04, 2021 12:03 pm
ohboy! wrote: Mon Jan 04, 2021 11:52 am
Valuethinker wrote: Mon Jan 04, 2021 10:53 am
ohboy! wrote: Sun Jan 03, 2021 1:51 pm
All of your justifications apply to bitcoin :sharebeer
Not in the least.

A stock represents ownership. Cash flows accrue to owners. Eventually they will be paid out - either right now or in 30 years time. Either via dividends and stock buybacks, or via a takeover.

None of that is true of Bitcoin. Its entire value depends on someone else valuing at more in the future.

Yes the price of Bitcoin has risen because of low interest rates. That's true of all assets with a speculative component. Stocks with cash flows 30 years in the future have risen on the same logic. But with those stocks, there still is an expectation of maturity and payout of cash flow.

With Bitcoin you don't have any of that.

Can you explain your logic?
I'm earning 6% on my bitcoin holdings now.
But how? How does a digital currency "earn" 6%?
My Ethereum is also staked generating a return for essentially making it easier on the network to verify transactions. A lot has changed with crypto since the last big run-up. One of the major changes is that there are a lot of opportunities to earn a return on holdings as well as easily get loans with crypto. Current returns for US dollar stable coins like USDC or DAI are earning over 10% in interest. If I want to access the money I have invested in crypto I can get a loan in a matter of clicks easier than applying for a credit card and these loans are collateralized (unlike traditional finance).
That isn't telling me where the cash flow is coming from?
Is Bitcoin making a profit? No, but that hardly seems a requisite for equity investment these days. It's almost like companies are more valued on how much they can borrow.
Modigliani and Miller. In the absence of taxes (and agency/ information costs) the value of the firm is independent from its capital structure (debt/ equity split).

Just a general comment that that kind of logic "how much they can borrow" is bubble logic- it will come crashing down at one point. It's also not true - all of the FAANG companies (except Netflix) have lowish or nil gearing (without checking MS balance sheet; Apple has the largest pool of net cash every accumulated by a corporation).
Decades ago stocks represented ownership more than they do today. With the proliferation of index investing there is far less shareholder interest in voting. From what I see, billion and trillion dollar corporations, even some of the most profitable in the world, don't pay a dividend. Will they some day? Seems speculative. Do dividends and buybacks and takeovers generate the 10% a year market returns or is it value that is disconnected from fundamentals?
Again Modigliani and Miller. ex taxes, the shareholder is indifferent between dividends and buybacks. The existence of taxes tilts shareholder preference towards buybacks.

As to the 10% return. That's a rational response to very low costs of capital. The "out years" become more highly valued. If you look at the acquisition multiples being paid for private assets, implying much lower Internal Rates of Return (IRR is how these things are evaluated), that's very clear.

I happen to think that equity markets are in the Cinderella world, and midnight will come. But that's a normal market cycle of excessive optimism followed by pessimism.

I was addressing your points - fixed income is lousy so investors want alternatives. And if we are pricing the market 10-20 years out, my forecast for equity investing is dismal for the next 10-20 years. Of course, what do I know, I have plenty of low cost total market funds I'm hoping will hold some value in the future. I just think that a lot is being overlooked as to the "why crypto" and in doing so there is a lack of introspection on the "why equities".
Questioning the value of equities is not a justification for "investing" in crypto currencies. The return is purely speculative - the bet that someone in the future will pay more for the item than now. Whereas I can hold on to Alphabet, say, until it becomes this incredibly dull supercorporation, paying a widows & orphan annual dividend (or buying back all its stock). Think Berkshire Hathaway, which is incredibly dull in its portfolio (other than c 20% of its value being underpinned by Apple), and does not pay dividends (but does buyback shares) for reasons Buffett has outlined very well in one of his shareholder letters.

There's a separate question whether these things (crypto) will prove to be useful. I think blockchain technology is pretty neat, and I can see how it might solve problems regarding, say, securities trades. As a currency? Only if one is using dark money, I suspect*, does it offer clear advantages over existing payment mechanisms. And that's precisely what will be, in time, regulated and controlled.

* if you live in a controlled currency country, there's definitely a case for having bitcoin stored on some server somewhere else, than your own country's currency. Ditto as a way to bypass, say, Western Union.
I have Bitcoin at BlockFi, but there are tons of options. Separately, I just put $20k on Coinbase and converted it to their stable coin which is fully backed by dollars USDC. Free conversion. Then I moved it to their wallet (you could use any wallet though) and that cost $4. Then I assign it to decentralized Compound and dYdX for (collateralized lending contracts) and am earning 6.8% on compound and 9.1% on dYdX. More risky than FDIC insured high yield savings, sure, more risky than equities, not in my opinion.

The cash flow of staking is similar to mining, you are being rewarded for adding transaction power.

If you do not see how crypto is useful then you are not opening your eyes to it. There is a big difference between what's useful to you now, and what's generally useful. The darkweb stuff is more politics against bitcoin. Bitcoin is a public ledger. There are much better privacy coins for that (monero), but everything I have read recently says the share of crypto for illegal activity has declined. Also illegal activity is par for the course in any financial realm.
ohboy! this sounds interesting, so you making 9.1% return by buying dydx coin on coinbase? is it paid out monthly? it is something i wanna do also lol
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Northern Flicker »

Prahasaurus wrote: Crypto is where the internet was in 1990, still too complex, still misunderstood, still viewed as very niche infrastructure. Yet today the internet is the backbone of everything. Decentralized blockchain, likely on Ethereum, will see similar growth, and become just as integral to our lives. But this will play out over the next 20 years. It’s still very, very early.
In 1990, the internet was far less complex than today, and its existence was largely only known by people affiliated with universities, research labs, and tech companies.

A blockchain lacks the scalability to support the billions of transactions that take place every month. Thus, it seems that the way cryptocurrency can go mainstream for payment processing is for there to be an explosion in number of cryptocurrencies, not an explosion in demand for one of them.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by corn18 »

Northern Flicker wrote: Mon Jan 04, 2021 1:25 pm
Crypto is where the internet was in 1990, still too complex, still misunderstood, still viewed as very niche infrastructure. Yet today the internet is the backbone of everything. Decentralized blockchain, likely on Ethereum, will see similar growth, and become just as integral to our lives. But this will play out over the next 20 years. It’s still very, very early.
In 1990, the internet was far less complex than today, and its existence was largely only known by people affiliated with universities, research labs, and tech companies.

A blockchain lacks the scalability to support the billions of transactions that take place every month. Thus, it seems that the way cryptocurrency can go mainstream for payment processing is for there to be an explosion in number of cryptocurrencies, not an explosion in demand for one of them.
My takeaway as well. We'll need fusion reactors or quantum computing to keep up with the overhead that the blockchain requires. But we just don't have our eyes open.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by BruDude »

Register44 wrote: Mon Jan 04, 2021 1:17 pm Okay this has been a good discussion. I am trying to be open minded here. So for those that believe in bitcoin where will the price be 10 years from now?

Whether Bitcoin is great or not, don't we have to expect that part of its "allure" is how much money it made for the early investors? Does anyone still think it can return another 10,000%? If so does that mean it goes to 30 million a coin? Its market cap then goes to 1 quadrillion?
The price potential is somewhat unlimited. There is only a finite number of bitcoins that will ever be in existence, unlike government-backed currencies where they can just print more and devalue it. Many bitcoins have already been lost forever, further reducing overall supply. Google the story of James Howells, who threw away $250 million worth by accident.

The more widely it is adopted, the higher the price will go. If (and it's a big if) it takes hold as the main currency that can be sent around the world easily and quickly, it is easy to see how each could could be worth hundreds of thousands of dollars in the future, if not more.

The current market cap of bitcoin is about $580 billion. There are institutional investors buying hundreds of millions worth in the past couple of months. MicroStrategy has been buying tons of it and has done extremely well. Just today, a Singapore hedge fund (Three Arrows Capital) bought $1.2 billion of GBTC (Grayscale Bitcoin Trust). What happens when a massive corporation like Apple, Amazon, Tesla, etc decides they should be holding a percentage of their balance sheet in bitcoin? There is still only a finite supply. It would signal to the world a massive shift in corporate ideology and how financial instruments will be viewed/used in the future. What if Bezos wants Amazon to hold $20 billion? That is a 3.5% of the entire world's supply for one corporation. We are only at the beginning.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Prahasaurus »

Northern Flicker wrote: Mon Jan 04, 2021 1:25 pm
Prahasaurus wrote: Crypto is where the internet was in 1990, still too complex, still misunderstood, still viewed as very niche infrastructure. Yet today the internet is the backbone of everything. Decentralized blockchain, likely on Ethereum, will see similar growth, and become just as integral to our lives. But this will play out over the next 20 years. It’s still very, very early.
In 1990, the internet was far less complex than today, and its existence was largely only known by people affiliated with universities, research labs, and tech companies.

A blockchain lacks the scalability to support the billions of transactions that take place every month. Thus, it seems that the way cryptocurrency can go mainstream for payment processing is for there to be an explosion in number of cryptocurrencies, not an explosion in demand for one of them.
Ethereum 2.0 and the move to Proof of Stake should address this, going from 30 transactions per second to 100,000 transactions per second.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by ohboy! »

sd323232 wrote: Mon Jan 04, 2021 1:20 pm
ohboy! wrote: Mon Jan 04, 2021 12:28 pm
Valuethinker wrote: Mon Jan 04, 2021 12:03 pm
ohboy! wrote: Mon Jan 04, 2021 11:52 am
Valuethinker wrote: Mon Jan 04, 2021 10:53 am

Not in the least.

A stock represents ownership. Cash flows accrue to owners. Eventually they will be paid out - either right now or in 30 years time. Either via dividends and stock buybacks, or via a takeover.

None of that is true of Bitcoin. Its entire value depends on someone else valuing at more in the future.

Yes the price of Bitcoin has risen because of low interest rates. That's true of all assets with a speculative component. Stocks with cash flows 30 years in the future have risen on the same logic. But with those stocks, there still is an expectation of maturity and payout of cash flow.

With Bitcoin you don't have any of that.

Can you explain your logic?
I'm earning 6% on my bitcoin holdings now.
But how? How does a digital currency "earn" 6%?
My Ethereum is also staked generating a return for essentially making it easier on the network to verify transactions. A lot has changed with crypto since the last big run-up. One of the major changes is that there are a lot of opportunities to earn a return on holdings as well as easily get loans with crypto. Current returns for US dollar stable coins like USDC or DAI are earning over 10% in interest. If I want to access the money I have invested in crypto I can get a loan in a matter of clicks easier than applying for a credit card and these loans are collateralized (unlike traditional finance).
That isn't telling me where the cash flow is coming from?
Is Bitcoin making a profit? No, but that hardly seems a requisite for equity investment these days. It's almost like companies are more valued on how much they can borrow.
Modigliani and Miller. In the absence of taxes (and agency/ information costs) the value of the firm is independent from its capital structure (debt/ equity split).

Just a general comment that that kind of logic "how much they can borrow" is bubble logic- it will come crashing down at one point. It's also not true - all of the FAANG companies (except Netflix) have lowish or nil gearing (without checking MS balance sheet; Apple has the largest pool of net cash every accumulated by a corporation).
Decades ago stocks represented ownership more than they do today. With the proliferation of index investing there is far less shareholder interest in voting. From what I see, billion and trillion dollar corporations, even some of the most profitable in the world, don't pay a dividend. Will they some day? Seems speculative. Do dividends and buybacks and takeovers generate the 10% a year market returns or is it value that is disconnected from fundamentals?
Again Modigliani and Miller. ex taxes, the shareholder is indifferent between dividends and buybacks. The existence of taxes tilts shareholder preference towards buybacks.

As to the 10% return. That's a rational response to very low costs of capital. The "out years" become more highly valued. If you look at the acquisition multiples being paid for private assets, implying much lower Internal Rates of Return (IRR is how these things are evaluated), that's very clear.

I happen to think that equity markets are in the Cinderella world, and midnight will come. But that's a normal market cycle of excessive optimism followed by pessimism.

I was addressing your points - fixed income is lousy so investors want alternatives. And if we are pricing the market 10-20 years out, my forecast for equity investing is dismal for the next 10-20 years. Of course, what do I know, I have plenty of low cost total market funds I'm hoping will hold some value in the future. I just think that a lot is being overlooked as to the "why crypto" and in doing so there is a lack of introspection on the "why equities".
Questioning the value of equities is not a justification for "investing" in crypto currencies. The return is purely speculative - the bet that someone in the future will pay more for the item than now. Whereas I can hold on to Alphabet, say, until it becomes this incredibly dull supercorporation, paying a widows & orphan annual dividend (or buying back all its stock). Think Berkshire Hathaway, which is incredibly dull in its portfolio (other than c 20% of its value being underpinned by Apple), and does not pay dividends (but does buyback shares) for reasons Buffett has outlined very well in one of his shareholder letters.

There's a separate question whether these things (crypto) will prove to be useful. I think blockchain technology is pretty neat, and I can see how it might solve problems regarding, say, securities trades. As a currency? Only if one is using dark money, I suspect*, does it offer clear advantages over existing payment mechanisms. And that's precisely what will be, in time, regulated and controlled.

* if you live in a controlled currency country, there's definitely a case for having bitcoin stored on some server somewhere else, than your own country's currency. Ditto as a way to bypass, say, Western Union.
I have Bitcoin at BlockFi, but there are tons of options. Separately, I just put $20k on Coinbase and converted it to their stable coin which is fully backed by dollars USDC. Free conversion. Then I moved it to their wallet (you could use any wallet though) and that cost $4. Then I assign it to decentralized Compound and dYdX for (collateralized lending contracts) and am earning 6.8% on compound and 9.1% on dYdX. More risky than FDIC insured high yield savings, sure, more risky than equities, not in my opinion.

The cash flow of staking is similar to mining, you are being rewarded for adding transaction power.

If you do not see how crypto is useful then you are not opening your eyes to it. There is a big difference between what's useful to you now, and what's generally useful. The darkweb stuff is more politics against bitcoin. Bitcoin is a public ledger. There are much better privacy coins for that (monero), but everything I have read recently says the share of crypto for illegal activity has declined. Also illegal activity is par for the course in any financial realm.
ohboy! this sounds interesting, so you making 9.1% return by buying dydx coin on coinbase? is it paid out monthly? it is something i wanna do also lol
No. I am lending a coin, USDC, that is being used for collaterilzed loans (125%) on dYdX which is a decentralized exchange. USDC is a fully backed stablecoin, meaning it's always worth 1 US dollar. On dYdX you can lend, borrow, trade, and trade with margin.

Here is pretty informative youtube on it: https://www.youtube.com/watch?v=pEFx2-_ ... CoinBureau

dYdX is integrated into the Coinbase wallet, though I think using other wallets would allow cheaper transaction costs.

dYdX is actually one of the lesser used decentralized exchanges.
You can check defipulse to see how many billions are locked in the various decentralized finance applications.
https://defipulse.com/
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by surfstar »

corn18 wrote: Mon Jan 04, 2021 1:03 pm Quick page 5 poll: How many BHs have changed their mind based on this thread?
I'd like a pizza right now - does that count?
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Prahasaurus »

BruDude wrote: Mon Jan 04, 2021 1:33 pm
Register44 wrote: Mon Jan 04, 2021 1:17 pm Okay this has been a good discussion. I am trying to be open minded here. So for those that believe in bitcoin where will the price be 10 years from now?

Whether Bitcoin is great or not, don't we have to expect that part of its "allure" is how much money it made for the early investors? Does anyone still think it can return another 10,000%? If so does that mean it goes to 30 million a coin? Its market cap then goes to 1 quadrillion?
The price potential is somewhat unlimited. There is only a finite number of bitcoins that will ever be in existence, unlike government-backed currencies where they can just print more and devalue it. Many bitcoins have already been lost forever, further reducing overall supply. Google the story of James Howells, who threw away $250 million worth by accident.

The more widely it is adopted, the higher the price will go. If (and it's a big if) it takes hold as the main currency that can be sent around the world easily and quickly, it is easy to see how each could could be worth hundreds of thousands of dollars in the future, if not more.

The current market cap of bitcoin is about $580 billion. There are institutional investors buying hundreds of millions worth in the past couple of months. MicroStrategy has been buying tons of it and has done extremely well. Just today, a Singapore hedge fund (Three Arrows Capital) bought $1.2 billion of GBTC (Grayscale Bitcoin Trust). What happens when a massive corporation like Apple, Amazon, Tesla, etc decides they should be holding a percentage of their balance sheet in bitcoin? There is still only a finite supply. It would signal to the world a massive shift in corporate ideology and how financial instruments will be viewed/used in the future. What if Bezos wants Amazon to hold $20 billion? That is a 3.5% of the entire world's supply for one corporation. We are only at the beginning.
I believe Bitcoin’s price will depend on its narrative. Now we see the digital gold narrative playing out, with more institutional investors buying into this. I also think we’ll see at least one small nation state start to accumulate Bitcoin in 2021. I believe this narrative alone will propel Bitcoin to around 150k-250k USD. I think we’ll see this price before end of 2022.

I think we’d need a significant macroeconomic event to take Bitcoin past 300k usd, or at least one larger (by GDP) country to announce it will accumulate Bitcoin in addition to gold. Norway, for example. Or México. Or Vietnam. That would definitely take Bitcoin close to 1 million USD.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by sd323232 »

[/quote]
No. I am lending a coin, USDC, that is being used for collaterilzed loans (125%) on dYdX which is a decentralized exchange. USDC is a fully backed stablecoin, meaning it's always worth 1 US dollar. On dYdX you can lend, borrow, trade, and trade with margin.

Here is pretty informative youtube on it: https://www.youtube.com/watch?v=pEFx2-_ ... CoinBureau

dYdX is integrated into the Coinbase wallet, though I think using other wallets would allow cheaper transaction costs.

dYdX is actually one of the lesser used decentralized exchanges.
You can check defipulse to see how many billions are locked in the various decentralized finance applications.
https://defipulse.com/
[/quote]


got it, thank you for the info!
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by HomerJ »

Prahasaurus wrote: Mon Jan 04, 2021 11:46 am
rockstar wrote: Mon Jan 04, 2021 11:00 am
BogleBuddy12 wrote: Sun Jan 03, 2021 1:00 pm Preface: Jack Bogle is my hero and the Bogleheads community has changed my life.
However I have friends and family asking me the question: “Are Bogleheads dinosaurs when it comes to Bitcoin?” They question my unwillingness to embrace cryptocurrencies. They claim it’s the future, and the investing opportunity of a lifetime.

Clearly, Bitcoin is pure speculation. This is not debatable in my view. As Larry Swedroe points out here, there are tons of risks and question marks, and little to no logic for the price movements: https://www.etf.com/sections/index-inv ... nopaging=1

However it does seem the patient investor has skyrocketed their investment (if they sold today.)

I am sticking to my ways. But I have trouble articulating my positions when debating with the Bitcoin enthusiast. They seem to “know it all.” (If you’ve ever talked with a Bitcoin lover, you will know what I mean. There seems to be a certain personality that goes along with a speculative investor.)
My problem with bitcoin is that I have no clue how to value it. That doesn't mean it won't go up in price. I just don't know how much to pay for it.
Great point.

Here’s one way, but I admit is quite crude and highly speculative:

Bitcoin will continue to evolve into a store of value, replacing gold. Bitcoin has superior features to gold in almost all categories. It only lacks the longer history, and the ability to make ear rings out of Bitcoin. For everything else, Bitcoin is superior. Nobody under 30 is going to buy gold, but they will buy Bitcoin. For the over 30 crowd, it’s mixed. For the over 60 crowd, it’s more the dinosaur approach of shiny metals. But the future is with Bitcoin, without a doubt.

In any case, let’s assume Bitcoin does eventually replace gold. Current market value of gold is 10 trillion. Let’s say half of that is for shiny earrings, the rest is value storage. So 5 trillion. But gold is no longer what is was for investors, we are in a very abnormal time (past 50 years). There is a decent chance we will go back to some hard “currency” standard in some form or another, and then the value of gold (or whatever asset or basket of assets is used for this hard currency) should increase significantly.

But even if you take Bitcoin’s addressable market as 5 trillion USD only, the value of 1 BTC = 5 trillion USD / 21 million BTC (max supply) = 238k USD. Bitcoin proponents will say Bitcoin can do much more outside of value storage. And hence 238k is the minimum. For example we already see Bitcoin being used as collateral in decentralized financial applications. More and more people will use bitcoin as collateral to buy a home, etc. So it’s going to have more uses than what we see today from old fashioned gold. Bitcoin proponents will also say macroeconomic conditions will see gold (and hence Bitcoin, which will mimic and later replace gold) rise significantly in value over the coming decade. For example, we’ll likely see a universal basic income introduced in wester countries, which are already wallowing in debt. All of this money printing will have consequences, Bitcoin proponents claim. So again, that 238k USD is an absolute minimum, a floor price if you will.

That is one way to value it.
More and more people will use bitcoin as collateral to buy a home? Until the price stabilizes for a long period of time that will never happen on a large scale. Where do you come up with this stuff?

And 238k USD is an absolute minimum? LOL. Sounds good, but only if you make the assumption that Bitcoin completely replaces gold. Which is quite a huge assumption.

I can make all kinds of awesome "absolute minimum" claims about many investments as long as I'm also allowed to make huge unchecked assumptions.
Last edited by HomerJ on Mon Jan 04, 2021 2:03 pm, edited 1 time in total.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Call_Me_Op »

BruDude wrote: Mon Jan 04, 2021 8:32 am
Call_Me_Op wrote: Mon Jan 04, 2021 8:27 am Many people have struck it rich buying lottery tickets. That doesn't make the purchase of lottery tickets a sound investing strategy.
Lottery tickets don’t have a market cap and a market with buyers and sellers.
Tulips had both of those (in spades) back in the early 1600's.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by HomerJ »

MinnGuyInvesting wrote: Mon Jan 04, 2021 1:11 pm
corn18 wrote: Mon Jan 04, 2021 1:03 pm Quick page 5 poll: How many BHs have changed their mind based on this thread?
I've learned a lot.
That's the purpose of forums.
Learning.
What, precisely, have you learned?
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by Valuethinker »

552BB wrote: Mon Jan 04, 2021 1:07 pm Good morning Bogleheads,





[=Valuethinker post_id=5710503 time=1609780130 user_id=1968]
Anon9001 wrote: Mon Jan 04, 2021 12:06 pm One must wonder when these things will become mainstream? It's been 11ish years since Bitcoin was first invented and it still is not used by mainstream for anything other than speculation. I don't think the Early Internet took this long to become useful.
You are quite right, it took far longer.

Internet was invented 1969 (from memory, without checking). WWW was 1990 (Sir Tim Berners-Lee, an English physicist at CERN). Amazon was I think 1994.

Internet was "useful" in the 1980s as a place to discuss scientific results (and also to have flame wars ;-)).


Hello valuethinker

You are quite correct. And make a very valid point. A seemingly long time can pass before a technology finally takes hold. And then it can seemingly take off.

I fly for a living.

Human flight was conceived many centuries ago.

Leonardo Davinchi drew many concept flying aircraft.


At the beginning of the 20th century most educated scientists knew that human flight would not be likely and certainly not ever practical.
I don't agree with that assertion. A *lot* of people were trying to achieve powered flight (gliders had been around forever - there's that medieval wall painting with what is clearly a glider). In fact there's a Brasilian inventor who has a fair claim to have beaten the Wright Brothers (any Brazilian will tell you they are taught in school that he did).

The history of new inventions is that they seldom come "out of the blue" -- they arise out of a context of technological and societal evolution.

As a canonical example, the printing press was invented more than once - in ancient China. However the Chinese script, and the Arabic ones, are not susceptible to easy rendering in mechanical print. The Latin script is.

So you needed the Latin script, and the printing press, and a massively popular work to print and sell, which everyone wanted. The Bible provided that latter. And so the printing press revolution in 1450s Europe.

By contrast it was nearly the 20th century before there was a mass-selling, printed Koran. Printing competed unsuccessfully with hand copied versions.
1903 two American bicycle mechanics,Orville and Wilber Wright invented the first controllable human flying machine called the Wright flyer One.

About a half century later, we are in the jet age, and putting a man on the moon in 1969.
Goddard in America and Tchaikovsky in Russia were mucking around before WW1 with rockets. Jules Verne in the 19th Century did an enormous amount of research for his novel about the first trip to the moon (he hated HG Wells, who just invented anti-gravity paint to achieve the same outcome).

I agree jet travel has been revolutionary. Even commercial airlines, which only began in about 1921? I think the impact of the two World Wars was to supercharge aviation research & testing (and the Cold War, also - aviation and space technology).

Like I said, I fly for a living, but I’m still in awe of thIs human feat.
There's an inevitable question about sustainability. We haven't answered that, and we won't do so here. Just to note it. I could see a world where jet travel, like air travel in the 50s, say, is primarily reserved for the rich.
Will bitcoin and the idea of a decentralized immutable borderless store of value work.

Will the concept take hold.



Like many here, I’ve been a sceptic, and I still have no crypto.

The current run of Bitcoin did catch my attention.

My current study’s of Bitcoin and the concept of crypto currency have me very intrigued

I will be reading and watching quite a bit.



:sharebeer
An investment is something that produces an expectation of future cash flow at some time horizon. I don't see how digital currencies do that - neat concept though they are.

I do think Central Banks will implement some form of digital currency - and quite soon.

Bitcoin is closest to gold, perhaps. But gold has a track record thousands of years long. And 100 people don't own 90% of all of the gold out there.
Last edited by Valuethinker on Mon Jan 04, 2021 2:52 pm, edited 2 times in total.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by HomerJ »

BruDude wrote: Mon Jan 04, 2021 1:33 pm
Register44 wrote: Mon Jan 04, 2021 1:17 pm Okay this has been a good discussion. I am trying to be open minded here. So for those that believe in bitcoin where will the price be 10 years from now?

Whether Bitcoin is great or not, don't we have to expect that part of its "allure" is how much money it made for the early investors? Does anyone still think it can return another 10,000%? If so does that mean it goes to 30 million a coin? Its market cap then goes to 1 quadrillion?
The price potential is somewhat unlimited. There is only a finite number of bitcoins that will ever be in existence, unlike government-backed currencies where they can just print more and devalue it. Many bitcoins have already been lost forever, further reducing overall supply. Google the story of James Howells, who threw away $250 million worth by accident.

The more widely it is adopted, the higher the price will go. If (and it's a big if) it takes hold as the main currency that can be sent around the world easily and quickly, it is easy to see how each could could be worth hundreds of thousands of dollars in the future, if not more.

The current market cap of bitcoin is about $580 billion. There are institutional investors buying hundreds of millions worth in the past couple of months. MicroStrategy has been buying tons of it and has done extremely well. Just today, a Singapore hedge fund (Three Arrows Capital) bought $1.2 billion of GBTC (Grayscale Bitcoin Trust). What happens when a massive corporation like Apple, Amazon, Tesla, etc decides they should be holding a percentage of their balance sheet in bitcoin? There is still only a finite supply. It would signal to the world a massive shift in corporate ideology and how financial instruments will be viewed/used in the future. What if Bezos wants Amazon to hold $20 billion? That is a 3.5% of the entire world's supply for one corporation. We are only at the beginning.
But bitcoin, as designed, cannot be the main currency that is sent around the world easily and quickly. It doesn't scale.

It's extremely limited as currency, so how could it possibly "take hold as the world's main currency"?

Again, I can make all kinds of rosy predictions if I'm allowed to make giant assumptions like "Amazon suddenly decides to buy $20 billion", or even better, "bitcoin replaces all gold", or best of all, "bitcoin replaces ALL other currencies and becomes the world's reserve currency"

But how likely is it that those things happen? Bitcoin is a terrible currency. It's not built to do even a tiny fraction of the world's transactions. Sure, people are trying to build stuff around it to make it work somehow, but it wouldn't it be easier to build a new crypto-currency that actually is designed well as a currency?
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by cogito »

HomerJ wrote: Mon Jan 04, 2021 2:02 pm
More and more people will use bitcoin as collateral to buy a home? Until the price stabilizes for a long period of time that will never happen on a large scale. Where do you come up with this stuff?
Already is/has been happening. This is not speculation, you're just plain wrong.
https://blockfi.com/home-loans

I'm not sure if you are trolling or just haven't bothered to look up any of your claims, but if you really are as anti-crypto as you come off in these threads, you'd be kind to leave them people actually interested in learning about the space.
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by DB2 »

HomerJ wrote: Mon Jan 04, 2021 2:19 pm
BruDude wrote: Mon Jan 04, 2021 1:33 pm
Register44 wrote: Mon Jan 04, 2021 1:17 pm Okay this has been a good discussion. I am trying to be open minded here. So for those that believe in bitcoin where will the price be 10 years from now?

Whether Bitcoin is great or not, don't we have to expect that part of its "allure" is how much money it made for the early investors? Does anyone still think it can return another 10,000%? If so does that mean it goes to 30 million a coin? Its market cap then goes to 1 quadrillion?
The price potential is somewhat unlimited. There is only a finite number of bitcoins that will ever be in existence, unlike government-backed currencies where they can just print more and devalue it. Many bitcoins have already been lost forever, further reducing overall supply. Google the story of James Howells, who threw away $250 million worth by accident.

The more widely it is adopted, the higher the price will go. If (and it's a big if) it takes hold as the main currency that can be sent around the world easily and quickly, it is easy to see how each could could be worth hundreds of thousands of dollars in the future, if not more.

The current market cap of bitcoin is about $580 billion. There are institutional investors buying hundreds of millions worth in the past couple of months. MicroStrategy has been buying tons of it and has done extremely well. Just today, a Singapore hedge fund (Three Arrows Capital) bought $1.2 billion of GBTC (Grayscale Bitcoin Trust). What happens when a massive corporation like Apple, Amazon, Tesla, etc decides they should be holding a percentage of their balance sheet in bitcoin? There is still only a finite supply. It would signal to the world a massive shift in corporate ideology and how financial instruments will be viewed/used in the future. What if Bezos wants Amazon to hold $20 billion? That is a 3.5% of the entire world's supply for one corporation. We are only at the beginning.
But bitcoin, as designed, cannot be the main currency that is sent around the world easily and quickly. It doesn't scale.

It's extremely limited as currency, so how could it possibly "take hold as the world's main currency"?

Again, I can make all kinds of rosy predictions if I'm allowed to make giant assumptions like "Amazon suddenly decides to buy $20 billion", or even better, "bitcoin replaces all gold", or best of all, "bitcoin replaces ALL other currencies and becomes the world's reserve currency"

But how likely is it that those things happen? Bitcoin is a terrible currency. It's not built to do even a tiny fraction of the world's transactions. Sure, people are trying to build stuff around it to make it work somehow, but it wouldn't it be easier to build a new crypto-currency that actually is designed well as a currency?
Agreed. Governments will no doubt make bitcoin illegal when the time is necessary. I wouldn't touch it.
BogleMelon
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by BogleMelon »

Designairohio wrote: Sun Jan 03, 2021 1:12 pm I put in an order to sell $1000 of Vtsax this morning and plan to buy Bitcoin. It’s only .0008% of my portfolio
$1000/.0008%= 125,000,000 ($125MM). Is that your portfolio? :shock:
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
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HomerJ
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Re: Are Bogleheads dinosaurs when it comes to Bitcoin?

Post by HomerJ »

cogito wrote: Mon Jan 04, 2021 2:19 pm
HomerJ wrote: Mon Jan 04, 2021 2:02 pm
More and more people will use bitcoin as collateral to buy a home? Until the price stabilizes for a long period of time that will never happen on a large scale. Where do you come up with this stuff?
Already is/has been happening. This is not speculation, you're just plain wrong.
https://blockfi.com/home-loans

I'm not sure if you are trolling or just haven't bothered to look up any of your claims, but if you really are as anti-crypto as you come off in these threads, you'd be kind to leave them people actually interested in learning about the space.
LOL. They are just making margin loans based on your crypto accounts. It's not really "a home loan". It's a cash loan that you could use for whatever you want, and if Bitcoin crashes, they will do a margin call and force you to pay in more, or they'll sell the rest of your bitcoin to get their money back.

I liked this tidbit on that webpage
Back in 2017, BlockFi CEO Zac Prince was applying for a mortgage from a bank in Texas. As part of his application, he reported earnings from his cryptocurrency trading. Like many other Americans, Zac soon found out that banks can and will deny you a loan simply because you own crypto assets like Bitcoin or Ether.
Nothing inspires confidence like a CEO who can't afford to buy a house..

Also, I'm pretty sure the statement "banks can and will deny you a loan simply because you own crypto assets' is false. They probably denied him because he didn't have enough "real" income at the time. They don't give day-traders loans either based on their trades.

A false statement like that is a pretty big red flag.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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