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The ASR Cryptocurrency thread

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julian_hughes

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I agree and it's worth parsing what you mean by "financial asset" in determining crypto's value.

If you mean cryptocurrency is a financial utility, enabling entrepreneurs and governments to redefine payment methods, then there is both good and drek. E.g. China has a multi-decade plan to convert ALL of its currency to crypto and to promote it as replacement for the dollar in international finance.

...
And the interesting thing about China is that it has no plan to join in with a distributed ledger based on mining. The state will be in total control of the blockchain and the cryptocurrency will be defined not by mining but by decree. This is where financial institutions and states see the value of the distributed ledger, the blockchain. The people who created Bitcoin did create something of real value, but it wasn't the currency, it was the workable distributed ledger.
 

Chromatischism

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It's a store of value so volatile that it is *useless* as a store of value unless the entire exercise is a gamble/speculation.
It's a medium of exchange so volatile in value, so slow and expensive to exchange that it only makes sense if these huge penalties of volatility and inertia and expense are less onerous than using other well established means which are fast, low cost and stable but not anonymised.
I've been sending crypto assets around the Solana ecosystem at less than a penny per and the funds arrive in 30 seconds. I can do this 24 hours a day, 7 days a week. There are others that are pretty quick and cheap, too. Maybe before painting with such a broad brush of assumptions you could do your own research.
 

Chromatischism

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There are just a handful of people holding huge reserves
Finally, one thing we both think could be a problem.

But consider this. Due to its unique properties, Bitcoin remains a better place to store value over the long run. It's better than fiat, bonds, stock market, you name it. So the thinking goes, where will people who withdraw put their money? It eventually goes back into BTC.
 

mansr

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After 13 years of existence they have proven to be too slow, expensive to deal with and too volatile in value to replace either cash, or regular bank to bank transfers, or debit/credit card transactions.
It's worse than that. Crypto-so-called-currencies have inherent properties that make them idiotic as a basis for an economy. For instance, the limit, whether hard or practical, on the amount of "coins" along with the inevitability of people losing their wallets means that there will ultimately be a diminishing supply of currency. This leads to a deflationary economy, something any number of experts will agree is a Very Bad Thing.

This leaves the possibility of crypto-tulips as potential investment assets. Again, bad idea. The only "value" they represent is the expectation that someone will be willing to pay more for them at some future time, based on the very same expectation. That can't continue forever. Sooner or later, the supply of new buyers, or shall we say marks, will dry up, and the last to enter the game will be left in the hole, having financed the winnings of everybody who came before them. Simply put, it's a Ponzi scheme, plain and simple.

Looking at it from another angle, the evangelists are promoting "crypto" as both a legitimate replacement for traditional currencies _and_ as investment assets. That combination cannot work. Regardless of any other properties, a workable currency must be stable, with the allowance of moderate inflation. A volatile currency only leads to chaos, historical examples of which are plentiful. Meanwhile, the only way to profit from currency-like instruments (tokens without intrinsic value used to represent actual value) is through fluctuations in exchange rates. The more volatile the currency, the greater the potential gains and, crucially, losses. In the long term, currencies of stable economies largely track one another, provided trade volumes are sufficient. If everybody adopted the same cryptocurrency, that profit avenue would instantly become a dead end.

Most of the hype around crypto-tokens these days centres around their valuation in terms of established currencies, usually USD. Any increase is trumpeted with vigour while downturns are dismissed as momentary setbacks. This very thread has several examples of people boasting about how much their holdings have increased in value. What this fails to recognise is that most of this "value" cannot be converted to real, spendable currency. The exchanges have nowhere near the requisite liquidity, should there be a surge in demand. In other words, actually accessing those gains relies on an influx of buyers. In yet other words, it's a Ponzi scheme.

No matter how things are twisted, the inescapable fact remains that every dollar made in "crypto" today is a dollar taken from someone down the line, someone who will get nothing in return. That, to me, makes the entire endeavor unethical.
 

HiFidFan

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Finally, one thing we both think could be a problem.

But consider this. Due to its unique properties, Bitcoin remains a better place to store value over the long run. It's better than fiat, bonds, stock market, you name it. So the thinking goes, where will people who withdraw put their money? It eventually goes back into BTC.

Door number four? Hard assets.
 

Chromatischism

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I agree and it's worth parsing what you mean by "financial asset" in determining crypto's value.

If you mean cryptocurrency is a financial utility, enabling entrepreneurs and governments to redefine payment methods, then there is both good and drek. E.g. China has a multi-decade plan to convert ALL of its currency to crypto and to promote it as replacement for the dollar in international finance.

However, if by "financial asset" you mean an investment, then, well, it's not an investment, it's a wild speculation in most cases. Unless the value is tied to some predictable flow of real-world financial returns or to some index of real-world currency values or commodity prices, then the particular crypto has no definable value. I say that as a career financial advisor. I have been reading about crypto for years, and no-one can provide a cogent explanation of Bitcoin's value, other than it's what everyone else thinks it is on this particular day of the week. If you speculate in Bitcoin, you're either lucky or you're not. (There are other crypto's that have built-in stablilizers, but not Bitcoin. Governments in particular need to anchor the value of their currencies to make them a credible medium of exchange.)
I agree with you that Bitcoin used as daily money doesn't make intuitive sense and I'm not sold on the idea of that use case at this stage of the game (we are in the early days of the adoption phase).

However there are ways to value the asset and most are pointing to a terminal value of BTC at 500-1000k and Ethereum at 25-50k. These numbers are from some of the bigger names out there and are based on value due to usage, not wild guesses.
 
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julian_hughes

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If anyone here thinks the people who promote cryptocurrency are interested in rational assessment of its merits (or otherwise), then I have some news for you: I have had two entirely rational, non-offensive, posts deleted. All the propositions in them were based in the real world of knowledge and testability. I made no appeals to ethereal entity or invisible or supernatural forces. But, because I made some quite simple and entirely supportable criticisms of cryptocurrencies in general my posts were deleted on the basis of "Religious Content Not Permitted". I kid you not. And this is a forum with science in the name.
 

HiFidFan

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If anyone here thinks the people who promote cryptocurrency are interested in rational assessment of its merits (or otherwise), then I have some news for you: I have had two entirely rational, non-offensive, posts deleted. All the propositions in them were based in the real world of knowledge and testability. I made no appeals to ethereal entity or invisible or supernatural forces. But, because I made some quite simple and entirely supportable criticisms of cryptocurrencies in general my posts were deleted on the basis of "Religious Content Not Permitted". I kid you not. And this is a forum with science in the name.

Faith is a powerful thing.

Good thing, for crypto.
 

julian_hughes

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It's worse than that. ..... unethical.

In short: it's not a currency, it's a speculative instrument. And that is fine when promoted as such. But it is promoted as a currency, avidly so by people expecting this promotion will enrich them (them being the promoters, not the targets of the marketing).
 

Blumlein 88

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Finally, one thing we both think could be a problem.

But consider this. Due to its unique properties, Bitcoin remains a better place to store value over the long run. It's better than fiat, bonds, stock market, you name it. So the thinking goes, where will people who withdraw put their money? It eventually goes back into BTC.
That is what I call optimism there. Nowhere to run, nowhere to hide for your assets. They all become BTC in time. Yet what is its value?

Other than some aspects of the blockchain, most aspects of crypto seems a solution in search of a problem to me.

I must say, much like credit default swaps, which seemed like musical chairs, crypto seems much the same unless some governments reach an agreement to use it or some such. Yet decentralizing from governments is the main selling point of crypto in most guises.
 

muslhead

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It's worse than that. Crypto-so-called-currencies have inherent properties that make them idiotic as a basis for an economy. For instance, the limit, whether hard or practical, on the amount of "coins" along with the inevitability of people losing their wallets means that there will ultimately be a diminishing supply of currency. This leads to a deflationary economy, something any number of experts will agree is a Very Bad Thing.

This leaves the possibility of crypto-tulips as potential investment assets. Again, bad idea. The only "value" they represent is the expectation that someone will be willing to pay more for them at some future time, based on the very same expectation. That can't continue forever. Sooner or later, the supply of new buyers, or shall we say marks, will dry up, and the last to enter the game will be left in the hole, having financed the winnings of everybody who came before them. Simply put, it's a Ponzi scheme, plain and simple.

Looking at it from another angle, the evangelists are promoting "crypto" as both a legitimate replacement for traditional currencies _and_ as investment assets. That combination cannot work. Regardless of any other properties, a workable currency must be stable, with the allowance of moderate inflation. A volatile currency only leads to chaos, historical examples of which are plentiful. Meanwhile, the only way to profit from currency-like instruments (tokens without intrinsic value used to represent actual value) is through fluctuations in exchange rates. The more volatile the currency, the greater the potential gains and, crucially, losses. In the long term, currencies of stable economies largely track one another, provided trade volumes are sufficient. If everybody adopted the same cryptocurrency, that profit avenue would instantly become a dead end.

Most of the hype around crypto-tokens these days centres around their valuation in terms of established currencies, usually USD. Any increase is trumpeted with vigour while downturns are dismissed as momentary setbacks. This very thread has several examples of people boasting about how much their holdings have increased in value. What this fails to recognise is that most of this "value" cannot be converted to real, spendable currency. The exchanges have nowhere near the requisite liquidity, should there be a surge in demand. In other words, actually accessing those gains relies on an influx of buyers. In yet other words, it's a Ponzi scheme.

No matter how things are twisted, the inescapable fact remains that every dollar made in "crypto" today is a dollar taken from someone down the line, someone who will get nothing in return. That, to me, makes the entire endeavor unethical.
Nice to see someone who actually gets it and is not a zealot. There is NO one right answer in spite of the sermons that have occur on this thread
 

muslhead

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That is what I call optimism there. Nowhere to run, nowhere to hide for your assets. They all become BTC in time. Yet what is its value?

Other than some aspects of the blockchain, most aspects of crypto seems a solution in search of a problem to me.

I must say, much like credit default swaps, which seemed like musical chairs, crypto seems much the same unless some governments reach an agreement to use it or some such. Yet decentralizing from governments is the main selling point of crypto in most guises.
Most goverments are reviewing crypto. It will be their answer to the debt bomb that is coming and the great reset occurs. But none of them will use a crypto that is available to investors, if they go down that path so i dont get how crypto zealots are going to benefit.
 

HiFidFan

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That is what I call optimism there. Nowhere to run, nowhere to hide for your assets. They all become BTC in time. Yet what is its value?

Other than some aspects of the blockchain, most aspects of crypto seems a solution in search of a problem to me.

I must say, much like credit default swaps, which seemed like musical chairs, crypto seems much the same unless some governments reach an agreement to use it or some such. Yet decentralizing from governments is the main selling point of crypto in most guises.

Agreed. To me crypto is almost a political statement, a counterculture against our failed monetary institutions.
 

julian_hughes

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... unless some governments reach an agreement to use it or some such....
And that is where the value lies. It doesn't have to be governments. It can be financial institutions regulated by governments. But they can use blockchain to produce perfectly auditable, transparent ledgers *and* remain in control of them. That sounds so boring next to the get rich schemes but actually it is where and why blockchain is being adopted by institutions and governments who are not looking for a get rich scheme. This may not apply in Ecuador or El Salvador, those well known giants of political stability and financial security.
 

muslhead

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Agreed. To me crypto is almost a political statement, a counterculture against our failed monetary institutions.
And why no goverment will allow them to exist unless they are under their control. And if they are under their control are they really any different than fiat?
 
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