Remarkable statistic

[Itsallaguess]

A rather sad and salutary article in today's Guardian:

They couldn’t even scream any more. They were just sobbing’: the amateur investors ruined by the crypto crash

https://www.theguardian.com/technology/2022/jul/12/they-couldnt-even-scream-any-more-they-were-just-sobbing-the-amateur-investors-ruined-by-the-crypto-crash

A relevant snippet from that article -

It may be that future economists view the cryptocurrency boom of the early 2020s as a mass Dunning-Kruger event, fuelled by social media and facilitated by technology; an era in which amateurs took financial advice from fellow amateurs and bet the house on speculative investments.

“Admitting that you know nothing just tells you that you’re lucky,” says Roy. “And my ego couldn’t handle that. I didn’t want to be lucky. I wanted to be someone who knew what they were doing. I’m smart, right? Tell me I’m smart, please? That’s how it goes. The whole community reinforced themselves, and each other.”

Cheers,

Itsallaguess

[SalvorHardin]

A rather sad and salutary article in today's Guardian:

They couldn’t even scream any more. They were just sobbing’: the amateur investors ruined by the crypto crash

https://www.theguardian.com/technology/2022/jul/12/they-couldnt-even-scream-any-more-they-were-just-sobbing-the-amateur-investors-ruined-by-the-crypto-crash

A relevant snippet from that article -

It may be that future economists view the cryptocurrency boom of the early 2020s as a mass Dunning-Kruger event, fuelled by social media and facilitated by technology; an era in which amateurs took financial advice from fellow amateurs and bet the house on speculative investments.

“Admitting that you know nothing just tells you that you’re lucky,” says Roy. “And my ego couldn’t handle that. I didn’t want to be lucky. I wanted to be someone who knew what they were doing. I’m smart, right? Tell me I’m smart, please? That’s how it goes. The whole community reinforced themselves, and each other.”

Taleb in the Guardian article says: "This is the first time we’ve seen a financial bubble coupled with religious, cult‑like behaviour and an investment strategy not seen before in history". I'd argue that it's not the first time. History never repeats itself, but it sure does rhyme.

You could see the same behaviour during the dotcom boom and bust, though there weren't as many people with internet access back then (no smartphones) so the average internet user back then was smarter than the average internet user today. Many still fell into the trap. As to new investment strategies, a popular way to value companies with websites back then was "eyeball share"; counting the number of visitors to the website. Sales and profits didn't matter. To paraphrase one of the Mexican bandits in Blazing Saddles: "Profits. We don't need no stinking profits"

Those of us who were on TMF (UK and USA) in the late 1990s and 2000 probably remember lots of clueless people turning up and banging on ad nauseam about dotcom shares and how the rest of us were losers clinging to our "old technology stocks".

History tells us that people behaved similarly during the South Sea Bubble, with gossip in the coffee shops taking the place of the internet. The more it changes the more it stays the same.

LastMinute.com's IPO in March 2000 was the peak of the dotcom boom in the UK. I was working away from home, staying in hotels, so unusually for me I ended up watching Breakfast TV whilst getting ready for work most mornings. On several occasions I saw presenters talking about stagging this IPO, a clear sign of a market top. Back on TMF, even the merest of rumours that LastMinute.com was doing something sent the number of posts rocketing.

A major justification behind the dotcom boom was the development and deployment of new technology. In the cryptobubble we've seen numerous claims regarding blockchain applications. This doesn't mean that everything using the blockchain will be wildly profitable or that its profits can be mostly captured by one company.

https://en.wikipedia.org/wiki/Dot-com_bubble

[Urbandreamer]

You could see the same behaviour during the dotcom boom and bust, though there weren't as many people with internet access back then (no smartphones) so the average internet user back then was smarter than the average internet user today. Many still fell into the trap. As to new investment strategies, a popular way to value companies with websites back then was "eyeball share"; counting the number of visitors to the website. Sales and profits didn't matter. To paraphrase one of the Mexican bandits in Blazing Saddles: "Profits. We don't need no stinking profits"

Those of us who were on TMF (UK and USA) in the late 1990s and 2000 probably remember lots of clueless people turning up and banging on ad nauseam about dotcom shares and how the rest of us were losers clinging to our "old technology stocks".

I remember.

Indeed I was actively invested in companies like ARM back then, and with possibly less to boast of Baltimore Tech.

I cashed in my chips when LastMinute.com floated, catching the peak price of BLM before it's price crashed.

What ever happened to ARM? Oh that's right. Their chips are in the bulk of mobile phones.

Possibly not EVERY "internet" or "dot-com" company was a poor choice.

[Itsallaguess]

Taleb in the Guardian article says: "This is the first time we’ve seen a financial bubble coupled with religious, cult‑like behaviour and an investment strategy not seen before in history".

Exactly.

And then the irony-meter goes into overdrive when some of these 'crypto bro' characters have the hilarious gall to talk about the mainstream media having 'an agenda', as if we should be grateful for their absolutely 'agenda-free' opinions...

I want to give credit to Urbandreamer here though, as it's clear as he's fleshed out his thoughts on this matter that he's taking a much more balanced view than some of the more extreme acolytes.

I personally still think he's being too optimistic, but he's certainly not showing the more cult-like behaviours that we can see elsewhere, that's for sure...

Cheers,

Itsallaguess

[modellingman]

That's an odd hill to choose to die on. The point of a Ponzi scheme is that future returns come solely from future "investment" of capital into the scheme. Whether it's expressed as a guaranteed yield, a guaranteed return or just a high return without an explicit guarantee, it's still a Ponzi scheme if it meets that criterion, and it's really difficult to see how you could argue that future growth from bitcoin DIDN'T come from future purchases of bitcoin with external assets. After all, it does nothing else to generate revenue.

Err, two points about bitcoin, rather than Fiat:

Who guarantees the return?
Who benefits?

Some don't regard Bitcoin as a currency or money. They can't see any money value in it. Hence it has no value, because any money use of it is disregarded.

Some view it as a form of money, hence they compare it against other money. If you have that view you can't help but see how fiat falls short. By all means simply reject bitcoin and consider gold instead. Most of the arguments still hold.

So will you "die" on the hill of the argument that gold is "a barbarous relic"? Will you die claiming that Gold won't rise in price against inflating money supply?

The question is if bitcoin ,which is as limited as gold, but easier to move across the world, has any value.

But back to words. YES I will argue that we can't just chose to use them how we feel. BJ's description of a Ponzi scheme fits fiat. If we chose to claim that bitcoin is a Ponzi scheme because it meets that description then YES by that argument we must claim the same of fiat!
Can you provide another argument that makes Bitcoin a "Ponzi" scheme?

I think this article from the English version of El País provides a reasonable stab at answering the final question.

Here are a few quotes to whet the appetite:

The only way to get money out of bitcoin is by selling it to someone else. When you do, someone agrees to buy your bitcoin for, say, $2,000 more. If you buy or sell from another investor, that does not change the total money there is: you receive the money that the other guy puts in. But if you buy it from a miner, the money goes out the system and never comes back. You can compute the money that has come out: about $20 billion. It is the difference between what investors have put in and what they have taken out. It is the extent of the losses.

What did he [Satoshi, the founder of Bitcoin] miscalculate? Two things. One, that mining instead of being distributed among thousands of anonymous volunteers would end up in a group of huge pools. He didn’t envision those pools at first, they appeared in 2010 or so. The situation we have ended up with is that all cryptocurrencies are alike: a small group of miners control networks and most of the power. The second thing is that Satoshi believed that inflation was bad. He set a limit so that there would be no inflation. But already in 2009 the first bitcoin user after Satoshi saw that it was best to keep it because it would be more valuable in the future if he started hoarding. Instead of a coin it became something to invest and hold. That’s terrible for money. If people keep the money under the mattress, there is less in circulation, the value goes up. But if someone decides to sell a handful, the value plummets. It is what we have seen since 2009, it goes up and down, which makes it useless as a trading currency. You can’t sell something in a currency that loses 10% of its value a few hours after receiving it.


Whether, Jorge Stolfi (academic computer scientist who was interviewed for the article) is right, partially right or completely wrong is something that can be debated. My own view, when a family member told me she had invested (and ultimately lost money) in Bitcoin was that that she was not investing but instead speculating. Fortunately, the "investment" and subsequent losses were small and not life changing.

[Urbandreamer]

But back to words. YES I will argue that we can't just chose to use them how we feel. BJ's description of a Ponzi scheme fits fiat. If we chose to claim that bitcoin is a Ponzi scheme because it meets that description then YES by that argument we must claim the same of fiat!
Can you provide another argument that makes Bitcoin a "Ponzi" scheme?

I think this article from the English version of El País provides a reasonable stab at answering the final question.

Here are a few quotes to whet the appetite:
.....

We are going to have to disagree.

I recommend that others follow your link and read the article rather than judging by the quotes. Other statements in it would seem to suggest that the opinions have been reached without the knowledge that is attributed.

For example a "pool" (in this case a mining pool) is not a single entity. Indeed if we are specific to mining pools it's a collection of people who own mining equipment who "pool" their expenses and profits to smooth out the cash flow. Individuals may move between pools, join or exit.

His comment about buying from a miner is particularly egregious. If you buy from a gold or iron miner, the money goes out of the system to doesn't it? Or food from from Nestle? Or pay for a taxi? How does choosing to pay for a product or service cause "money to leave the system"? The only thing that I can see that matches his description is "buying" fiat from the state while they are creating more of it. Even then some might argue that the act of providing and regulating money IS a service we should pay someone (the state) for.

I'm sure that he would disagree, because fiat IS MONEY and bitcoin IS NOT, in his mind. It's a ponzi scheme because.... Well those miners aren't people ... are they, to judge by his words? Well yes they are. There are many people who own a rig or two. Are not some of them companies? Well yes they are "companies" (the word means people who join together), who have share holders and pay profits to their owners. Well it's a ponzi scheme because "The only way to get money out of bitcoin is by selling it to someone else". Isn't that true of £'s $'s or other money? But bitcoin isn't money, in his mind!

Anyway I STRONGLY recommend following the link provided and judging the mans word's yourselves.

PLEASE ignore the fact that he and others have signed a letter to congress. What that letter says isn't mentioned and no link provided. I would suspect that it's the one https://concerned.tech/ that caused this https://www.financialinclusion.tech/ letter in response. However as we can't directly attribute the letter mentioned, they could have said anything. Things that we agree with or disagree with, we don't know.

[GoSeigen]

If people keep the money under the mattress, there is less in circulation, the value goes up. But if someone decides to sell a handful, the value plummets. It is what we have seen since 2009, it goes up and down, which makes it useless as a trading currency. You can’t sell something in a currency that loses 10% of its value a few hours after receiving it.

I think what he's trying to say here is that the problem with bitcoin as a currency is its chronic illiquidity. It's all very well putting it under the mattress for years watching its "value" grow, but when the price is moving down it's impossible to liquidate.


GS

[pje16]

If people keep the money under the mattress, there is less in circulation, the value goes up. But if someone decides to sell a handful, the value plummets. It is what we have seen since 2009, it goes up and down, which makes it useless as a trading currency. You can’t sell something in a currency that loses 10% of its value a few hours after receiving it.

I think what he's trying to say here is that the problem with bitcoin as a currency is its chronic illiquidity. It's all very well putting it under the mattress for years watching its "value" grow, but when the price is moving down it's impossible to liquidate.

GS

Really... since when has "under the mattress" been a good investment
please don't tell me that for 40 years I have been missing out