Bitcoin-big con

Malthusian

onthebench said:

I think you are conflating bitcoin day-trading scams with bitcoin itself. There are huge numbers of scams related to stocks, gold bullion, and good old cash, and none of those mean that stocks, gold or cash are a scam.
Numbers like the ones you quote are of course nonsense, but if you had simply bought and held bitcoin one year ago you would now be looking at a roughly 48% profit, assuming of course that the massive volatility in that period didn't spook you.

You might be looking at a roughly 48% profit but most people in that situation would carry on looking at the profit and patting themselves on the back until they'd left it too late to realise that profit, and Bitcoin had dumped again.

It's a zero sum-game and for one person to put £1,000 in and cash £1,480 out, other people have to invest £1,480 and lose £480.

onthebench

Surely the “zero sum game” argument applies to any investment. If you sell at a profit then either you are missing out on further rises (if it continues to go up) or whoever fills your sell order loses out (if it goes down).

if the market capitalisation of bitcoin rises then anyone holding it could have a paper profit (the number of nee coins being mined is already fairly negligible compared to the number out there already.)
At the moment there seems to be more interest in buying than selling but of course that can change. 

If it gets to the point where my investment has doubled then I will sell enough to recover my original purchase cost and hold the rest. If my hunch is right, though, I’ll probably regret selling that half in the future. 

bowlhead99

onthebench said:

Surely the “zero sum game” argument applies to any investment. If you sell at a profit then either you are missing out on further rises (if it continues to go up) or whoever fills your sell order loses out (if it goes down).

A 'zero sum game' is effectively a closed system where the instruments you are trading don't become inherently more worthy over time and so your gain can only come at someone else's loss, because the grand sum of all the gains and losses will be zero.

For example if you are speculating on foreign currency contracts or betting on football matches then you might take a punt that dollars will become worth more sterlings or euros may become worth more francs, or united might get more than the projected number of goals against city, but your gains for 'calling it right' only come from the other people paying you off as a result of 'calling it wrong'. The money available to be paid out equals what people have put in. With average luck, over time you're unlikely to call the next direction of market prices better than the grand sum of all market participants, and in some such 'zero-sum' exchanges of wealth it's a negative sum game as money is leaking out to market makers or inefficiencies  (e.g. the house rake when playing poker or the bid-offer spread and dealing commission on certain markets).

That's quite separate and distinct from what happens when you're investing in productive assets e.g. equities. 

For example if you and a few other people each own shares in Tesco, Sainsbury, Microsoft, Amazon, you may trade amongst yourselves and prefer to weight your exposure to a bet that TSCO will be a more lucrative supermarket to hold than SBRY, or that MSFT will find more profits in cloud computing than AMZN. However, in that scenario the shares you're trading are becoming inherently more valuable over time because all of the companies bring in billions of revenues and profits from the world outside your little closed trading environment; an equity share represents an ownership slice of profits, and an entitlement to the company's residual assets if the company were to wind up and dissolve. So when someone goes to the shops and buys a tin of beans or logs on and pays a monthly subscription, the company supplying them the goods and services get tangibly more valuable, having made an income. So you could make an imperfect call to overweight SBRY over TSCO or AMZN over MSFT when vice versa would have been more lucrative, but as it is NOT a zero sum game, you could still make money because overall you are participating in economic growth.

So that can happen with equities or fixed income markets but if you are buying a bitcoin or a bar of gold or calling dollars against swiss francs it's more speculative - your holding or contract will only go up in value while you own it if someone wants to pay more for it than you did, on a hope that they can sell it on to someone else later for even more. Unlike equities, here's nothing coming in from outside in terms of inherent 'growth' from the attributes of the coin, which just sits there inertly.

Another_Saver

onthebench said:

Surely the “zero sum game” argument applies to any investment. If you sell at a profit then either you are missing out on further rises (if it continues to go up) or whoever fills your sell order loses out (if it goes down).

if the market capitalisation of bitcoin rises then anyone holding it could have a paper profit (the number of nee coins being mined is already fairly negligible compared to the number out there already.)
At the moment there seems to be more interest in buying than selling but of course that can change. 

If it gets to the point where my investment has doubled then I will sell enough to recover my original purchase cost and hold the rest. If my hunch is right, though, I’ll probably regret selling that half in the future. 

No.

That is not what a zero sum game is.

A zero sum game is one in which one player's gain is another's loss, all players cannot gain, hence "zero sum".

Cash pays interest, bonds pay coupons, property pays rent and the underlying value of the property should grow at least with inflation over time, stocks pay dividends and the value of the stocks - at least at the level of a sufficiently diverse portfolio or national index - should grow with the economy (over the very long term, -ish, give or take some unnecessairly academic stuff). These are positive sum games (indirectly they are zero sum because these forms of income, and capital growth in the case of property and equityhave to be generated by economic activity, if all such growth was reinvested indefinitely it would lead to absurd consequeces, in reality most growth ends up being sold and consumed).

Everyone who holds any of these assets can make a profit.

Bitcoin pays nothing and there is nothing making it grow other than the potential of a future buyer willing to pay more. Everyone who holds Bitcoin cannot make a profit because their profit must necessarily be someone else's loss. Anyone can make a profit, but not everyone.

onthebench

I understand that not everybody can make a profit. But that is also the case for the vast majority of stocks, I would say. The dividends for many stocks are negligible compared to the stock price growth. Not everyone can make a profit from, say, Apple or Tesla stock either. They are not zero sum games, but the size of the pool is largely down to speculative investment, and if you sell at a profit you are likely taking money from someone else who is making a loss.

Bitcoin doesn't "do" anything, but then neither does gold, and I wouldn't mind having a couple of kilos of that in the shed. 

Malthusian

onthebench said:

I understand that not everybody can make a profit. But that is also the case for the vast majority of stocks, I would say. The dividends for many stocks are negligible compared to the stock price growth.

That is irrelevant as it is their profits that make holding the shares a positive sum game, not the dividends. 

A dividend is just a company moving some money you already own from one account you already own into another account you already own.

The value the companies add to their inputs is the new money entering the system that turns it into a positive sum game.

Bitcoin doesn't "do" anything, but then neither does gold, and I wouldn't mind having a couple of kilos of that in the shed. 

Speculation in gold is also a zero sum game in the same way as speculation in Bitcoins.

Malthusian

Another_Saver said:

These are positive sum games (indirectly they are zero sum because these forms of income, and capital growth in the case of property and equityhave to be generated by economic activity, if all such growth was reinvested indefinitely it would lead to absurd consequeces, in reality most growth ends up being sold and consumed)

That's just a further extension of what makes them positive sum games. Whenever two people freely trade any good they are each giving something up in exchange for something they value more. There is not a winner and loser, they both benefit. This is still true when the good one person is trading is cash.

bowlhead99

onthebench said:

I understand that not everybody can make a profit. But that is also the case for the vast majority of stocks, I would say. The dividends for many stocks are negligible compared to the stock price growth. Not everyone can make a profit from, say, Apple or Tesla stock either. They are not zero sum games, but the size of the pool is largely down to speculative investment, and if you sell at a profit you are likely taking money from someone else who is making a loss.

The point is that while the share prices have a speculative element of course, the investors are buying them not simply due to a belief/ hope that they can find some mug to palm the shares off to at a higher price later, but actually with a genuine and rational belief that they should be able to sell them to someone at a higher price. 

That comes from the fact that the companies own £x of productive assets and are currently generating £y of business profits a year, and some of that profit can literally be given to the shareholders (the company owners) as a thank-you for supporting the company; an amount that should rise with inflation as the company's incomes and costs rise with inflation over time. The money not given to shareholders is retained within the business and invested in projects or resources with the intention of growing the £y per year of annual profits to a position of £yy per year of annual profits, to leave £xx instead of £x of cash and productive assets at the company's disposal.  When you buy a share, it's literally a share of ownership of all the future profits and assets forever. 

Whereas a bitcoin or slab of gold isn't productive and doesn't grow in size over time while you hold it. In x years time you have the same amount of gold and same quantity of coins and simply hope that as inflation will have made goods and services generally more expensive, someone would be willing to pay more for the metal or the coin.

In the short term, you can make or lose fortunes while 'trading' the stock market if you call it right, but in the long term you can make fortunes by simply holding productive assets while they keep generating more and more income for you, whether you are lucky enough to pick the very best stocks or not.  That's how people get to work 40 years putting away some small portion of their salary into a pension each year and then retire 40 years on some much greater annual percentage of their annual lifetime salary than what they had put away. Due to real terms growth.  If investing in stocks was a 'zero sum game' you would have no rational expectation of making more returns than inflation over the longer term, because if you succeeded it would mean that someone else had spectacularly failed and the average person would merely break even before trading costs and tax.

slowchimera

clive0510 said:

 I think my money for the time being is staying safe n sound thank you. (premium bonds).

If you  like Premium bonds and are interested in nextgen finance, then the crypto equivalent would be Pooltogether.

You put in a dollar denominated stablecoin (dai), and each dollar gives you a chance of winning the pot of interest of everyone's investments in that week's draw.  Current odds are about 1 in 1 million for every $1 put in - far better odds than premium bonds. If you put in the equivalent of the £50k premium bond max into pooltogether you would have around a 1 in 20 chance of winning the current prize pot of $3k.  The amount you put in (any any winnings you may get) can be withdrawn at any time, just like premium bonds.

There are of course some risks, as it is denominated in dollars you are exposing yourself to dollar fluctuations; there is smart contract risk.

msallen

slowchimera said:

clive0510 said:

 I think my money for the time being is staying safe n sound thank you. (premium bonds).

If you  like Premium bonds and are interested in nextgen finance, then the crypto equivalent would be Pooltogether.

You put in a dollar denominated stablecoin (dai), and each dollar gives you a chance of winning the pot of interest of everyone's investments in that week's draw.  Current odds are about 1 in 1 million for every $1 put in - far better odds than premium bonds. If you put in the equivalent of the £50k premium bond max into pooltogether you would have around a 1 in 20 chance of winning the current prize pot of $3k.  The amount you put in (any any winnings you may get) can be withdrawn at any time, just like premium bonds.

There are of course some risks, as it is denominated in dollars you are exposing yourself to dollar fluctuations; there is smart contract risk.

I'm sure you understand by now clive0510, but you should completely ignore the above.