BITCOIN

RolandFlagg

Why is a Picasso worth $100M when it cost the artist $100 in materials?

You sound like the type of person that goes around saying people should have a 60/40 portfolio, or buy divided stocks. Only have a withdraw rate of 4% otherwise you may run out of money before you die.
When people wake up and realise all those things are a lie, and the fiat system is the ponzi that is going to zero then you maybe out of a job.

Of course there will be lots of boomers who don't get it, but they will eventually be leaving billions to their kids and grandkids who will get it.

You will always think this:

masonic

RolandFlagg said:

Why is a Picasso worth $100M when it cost the artist $100 in materials?

I'm not in the 'if it cannot be valued it has no value' camp, but comparing a sum of cryptocurrency to a Picasso painting is taking things a bit far!

RolandFlagg

masonic said:

RolandFlagg said:

Why is a Picasso worth $100M when it cost the artist $100 in materials?

I'm not in the 'if it cannot be valued it has no value' camp, but comparing a sum of cryptocurrency to a Picasso painting is taking things a bit far!

Why?

If I knew nothing about art. I had never heard of Picasso and didn't know what one person was willing to pay for it I would not have it on my wall.


But back to the Madoff thing...

So Madoff was found out because investors being the sheep they are were happy to keep their money with him during the Bull market, then they wanted their money back when everything was crashing (which is the opposite of what they should have been doing, but that's a different story).
Once the Ponzi was revealed and Madoff didn't have the funds the SEC had to step in (although they had been turning a blind eye to the Ponzi for years because he was one of the Boys).
Some people got some money back, others didn't.

As for Bitcoin. It's Volatile because the sheep FOMO the top and then panic sell a dip/crash.
This happens elsewhere. Funds that have big gains (Ark Invest, Ballie Gifford) attract investors who are financial illiterate and are only investing because they believe it will go up in a straight line forever.
This is not Bitcoin's fault nor the fault of those Fund managers.
It's the lack of knowledge and poor behaviour of investors.

But when Bitcoin crashes do investors get an investigation as with the likes of Woodford or Madoff?
No, because nothing illegal has taken place. There was no Ponzi. 

Other crypto and exchanges, Yes it happens. But they are not Bitcoin.

masonic

RolandFlagg said:

masonic said:

RolandFlagg said:

Why is a Picasso worth $100M when it cost the artist $100 in materials?

I'm not in the 'if it cannot be valued it has no value' camp, but comparing a sum of cryptocurrency to a Picasso painting is taking things a bit far!

Why? If I knew nothing about art. I had never heard of Picasso and didn't know what one person was willing to pay for it I would not have it on my wall.

There is a significant population for whom art has aesthetic value, alongside those who value it for its historical significance, provenance, rarity, etc. They compete to own it for those reasons, which is what has driven its monetary value, largely as a side-effect. 

Whereas, the number who'd be driven to own and transact slices of bitcoin because they admire the elegance of the underlying cryptography and mathematics will be exceedingly few in number, and I'm saying this even though I count myself among them. But there is plenty to go around such that we can all hold some and play around with it without our actions driving up its price. I doubt I could find anyone to share in the appreciation of the blocks containing my transactions, and the coins are fungible. That's where NFTs were supposed to come in, right, and to some extent they have. But we shall see if those currently valued so highly continue to be valued centuries later. I somehow have my doubts about that.

Aegis

thegentleway said:

How do you work out the price of futures, derivatives, gold, etc… ?

It don’t have to be a productive asset; just need enough people to believe it’s a store of value.

Gold is the anomaly in that list, in that it's the only actual asset.  In the case of gold, it is driven by demand for both industrial and cosmetic purposes and by the introduction of new supply by mining companies.  In reality, it's an irrational asset at times, seeing periods of speculation and then price deflation as the hype ends.  From my own perspective, it's not an investment because it likewise does nothing economically other than existing, which relies on someone else buying the exact same asset from you at some point in future, i.e. being a greater fool that you.

In terms of futures and derivatives, the way to value them is to look at the underlying asset, the difference between the strike price and the current market price, the time to completion and the flexibility of the derivative contract.  I would generally say that most people should stay well clear of derivatives because they are incredibly difficult to value, often requiring very specialist software to allow traders to understand whether they are getting a bargain or being ripped off.  Going back to the origin of these sorts of contracts, they started as an insurance for producers of crops or goods, allowing producers to get funds now for a yield delivered in some months or years.  The use of these as investment assets is much newer, and it is fraught with all sorts of problems for retail investors.  I would generally suggest to all retail clients to stay away from futures and other derivatives, as well as commodity and foreign exchange investments.

Aegis

RolandFlagg said:

1. Why is a Picasso worth $100M when it cost the artist $100 in materials?

2. You sound like the type of person that goes around saying people should have a 60/40 portfolio, or buy divided stocks. Only have a withdraw rate of 4% otherwise you may run out of money before you die.
3. When people wake up and realise all those things are a lie, and the fiat system is the ponzi that is going to zero then you maybe out of a job.

4. Of course there will be lots of boomers who don't get it, but they will eventually be leaving billions to their kids and grandkids who will get it.

You will always think this:

1.  Art is a really interesting comparison here because it is by it's very nature a wholly irrational valuation process, i.e. things are valuable because some collectors decide that it's worth a certain amount.  If your argument is that bitcoin is valuable in the same way as art is valuable, then you're agreeing with my position, i.e. that there isn't a rational valuation.  On that basis, people holding bitcoin aren't investors, they're more akin to art collectors, but their "art" is merely a collection of bits of data that most people would probably see as just noise if it was written out on a screen.

2. I'm really not sure what you think you're getting at here.  I don't generally recommend the 60/40 portfolio to most clients, but it very much depends on their specific circumstances. In terms of yield, for clients that are looking for income, I tend to use investment trusts, so there's a natural yield and long-term rising capital values.  4% is a reasonable level based on past backtesting of various retirement portfolios.  In terms of my own income portfolio recommendations, right now it's yielding around 5.7% a year with an average dividend cover of over 2 years to smooth out any market volatility.

3. Well that's not going to happen, but you keep dreaming about the collapse of fiat currency. Just don't wonder why on earth anyone in their right mind would pay anything for your bitcoin if that were to happen.

4. Hate to break it to you, but you will never be a billionaire. So few people get that much money that it's probably less likely than winning the lottery jackpot repeatedly.

RolandFlagg

Aegis said:

RolandFlagg said:

1. Why is a Picasso worth $100M when it cost the artist $100 in materials?

2. You sound like the type of person that goes around saying people should have a 60/40 portfolio, or buy divided stocks. Only have a withdraw rate of 4% otherwise you may run out of money before you die.
3. When people wake up and realise all those things are a lie, and the fiat system is the ponzi that is going to zero then you maybe out of a job.

4. Of course there will be lots of boomers who don't get it, but they will eventually be leaving billions to their kids and grandkids who will get it.

You will always think this:

1.  Art is a really interesting comparison here because it is by it's very nature a wholly irrational valuation process, i.e. things are valuable because some collectors decide that it's worth a certain amount.  If your argument is that bitcoin is valuable in the same way as art is valuable, then you're agreeing with my position, i.e. that there isn't a rational valuation.  On that basis, people holding bitcoin aren't investors, they're more akin to art collectors, but their "art" is merely a collection of bits of data that most people would probably see as just noise if it was written out on a screen.

2. I'm really not sure what you think you're getting at here.  I don't generally recommend the 60/40 portfolio to most clients, but it very much depends on their specific circumstances. In terms of yield, for clients that are looking for income, I tend to use investment trusts, so there's a natural yield and long-term rising capital values.  4% is a reasonable level based on past backtesting of various retirement portfolios.  In terms of my own income portfolio recommendations, right now it's yielding around 5.7% a year with an average dividend cover of over 2 years to smooth out any market volatility.

3. Well that's not going to happen, but you keep dreaming about the collapse of fiat currency. Just don't wonder why on earth anyone in their right mind would pay anything for your bitcoin if that were to happen.

4. Hate to break it to you, but you will never be a billionaire. So few people get that much money that it's probably less likely than winning the lottery jackpot repeatedly.

I'm happy with being a Millionaire thanks. I'm not a sheep who needs to be told how to invest by snake oil salesmen.

Anyway. for the open minded:


https://youtu.be/dTiWW8n56Mc?si=6AWCNj-vHVwxhqu7

Aegis

Sure, just gloss over all the other responses in my post and focus on the fact that I told you you are very unlikely to be a billionaire.

Honestly, if you just ignore all negative statements, I can certainly see why you would be an advocate for bitcoin.

Linton

RolandFlagg said:

Why is a Picasso worth $100M when it cost the artist $100 in materials?

You sound like the type of person that goes around saying people should have a 60/40 portfolio, or buy divided stocks. Only have a withdraw rate of 4% otherwise you may run out of money before you die.
When people wake up and realise all those things are a lie, and the fiat system is the ponzi that is going to zero then you maybe out of a job.

Of course there will be lots of boomers who don't get it, but they will eventually be leaving billions to their kids and grandkids who will get it.

You will always think this:

A work of art is valuable because it is unique.  A perfect vopy of the Mona Lisa is worth close to nothing.  The real one is very valuable because there is documentary evidence from a chain of ownership that the one in the Louvre  was the one actually painted by Leonardo.  There is no other.   If that is what a couple of multi-billionaires really want, they could  pay billions to own something no-one else can.

A share is valuable because it documents the shareholder's ownership of part of a company.  I may own 1 billionth of Apple.  The value of Apple comes from its current and future profits. If someone wants to take over full ownership the company and personally benefit from those profits they will have to pay me and all other shareholders for the privilege.  Unless the underlying company goes bust there is always value in a share even if its only the land the company owns, the reserves in its bank account, the scrap value of its machinery, ithe brand names it owns etc etc.  Beyond that its current and estimated future profits have a real value that can be calculated by accountants.

£s have an underlying value as I could go to jail if I dont pay taxes in the government's chosen currency.  Plus of course I cant buy the necessities of life without them.

A BTC holding is valuable because... well that is a very good question.  Why is a price of £35K correct and a price of 35p or  £35M wrong?  How do you estimate the correct fundamental value? Compared with serious works of art It is far from being unique and only available to a very small number of very rich people. Compared with shares it does not give access to external money such the profits generated by companies across the world. And I cant use it to pay the expenses I need to make.

MeteredOut

thegentleway said:

Aegis said:

RolandFlagg said:

Aegis said:

RolandFlagg said:

https://www.youtube.com/watch?v=HtyvFo9oyB8

Excellent discussion with some of the smartest people in the space.

50 minutes in things really got my juices going on what will be an incredible journey the next couple of decades.

Some interesting stats thrown out such as:
Bitcoin Layer 1 now settles as many transactions as VISA and..
Pick any four year time frame in BTCs history and if you had put 2% of your portfolio in it and kept the rest in cash earning nothing you would have outperformed the S&P 500 and also had a much better Sharpe Ratio.

And to think this is just the beginning. The likes of Blackrock and Fidelity are going to be marketing the crap out of how amazing BTC is as an investment and how groundbreaking the tech is.

The problem with this is that it is purely a discussion of the past performance, and as we know, past performance is not a guarantee of future performance. Goes without saying that very high returns are simply not sustainable in the very long run, meaning the returns either have to level out or collapse altogether.  The long term prospects still boil down to "where is the return coming from?" and the answer is still "from greater fools" (not a statement that everyone buying into bitcoin is a fool, but rather a reference to greater fool theory, which is discussed periodically in this thread) and not from any sort of actual economic activity.

Berrnie Madoff had a very successful investment strategy for many years, and anyone not investing in his strategy was probably being told "you could get better returns with less volatility" by giving him their money. Worked well for early adopters, but much less so for those caught in the latter days before the whole thing unwound.

1. You are kind of making a case for Bitcoin.

Active Management, the kind that Madoff was offering adds another layer of risk. Not only do you have market risk that you get with passive index funds, but you are now adding a Human risk.
You could get a Buffett or Lynch or you could get a Woodford or Madoff.
Madoff fooled people because he offered them a product with no volatility, which is impossible, but because people are risk adverse, myopic and not knowing that risk and volatility are not the same bought into it.

So for years people have called Bitcoin too volatile.
Madoff's fund wasn't volatile.
2.  So far which has been the ponzi?

Was Amazon stock a ponzi because it has fallen in price by 90% twice?
Or Nvidia because it has fallen in price by 85% twice.

New and exciting tech is volatile as it's still in price discovery mode.
It's a feature not a bug.

Portfolio management suggests the more volatile something is, the less of it you should have, because when the asset goes parabolic a small amount goes a long way.
That is what has happened with Bitcoin, and anyone who thinks it won't keep outperforming the stock market and Gold over the long term are just fooling themselves.

3.  It's just got going.

https://www.youtube.com/watch?v=u1-oN8L9590

1. I'm really not. If you think I am, then you are focusing on wholly the wrong things.

2. Both. It's not an either/or choice. The difference is that Madoff's scheme was for his benefit and has collapsed, while bitcoin has yet to collapse. Doesn't mean that bitcoin is more valid than Madoff's scheme, it just means that, for now, enough people still believe in bitcoin as an investment for it to continue performing well. That doesn't change the fact that it does nothing, generates no economic return as a unit and therefore has absolutely no reason to grow in value. As such, it is wholly sentiment driven, i.e. people more or less arbitrarily deciding to ascribe value to something valueless. That's not an investment, therefore it has no place in my or my client's portfolios.

3. Perhaps it has. Or perhaps this is the last gasp before people who bought in at, say, $40,000 realise that there just aren't enough people willing to buy in at, say, $60,000 to drive the price higher. When that happens, the liquidity will dry up and the price will plummet. It might recover, but any major fall could be the last one because there isn't a floor to the price underpinned by economic activity. The history of bitcoin price over time looks like nothing more than a series of bubbles bursting, the unusual part is the number of times the process has repeated.

I have asked on a number of occasions for people to tell me how to calculate a fair price for something like bitcoin, and still nothing. I'm afraid that functions to do with the network size really don't make much sense, as the underlying asset does the same whether the network is a single person or everyone on the planet. Without a mechanism for calculating fair value, there's no way to know whether you are paying a good price for your assets or just a price that has been driven wholly by irrational sentiment.

How do you work out the price of futures, derivatives, gold, etc… ?

It don’t have to be a productive asset; just need enough people to believe it’s a store of value.

Sounds to me that thats pretty aligned to the greater fool theory.