First, the author assumes there is a bubble brewing. That's not his thesis; that's his background assumption. His thesis is that, assuming there is a bubble, you should do X, Y, and Z, and not do A, B, and C.
So yeah, after reading this, we could argue once again about whether there's a bubble or not. But the more interesting argument is about whether his advice is sound. Not whether his assumption is sound.
> 2. Beware vanity metrics
Can we tell if BitCoin and other cryptocurrencies has any vanity metrics? If so, what would that be?
My uneducated guess would be how valuable the currency is in Dollars. The currency seems virtually inflated as we don't know how much of that would translate to real purchasing power. It doesn't seem that it would be possible to many people to sell it all out. Thus, who invested in it would be supposed to keep using within the coin's network, and given that a transaction takes awhile and there are not many shops accepting it, it would be hard to get some return.
In addition, BitCoin has fluctuated a lot since 2012 and there were several issues in its way, like the lead maintainer stepping out, capacity limit being reached because of block chain monopoly, Mt Gox bankruptcy etc.
Crytocurrencies simply are hard to value because you don't know how many users they've got.
Number of full nodes also looks like a vanity metric.
I was there when the last time bitcoin reached record highs. Surely the USD conversion rates play a large part when suddenly people get interested in block chain or bitcoin at all.
Other metrics can be the glut of "altcoins" with very high "genesis block" or ICO rates.
A more reasonable measure of the value of a cryptocurrency would be the following: if it were possible to create an infinite number of currency units, how much USD/EUR/etc. could be earned by selling everything into the market? In other words, the more reasonable metric is the sum of all (cryptocurrency) buy orders.
If we use the Bitcoin/USD market as an example, the four most liquid USD exchanges (using data from https://bitcoincharts.com) are -- in descending order -- Bitstamp, Coinbase, itBit, and Kraken.
The sum of all USD buy orders for these exchanges is $43 million (22583567.85[1], 9551529.73[2], 9310393.07[3], 1679397.01[4], respectively).
I'm not sure what this figure is for Ethereum, but my guess is that it's around 1% of that of Bitcoin -- whereas Ethereum's market cap is around 50% of Bitcoin's.
EDIT: On GDAX/Coinbase alone (https://www.gdax.com/trade/ETH-USD) it's possible to sell Ethers for over $12 million USD. So I guess I was wrong about the 1% figure. Although I believe $43MM USD for Bitcoin is an underestimate.
[1] https://bitcoincharts.com/markets/bitstampUSD_depth.html
[2] https://bitcoincharts.com/markets/coinbaseUSD_depth.html
Unlike commodities, equities and so forth, cryptocoins have no value whatsoever. So to try to make it sound like it has worth, its pushers have to cast about for anything they can and finally come upon the only thing they can - the dollar. In fact, they say, it's even better than the dollar.
It would take too long to explain here why the Bitcoin is not like the only thing they have left to compare it to, the dollar. Also, an explanation won't sway anyone who has already had a drink of the kool-aid any how.
May I recommend another message board for all those high on cryptocoins here - 4chan ( http://boards.4chan.org/biz/catalog ). 4chan /biz/ is filled with uneducated, poor kids all looking to get wealthy with little work on the cryptocoin get rich quick schemes.
I think it's a much better message board for all of you of this bent. Here on HN there are still some people who believe in studying math and science and engineering and CS at universities, and then going and doing a lot of hard work and creating wealth. 4chan is mostly filled with your types - the get-rich-quick scam artists. Go read 4chan /biz/ right now - it's filled with no work, no study, get rich quick types like yourself. Leave and go there. HN will be stuck with those "out of it" old fogies who actually believe in study, hard work, that commodities need value to have worth in the long-term, and old-fashioned, out of touch ideas like that.
This is not to say that there isn't an absurd amount of hype and froth right now, but if nothing else cryptocurrencies will continue to serve a purpose for anybody who needs to send money outside capital controls.
He gets called out by someone in Venezuela here https://www.reddit.com/r/Bitcoin/comments/6d2w1b/bitcoin_is_...
Why are you so dismissive of this new technology? Can you expand on your idea?
I'm skeptical of the idea that Bitcoins have value in the way commodities and other things which can be traded and exchanged have value.
People might find some use for blockchain technology, but the speculation around the value of Bitcoins is ridiculous. It's a bubble like any other bubble. The notion that a Bitcoin can remain at a $2000 value is absurd.
The current top comment says "Internet companies during the dotcom bubble had market value of several trillion dollars. The total market cap of crypto-currency is still only ~$70 billion. I agree with the principle, but this boom is still pretty modest." Well there you go. I have an old worn sock with a hole in it that I am throwing away. It is worth $500. It is worth $500 because I am willing to pay $500 for it. I am capable of creating a bubble of that size. Even a $70 billion bubble can be created apparently. Once it reaches a certain point it will pop. Your point about Mooncoins points to it - as a Bitcoin is worthless, clones like Mooncoins can be created as speculative bubbles. Eventually it will no longer be a micro-economic oddity like my $500 sock, but will bump up against the market as a whole and collapse like every other speculative bubble.
It's not blockchain technology, which may or may not have worth at some point. It's the speculative bubble on cryptocoin choice.
As I said, Pets.com and Webvan made sense on some level. Just not the valuations they had at the time. And Bitcoins valuation is even sillier than theirs, since Webvan was not a bad idea, it just had a few problems including being ahead of its time.
Ripple also has value for ForEx settlement, which currently can take on the order of days. Also, it can function as a universal liquidator.
The -coins though, are ephemeral. Only the underlying Blockchain tech is of any use.
The total market cap of crypto-currency is still only ~$70 billion. I agree with the principle, but this boom is still pretty modest.
Cash real interest rate: 0% interest - 2% inflation through debasing currency = -2%
BTC real interest rate: 0% interest - 0% inflation = 0%
Note how this benefit of BTC is not bubbly by itself (growth expectation usually is - due to it being based on past growth)
Maybe it isn't a bubble, but it sure does walk like a duck and talk like a duck.
This is just high-stakes gambling, it's not a systemic bubble until pension funds, university endowments or state sovereign funds get significant exposure.
Bitcoin prices begin to unwind (trigger: emotion? unknown unknown?). Chinese holders of bitcoin, who have been using them to get out of the yuan and avoiding capital regulations, start selling, accelerating the problem. Chinese WMPs (wealth management products) that may hold bitcoin start to default or go under, accelerating the deflation of the current Chinese debt and borrowing bubble. Global market contagion risk from China causes markets to rethink what is going on? The US has been calling for a correction for months, and the VIX is stubbornly low. Central banks have interest rates very low but are trying to tighten, and if they tighten into weakness it might cause a recession.
Taken to extremes, if any given POG collector suddenly went bankrupt, due to a crash in values in the POG collector's price guide, how many people are associated with a particular POG collector? Would they notice, when that POG collector's business failed, because of an inability to meet obligations, now that all POG collections are worthless?
If banks and businesses accept The POG as legal tender, how many transactions disappear with the POG craze, leaving them unpaid, or stuck holding worthless assets?
Bitcoin may be decentralized, but they can go after currency converters. They can make holding it illegal. They can make mining it illegal. They can make trading it illegal.
They can manipulate the market to crash the value of bitcoin with (to them) pocket change.
Only in their own jurisdiction. The US already goes after those, but it won't help as long as other countries don't.
> They can make holding it illegal.
Unenforceable. Making the knowledge of a secret key illegal would simply be weird. Bitcoins have no physical incarnation. So, you cannot "hold" them in your hand.
> They can make mining it illegal.
Unenforceable. It is very easy to hide that a machine is mining. Furthermore, such machines can be located in any country of the world.
> They can make trading it illegal.
They already try to do that. It doesn't help.
> They can manipulate the market to crash the value of bitcoin with (to them) pocket change.
They would first have to buy up a lot of bitcoin in order to dump them and crash the market. While buying up the coins, they are pushing its value up. When selling them, they just go back to the point they came from. Hence, the strategy would be totally ineffective.
What's more, if governments attack the internet, people will discover that the reverse is much, much easier. Using the internet to orchestrate attacks against the government, is simply trivial to organize.
It certainly isn't discussing companies working on cryptographic technologies like I initially assumed.
