[V.Narayan]

I have largely shied away from writing on this thread, except once, as I am no expert on crypto-currencies or their relatives. The correct nomenclature, in my humble opinion, ought to be online virtual trading in pieces of complex software algorithms. What I mean is that my body of knowledge and this items history of trading have both not reached a critical mass for me to say time to invest and diversify the risk a little. In my time between my professional and personal life I have invested in or bought positions in Indian shares, American shares, FX derivatives, interest swaps, gold and real estate. I know enough to be dangerous but I cannot understand this new commodity and its intrinsic useful economic value.

What I do know is that every so many years a new bubble emerges to fuel the human need for wealth creation the lazy way - the stock market boom in India in 1980s, the Japanese real estate bubble circa 1990, the dotcom bubble of late 1990s, the mortgage bubble of USA that collapsed in 2008 and so on. The medium of trade changes but the over riding urge to get rich quick is the same. Interestingly exactly the same pattern repeats itself - folks who've got little investment experience start putting their money, folks with 5 trades behind them become the experts, guys start borrowing money (eeks!!) to invest in the new toy, grand mothers who cannot spell R-I-S-K start talking about it and everyone believes there is at least one bigger sucker who'll buy at a higher price. I realize I am offending those who have invested and apologize for my candour. Please read on.

In the wake of easy wealth will follow two things as sure as death and taxes - (1) The Governments will individually and collectively come after it (2) the crooks will get hold of it (have already done ) (3) frauds will emerge - fake bitcoins, fake transactions et al. Forgery is around the corner.

Originally Posted by Samurai

Can somebody explain me why this is not the greatest bubble in the history of the world? Anything that is appreciating so fast is not at all useful as a transnational currency. Why would you give it away to buy something, if it keeps going up in price like this? So it is nothing but an artificial store of wealth that keeps growing. But how? It has no intrinsic value. It doesn't finance any kind of production or service or entrepreneurship, or create jobs. The price is growing because of insatiable demand to own it by investors, and there is a finite supply of it, and newer supply is harder and harder to produce. Bitcoin is the new gold, and what's is happening now is the California Gold rush.

Very well put. Thanks.

Originally Posted by Rehaan

Now I'm left with the more difficult question of when I should sell

Time to sell is now. We care for you Rehaan and want you to remain solvent so you can keep penning great posts and articles on T-BHP.

Originally Posted by Samurai

It is a great money laundering instrument.

Yup. Cannot say it better.

Bitcoin has value because people think it has value. ....
What if the governments around the world start banning bitcoins because of they can't control it? What happens to this perceived value?

Same that happened to Dutch Tulips.

Originally Posted by ksameer1234

Also, another side of story which has now started surfacing. There are people who are taking loans and mortgaging property to raise funds for buying Bitcoins. What if Bitcoin value crashes and people start defaulting on loans. Would be so stupid to read that an abstract cryptocurrency kickstarted another financial crisis.

John Rockefeller sold off his speculative positions before the 1929 stock market crash in USA (that triggered the great depression). Someone asked him how he got the wind of the crash. Rockefeller said he was guided by the shoe shine boy down the street. The world's first billionaire, said that the day the shoe shine boy on Wall Street started talking of investing in stocks he knew it was time to sell.

My 90- year old pa-in-law asked me about bitcoins three weeks ago. He loves trading in stocks - it helps him keep active. He asked, "V____ji yeh Crypto kaunsi country hai. Uskee currency mein bahut value hai" [V____ which is this country called Crypto. Its currency seems to have a lot of value] He insisted I should help him trade in Crypto's currency!! I fobbed him off by saying RBI has banned it. Guys its time to sell!

Originally Posted by sushantr5

I am surrounded by BitCoin investors. Out 10 people, in my team, 8 are invested into crypto currency. I am the one of two who is keeping out of this game. Daily discussions run around this topic and through these discussions I found that all these 8 people are Monkey investors, I call them monkey because they do not know anything about economics but they are following and guided by one big time crypto investor. The one big time investor had made more than 1 crore of wealth in crypto currency. Others have bought dream of Crypto currency is the future.

Right thing to do. Stay sane. There is merit in the phrase 'easy come easy go'. Easy money, I believe, triggers a tendency in our minds and egos to invest carelessly. Money earned the hard way forces our brains to think carefully on how to deploy it. That has been my living experience. In the late 1990s I was lucky enough to make some easy money - the first time I had seen so much. Do you think it was used to buy a new house-nope; to invest in my staid brick & mortar business - no siree; in a pension scheme - you kidding. In 60 days flat it was invested in a sparkling Silicon Valley late stage start up that was about to change the world's telecom industry and be bought out by a telecom major. Alongside me were a couple of much richer high society fools rubbing shoulders with whom boosted my ego no end. I got a 4X return = massive ego massage + a tail tucked between my legs + a big dose of anger to swallow + money lost forever. Easy come easy go.

[Chetan_Rao]

Some of my colleagues have caught the bug too.

Same investor profile, if you can call them such. Know nothing about economics, no willingness to research, working mostly off Bitcoin bro-science (the one know-all 'expert' colleague), some even taking loans to fuel the craze. They're all convinced they'll make millions and exit before the bubble pops.

I shake my head and move on. (Easy) money is the worst addiction.

[sushantr5]

Originally Posted by Chetan_Rao

Some of my colleagues have caught the bug too.

Same investor profile, if you can call them such. Know nothing about economics, no willingness to research, working mostly off Bitcoin bro-science (the one know-all 'expert' colleague), some even taking loans to fuel the craze. They're all convinced they'll make millions and exit before the bubble pops.

I shake my head and move on. (Easy) money is the worst addiction.

Originally Posted by V.Narayan

...

The problem I see that complete spectrum of tech savvy people are falling in the love of crypto. And there is considerable amount of people who are into the gamble. There are so many videos and explanation about why this is future. Even financial portals treat it as the one of trading commodity. You see news, posts and all sort of resources everywhere. This all collectively says this is not a scam, nobody questions it. And this convinces people to be a part of ship. Infact this not a scam, but definitely this is completely illogical. The thing is creating wealth out of thin air by selling idea that it is the future.

But I see counter argument is not holding ground much. I see people who has counter argument has to step back from the argument. People believe in idea of bit coin so much that I see that these people considers others as a foolish people. I am wondering how the whole world is going mad at the same time? aren't there counter argument which has been holding ground?

[SmartCat]

For those who are contemplating selling their house or pledging their wife's jewellery to invest in cryptocurrencies, here is a cheat sheet /guide -

[V.Narayan]

Originally Posted by smartcat

For those who are contemplating selling their house or pledging their wife's jewellery to invest in cryptocurrencies, here is a cheat sheet /guide -

Attachment 1702680

Smartcat, you rock. I am going to give this to my pa-in-law.

[Nissan1180]

Originally Posted by V.Narayan

In the wake of easy wealth will follow two things as sure as death and taxes - (1) The Governments will individually and collectively come after it (2) the crooks will get hold of it (have already done ) (3) frauds will emerge - fake bitcoins, fake transactions et al. Forgery is around the corner.

Same that happened to Dutch Tulips.

John Rockefeller sold off his speculative positions before the 1929 stock market crash in USA (that triggered the great depression). Someone asked him how he got the wind of the crash. Rockefeller said he was guided by the shoe shine boy down the street. The world's first billionaire, said that the day the shoe shine boy on Wall Street started talking of investing in stocks he knew it was time to sell.

Thank you for an informative post. I would like to share a little bit of what I've been able to learn in the past few months reading about cryptocurrencies. Before I read up, I used to think like everyone else- that this is a bubble that's waiting to pop. This is a waste of time, money and electricity. This is a scam. After reading up, I realized that I was grossly mistaken.

A lot of people compared this rise in value (I'm not saying price-value is the right term) to the Tulip mania in 17th century Europe. The problem is that the Tulip story is false. It was created by religious zealots to restrain the free markets. It was a propaganda. You can read the Smithsonian article that talks about it here.

Secondly, the original intention of creating a cryptocurrency was to bypass the banks. Paypal is today a payment gateway. Their original vision was to digitize currency. There was another currency before that which tried to do the same, but they did not pick up. Security and awareness were the adoption barriers. The creators of Bitcoin solved the challenges that made duplication impossible. That's what makes it so powerful- it is distributed across half a million computers and not one can control it. Yes, each token is is just a piece of code. But what about the money we use everyday? Even that's a piece of code. Money is electronic. If you would like to know about the history of Bitcoin, this is a book I highly recommend. You may dislike it as an investment option, but understanding the context, history and potential is important for something so disruptive. Bitcoin is the only form of currency that cannot be duplicated, manipulated or destroyed. That's why so many people are trusting it as a means to store their wealth.

Thirdly, anyone who read the Panama papers or wikileaks articles would be able to appreciate the extent of money laundering that is done by banks. They use sophisticated names for the transactions, but in essence they're laundering money. You don't need bitcoins to launder money. In fact, Bitcoin transactions are highly traceable. You can go to blockchain.info and type in any bitcoin wallet address, and it will show you what transactions took place for that account. No bank can afford that transparency. Swiss banks are so famous because they are unrelenting when it comes to disclosing details of their customers.

Finally, someone mentioned that bitcoins are not adding any value to the economy. That's also a false statement. There are billions of dollars worth of computers mining coins at any moment. Hundreds of thousands of people are involved in manufacturing them. Thousands are employed at exchanges.

I personally believe that there's a lot that needs to be done to reform banking institutions. They control the economy and have been reckless in the past. They walk away with fat bonuses, add little value to the economy and continue getting bailed out for bad lending bets. I'm willing to invest in the future of money- even if it has a low chance of success. If people did not invest in the internet in the 1990s, we would not be typing this today. Let's try to understand what cryptocurrencies are, what they stand for, why they're so incredibly volatile at the moment and what the future of finance could look like, if we're willing to believe.

[V.Narayan]

Originally Posted by Nissan1180

.

To each his own. You are right in your own way and I am right in mine. A purely digital currency will come one day that is governed by legitimate Governments and regulated possibly by an international reserve bank‎. When that happens and the history of trading is long enough to determine some trend and my knowledge of its risk characteristics reaches critical mass and tax laws on gains are established then the likes of me may invest. Till then I am happy to watch from the sidelines.

[SmartCat]

Originally Posted by V.Narayan

To each his own. You are right in your own way and I am right in mine. A purely digital currency will come one day that is governed by legitimate Governments and regulated possibly by an international reserve bank‎. When that happens and the history of trading is long enough to determine some trend and my knowledge of its risk characteristics reaches critical mass and tax laws on gains are established then the likes of me may invest. Till then I am happy to watch from the sidelines.

You are going in the right direction here - a cryptocurrency launched by Government makes sense because of its purported technological advantages over current form of money.

The biggest issue with current drama is - although individual cryptocurrencies (eg: bitcoin) are limited in supply, there is no shortage of sheer number of cryptocurrencies (above 1000)
https://coinmarketcap.com/all/views/all/

Compared to this - there are only 150 fiat currencies and only one gold/silver. There is no value in cryptocurrencies because you can theoretically have infinite number of different cryptocurrencies.

You, me, Rehaan and Samurai can "start" our own cryptocurrency for that matter. Let me see if BHPcoin.com domain name is available

[ashokrajagopal]

Originally Posted by Nissan1180

Secondly, the original intention of creating a cryptocurrency was to bypass the banks. Paypal is today a payment gateway. Their original vision was to digitize currency. There was another currency before that which tried to do the same, but they did not pick up. Security and awareness were the adoption barriers. The creators of Bitcoin solved the challenges that made duplication impossible. That's what makes it so powerful- it is distributed across half a million computers and not one can control it. Yes, each token is is just a piece of code. But what about the money we use everyday? Even that's a piece of code. Money is electronic. If you would like to know about the history of Bitcoin, this is a book I highly recommend. You may dislike it as an investment option, but understanding the context, history and potential is important for something so disruptive. Bitcoin is the only form of currency that cannot be duplicated, manipulated or destroyed. That's why so many people are trusting it as a means to store their wealth.

Thirdly, anyone who read the Panama papers or wikileaks articles would be able to appreciate the extent of money laundering that is done by banks. They use sophisticated names for the transactions, but in essence they're laundering money. You don't need bitcoins to launder money. In fact, Bitcoin transactions are highly traceable. You can go to blockchain.info and type in any bitcoin wallet address, and it will show you what transactions took place for that account. No bank can afford that transparency. Swiss banks are so famous because they are unrelenting when it comes to disclosing details of their customers.

Finally, someone mentioned that bitcoins are not adding any value to the economy. That's also a false statement. There are billions of dollars worth of computers mining coins at any moment. Hundreds of thousands of people are involved in manufacturing them. Thousands are employed at exchanges.

I personally believe that there's a lot that needs to be done to reform banking institutions. They control the economy and have been reckless in the past. They walk away with fat bonuses, add little value to the economy and continue getting bailed out for bad lending bets. I'm willing to invest in the future of money- even if it has a low chance of success. If people did not invest in the internet in the 1990s, we would not be typing this today. Let's try to understand what cryptocurrencies are, what they stand for, why they're so incredibly volatile at the moment and what the future of finance could look like, if we're willing to believe.

The problems in banking and their monopoly ( more of lack of spine and corruption for democratically elected governments) can never be solved by creation of another monopoly. A crypto currency or anything that depends on an algorithm to fix the total supply and computers to mine is essentially tied to a lot of pointless constraints. Of course, there are problems with the banks, but believing that a currency created out of this with no connection ever possible with economic activity is similar to following a new godman complaining about existence of fraudulent godmen. Of course, it is my personal conviction and opinion.
For those who believe in the brilliance of the idea of this whole thing, you must think again. The brilliance in the whole thing is Block chain. Which can bring about a whole lot of security and transparency issues to rest. You may want to applaud the block chain concept and the idea of public ledgering. A currency created out of it is just a plain ponzi scheme, with better technology behind it.

[Chetan_Rao]

I'm definitely not a fan (yet), and to me the whole pro-crypto currency argument seems to be:

Today's government-backed and regulated currencies lack accountability (because <reasons>), so the future currency is/should be one backed by nobody, regulated by nobody, based on intangibles and ergo, zero accountability by definition.

If I've got it upside down, I'm always open to changing my mind.

[Nissan1180]

Originally Posted by ashokrajagopal

The problems in banking and their monopoly ( more of lack of spine and corruption for democratically elected governments) can never be solved by creation of another monopoly. A crypto currency or anything that depends on an algorithm to fix the total supply and computers to mine is essentially tied to a lot of pointless constraints. Of course, there are problems with the banks, but believing that a currency created out of this with no connection ever possible with economic activity is similar to following a new godman complaining about existence of fraudulent godmen. Of course, it is my personal conviction and opinion.
For those who believe in the brilliance of the idea of this whole thing, you must think again. The brilliance in the whole thing is Block chain. Which can bring about a whole lot of security and transparency issues to rest. You may want to applaud the block chain concept and the idea of public ledgering. A currency created out of it is just a plain ponzi scheme, with better technology behind it.

Everyone is entitled to an opinion I haven't invested much in this game and I don't have a vested interest in promoting it. All I'm saying is this: it is best to understand a concept in totality before succumbing to a confirmation bias. That's why I recommended the book. It's not a ponzi scheme. I'll not go into details about why that's the case- you can read about it and confirm/agree to disagree. Mining is not centralized. The processing power is located in many different data centers in many countries, including India. 2% of the coins are mined in India.

Also, I saw a post claiming that anyone can create a cryptocurrency. That's true, and that's why China banned ICOs. ICOs are a fraud. Bitcoin-not so much. That's perhaps why it will soon be traded on Wall St.

[Samurai]

Originally Posted by Nissan1180

Finally, someone mentioned that bitcoins are not adding any value to the economy. That's also a false statement. There are billions of dollars worth of computers mining coins at any moment.

Simple question for you. Is the wealth generated by bitcoins equal to the value it has added to the economy?

Don't explain the technology to me, I understand it pretty well. Explain the economics to me.

Last time I checked, 70% of the bitcoin mining happens in China. So when you buy bitcoins, you are helping chinese economy, not ours.

That is one of the biggest problem with globalization, not just bitcoins. The economy doesn't remain local. The money goes where the labour is the cheapest. Indian IT revolution happened because we had a huge supply of english speaking engineers. China became world's manufacturing hub because they make it at the cheapest cost.

Since 70% of the miners are in China, it does give the dictatorial Chinese government the ability to manipulate blockchains. As you know majority wins while validating the transactions. You think Chinese won't think of way to manipulate this in future?

The biggest problem with bitcoins is it tried to solve an economics problem using technology. Blockchain is great technology. I love it. It has amazing amount of applications in all kinds of book/record keeping. It can stop problems of forgery everywhere for good. But as crypto-currency it poses more problems than it solves.

1) It was supposed to be a transaction currency, instead became a traded commodity. Instead of controlling the inflation, it is creating it.
2) It was supposed to remove the middlemen like central banks. But the governments all around don't want to get out of the way and lose all sales tax revenue.
3) It was supposed to put at end to quantitative easing. But why? If you take away the government's power to control money supply, then government can't control the economy at all. The power will shift to corporations that don't have to answer to the citizens.

Economic solutions must come from economists, and not techno-nerds who only understand numbers. I have mentioned this earlier in the bottom part of this post.

[vinit.merchant]

Just cross posting myself from a different thread where the Q was raised. Nothing more to add.

Originally Posted by vinit.merchant

All I can say is put your money in things you understand or can understand.
Some days back the hoopla caught up with me too and I checked how is bitcoin mined and how is it stored. To summarize, I did not understand a thing about it. I feel my money safer in shares because I can understand where they are saved, how the company performs etc.
I had googled about the mining and stuff when Bitcoin was at 2.5L INR i believe. And it was not too long ago. The way it is moving, it scares me.

But then to each his own. Some people may understand the concept and the mining and storing etc etc and some have already made a lot of money from it, my cousin included (who claims it will reach 55L INR by 2022, unbelievable at the time since its value was 2.5L then, but I still find it unbelievable). It may reach that value, but I decided it is just not for me.

[V.Narayan]

Making laws & enforcing them; forming an armed defense force & using it to protect the realm; issuing currency that forms the medium of economic exchange and storage value; lawfully detaining or killing people; nominating an ambassador to another nation; levying and collecting taxes and a few more are the exclusive preserve of a Government. It is what democracies fight elections over and dictators fight civil wars over. You tread into the preserve of the Govt regardless of technology sooner or later they will reclaim their territory and rightfully so. It is the foundation of civil society. Today bitcoin is popular because a few have made some money, many have claimed to have made a lot of money and a whole lot more expect and pray that they will benefit from this bandwagon. What if tomorrow the tech-nerds in China decide to take over another Govt function and levy a Bit-Tax!! No more arguments from my side. Lets re-visit this space in 15 months - March 2019. I await the first Crypto-Forgery and the first Crypto-Hack (Bitcoin equivalent of a bank theft). Till then long live the NSE.

[Nissan1180]

Originally Posted by Samurai

Simple question for you. Is the wealth generated by bitcoins equal to the value it has added to the economy?

Don't explain the technology to me, I understand it pretty well. Explain the economics to me.


Last time I checked, 70% of the bitcoin mining happens in China. So when you buy bitcoins, you are helping chinese economy, not ours.

That is one of the biggest problem with globalization, not just bitcoins. The economy doesn't remain local. The money goes where the labour is the cheapest. Indian IT revolution happened because we had a huge supply of english speaking engineers. China became world's manufacturing hub because they make it at the cheapest cost.

Since 70% of the miners are in China, it does give the dictatorial Chinese government the ability to manipulate blockchains. As you know majority wins while validating the transactions. You think Chinese won't think of way to manipulate this in future?

The biggest problem with bitcoins is it tried to solve an economics problem using technology. Blockchain is great technology. I love it. It has amazing amount of applications in all kinds of book/record keeping. It can stop problems of forgery everywhere for good. But as crypto-currency it poses more problems than it solves.

1) It was supposed to be a transaction currency, instead became a traded commodity. Instead of controlling the inflation, it is creating it.
2) It was supposed to remove the middlemen like central banks. But the governments all around don't want to get out of the way and lose all sales tax revenue.
3) It was supposed to put at end to quantitative easing. But why? If you take away the government's power to control money supply, then government can't control the economy at all. The power will shift to corporations that don't have to answer to the citizens.

Economic solutions must come from economists, and not techno-nerds who only understand numbers. I have mentioned this earlier in the bottom part of this post.

I'm not sure if I got your question correctly. Are you talking about value in terms of jobs and societal benefits vs. wealth concentration in the hands of a few individuals? If that's the question, I don't know. That's because no one till today has estimated the wealth generation vs. value creation quotient (if such a term exists- I'm not sure it does) for any company, and expecting that benchmark to be applied to a new set of currencies is perhaps a bit too much. Instead of considering the role of Bitcoin as a currency, it should be evaluated as an avenue for storing wealth. That's what it has become, and a lot of other currencies (Ripple/Ethereum) can do the job of facilitating transactions faster and cheaper. Banks will probably use Ripple (Axis bank is already on it I believe).
The total worth of gold globally is $1.9 trillion. That's almost as high as India's GDP. Is gold creating the same amount of societal value as a nation of a billion people? I'm not sure. You may say that people use gold to store their savings. Well, many of them are using Bitcoin to do that.

Economics is not a subject that I can claim to be an expert in. All I can say is that I've read a bit about it in my undergraduate years and during my MBA. Based on the little knowledge that I have, it seems a bit presumptuous to claim that people who're behind bitcoins did not know what they were doing. Something that grows so fast (and becomes mainstream so quickly) must have something going for it, and I guess the Wall Street investors won't be bothered to look at it if it were a fraud.

Also, everything that contains a chip is usually made in China these days. Bitcoin is not an exception, and the companies like AMD, BITMAIN and Micron that specialize in mining hardware are international in nature. If we're comfortable typing on a Lenovo laptop that's made and designed in China, or using an IPhone that's made by Foxconn in China in a factory paying minimum wages, there should be no discomfort when it comes to mining hardware. In fact, it's creating an asset that's valued globally (at least now), so it's good for a country's economy if a $5000 miner can create bitcoins worth $20,000 over it's lifetime. If we start talking about possibilities for manipulation by Governments, it's a debate that would be completely on this thread. And it's a debate that those who're much more knowledgeable than me would be able to add value to. Based on the little that I know, Bitcoin cannot be forged, manipulated or "politically influenced". Investors transacting worth millions would not have done so if they knew political manipulation was a risk.