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Crypto Currency Thread
S_M
Posted: 07 November 2017 08:59:26(UTC)
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Scam I hear you all shout!

Well, I have been doing a lot of research into the cryptocurrency world over the last few months. I Learned quite a lot about Blockchain and the more technical aspects of how these currencies work, however, I would far from call myself an expert.

90% of the coins/ICOs are scams, but that doesn't satisfy my curiosity as to why the major currencies including Bitcoin and Ethereum have produced stellar returns this year.

Bitcoin, in particular, is starting to attract mainstream adoption with a futures market opening last week and several ETF funds in the pipeline. That indeed leads me to think there is a major bubble building that will make anything that happens in the stock market both past and present, look like small fry.

So I guess my question is, does anyone else think that if the market does crash that BTC is a credible part of a balanced portfolio.

One thing is for sure, I can see BTC becoming adopted accross the world. Property in both London and Dubai has been sold accepting BTC this year. Perhaps regulation will take some of the froth out of the market and stop the more unscrupulous aspects of the currency that exist at present.
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Sara G on 07/11/2017(UTC)
tom_b
Posted: 07 November 2017 09:39:07(UTC)
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Some reasons why BTC might not get widespread adoption as a currency:

The number of transactions per second is very limited (to 7 per second in the case of BTC). For comparison Visa can handle 56,000 tps.

It isn't a very good medium of exchange. Rising value encourages hoarding not spending - whereas inflation penalises hoarding of mainstream currencies.

Say for the sake of argument that BTC has some kind of "intrinsic" value (the cost of mining it). If is circulating alongside fiat money, people are likely to spend the fiat money and hoard the BTC - see Gresham's law.

You can't pay taxes with it.

Governments, payment networks, PayPal etc could all arguably create more useful competing digital currencies. The blockchain technology is open source so anyone can get in on the act
S_M
Posted: 07 November 2017 09:46:14(UTC)
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tom_b;52952 wrote:
Some reasons why BTC might not get widespread adoption as a currency:

The number of transactions per second is very limited (to 7 per second in the case of BTC). For comparison Visa can handle 56,000 tps.

It isn't a very good medium of exchange. Rising value encourages hoarding not spending - whereas inflation penalises hoarding of mainstream currencies.

Say for the sake of argument that BTC has some kind of "intrinsic" value (the cost of mining it). If is circulating alongside fiat money, people are likely to spend the fiat money and hoard the BTC - see Gresham's law.

You can't pay taxes with it.

Governments, payment networks, PayPal etc could all arguably create more useful competing digital currencies. The blockchain technology is open source so anyone can get in on the act


Yes, but my understanding (correct me if I am wrong) is that the recent hard forks where designed to increased the number of transactions per second.

I guess my original question was meant from an investment perspective rather than a practical usage but I get where you are coming from.
tom_b
Posted: 07 November 2017 09:58:02(UTC)
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I believe you're right about the forks, I don't know what the new transaction rates are. The fact that it is getting forked just adds to my skepticism however!
Micawber
Posted: 07 November 2017 10:01:49(UTC)
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S_M;52951 wrote:
....does anyone else think that if the market does crash that BTC is a credible part of a balanced portfolio.


On the contrary, I think at a pinch it may be a credible part of an unbalanced portfolio i.e. a hugely risky speculation with 1% of a pf that you expect to lose.

In a general market crash, investors will be looking to assets that have a reputation for relative safety. Bitcoin is by no means in that category.
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Tim D on 07/11/2017(UTC), S_M on 07/11/2017(UTC)
Keith Cobby
Posted: 07 November 2017 10:05:54(UTC)
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It's just a speculation. You have to ask, what am I getting for my money. The answer is nothing.
3 users thanked Keith Cobby for this post.
Mr Helpful on 07/11/2017(UTC), Tyrion Lannister on 29/11/2017(UTC), Tony Peterson on 31/03/2018(UTC)
tom_b
Posted: 07 November 2017 10:20:53(UTC)
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S_M;52953 wrote:

I guess my original question was meant from an investment perspective rather than a practical usage but I get where you are coming from.


The question I'd ask then is what is your investment case, if it isn't some kind of future adoption of these currencies?
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Tim D on 07/11/2017(UTC)
Tim D
Posted: 07 November 2017 10:21:13(UTC)
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S_M;52953 wrote:
Well, I have been doing a lot of research into the cryptocurrency world over the last few months. I Learned quite a lot about Blockchain and the more technical aspects of how these currencies work, however, I would far from call myself an expert.


Did your research also include a study of various historic bubbles? The first three chapters of the "Extraordinary Popular Delusions and the Madness of Crowds" book are highly recommended.

S_M;52953 wrote:
My understanding (correct me if I am wrong) is that the recent hard forks where designed to increased the number of transactions per second.


Nice article on crypto scalability a few days ago points out "improvements, like SegWit2x, do promise to increase the number of transactions Bitcoin can handle by at least double, and decrease network congestion. But since Bitcoin is thousands of times less efficient per transaction than a credit card network, it will need to get thousands of times better."

I have a big problem with the astonishing amount of power and compute resource tied up in BTC. That's resources that could be going into protein-folding simulations to create new antibiotics, cures for cancer, climate change analysis... take your pick. Instead that's being squandered doing a lot of duplicate work as bunch of folks who don't trust each other replicate a lot of calculations to verify each others' assertions about ownership. If you know anything about game theory and the prisoner's dilemma, crypto is an interesting and clever but expensive solution to the problem of avoiding being a loser. However most of the rest of society has managed perfectly well to build transaction networks where mutual-cooperation can be assumed to be the default position (which also leads me to conclude that investing in BTC is taking a long position on some pretty murky stuff).
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Tony Peterson on 31/03/2018(UTC)
S_M
Posted: 07 November 2017 10:48:26(UTC)
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Tim D;52962 wrote:
S_M;52953 wrote:
Well, I have been doing a lot of research into the cryptocurrency world over the last few months. I Learned quite a lot about Blockchain and the more technical aspects of how these currencies work, however, I would far from call myself an expert.


Did your research also include a study of various historic bubbles? The first three chapters of the "Extraordinary Popular Delusions and the Madness of Crowds" book are highly recommended.

S_M;52953 wrote:
My understanding (correct me if I am wrong) is that the recent hard forks where designed to increased the number of transactions per second.


Nice article on crypto scalability a few days ago points out "improvements, like SegWit2x, do promise to increase the number of transactions Bitcoin can handle by at least double, and decrease network congestion. But since Bitcoin is thousands of times less efficient per transaction than a credit card network, it will need to get thousands of times better."

I have a big problem with the astonishing amount of power and compute resource tied up in BTC. That's resources that could be going into protein-folding simulations to create new antibiotics, cures for cancer, climate change analysis... take your pick. Instead that's being squandered doing a lot of duplicate work as bunch of folks who don't trust each other replicate a lot of calculations to verify each others' assertions about ownership. If you know anything about game theory and the prisoner's dilemma, crypto is an interesting and clever but expensive solution to the problem of avoiding being a loser. However most of the rest of society has managed perfectly well to build transaction networks where mutual-cooperation can be assumed to be the default position (which also leads me to conclude that investing in BTC is taking a long position on some pretty murky stuff).


Yeah, I think BTC is definitely in bubble territory. It's amazing how younger people especially seem to be throwing money at these investments without a consideration for risk analysis and portfolio construction. A lot of them haven't even looked at other asset classes. Social Media has a lot to answer for here. When you question their investment thought processes, they are in complete denial and you haven't got a clue!

I admit I have a very small amount of a BTC tracker in my HL SIPP, but it's not even 0.3% of my portfolio. I would top up if it crashed, but as Micawber knows I like the odd punt!

There are two aspects to cryptos, well that's the way I look at it. The underlying technology of blockchain and the sum of the parts valuation. For me its impossible to value the underlying assets, and a lot of the increases in the values of these currencies is purely speculative.

CME offering a futures market is also a game changer for me, it allows institutions to do what they have done for decades. Ramp the price of an asset up, allow mainstream adoption then short the life out of it. Perhaps at some stage over the next few years, there will be a more realistic price to invest in.
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Micawber on 07/11/2017(UTC)
S_M
Posted: 07 November 2017 10:52:56(UTC)
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Keith Cobby;52958 wrote:
It's just a speculation. You have to ask, what am I getting for my money. The answer is nothing.


https://www.standard.co....n-bitcoin-a3657556.html

If you have £17m worth of bitcoin, a mansion in Notting Hill...........
Tug Boat
Posted: 07 November 2017 11:00:46(UTC)
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I was told by a clever chap that money was simply a means of exchange, not an investment.

I hadn't got a clue what he was on about at the time. I was getting 10% interest in my deposit account. When he explained that inflation was about 7% and I was paying 20% tax, I still didn't believe him.

The way we look at Bitcoin we don't view it as a means of exchange, or a currency. We view it as a potential get rich quick, speculative investment. If is to become a currency, then its value has to stabilise. If it does stabilise, then it's value has to drop to a point which makes it much less exciting.

A lucky sod could catch some upside, but I'm out.

Dragon Tug.

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S_M on 07/11/2017(UTC), Tim D on 07/11/2017(UTC), tom_b on 07/11/2017(UTC), Keith Cobby on 07/11/2017(UTC)
Sara G
Posted: 07 November 2017 12:10:53(UTC)
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Here's an article on why Bitcoin is arguably a 'digital asset' rather than a currency and presenting a positive investment case...

https://moneyweek.com/bi...a-fraud-its-dotcom-3-0/

Is this a bubble? Very possibly - new hedge funds are appearing in significant numbers apparently which is a clear sign. But I think digital assets are here to stay; recent worries about the clampdown in China had very little impact, for example, and as said above, any regulation may be a positive development, perhaps providing an additional source of capital gains tax for cash-strapped governments. Also, if and when a mainstream ETF gets the go-ahead there is potentially a lot of money on the sidelines waiting to pile in.

I bought in when the price was under $2,000. Then, as now, there was every possibility it could have crashed and that the easy money had already been made. But who knows? The amount I invested was small enough to forget about if it all goes pear-shaped, and I'd view a correction as an opportunity to add more. It's closer to 1% of my pf now, so the key challenge (as always) will be dealing with any psychological losses along the way.

As regards hard forks, I don't see these as problematic - potentially it is free money if you already hold Bitcoin (both Coinbase and Blockchain eventually credited clients' accounts with Bitcoin Cash).

I also hold a small amount of Ethereum and may look at Ripple.
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S_M on 07/11/2017(UTC), Micawber on 07/11/2017(UTC)
King Lodos
Posted: 07 November 2017 15:29:04(UTC)
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It's been said (and it's certainly my experience) that the best investment case for new technology is whether you already use it .. I wish I'd followed this with Amazon, Google and Facebook.

It's certainly not the case with Bitcoin – as a method of exchange, a store of wealth, a currency, I wouldn't touch it with a bargepole .. There's never been a moment I've said "I wish I had a Bitcoin wallet" for any practical purpose.

It seems to me the kind of people jumping into Bitcoin are the same ones who jumped into >20% yielding P2P loans a few years ago – the same ones who think sensible investing is binary options trading on an iPhone app .. So on those criteria, it's everything you shouldn't touch .. I suppose its rise embodies the 2017 concept of FOMO (fear of missing out) – because there is that small chance it's the future of finance – and you can still make money in bubbles

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Keith Cobby on 07/11/2017(UTC)
S_M
Posted: 07 November 2017 15:32:01(UTC)
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King Lodos;52977 wrote:
It's been said (and it's certainly my experience) that the best investment case for new technology is whether you already use it .. I wish I'd followed this with Amazon, Google and Facebook.

It's certainly not the case with Bitcoin – as a method of exchange, a store of wealth, a currency, I wouldn't touch it with a bargepole .. There's never been a moment I've said "I wish I had a Bitcoin wallet" for any practical purpose.

It seems to me the kind of people jumping into Bitcoin are the same ones who jumped into >20% yielding P2P loans a few years ago – the same ones who think sensible investing is binary options trading on an iPhone app .. So on those criteria, it's everything you shouldn't touch .. I suppose its rise embodies the 2017 concept of FOMO (fear of missing out) – because there is that small chance it's the future of finance – and you can still make money in bubbles



I'm not talking about investing now KL more like post crash. With institutional money finding its way into this space there will be opportunities to make decent returns.
J Thomas
Posted: 07 November 2017 15:49:40(UTC)
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Anyone tempted to speculate on Crypto Currency would be far better advised to forget the idea and instead buy shares in PayPal as an alternative(ish) currency exchange.
My shares in PayPal are up 52% in six months; with strong US exposure and a far safer and secure future ahead.
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c brown on 08/11/2017(UTC)
King Lodos
Posted: 07 November 2017 15:55:44(UTC)
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S_M;52978 wrote:
I'm not talking about investing now KL more like post crash. With institutional money finding its way into this space there will be opportunities to make decent returns.


At some point the crash will be the path to zero .. That's presumably where the majority are headed?

I agree, in principle I invest in bubbles and get out early .. It's been a mistake to avoid Bitcoin so far.

But then what it comes down to is liquidity .. Friends tell me their transactions can take hours, and the market can move extremely quickly .. Apparently Chinese exchanges are much faster .. So if you're playing that game, that seems like a huge disadvantage to me .. The crash often comes at the moment of maximum optimism – I'm never sure if we're there already with Bitcoin

S_M
Posted: 07 November 2017 16:23:17(UTC)
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King Lodos;52982 wrote:
S_M;52978 wrote:
I'm not talking about investing now KL more like post crash. With institutional money finding its way into this space there will be opportunities to make decent returns.


At some point the crash will be the path to zero .. That's presumably where the majority are headed?

I agree, in principle I invest in bubbles and get out early .. It's been a mistake to avoid Bitcoin so far.

But then what it comes down to is liquidity .. Friends tell me their transactions can take hours, and the market can move extremely quickly .. Apparently Chinese exchanges are much faster .. So if you're playing that game, that seems like a huge disadvantage to me .. The crash often comes at the moment of maximum optimism – I'm never sure if we're there already with Bitcoin



I'm not playing any game tbh KL, I am invested in a tracker (rather than holding physical BTC) can sell at a moments notice. But as said earlier my investment isn't even 0.3% of my portfolio. So if it crashes to zero, so be it.

BTC is now far too big to fail, there are millions of people worldwide that like the principle of decentralised currency. I do agree that the volatility needs to be flushed out before it can become a credible medium of exchange though.



King Lodos
Posted: 07 November 2017 16:37:44(UTC)
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S_M;52983 wrote:
I'm not playing any game tbh KL, I am invested in a tracker (rather than holding physical BTC) can sell at a moments notice. But as said earlier my investment isn't even 0.3% of my portfolio. So if it crashes to zero, so be it.

BTC is now far too big to fail, there are millions of people worldwide that like the principle of decentralised currency. I do agree that the volatility needs to be flushed out before it can become a credible medium of exchange though.


Yeah, there's a tracker I've looked at on HL .. You still need a buyer of course – and I wouldn't bank on being able to trade a stop-loss when you get one of these 30% falls in a minute.

I think too big to fail is a dangerous concept .. It's still only 1/10th the size of Apple – which is also worryingly large in terms of how little it's used for anything other than speculation.

I also don't really support Bitcoin – despite being a libertarian, I think the behaviour of Bitcoin itself shows why markets need some external regulating .. At the pure whim of human behaviour, fear and greed will keep running things off cliff faces .. We'd never have made it out of the financial crisis if central banks hadn't been able to adjust rates

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S_M on 07/11/2017(UTC), Micawber on 07/11/2017(UTC), Tim D on 08/11/2017(UTC)
PaulSh
Posted: 08 November 2017 15:25:32(UTC)
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Anyone thinking of investing in crypto-currencies (and also anyone who has created a multi-signature Ethereum wallet after July 20th this year) should read this article, which describes how a programming error has probably wiped 280 million dollars worth of Ethereum:

https://www.theregister....destroys_280m_ethereum/

OK, it's only around 70 wallets affected so far, but it would be really annoying if one of them was yours!
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Tim D on 08/11/2017(UTC)
Tim D
Posted: 08 November 2017 16:49:05(UTC)
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PaulSh;53016 wrote:
OK, it's only around 70 wallets affected so far, but it would be really annoying if one of them was yours!


Reminds me of the old Not The Nine O'Clock news sketch where someone (Rowan Atkinson?) is told he's the only one who's money got stolen from a bank. Can't find more than a mention online unfortunately. The crypto world brings absurdity to life it seems.
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Micawber on 08/11/2017(UTC)
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