Buffett bashes Bitcoin as nonproductive, thriving on mystique • Hacker News Board

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#141

Post by panarky » Mon, May 07, 2018, 4:58 PM UTC

berberous wrote: post #109

dnomad wrote: post #92

Earlier quoted context omitted.

I think this is basically it. Good ol' Buffet. His argument against gold is similar [1]. It's always interesting to note the fundamental differences between these types of investors. Some investors place their faith only in things -- hard assets and hard money -- gold, bonds, and now bitcoin. Others like Buffet have maintained that the best thing to invest in is other human beings, specifically human ingenuity and sw…

Your link is broken. What makes Buffet's annual letters so great though is the quality of his writing, so rather than fix your link I'll post his position on gold in his own words: "The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them…

Fascinating, thanks for posting this.

Buffett thinks it's irrational to pay $1750 for one ounce of gold when he could own 22 shares of Exxon Mobil for the same price.

Let's assume he's correct. Since the value of Exxon Mobil should compound over the decades much faster than gold, it should be worth more today, right?

But markets are already discounting those future cash flows, isn't that already built in to the current market price of both Exxon Mobil and gold?

If the price of gold is irrationally high, then it's an irrationality that has lasted for centuries and will likely last centuries more.

Even Buffett isn't predicting that the "gold bubble" will burst, sending its price to zero, as everyone sells gold to buy Exxon Mobil.

So if he expects an asset will be valued irrationally high forever, is it really irrational buy it?

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#142

Post by asdsa5325 » Mon, May 07, 2018, 5:09 PM UTC

drcode wrote: post #138

asdsa5325 wrote: post #118

Earlier quoted context omitted.

He seems to understand intrinsic value pretty well.

If there's one thing I've learned in my 45 years, it's that actually no one has figured yet what the term "intrinsic value" really means. The more you dig into that term it just ends up meaning "what someone else is willing to pay for it" blended together with some fuzzy subjective notions of morality.

No. What someone else will pay for something is extrinsic value.

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#143

Post by sharemywin » Mon, May 07, 2018, 5:11 PM UTC

smt88 wrote: post #90

sharemywin wrote: post #81

Earlier quoted context omitted.

No company has an intrinsic value either. If I fired all the employees, sold all the assets it would be worth nothing. The transactions are the value. The network has value. If I add up all the times people buy something with bitcoin and sell something for bitcoin and compare that against the fees the would incur it's generated some kind of value. It's just dispersed to the people using it not a central company. Is i…

I don't understand your point. If you have a functioning company making something and sell it, your company is worth almost nothing. That's true. But those people and assets are still useful to someone else. They have a value. Bitcoin can't be consumed the way assets and labor can.

The transactions are the value. The network has value.

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#144

Post by beefield » Mon, May 07, 2018, 5:12 PM UTC

coralreef wrote: post #43

beefield wrote: post #34

Earlier quoted context omitted.

> While the value is fluctuating heavily due to speculation, over time it will stabilize. Can you describe any mechanism that actually causes the price to stabilize and speculation to disappear? (Please, if possible, also define at least somewhat quantitatively what you mean by stable, and then discuss how successful this mechanism you first described has been stabilizing gold price during the last couple of thousand…

Quantity of demand is equal to quantity supplied

And what makes them equal?

Wishful thinking does not count. I know no law of nature nor economics that says that demand of money is stable. And if you allow fractional reserve bitcoin banking without regulation[1], money supply would be completely chaotic.

[1] I guess the question is how would you prohibit fractional reserve bitcoin banking? It's not like there exists any regulatory authority that could do that...

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#145

Post by sizzzzlerz » Mon, May 07, 2018, 5:15 PM UTC

solean wrote: post #104

jhall1468 wrote: post #94

Earlier quoted context omitted.

I think he understands it better than you give him credit for. He just doesn't see a future for it. To most investors the promise of Bitcoin is the same promise of snake oil. Everything about Bitcoin is new and untested and most institutional investors abhor anything they can't quantify. Bitcoin is a huge gamble, and people like Gates and Buffet don't gamble.

It's been tested for over 10 years with the biggest bug bounty in the world.

Not the point. Besides, 10 years of testing still doesn't prove it's secure. Intel and AMD CPUs, manufactured since 1995 have the Meltdown and Spectre flaws that were only discovered recently.

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#146

Post by internetman55 » Mon, May 07, 2018, 5:25 PM UTC

Cthulhu_ wrote: post #18

internetman55 wrote: post #2

I can't agree or disagree on any investment recommendations as I have no expertise in the area, but I have that is pretty much what my gut reaction to Bitcoin/crypto has always been

It's actually very similar to the stock market, it's just that there's no company backing it and there's no rules. It's why people were warned against investing so much not that long ago. In Europe meanwhile, investing in the stock market is getting harder and harder, as new european rules (e.g. MIFID II) make any stock broker require to fill in a test and whatnot to prove basic stock market knowledge and competency,…

Well I trust the stock market more cause normal people invested in it and not mostly weird internet libertarians who thought Obama was going to take their savings and drug dealers (I'm sure other people were investing in Bitcoin in 2011 but these are the guys I was aware of)

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#147

Post by drcode » Mon, May 07, 2018, 5:25 PM UTC

asdsa5325 wrote: post #142

drcode wrote: post #138

Earlier quoted context omitted.

If there's one thing I've learned in my 45 years, it's that actually no one has figured yet what the term "intrinsic value" really means. The more you dig into that term it just ends up meaning "what someone else is willing to pay for it" blended together with some fuzzy subjective notions of morality.

No. What someone else will pay for something is ex trinsic value.

Exactly, now just add some subjective moralizing to it and now you'll reach parity with most people's notion of "intrinsic value".

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#148

Post by sharemywin » Mon, May 07, 2018, 5:27 PM UTC

mateo411 wrote: post #83

sharemywin wrote: post #81

Earlier quoted context omitted.

No company has an intrinsic value either. If I fired all the employees, sold all the assets it would be worth nothing. The transactions are the value. The network has value. If I add up all the times people buy something with bitcoin and sell something for bitcoin and compare that against the fees the would incur it's generated some kind of value. It's just dispersed to the people using it not a central company. Is i…

No, that's called the book value of the company. At the end of that process you would have an amount of money worth the book value.

And if you sold a book in bitcoin and bought something with it there must have be some value transfer.

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#149

Post by berberous » Mon, May 07, 2018, 5:52 PM UTC

panarky wrote: post #141

berberous wrote: post #109

Earlier quoted context omitted.

Your link is broken. What makes Buffet's annual letters so great though is the quality of his writing, so rather than fix your link I'll post his position on gold in his own words: "The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them…

Fascinating, thanks for posting this. Buffett thinks it's irrational to pay $1750 for one ounce of gold when he could own 22 shares of Exxon Mobil for the same price. Let's assume he's correct. Since the value of Exxon Mobil should compound over the decades much faster than gold, it should be worth more today, right? But markets are already discounting those future cash flows, isn't that already built in to the curre…

Those are good questions, and I don't have great answers, but it's worth reading the letter in full (or at least, the part of the letter I extracted from). His argument against gold is really a relative one, as its safety compares to that of investing in cash or productive assets. For example, here is the next paragraph from the letter, which shows that if the store of value changed from gold to Bitcoin, gold may turn out to be a bad investment, which is a risk you don't take by investing in a productive asset.

"Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard “cash is king” in late 2008, just when cash should have been deployed rather than held. Similarly, we heard “cash is trash” in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.

My own preference – and you knew this was coming – is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola, IBM and our own See’s Candy meet that double-barreled test. Certain other companies – think of our regulated utilities, for example – fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.

Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well). Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety – but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest."

Re: Buffett bashes Bitcoin as nonproductive, thriving on mystique

#150

Post by zrobotics » Mon, May 07, 2018, 6:22 PM UTC

drcode wrote: post #132

fixermark wrote: post #52

Earlier quoted context omitted.

Yeah, and they haven't been terribly great for the gaming market either, as they're consuming production of graphics card components.

I find this to be such a curious argument: "The graphics card industry would be so much better off if these cryptocurrency people would stop giving AMD and Nvidia so much money!"

From an AMD PR: “The cryptocurrency market is unstable and demand could change quickly. For example, China and South Korea have recently instituted restrictions on cryptocurrency trading. If we are unable to manage the risks related to a decrease in the demand for cryptocurrency mining, our GPU business could be materially adversely affected.”[1]

The mining market is too unstable to bet trillions of dollars expanding fab capacity, which is why they haven't been able to increase production to match demand. So while they are currently sitting atop thrones of cash, they cannot accurately forecast demand. If either a) ethereum tanks or b) someone cracks ASIC mining for ETH & curriencies mined w/ GPUs, then all of a sudden they will see a huge drop in demand. Additionally, there would likely be a massive surge of fairly new used cards hitting the market, further dropping demand. That's a scary thought for a manufacturer, they could potentially end up sitting on large stocks of unsold inventory.

[1]:https://usethebitcoin.com/amd-worried-business-cryptocurrenc...