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Bitcoin surpasses $50K as major companies jump into crypto

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Re: Bitcoin surpasses $50K as major companies jump into crypto

#721

Post by lugorrr »

imtringued wrote: post #681
ardy42 wrote: post #603

Earlier quoted context omitted.

> That said, Tesla's Bitcoin purchase does make a lot of sense. Elon Musk went on Twitter and called Bitcoin "BS" to drive the price down so they could buy at a discount. They then announced their Bitcoin purchase with fanfare that drove the price up, marking a quick return on their investment. They used Elon's influence to make a quick profit on the frenzy. Is that even legal? It sounds like pumping and dumping.

It's technically not pumping and dumping because Elon posts memes that shill his investments but he rarely gives a call to action and if possible avoids naming the cryptocurrency in question. He's definitively manipulating the market in the sense of the colloquial meaning of the word. If there are public signals that predict the performance of a stock then those who benefit the most are those who execute their trades…

he rarely gives a call to action and if possible avoids naming the cryptocurrency in question

He has put the term "bitcoin" in his twitter bio.

Re: Bitcoin surpasses $50K as major companies jump into crypto

#722

Post by mancerayder »

Banks in 2017-18: speculative frenzy, dangerous, don't buy, it's heavily manipulated. BTC from high of 20K down to below 10 as regulators in the US make noises about investigations and crack down on exchanges. Bloomberg opinion pieces destroying it as tulips.

Banks in 2021: amnesia. Maybe it's worth it as a hedge. Our clients want it. Mainstream adoption. Regulatory interest to make it easier. Price goes to 50K. New funds being set up by hedge funds and banks. Bloomberg talking about it daily.

I never owned any BTC. But that sequence of events makes me very angry.

Re: Bitcoin surpasses $50K as major companies jump into crypto

#723

Post by bhupy »

graeme wrote: post #651
bhupy wrote: post #593

Earlier quoted context omitted.

Super good question, I was perplexed by this myself. Basically what this financial instrument allows the borrower to do is maintain exposure to appreciating crypto assets while still leveraging its value for day to day spending. For example, suppose you owned $1500 worth of BTC. Suppose you’re also bullish on BTC and expect it to appreciate, say 2x in a year. If you liquidated the $1500 to buy a MacBook or something,…

What use case does that have other than crypto currency speculation though? Most loans serve some sort of function in the economy.

Right now, no other use case. Though I think your question bakes into it a premise which is itself debatable: that speculation doesn't serve some function in the real economy.

Today, most rich people are able to collateralize their ownership in valuable assets to defer capital gains tax (guaranteed long term capital gain) and enjoy asset appreciation while still engaging in consumption and even levered investments in the real economy. Most billionaires live their lives like this: they take loans collateralized on their corporate ownership, and eventually pay them back while still enjoying value appreciation.

These DeFi platforms essentially unlock the same for everybody else: if you have your entire savings in a deflationary asset like Gold (or perhaps even the S&P500), you might want to be able to collateralize that for daily spending while still enjoying its appreciation for the future. Cryptocurrencies (especially Bitcoin) are more or less equivalent to digital gold. And with the advent of pegged coins, you can now represent really anything as a cryptocurrency, even equities and derivatives. You could extrapolate this further and imagine a world where even equities and derivatives can be purchased as a tokenized coin on some blockchain; and you'd then be able to take collateralized loans for spending off of your index-fund-backed savings account. You'd eventually pay them back while still enjoying value appreciation.

Asset speculation arguably serves a second order function to the real economy. Today, cryptocurrency is only one asset with very limited scope, but one might argue that it's just a start.

Re: Bitcoin surpasses $50K as major companies jump into crypto

#724

Post by graeme »

bhupy wrote: post #723
graeme wrote: post #651

Earlier quoted context omitted.

What use case does that have other than crypto currency speculation though? Most loans serve some sort of function in the economy.

Right now, no other use case. Though I think your question bakes into it a premise which is itself debatable: that speculation doesn't serve some function in the real economy. Today, most rich people are able to collateralize their ownership in valuable assets to defer capital gains tax (guaranteed long term capital gain) and enjoy asset appreciation while still engaging in consumption and even levered investments in…

That sounds enormously risky for most people. So basically:

* Someone has $30,000 in S and P shares

* With a smart contract they might put these in escrow for a $20,000 loan

* If they pay back the loan they can get the shares back. If they fail to pay back the loan the shares are confiscated, no matter the value the shares are now at.

What’s the advantage over traditional finance? You can already get an asset backed loan at a bank for which you pay interest.

Re: Bitcoin surpasses $50K as major companies jump into crypto

#725

Post by mrpopo »

adhoc32 wrote: post #716
jcranmer wrote: post #393

Earlier quoted context omitted.

You're referring to a pyramid scheme, not a Ponzi scheme. (Enough people mix the two up that the Wikipedia pages on both articles have sections on the differences between pyramid and Ponzi schemes). Ponzi schemes are where you pay investors using the contributions of new entrants, so investors only make money so long as new entrants are joining. It's not exactly a new tradition for people to be referring to financial…

That is correct, my mistake. Anyway, Bitcoin is neither of them.

As long as the vast majority of Bitcoin owners are HODLing and not using it, it's behaving as a Ponzi. Bitcoin has a few uses, but getting rich speculating on it isn't one.

Re: Bitcoin surpasses $50K as major companies jump into crypto

#726

Post by rdtwo »

lph wrote: post #425
PragmaticPulp wrote: post #189

Earlier quoted context omitted.

The forefront of the Bitcoin frenzy isn't even on the blockchain, it's at the exchanges. Hardcore tech people and those who don't (or can't) trust institutions with their Bitcoin will pay the transaction fees to get their money out of exchanges and into their own wallet. The average retail investor, however, doesn't want to be their own bank. They just want in on the price action, while letting the exchange manage th…

> That said, Tesla's Bitcoin purchase does make a lot of sense ... They then announced their Bitcoin purchase with fanfare that drove the price up, marking a quick return on their investment. Tesla is a car manufacturer! It doesn't make any sense at all! At any company that made sense, a CEO would lose his job for gambling $1B of company money in a casino totally unrelated to the company's business interests.

Tesla is a hype company with a small side gig in mfg

Re: Bitcoin surpasses $50K as major companies jump into crypto

#727

Post by tootie »

fragsworth wrote: post #662
tootie wrote: post #458

Earlier quoted context omitted.

We used to call them Ponzi schemes. This is the same but in slow motion. People are going to start taking their profits at some point and whoever takes them last will be holding the bag.

Counterpoint: People are going to start getting rid of their dollars at some point, and whoever gets rid of them last will be holding the bag.

As Keynes said: "In the long run, we're all dead". USD has intrinsic value as the reserve currency of the largest economy in the world and is actively managed by the Fed. Which is a thing most people like despite what you may read online. Dollars will eventually be worthless but not in our lifetime.

Re: Bitcoin surpasses $50K as major companies jump into crypto

#728

Post by bhupy »

graeme wrote: post #724
bhupy wrote: post #723

Earlier quoted context omitted.

Right now, no other use case. Though I think your question bakes into it a premise which is itself debatable: that speculation doesn't serve some function in the real economy. Today, most rich people are able to collateralize their ownership in valuable assets to defer capital gains tax (guaranteed long term capital gain) and enjoy asset appreciation while still engaging in consumption and even levered investments in…

That sounds enormously risky for most people. So basically: * Someone has $30,000 in S and P shares * With a smart contract they might put these in escrow for a $20,000 loan * If they pay back the loan they can get the shares back. If they fail to pay back the loan the shares are confiscated, no matter the value the shares are now at. What’s the advantage over traditional finance? You can already get an asset backed…

> If they pay back the loan they can get the shares back. If they fail to pay back the loan the shares are confiscated, no matter the value the shares are now at.

You need to make a slight tweak to this statement. Currently, the smart contract enforces a "collateral ratio" of at least 150%. This means that if the underlying collateral appreciates, you can skim off and take whatever appreciation even before repaying. The only invariant that the contract enforces is that the value of the collateral has to be equal to 150% of the remaining principal.

And yes, if they fail to pay back the loan, the shares are confiscated; but the borrower isn't left with "nothing"; rather they're left with 2/3 of their original collateral in cash + any appreciation from the original collateral (minus the principal, of course). For a lot of people, this is a manageable worst-case scenario.

> That sounds enormously risky for most people. So basically:

It's enormously risky for people that are in grinding poverty. This should obviously not be used as a pay-day loan of sorts. But for people that are in the middle or upper-middle class, this has the potential to be a solid financial instrument that can be used as one of many tools we have at our disposal in financial markets.

> What’s the advantage over traditional finance? You can already get an asset backed loan at a bank for which you pay interest.

Have you tried to do this? It requires a lot of time, process, and paperwork. The interest rates vary depending on the risk rules of the bank, and banks often charge a percentage of principal just for this service, sort of like what happens when you refinance a home loan. With DeFi, I was literally able to lend and borrow at the click of a button, and that transaction was processed by a network of robots where the transaction fee was flat/fixed. There's a lot of room for improvement to bring down that transaction fee, but it's too early to throw our hands up in concede that we are forever doomed to $80 transaction fees to process these kinds of contracts.

Now, does this mean that everyone should move off of traditional finance? Absolutely not, traditional finance can still work out to be better for some people. But the key phrase there is "some people". With DeFi, you now have more options on the market, and that strikes me as a good thing.

Re: Bitcoin surpasses $50K as major companies jump into crypto

#729

Post by bhupy »

graeme wrote: post #592
bhupy wrote: post #291

Earlier quoted context omitted.

Yeah it's "overcollateralized". The borrower has to put 150% of the principal into escrow (this is enforced by the smart contract). If the borrower decides to flake, the lender gets to take the collateral.

What does the lender use as collateral? And doesn’t this defeat the point of most loans? People use houses as collateral for mortgages, but other than that aren’t most loans given with substantially less collateral, all the way to zero collateral? Even mortgages are usually less than 100% collateral. And the house isn’t in escrow! You use it. Am I missing something fundamental? How does it make sense to borrow $100 a…

> Am I missing something fundamental? How does it make sense to borrow $100 and lock up $150 for the lifetime of the loan?

Great question, I was just as dumbfounded as you are. Answered below in another sub-thread, which I believe you're also participating in:

https://news.ycombinator.com/item?id=26162914

Re: Bitcoin surpasses $50K as major companies jump into crypto

#730

Post by tarsinge »

MrPowers wrote: post #579
kerng wrote: post #336

Bitcoin has been around for a while now and it has been down talked quite a bit on HN whenever it comes up. It now has a larger market cap as Facebook - so the market sees more value in Bitcoin than Facebook. The sentiment on HN seem still be mostly against it whenever it comes up. I wonder why that is? I'd imagine 10 years from now Bitcoin will still be around and likely much larger than today - I'm less positive ab…

I don't know if Bitcoin will outperform Facebook, but can explain why they're fundamentally different assets. Facebook is a "productive asset". It's a business that sells to customers and generated 29 billion in profit in 2020. Bitcoin, like gold, is not a productive asset. It doesn't pay interest (like bonds), dividends (like stocks), or rental income (like real estate). Warren Buffett has a good explanation: https:…

One can argue that Facebook is detrimental to society, so it's worse than an unproductive asset. It's strange seeing people take an environmental stance against Bitcoin, and then blindly defending unethical money making schemes, as long as it's a traditional company.
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