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Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

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Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#91

Post by andrewla »

splintercell wrote: post #74
carsongross wrote: post #49

Bitcoin is almost exactly the opposite of a ponzi scheme: http://en.wikipedia.org/wiki/Ponzi_scheme "A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation. Operators of Ponzi schemes usually entice new investors by offering higher returns t…

Any rising investment, if seen in a proper timeframe(with proper rationale) could appear to be a Ponzi scheme. For example between Feb 2009 to Sept 2012 the price of Apple stock went from $100 to $700. Did the profits of Apple go to 7 times in this time? Not really. But if you were to only see Apple's stock in this timeframe, AND don't understand Apple's business model, but merely heard that Apple's stock is rising a…

> Any rising investment, if seen in a proper timeframe(with proper rationale) could appear to be a Ponzi scheme.

I know you're not disagreeing with the grandparent post here, fundamentally, but this really irks me. A Ponzi scheme is a particular type of scam that is pretty well defined.

> ... it would appear that older investors are being paid off at the expense of the newer investors

I guess this is the core of it; the definition uses the passive voice and thus is open to this interpretation. I think it's clear, both historically and looking at examples, that the definition would be more clear as:

    A Ponzi scheme is a fraudulent investment operation, where the operator
    pays returns to its investors from existing capital or new capital paid
    by new investors, rather than from profit earned by the operator.
    Operators of Ponzi schemes usually entice new investors by offering higher
    returns than other investments, in the form of short-term returns that are
    either abnormally high or unusually consistent.
Here I've modified the language slightly (and I've edited the wikipedia page as well, but we'll see if that holds up). In the Apple example, there is no operator, so there's really no chance that it is a Ponzi scheme. Similarly for the Bitcoin case.

You can make the argument that Bitcoin (or Apple stock) is a scam of some sort; a "pump and dump" seems the most apt analogue. Calling it a Ponzi scheme seems an invitation to this exact kind of semantic tomfoolery that I'm posting here.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#92

Post by yummyfajitas »

james1071 wrote: post #30
yummyfajitas wrote: post #21

Roubini isn't laying out the full argument. Bitcoin has low value as a means of exchange currently , but that may change in the future. If speculators are correct that it may go up in the future, it is in their best interest to bid the price up now and collect money in the future. That would make BTC not a speculative bubble, but merely an asset that speculators have properly valued. If you want to argue BTC is or is…

You are not even asking the right questions. The most important one is the supply of alternatives to Bitcoin.

I am asking the right questions. If economic growth shifts from BTC into other coins, then Y (real GDP of the BTC economy) will go down. This will be reflected in the money price level formula.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#93

Post by andrewla »

vijayboyapati wrote: post #42

- It's false that bitcoin isn't a means of payment. People DO use it as payment. - It's false that it's not a medium of savings. It has reservation demand which is the only reason it has a price. It does not matter that it has "no assets in it", whatever that confused statement means. The dollar also no longer has any asset backing. The medium of savings role exists while people perceive there is value in holding a m…

> Bitcoin isn't susceptible to hacking - individual bitcoin businesses are susceptible to hacking

While I am a big fan of Bitcoin, this is a valid criticism. The degree to which hackers can steal money right now is very limited, because of the ability to unwind transactions, and the very long clearing time associated with larger transactions.

Two prime benefits of Bitcoin are the short clearing time and the inability to unwind transactions. The dark side of this is that hacking machines storing keys for Bitcoin addresses is the same thing as stealing the money held there; there's no need to have a bunch of bank accounts in shady countries lined up to try to move the money fast enough that you can step out into the tropical sun with a briefcase full of cash before the money gets clawed back.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#94

Post by splintercell »

JohnTHaller wrote: post #85
splintercell wrote: post #79

Earlier quoted context omitted.

> They transfer immediately to local currency (because their suppliers can't be paid in bitcoin). That is correct, but the question which arises, why are companies introducing this level of complexity for no reason? Why are people hell bent on paying for goods through bitcoins? Yes its true that currently its a means of money transfer but there is no reason why companies won't just start holding bitcoins. There is no…

Well, except for that whole thing about there being no secure place to store bitcoins as they come in. You can store them with a third party, but that often ends badly (Flexcoin, Mt Gox, Poloniex, etc). You can store them yourself, but having your money be stolen by a simple server breach is not an attractive prospect for a company, whether startup or established. It wouldn't be quite so bad if there were any regulat…

> Well, except for that whole thing about there being no secure place to store bitcoins as they come in.

Yes, that's also a fact. Bitcoins have revealed a really unprepared facet of technology. Information security. Bitcoin or not, the fact remains that we don't have a fool proof way(other than going offline) to keep the data secure for an average man. Sure smart people can keep their data secure, but common man(who wants to use bitcoins) is unable to do so.

Talking about bitcoin and regulation is like talking about anti-bullying regulations. If it may make you feel better that your kid is protected by anti-bullying regulations, or you could prevent things online by merely making a law against it, then you're delusional.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#95

Post by bdcravens »

joepie91_ wrote: post #59
bdcravens wrote: post #25

There are elements that are definitely Ponzi. This weekend I played with altcoin mining. The goal of course to figure out how to turn those coins into money I can spend. Aside from maybe LTC, no one is taking altcoins for payment or exchanging for fiat; you convert to BTC on an exchange like Cryptsy, and then sell the BTC on Coinbase, etc. At present, you can mine with the same hardware you could use for BTC 3 years…

Everything that knows the concept of an "early adopter", has "elements that are definitely Ponzi". That doesn't make it a Ponzi scheme.

I'd agree. It's entirely possible to be an early adopter on something that proves to have real value, and reap rewards from taking that risk.

Altcoin mining for conversion to Bitcoin, however, has the marks of Ponzi: returns (altcoin:bitcoin exchange rate) that require a steady stream of new investment (new alts, as old alts become unprofitable) that provide little to no value other than providing the return.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#96

Post by NateDad »

Why do economists think we care that bitcoin isn't a currency or store of value or unit of account or whatever other economics 101 term?

We call it a currency because there's no other good name for it.

How about instead of telling us everything it isn't, they just tell us what it is? I'm guessing the reason they don't, is because they don't know either.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#97

Post by NateDad »

NateDad wrote: post #96

Why do economists think we care that bitcoin isn't a currency or store of value or unit of account or whatever other economics 101 term? We call it a currency because there's no other good name for it. How about instead of telling us everything it isn't, they just tell us what it is? I'm guessing the reason they don't, is because they don't know either.

Oh, and every "economist" (intentionally in quotes) that calls bitcoin a Ponzi scheme should have his credentials revoked... just like a geek who says his iPhone ran out of memory due to all the pictures he took.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#98

Post by DennisP »

baudehlo wrote: post #70
vijayboyapati wrote: post #42

- It's false that bitcoin isn't a means of payment. People DO use it as payment. - It's false that it's not a medium of savings. It has reservation demand which is the only reason it has a price. It does not matter that it has "no assets in it", whatever that confused statement means. The dollar also no longer has any asset backing. The medium of savings role exists while people perceive there is value in holding a m…

| It's false that bitcoin isn't a means of payment. People DO use it as payment. But places that accept bitcoin aren't holding on to it. They transfer immediately to local currency (because their suppliers can't be paid in bitcoin). So currently* bitcoin is more a means of money transfer than it is a currency in itself. * This might eventually change if suppliers are willing to accept bitcoin too.

Actually the Overstock CEO has said they're holding on to their bitcoins.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#99

Post by james1071 »

shawabawa3 wrote: post #78
james1071 wrote: post #27

Earlier quoted context omitted.

Perhaps I could ask you a simple question, then. How would you value a Bitcoin?. I am not looking for a precise answer, but a rough range of what it should be worth. It should be possible to do this for any financial asset.

> How would you value a Bitcoin? I would go on bitstamp and see what people are trading them for. That would be around ~$620 at the moment. If you think this isn't a valid way of valuing something then tell me: How would you value a 2 bedroom flat in London? My guess is you would see how much similar flats nearby are selling for (and if you say you would get an expert valuation - how are they getting the value?)

Flat-rental income 20k p.a. Valuation 400k at 5% yield. Maximum plausible valuation might be 600k Lowest plausible valuation might be 250k

No such exercise is possible with Bitcoin, the 'value' of which could be argued to be anything.

Re: Nouriel Roubini: Bitcoin Is a ‘Ponzi Game’

#100

Post by shawabawa3 »

james1071 wrote: post #99
shawabawa3 wrote: post #78

Earlier quoted context omitted.

> How would you value a Bitcoin? I would go on bitstamp and see what people are trading them for. That would be around ~$620 at the moment. If you think this isn't a valid way of valuing something then tell me: How would you value a 2 bedroom flat in London? My guess is you would see how much similar flats nearby are selling for (and if you say you would get an expert valuation - how are they getting the value?)

Flat-rental income 20k p.a. Valuation 400k at 5% yield. Maximum plausible valuation might be 600k Lowest plausible valuation might be 250k No such exercise is possible with Bitcoin, the 'value' of which could be argued to be anything.

That's kind of a circular argument. How did you get the rental income?

In the end, everything is worth what its purchaser will pay for it. It's no different for bitcoin as for anything else

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