Bitcoin crash coming?

[speeder]

Bitcoin was invented to make the average person feel really stupid.

[tabs]

You Boyz make me smirk...

You Boyz think this shyte is real?

So what are the "animal spirits" up to these days? It is simple really, we have entered into one of the largest speculative bubble of all time as people are frantically speculating so that they can get "rich" in an effort to outrun the the economic abyss that awaits them. They can feel the fear in their guts and are scared shyte less as they run for what they think is a life boat. But there is no life boat, reality has to be addressed sooner or later. After every frantic means is exhausted with no place to run the stark reality finally sets in. The Global Economy of Scale is dead.

[Wayne 962]

Well, I have some opinions on this subject obviously. All money is fake - simply fiat currency backed by the government. Don't believe me? How much were Confederate dollars worth after the South lost the war? How about Reich marks after WWII? Pretty much zero. Another thing that's fake? Real Estate (huh?). Yup, the value of real estate is only dependent (again) on the government that supports it. Back in the Middle Ages, the people with the most real estate had the biggest armies to a) get more real estate and b) defend the stuff they already had. Without the government (and our system of laws, etc.), real estate is pretty much worthless in the grand scheme of things (disclaimer - I'm a big investor in real estate right now).

So, on to Bitcoin. First of all, Bitcoin is not used as a method of transaction currency. It's just too expensive per transaction and not convenient at all. The notable exceptions are with the illicit trade, where the cost of a transaction is not as important as evasion from the authorities and anonymity. Secondly, Bitcoin is on a self-destruct Titanic-like journey with no good end in sight. For those who know about how it actually works, the miners keep the system going, and if the cost of a single Bitcoin drops below the actual (power + equipment) costs to create a Bitcoin, then the miners will stop working and the whole system will probably collapse. Don't take my word on this, Google it. Bottom line - as Bitcoin gets older and older, the more difficult each transaction will be, and eventually it will be very costly and very difficult to make one Bitcoin (it's already close to that). Without the miners processing transactions, it's almost doomed to fail. Eventually. We just don't know when.

Having said that, the Bitcoin experiment is indeed a fascinating one to watch, and the "next gen" currency that solves a bunch of these problems will probably be very successful. Keep an eye out for that one (I don't think it exists yet). I do believe that the blockchain will need some type of gate keeper (like a central bank) that can roll back transactions in case of fraud or theft - something that Bitcoin lacks currently.

Just my opinions. I've talked to a lot of people about this, studied the back architecture of Bitcoin, and I know relatively well how markets work. Due to the Bitcoin problems that are inherent in it's structure, it's become more like digital gold - where it's just a "store house" of value instead of an actual currency used in commerce.

-Wayne

[Wayne 962]

Originally Posted by tabs

So what are the "animal spirits" up to these days? It is simple really, we have entered into one of the largest speculative bubble of all time as people are frantically speculating so that they can get "rich" in an effort to outrun the the economic abyss that awaits them. They can feel the fear in their guts and are scared shyte less as they run for what they think is a life boat. But there is no life boat, reality has to be addressed sooner or later. After every frantic means is exhausted with no place to run the stark reality finally sets in. The Global Economy of Scale is dead.

Agree. Although Tabs, you will probably disagree with my agreeing because you refuse to agree or have anyone agree with you. 100% of the time with my comments. Oh well.

Having said that, I think a key strategy would be to look at past problems (not necessarily in the United States) and see what areas and which asset classes performed well. As I mentioned in the previous post, real estate is good, but ultimately has it's limitations. In communist countries, all the real estate was taken away overnight. Without courts and laws to protect landowners, that system will break down.

Is gold a good asset class to hold? It's relatively rare, is a storehouse of value, and for the past 2,000+ years has indeed been a reliable asset to hold in times of trouble. It's historical track record is unparalleled.

Cash? Not likely a good asset to hold. The government is making more of it every day, inflation is already rampant (in asset classes, not imports kept cheap by foreign labor), and nominal interest rates are near zero. Holding cash right now seems to be the worst decision.

Stocks? Many stocks have moved far away from their historical price levels based upon the underlying fundamentals (namely the profit per share of the corporation). Tesla is the poster child for this of course. Over time, the markets will "revert to the mean" and either the profits will go WAY up, or the stock will go WAY down. Tesla shareholders right now are obviously thinking that future profits will be WAY up instead of the other way around. Statistically, this is not likely to happen, as the profits would have to increase beyond levels never seen before in the history of the stock market in order to justify these levels. Possible, but not likely.

Bonds? Jeepers, bonds are like Pokemon Go - no one ever talks about them any more. With rates at zero, and not likely to go negative, the outlook for bonds is terrible. Let me capitalize that - TERRIBLE. As rates go up, the face value of existing bonds go down (because one can just buy a higher performing "new" bond rather than a low performing "old" bond - simple math). Short term bonds are less risky than long-term ones, as you can just ride it out. But long term (beyond 3-5 years) are terrible right now. And on top of all of that interest rate risk, US bonds are denominated in US dollars, which is likely to decline in the future. Bottomline, I wouldn't buy any bonds.

Real Estate? Not perfect, but a stable asset class when bought right (as with any asset). Overvalued real estate will not perform well, but decent, good-quality assets that have a reasonable rate of return (7% CAP) should continue to perform well. I would avoid troubled assets like shopping malls and large office buildings should be avoided, unless they are super-cheap.

Classic cars / art, etc? Collectibles, if "blue chip" should hold some value, and one nice thing about them is that good assets are also 'international' assets. I.E. things that Europeans and Asian investors might also like. Classic Porsche cars or race cars (although Chinese buyers are non-existent on these). Good quality art (top level, Picasso, Monet, etc.). Other high-level collectibles with International interest (the stuff Sotheby's would auction). Not the new crappy stuff like new yachts or jets or new watches, or anything new (because they will just keep making more of those). Collectibles whose overall market is indeed limited. I think that is a good measure of safety.

There's more to write, but it's dinner time!

-Wayne

[McLovin]

Originally Posted by Wayne 962

As I mentioned in the previous post, real estate is good, but ultimately has it's limitations. In communist countries, all the real estate was taken away overnight. Without courts and laws to protect landowners, that system will break down.



-Wayne

All excellent points.
As far as real estate, people don’t think in the US it would never be seized.
But as an owner of multiple commercial and residential apartments, it already has been.
When you pass laws barring landlords from enforcing their contracts, laws that allow a d encourage tenants to not pay rent, and take away the landlord’s right to evict (for a year, or even longer), you’ve essentially seized the property.
As far as the past, it’s been done many times before. Dr. Zhibago is a classic example. He comes back from the war after the Russian Revolution (socialist “people’s revolution”) to find the local housing commission” has determined that his house is too big for just his family, so 15 more are now living in his house.
But hey, it’s “just,” he still “owns” the house!

[Wayne 962]

Originally Posted by McLovin

All excellent points.
As far as real estate, people don’t think in the US it would never be seized.
But as an owner of multiple commercial and residential apartments, it already has been.
When you pass laws barring landlords from enforcing their contracts, laws that allow a d encourage tenants to not pay rent, and take away the landlord’s right to evict (for a year, or even longer), you’ve essentially seized the property.
As far as the past, it’s been done many times before. Dr. Zhibago is a classic example. He comes back from the war after the Russian Revolution (socialist “people’s revolution”) to find the local housing commission” has determined that his house is too big for just his family, so 15 more are now living in his house.
But hey, it’s “just,” he still “owns” the house!

Yup, that can happen. Likely? Eh, probably not. Will all of these "tenant friendly" policies (not laws) stick after the pandemic? I would hope not. But I would not be surprised if some of the progressives tried to make it so. Theoretically, it probably / shouldn't pass the "takings clause" of Amendment V of the Constitution - but as you know, that is a living document that is constantly changing.

-Wayne

[McLovin]

One theory that I’ve seen, I thought was kind of crazy, but as I’ve seen, what was crazy 5 years ago can be “normal” today:

There are people/politicians that don’t mind blowing up (or at least seriously damaging/“revolutionizing”/“reforming”) our current monetary system. Thus, printing and “air dropping” 6 trillion, 10 trillion or 50 trillion is ok.

That destroys the value of current dollars held by “the rich.”

It also forces “the rich” out of dollars and into assets.

Assets = “inequality.”

To fix the “inequality” it’s a simple step to seize assets. Directly, through things like wealth taxes (already being floated in the “progressive” states and highly likely IMO to start happening, “because inequality”), and indirectly by ways of highly restrictive property laws. Like already happening in places like Seattle, where a landlord can’t decide who to rent their apartment to, how much to charge, and who to evict.

[Wayne 962]

True, but the nice thing about the Republic is that we have 50 states to choose from, so capital will flow from the "loser" states to the "winner" states that attract capital.

Exhibit A is Illinois. I looked at a property there the other day. Offered originally at $1.3M when it was occupied by Chase bank. Now vacant, trying to be "liquidated" at $500K. Property taxes were $48K in 2018 and $62K in 2019 (2020 has not been decided yet!). No thanks. Illinois is on my "DO NOT BUY" list of places. That seems like a no-brainer. New York, New Jersey, Portland - OR, Seattle - WA, and for the most part anywhere in California - also on that list...

-Wayne

[McLovin]

Agree 100%.
Still plenty of opportunities for those who have the ability to move to another state, or the stomach for long distance investments.
But capital does flow. I’m sure you remember the big Nissan HQ in Torrance, CA, now in Franklin, TN. BMW could have put their huge US factory anywhere. It’s in South Carolina. Same with Michelin. Tesla, etc.
As that happens it of course forces the states from where capital is fleeing to “double down” on the policies that caused the fleeing in the first place. With predictable results.

[McLovin]

Originally Posted by Wayne 962

Yup, that can happen. Likely? Eh, probably not. Will all of these "tenant friendly" policies (not laws) stick after the pandemic? I would hope not. But I would not be surprised if some of the progressives tried to make it so. Theoretically, it probably / shouldn't pass the "takings clause" of Amendment V of the Constitution - but as you know, that is a living document that is constantly changing.

-Wayne

Well, we’ve now seen that the Constitution can be suspended for at least 18 months, likely 2 years, to allow the taking of property rights (forcing private apartment owners to be involuntary providers of “free” public housing). This based on an “emergency” declaration, it can even be done by one person’s (a state Governor’s) stroke of a pen, instantly. No need for the voters on a ballot measure, or even a Legislature. Which of course has already happened.

So, make a “declaration of National emergency” because of “the climate” and the door is open to just about anything. The pesky Constitution doesn’t matter in an “emergency.”

Crazy? “Climate emergency declaration” is already being floated.

[sc_rufctr]

FWIW: I really don't understand the whole concept behind crypto currencies.

- How can something have value and yet it's not tangible?

And I always worry when a Billionaire tries to flog something. The question that always comes to mind is: Why are they doing this? Elon is making a big mistake by talking up the value of Dogecoin. At some point that will bite him in the arse hard.

IMO (and no one should take financial advice from me) It's only a matter of time before the bottom falls out of the crypto market. If you're heavily invested I'd get out NOW. If you can afford to gamble with what you have invested then there's no harm in staying in to see what happens.

And don't kid yourself. From this point forward this is nothing more than a gamble.

[cstreit]

Originally Posted by Wayne 962

Well, I have some opinions on this subject obviously. All money is fake - simply fiat currency backed by the government. Don't believe me? How much were Confederate dollars worth after the South lost the war? How about Reich marks after WWII? Pretty much zero. Another thing that's fake? Real Estate (huh?). Yup, the value of real estate is only dependent (again) on the government that supports it. Back in the Middle Ages, the people with the most real estate had the biggest armies to a) get more real estate and b) defend the stuff they already had. Without the government (and our system of laws, etc.), real estate is pretty much worthless in the grand scheme of things (disclaimer - I'm a big investor in real estate right now).

So, on to Bitcoin. First of all, Bitcoin is not used as a method of transaction currency. It's just too expensive per transaction and not convenient at all. The notable exceptions are with the illicit trade, where the cost of a transaction is not as important as evasion from the authorities and anonymity. Secondly, Bitcoin is on a self-destruct Titanic-like journey with no good end in sight. For those who know about how it actually works, the miners keep the system going, and if the cost of a single Bitcoin drops below the actual (power + equipment) costs to create a Bitcoin, then the miners will stop working and the whole system will probably collapse. Don't take my word on this, Google it. Bottom line - as Bitcoin gets older and older, the more difficult each transaction will be, and eventually it will be very costly and very difficult to make one Bitcoin (it's already close to that). Without the miners processing transactions, it's almost doomed to fail. Eventually. We just don't know

Generally agree. Once we went off the gold standard money only has value because we all agree it does.

Your premise though of profitability of mining is not as linear as you describe. I mined for a while, I sold every Bitcoin I made instantly when it was generated (well fractions as I mined into a pool).

My break even point when I did it was $6000 per btc. If the price went up it was more profitable, price went down? Less so.

3 years ago I had state of the art asic miners. 17 terahash per 1500W of power. Now it’s 10x that. Point being of you consider boyles law and the rising price, it could potentially remain profitable for some time yet... ...but I realized that mining was only slightly more profitable than buying BTC and hoping it goes up, because the cost of mining equipment also fluctuates with the value of BTc. It’s actually quite elegant.

[Wayne 962]

Right - sorry, I didn't mean to simplify the cost of mining, although to most people they don't know what's involved. I guess in some ways, the analogies to actual physical gold mining are similar. In the "old days", when the gold veins were near the surface, one might have thought that mining gold was easier than today. Today's gold veins are further down in the Earth and harder to reach (I imagine). However, the mining equipment has gotten more advanced so that you can mine more gold for less investment in equipment. Pretty close to the Bitcoin formula.

I think perhaps from a climate change and energy usage perspective, once someone who actually knows anything or has any power to do anything in politics realizes all of the energy being wasted on mining Bitcoin (and other crypto currencies), there will be some type of legislation put in place to stop their use.

But Chris, I think you agree it's on a path to get more and more expensive and at some point, the system will fall apart?

-Wayne

[biosurfer1]

Originally Posted by sc_rufctr

And don't kid yourself. From this point forward this is nothing more than a gamble.

If you listen to the people in this thread, so is real estate, fiat currency, gold, bonds, and stocks

[thor66]

If you listen to the people in the other thread, fiat currency is a rust bucket and lacks hp

[Wayne 962]

Originally Posted by biosurfer1

If you listen to the people in this thread, so is real estate, fiat currency, gold, bonds, and stocks

It's all about scope and scale. A bet on a 20:1 horse in the fifth is not the same bet as buying an industrial warehouse in a major US metro area with a semi-decent tenant and a 7% CAP rate. Not all risks are equal, and one thing I've noticed over the years is that some people are very poor at analyzing risk and comparing one investment return to another investment return. This creates opportunities in the long run for people who can indeed analyze risk a bit better than most...

-Wayne

[herr_oberst]

Originally Posted by Wayne 962

This creates opportunities in the long run for people who can indeed analyze risk a bit better than most...

-Wayne

And then you have people like me who barely got out of first year algebra. Fortunately, as the great Ted Knight said, "The world needs ditch diggers too, Danny"

[Wayne 962]

Originally Posted by herr_oberst

And then you have people like me who barely got out of first year algebra. Fortunately, as the great Ted Knight said, "The world needs ditch diggers too, Danny"

I've been all over the Internet. I'd put everyone (even the wacky left and right wingers on OTPR) on this forum in the top 5% of intelligent people!

-Wayne

[brainz01]

Originally Posted by cstreit

Generally agree. Once we went off the gold standard money only has value because we all agree it does.



Your premise though of profitability of mining is not as linear as you describe. I mined for a while, I sold every Bitcoin I made instantly when it was generated (well fractions as I mined into a pool).



My break even point when I did it was $6000 per btc. If the price went up it was more profitable, price went down? Less so.



3 years ago I had state of the art asic miners. 17 terahash per 1500W of power. Now it’s 10x that. Point being of you consider boyles law and the rising price, it could potentially remain profitable for some time yet... ...but I realized that mining was only slightly more profitable than buying BTC and hoping it goes up, because the cost of mining equipment also fluctuates with the value of BTc. It’s actually quite elegant.

This was exactly my experience.

[Wayne 962]

Here's an interesting article explaining mining: https://blockgeeks.com/guides/what-is-hashing/

-Wayne