You shouldn't invest in the crypto currency?(rohitgupta.bearblog.dev)
rohitgupta.bearblog.dev
You shouldn't invest in the crypto currency?
https://rohitgupta.bearblog.dev/why-you-shouldnt-invest-in-the-crypto-currency/
33 comments
>I'm still not sure I get why staying longer yields any sort of edge
One way of looking at it is to say that traditional currencies are constantly devaluing as their supply increases. A counter argument there might be that the supply of cryptocurrencies is increasing generally. This could be tested if BTC or ETH are ever unseated by another blockchain.
The psychological conditions could change if every new cryptocurrency was viewed as a potential heir to the throne. "Digital gold" could be debunked in the eyes of the masses.
One way of looking at it is to say that traditional currencies are constantly devaluing as their supply increases. A counter argument there might be that the supply of cryptocurrencies is increasing generally. This could be tested if BTC or ETH are ever unseated by another blockchain.
The psychological conditions could change if every new cryptocurrency was viewed as a potential heir to the throne. "Digital gold" could be debunked in the eyes of the masses.
Even worse, their argument is the same as betting on winning chess, because chess is a “zero-sum” game. Different investors have different skill levels.
There are many asymmetries between retail investors in crypto, and hedge fund investors. It is difficult to predict which hedge fund will win, but it is predictable that individual investors will lose on average over time (although some individuals will win).
There are many asymmetries between retail investors in crypto, and hedge fund investors. It is difficult to predict which hedge fund will win, but it is predictable that individual investors will lose on average over time (although some individuals will win).
> Cryptocurrency returns are a zero-sum game i.e. if 1 person gets a $10 profit, another person has to lose $10.
> So, it is the same as gambling where if you are winning, someone has to lose.
Not true.
If you think of cryptocurrency as gambling, yes.
If you think of cryptocurrency as a kind of money, no.
For example: I buy $100 worth of Bitcoin, and I spend those on a VPN and some drugs. The seller of the Bitcoin feel they won because they can use $100 on something else they like, and I feel I won because I'm anonymous and on drugs!
It is your own responsibility to not treat cryptocurrencies like gambling.
Use it to buy something. Who knows what's gonna happen long-term with any one altcoin / project.
> In the cryptocurrency world, no one really has a positive mathematical edge in cryptocurrency i.e. no one has such information which makes them better than other crypto investors. So, it is impossible to make a profit in long term.
Not true.
A must-read: https://medium.com/@danrobinson/ethereum-is-a-dark-forest-ec...
There are lots of people with a mathematical edge. You're probably not one of them.
A friend of mine who sucks at math was fascinated by day-trading because it seemed so easy. It's not a fair game, it's not for everyone, and it is popularised because it's so much more profitable if more suckers want to join.
What's a sucker? Someone who sucks at math who wants to get rich quick and effortlessly through financial speculation.
> So, it is the same as gambling where if you are winning, someone has to lose.
Not true.
If you think of cryptocurrency as gambling, yes.
If you think of cryptocurrency as a kind of money, no.
For example: I buy $100 worth of Bitcoin, and I spend those on a VPN and some drugs. The seller of the Bitcoin feel they won because they can use $100 on something else they like, and I feel I won because I'm anonymous and on drugs!
It is your own responsibility to not treat cryptocurrencies like gambling.
Use it to buy something. Who knows what's gonna happen long-term with any one altcoin / project.
> In the cryptocurrency world, no one really has a positive mathematical edge in cryptocurrency i.e. no one has such information which makes them better than other crypto investors. So, it is impossible to make a profit in long term.
Not true.
A must-read: https://medium.com/@danrobinson/ethereum-is-a-dark-forest-ec...
There are lots of people with a mathematical edge. You're probably not one of them.
A friend of mine who sucks at math was fascinated by day-trading because it seemed so easy. It's not a fair game, it's not for everyone, and it is popularised because it's so much more profitable if more suckers want to join.
What's a sucker? Someone who sucks at math who wants to get rich quick and effortlessly through financial speculation.
> If you think of cryptocurrency as a kind of money, no.
This is really great point which i missed. Thanks :)
This is really great point which i missed. Thanks :)
> Disclaimer - I have invested 1% of my savings into stable cryptocurrencies such as Bitcoin and Ethereum etc.
... well, this individual appears not to know the definition of stable, but do go on.
> Cryptocurrency returns are a zero-sum game i.e. if 1 person gets a $10 profit, another person has to lose $10.
First, equities are positive-sum games, which makes them, on the whole, in the fullness of time, a strictly better investment. It is not true that someone has to lose for someone else to win in the equity markets. Shareholder returns are derived from the business itself.
Second, proof-of-work currencies are negative sum, since the miners have to expend unfathomable quantities of electricity and generate mountains e-waste. This costs money. This money is obtained by selling the block reward, which puts negative price pressure on the cryptos. So not only are the only source of returns other gamblers, there's also a hole in the bucket. In gambling parlance, that's the rake in a game of poker.
... well, this individual appears not to know the definition of stable, but do go on.
> Cryptocurrency returns are a zero-sum game i.e. if 1 person gets a $10 profit, another person has to lose $10.
First, equities are positive-sum games, which makes them, on the whole, in the fullness of time, a strictly better investment. It is not true that someone has to lose for someone else to win in the equity markets. Shareholder returns are derived from the business itself.
Second, proof-of-work currencies are negative sum, since the miners have to expend unfathomable quantities of electricity and generate mountains e-waste. This costs money. This money is obtained by selling the block reward, which puts negative price pressure on the cryptos. So not only are the only source of returns other gamblers, there's also a hole in the bucket. In gambling parlance, that's the rake in a game of poker.
> So not only are the only source of returns other gamblers, there's also a hole in the bucket.
But there's also someone constantly filling the bucket with pretend water (Tether) faster than the real water falls through the hole.
But there's also someone constantly filling the bucket with pretend water (Tether) faster than the real water falls through the hole.
> Second, proof-of-work currencies are negative sum
Assuming the network doesn't produce external value to the people transacting on it (for example, lower transaction fees than alternatives, lower cost to enforce contracts, lower spread trading equities or currencies etc).
Assuming the network doesn't produce external value to the people transacting on it (for example, lower transaction fees than alternatives, lower cost to enforce contracts, lower spread trading equities or currencies etc).
> Assuming the network doesn't produce external value to the people transacting on it (for example, lower transaction fees than alternatives, lower cost to enforce contracts, lower spread trading equities or currencies etc).
The hypothetical value generated accrues to those who hold equity in the miners or network operators (stakers in a PoS system) - not the tokens themselves. If Starbucks pre-sold coffee as tokens, the fact that Starbucks is selling more or less coffee means nothing for the value of the token.
The hypothetical value generated accrues to those who hold equity in the miners or network operators (stakers in a PoS system) - not the tokens themselves. If Starbucks pre-sold coffee as tokens, the fact that Starbucks is selling more or less coffee means nothing for the value of the token.
I'm talking about value created for users of the network, not token holders miners or stakers.
Let's say I use the network to send $5k to a relative in another country and this transaction costs me $1. If I otherwise would have paid $5, then $4 of value is created external to the network itself.
Let's say I use the network to send $5k to a relative in another country and this transaction costs me $1. If I otherwise would have paid $5, then $4 of value is created external to the network itself.
The way I'm looking at it: if I save money moving dollars using Wise instead of PayPal, that doesn't change the value of a dollar. So why would saving money moving dollars using ETH instead of Wise change the value of either ETH or USD? The value doesn't accrue to the token holder in any case. Am I missing something?
To some extent it does. The person moving money is paying transaction fee in ETH creating demand for ETH. Additionally, a part of that transaction fee is burned (permanently deleted) creating a deflationary effect on all other ETH.
I can see that argument, yeah. Curious to see it quantified, but I concede.
The ETH burning is easy to quantify: https://watchtheburn.com/
Currently there are inflationary block rewards so the net may still be ETH creation (depends on the day). That will change after the merge when inflationary rewards are removed though.
Currently there are inflationary block rewards so the net may still be ETH creation (depends on the day). That will change after the merge when inflationary rewards are removed though.
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> Assuming the network doesn't produce external value
They don't, definitely nowhere near the amount currently invested.
They don't, definitely nowhere near the amount currently invested.
Sure, the point is there's a difference between:
"this system is currently costing more than it is producing"
vs
"this system, by definition, is negative sum"
The first is a comment on the current state of the thing, the second is an immutable statement about the thing's nature, which in this case is false.
"this system is currently costing more than it is producing"
vs
"this system, by definition, is negative sum"
The first is a comment on the current state of the thing, the second is an immutable statement about the thing's nature, which in this case is false.
>Second, proof-of-work currencies are negative sum
You could have just said currencies are negative sum. Your argument doesn't pertain exclusively to crypto. It cost electricity and resources to print and wire transfer dollars and yen, for instance.
You could have just said currencies are negative sum. Your argument doesn't pertain exclusively to crypto. It cost electricity and resources to print and wire transfer dollars and yen, for instance.
I suppose so, but currencies aren't investments. There's a big difference in how they're marketed. Your goal is never to hold dollars for a long period of time - after all, average case the dollar goes down at minimum 2% per year. Your goal is to productively allocate that capital into actual investments.
On the other hand crypto is marketed as an investment that you are to hold for long periods of time. Crypto is sold as something that goes up over time, and should be compared to other things that are marketed that way.
On the other hand crypto is marketed as an investment that you are to hold for long periods of time. Crypto is sold as something that goes up over time, and should be compared to other things that are marketed that way.
I suppose it depends on how you use the underlying instrument.
Some people use currencies or their derivatives as investments, particularly forex traders.
Some may use crypto essentially as a currency. The 'marketing' isn't unified and depends on who you listen to. For instance, the bitcoin whitepaper itself doesn't promise real returns on 'investment.'
>On the other hand crypto is marketed as an investment that you are to hold for long periods of time
I'm with you that this is probably not a good viewpoint to take, but I don't think that's the only viewpoint out there on how to use crypto.
Some people use currencies or their derivatives as investments, particularly forex traders.
Some may use crypto essentially as a currency. The 'marketing' isn't unified and depends on who you listen to. For instance, the bitcoin whitepaper itself doesn't promise real returns on 'investment.'
>On the other hand crypto is marketed as an investment that you are to hold for long periods of time
I'm with you that this is probably not a good viewpoint to take, but I don't think that's the only viewpoint out there on how to use crypto.
In Forex trading, you're short-selling one currency and buying another. It's not an investment, it's a pair trade. Nobody buys USD or NZD or any other currency expecting to walk away with more value in the currency itself. You're making money on the divergence or convergence in purchasing power of a currency in one country vs. another.
Your goal is to walk away with more units of your currency than you had to start, not that each of those units will be worth more.
Your goal is to walk away with more units of your currency than you had to start, not that each of those units will be worth more.
>you're short-selling one currency and buying another
>It's not an investment, it's a pair trade.
So borrowing USD and selling it to buy BTC means you're not investing in BTC?
>It's not an investment, it's a pair trade.
So borrowing USD and selling it to buy BTC means you're not investing in BTC?
Hm, that's fair. I guess I could say you're not investing in the currency but rather in the convergence or divergence of their relative purchasing power in their domestic economies. I'm not trying to be nit picky, I'm open to being wrong here.
*relatively stable. I know you are referring USDT as stable coin.
You could say the same about fiat. Yet, fiat is at least 100x bigger than cryptocurrency in terms of value. But yeah, currencies aren't usually good investments unless they are severely underpriced (this is a belief commonly held by cryptocurrency investors).
What does the author think of index investing in this context then? I concede that currencies should function differently than the stock market, but this is exactly how long-term stock investing is meant to work. I suppose I'm missing the point.
Not really, no. Equities, and equity indices, are comprised of productive businesses. They are positive sum because investor returns are generated by non-investor participants (the customers of the business buying goods and services).
A better analogy between crypto in traditional markets is some sort of wild-west futures market and options market. Index futures are provably zero-sum. Options are negative-sum for buyers, if I'm not mistaken.
A better analogy between crypto in traditional markets is some sort of wild-west futures market and options market. Index futures are provably zero-sum. Options are negative-sum for buyers, if I'm not mistaken.
Additionally, the past several years have seen cryptocurrencies rising and falling in near lock-step with most stock indices. If you are looking for a hedge against market volatility, keep looking.
Curious if anyone can explicate how fanduel plays into this topic
I invested in the crypto currency and I am proud that I did so!
> into stable cryptocurrencies such as Bitcoin and Ethereum
Close tab.
Close tab.
This may be less of a concern in stabler, larger coins like btc and eth. I'm still not sure I get why staying longer yields any sort of edge, though. If my expected return over some small period is 0, adding a bunch of those small periods together does not yield a positive expected return.