Here is how it'll work

- in 2021, an improvement to the Ethereum network known as EIP-1559 will launch, causing a portion of all new transaction fees to be burned/destroyed, which is effectively a "stock buyback" for ETH. This will be the first time that ETH holders receive any kind of "earnings per share". But, it's not enough:

- EIP-1559 alone is not enough for ETH to be a profitable investment from a cashflow perspective. The problem is that Ethereum's proof of work mining is extremely expensive, like Bitcoin's. Ethereum will run at a "net loss" until proof of work is discontinued.

- two days ago, the Ethereum v2 "beacon chain" launched after years of research and effort. This "beacon chain" is currently not used for any ethereum transactions and won't be for two years. Here is a 3rd party UI for exploring the beacon chain https://beaconcha.in/

- in 2022, the main ethereum blockchain will merge with the new ethereum v2 beacon chain and proof of work mining will go away forever. The new system, proof of stake, is dramatically less expensive. It's so cheap that it's effectively free.

- in 2022, with proof of stake fully live, ethereum's transaction fees will effectively accrue to ETH holders and there will be no material expenses to offset this income. The result is that ETH will become a real investment vehicle from a cashflow perspective.

Learn more https://ethereum.org/en/eth2/#roadmap

That is how Ethereum works. Validators get returns from Ethereum by holding shares, i.e. ETH. Validators, after EIP-1559, will be paid with newly minted ETH and anything over the base burn fee. (Currently there is no mandatory burning of fees.)

To stake in ETH 2.0 a stand alone validator needs 32 ETH (~$20,000). It reminds me of Outback's business model of requiring managers to buy in as stake holders (https://hbr.org/2005/09/a-stake-in-the-business).

This is before all the crazy features that can be built on top of eth-as-programmatic-money, such as lending. https://defipulse.com/

It sounds like investing in Visa...but an infinitely worse, less profitable version of Visa with 100000X smaller dividend payouts.

Before then (1931 for the pound and 1933 for the dollar, though they maintained de-facto parity with gold until 1971), dollars and pounds were considered good investments. That's why we had bank runs: people thought their money would be safer under their mattress, and preferred to own physical currency rather than numbers in a bank's ledger. The only reason holding USD is a bad investment is because inflation is basically guaranteed: you know that a dollar will be worth less tomorrow than it will be today, because the authorities that control the dollar say so. Not so with Bitcoin: the total supply is fixed at 21M, forever, and there's no central authority with the power to change that.

[0] https://en.bitcoin.it/wiki/Economic_majority

[1] https://bitcoin.stackexchange.com/questions/3945/how-could-t...

But then, this is where Bitcoin is genius: the code isn't everything.

There's a whole bunch of built-in economic incentive feedback loops.

And getting to an "Economic Majority" is very unlikely to happen because none of the participants have to gain from that change.

Also: since a bitcoin is divisible to 10e-8, it's going to be a very long while before there's an actual shortage of the darn thing.

Is the implication that monetary and fiscal policy also not driven by economic feedback loops? Of course they are; just different ones.

Any fork or decision by anyone to change this 21M number means that for me (and most hardcore bitcoiners I know) the chain which sticks to Satoshi's 21M becomes the REAL bitcoin chain.

21M is non negotiable. If it doesn't have 21M, it simply isn't BTC.

It is not appreciating because fiat money is being devalued. That can account for -- at max -- 20% of the price increase.

It's appreciating because of speculation.

You can 10x the world gold supply by capturing a single medium-sized metallic asteroid.

You also can't send gold over the internet or store it in a private key. Given that Bitcoin is otherwise quite similar, mutatis mutandis, it's not unreasonable to imagine that Bitcoin might displace gold to some degree as a reserve asset.

I was 100% discussing my scenario. I would absolutely not have enacted a careful plan with multiple fall-backs. Which is it's own kind of self-indictment tbh, but one that I am at peace with. :D

Shovels in a gold rush.

And, of course, they could freely choose to make Bitcoin2 have a trillion tokens instead of 21M, or whatever number they want.

It's hard to create a fork of firmware running in people's minds.

It's probably unlikely that an enfranchised bitcoin user would be incentivized to jump to a newborn chain, but I don't think it's the case that a new user is always incentivized to adopt the existing chain. As the price of bitcoin increases, and the remaining coins to be issued decreases, a new chain becomes more attractive for new users.

Back in the day people used to get interest (covering more than inflation) from holding money in their bank accounts. What's changed?

Home loans used to be much higher, in the 10-15% range and you could get 6-7% on your savings account.

With home loans in the 2-3% range, those margins aren't feasible anymore.

But that's probably an old understanding. I'm sure there's a lot more financial wizardry to it now.

This is why creative solutions like bitcoin, if not (necessarily) directly solving anything, do give pause for thought, and maybe shine some hope for a non-corrupt (immutable) system of money.

I need to read up on whether a deflationary currency/economy would really be an issue, or if it just wouldn't work with how things are currently set up.

Edit: And yes, it's a complex issue with no outright easy answers. Doesn't hurt to think about it though.

> Imagine a society not based on consumerism and quarterly report increases. Gasp!

I have literally no idea what that would look like or how Bitcoin would play a role. I guess hodlers who bought early would be rich and normal people poor?

Assuming the value will slowly (and for the sake of argument steadily) increase, would consumption and innovation stifle to a halt and everyone turn into hodlers?

Saving money would become attractive yes, and loans would become expensive or unrealistic (depending on the rate of deflation).

And companies/businesses would value a steady and solid stream of revenue/profit over hysterically chasing constant growth.

Would this really be so disastrous and why?

But as TFA indicates, there are over 500 other crypto coins. When anyone can create a new one they become irrelevant.

Edit: obviously this is an oversimplification and there are other factors like quality of governance, quality of the underlying tech, and so on. But I believe the above is the crucial factor.

We can make infinite coin types, with each coin type having an infinite number of tradable units; all that matters is adoption. Bitcoin is far more likely to be accepted than a coin you invent tomorrow.

With cryptocurrency, you're right they're not an "investment" in the traditional sense. Right now more of a long-term gamble.

In my opinion the value is in the network and the ability to move money instantly (or at very least faster than traditional methods), securely, to anywhere in the world for a fraction of a cent. That ability alone is valuable and hasn't existed until now.

There are other arguments along the lines of deflationary vs. inflationary, anonymous vs. private, irreversibility of transactions (no charge-backs) that are good or bad depending on your views, but in general crypto represents a brand-new "investment" (or gamble if you like) for this generation.

The different cryptocurrencies that various teams are building follow different philosophies, but I think the space in general is pretty interesting.

I spent some time working in a relatively-unknown but high volume clearing bank.

Banks can and do move billions instantly, and have done so for years through SWIFT and ACH. It takes literal seconds for a confirmation to pass through different clearing networks around the world.

Even today, we're seeing banks improve their correspondence networks with each other.

For example, you could have a Transferwise Account where you receive USD and convert to GBP.

If you wanted to move that to a Monzo account, you can do so instantly as Transferwise and Monzo have accounts either with each other or in the same institution.

The bank debits and credits each counterparty immediately.

At the end of the day, it nets its position, then sends its report to the central bank, netting positions between other participants.

Looking at crypto from the outside, I really don't see the added value based on existing infrastructure.

It seems more like a proof of concept rather than a viable long-term asset.

In fact, among the interesting properties of Bitcoin, I'd rate transaction speeds as the least relevant - chiefly because network throughput and transaction speed is actually pretty poor if you compare it to what is achievable with classical tech.

This is one of the reasons crypto is a great solution though. You don't have to rely on institutions for the infrastructure.

I agree that there's no technical reason. For example, "crappy infrastructure" is an economic reason why fast bank transfers wouldn't work. I'm evaluating bitcoin as a political/economic tool.

Honestly, how much money one needs to move that the cost of the operation actually matters?

> Banks can and do move billions instantly

We're not just talking about banks, and if I open my own bank tomorrow I can't use SWIFT the same day (the way I can with Ripple), I have no relationships with correspondent banks.

This is the added value to existing infrastructure.

1) Regulate crypto such that it isn't an issue anymore and is in line with existing systems.

2) Improve the regulation such that the existing monetary systems move money more quickly/easily/whatever.

Crypto has an edge in neither of these situations.

Yes, there are quite a few where crypto has an undeniable advantage, I listed a couple.

> has allowed us to achieve this for the first time

That is wrong, we have never been able to use the improvements to the 45+ y/o SWIFT network (Ripple creates) that we can today.

> Regulate crypto such that it isn't an issue anymore

How will you require correspondent banking when 200+ banks are already side-stepping it?

> make the existing monetary systems move money more quickly

How would you make SWIFT settle accounts more quickly?

How would you remove the incredibly high prices on traditional wire transfers?

I actually think that the nation states really missed out when they didn't mint their own cryptocurrency that has the same value as their physical money. If they controlled a currency completely, they could tax every transaction! Surprised they didn't jump on this.

Talking about value, isn't blockchain / crypto analogous to a medium that enables moving money quickly? If yes, internet would be similar in some sense (we have instant local money transfers these days) but we don't have anything that tracks internet as an investment.

Coming back to it, I can rationalize myself investing in a money transfer business that is build on blockchain (think Transferwise that uses a mix of technology and banking agreements) and generates some revenue for me. But if that middleman can be removed, I cannot suddenly start considering that piece of technology, an investment.

Bitcoin is the canonical example. The value investment argument for Bitcoin is that you think Bitcoin is (or will become) a good way to move money. You're buying a scarce piece of that utility.

===

Some cryptocurrencies additionally have other utilities. Example, ethereum can be used to write very slow, shitty software that runs on the blockchain. So far nobody has come up with a super amazing use case for this, but theoretically, if somebody did this would dramatically increase the demand for ethereum tokens - (b) above.

A better example would be something like https://handshake.org/ - a cryptocurrency that is trying to power a decentralized replacement for dns. Remains to be seen whether this can be done and will have adoption. These systems have all the problems of traditional startups, plus all the problems of low level protocol development, plus standardization problems, plus novel math.

However, I hope it's easy to see the value investment argument for something like handshake: dns is valuable, dns has problems, handshake is trying to solve those problems, by buying hns tokens I'm buying a part of this network, and if they succeed demand for those tokens goes up.

Hope this helps.

So something analogous to owning a part of the network, would it be correct to say that, for instance, governments own and auction telecom spectrums to businesses. They do make money out of that ownership through the initial auction price and then potentially tax you later. So a cryptocurrency could be looked at in a similar way in the future. When you later sell the currency you have owned for a while (given that it takes off well over the couple of years), you are basically transferring that "spectrum" ownership to another party.

Another easy analogy would be IP addresses. Early on in the internet huge chunks were just given out for free. Now they're valuable because they're scarce and the demand for them has skyrocketed as the internet grew.

You need spectrum to participate in the radio business (and other kinds of businesses). You need IP addresses to participate in the internet. Similarly you need HNS (as an example) to participate in the Handshake network.

And as with spectrum and IP addresses, there's only a fixed amount of HNS (or at least that is the expectation, the details vary in each cryptocurrency).

The reason that IP addresses are scarce is not because it's not possible to invent a new protocol, but because everyone else uses IP so only IP addresses are useful.

Spectrum might initially appear to be fundamentally scarce, but even then, people can invent other ways to communicate (and they did! copper wires! IP!).

These are all examples of networks - their value is proportional to their popularity. So yes, anybody can create a new cryptocurrency, but currencies are mainly valuable because of who you can use them with. Dollars are valuable because so many people accept them!

So if one cryptocurrency really gains traction, it will be hard for any other cryptocurrency to compete unless it offers something fundamentally new and different.

Yet the vast majority will still use .com, .net and .org, and those still remain the most valuable. :)

So you could imagine yourself investing in those correct?

Alright, now imagine I made an open source software that lets two people process a payment between each other? They can just install the software on their computer, and suddenly they can start transacting money with one another? For free! No need for PayPal or Visa anymore. So what's the catch?

The catch is that software can't actually move real physical money around, that requires trucks and truck drivers and safes, and all that. So it's not possible to move USD dollars with software alone.

What does PayPal do then?

PayPal enters into an agreement with your bank or credit card. When you send me 100$ through PayPal. PayPal and your bank agree that eventually 100$ will be moved from your bank to PayPal's bank account. That is done digitally, and both PayPal and your bank write that down in their system on their own ledger. Now PayPal assumes it will eventually have 100$, and it agrees with my bank to eventually deposit 97$ into my bank account. Similarly PayPal and my bank write that down.

Now eventually money will actually get moved physically, but it'll play catch up. You, me, PayPal, and our banks, we all trust each other, so we assume it will be moved for sure, and so even before that happens you might have sent me some item through the mail in exchange for that money.

Now back to my open source software alternative to PayPal. What if instead of this big dance, and eventual physical exchange of money. What if we made a currency that was fully digital? So when you processed a payment with my software, you arn't exchanging USD dollars, but something I shall call Bitcoin instead. That can easily be exchanged through software alone, no need to actually physically move anything.

Well, there's a few challenge to this. First, since the software is open source and we're each running it (no central service), how can we trust that you removed the amount you gave me from your account? And that I didn't add more than what you gave me to mine? That's where cryptography comes into play.

Okay, so now let's assume I figured out the tech, so my open source software can truly be used to exchange securely and without possible cheating some amount of a digital currency between two parties without any central coordinator. Now we have the problem of how do you get some of that currency in the first place before you can exchange it?

Well, my software also guarantees that there's only 1 million coins of it max. And as the author, I gave myself 100k coins. And I randomly distributed the rest amongst the first thousand users.

Now you were a lucky one, and you have 100 coin if it. So again, maybe I want to buy something from you, but you're in another country. So I tell you, I'll give you 100 of my crypto coin, exchanged through my open source software, and you'll send me by mail my item I buy from you.

Perfect, now we have a way to exchange a currency without having to physically move anything, it is fully handled by software and can be exchanged over the internet only.

So maybe you say, well what can you buy with my coins? Well, you started selling goods in exchange for them? And so did others. So maybe Joe Blo sells Video Games and accepts my coin in exchange for them. And you sell plants. So now you can use my coins to buy video games from Joe and he can use them to buy plants from you. And so on. So the coins are slowly starting to be worth real assets, as more and more people start to accept them in exchange for goods and services they'll be worth more and more.

What's cool about a fully digital currency is that exchanging it is super fast, easy and cheap. It's just really convenient. You might also believe it to be more trust worthy then the agreement between PayPal and our banks, if you think the tech is harder to cheat. And you might believe the software is more stable than some government backed currency at managing inflation. So you might actually find that my software and my currency is overall more convenient, more secure, more safe, and more stable as a currency to exchange and trade in, so maybe you just fully move to it and stop accepting USD in exchange for plants.

Now back to investment. Say you thought that this piece of software was amazing, and you believe that people will slowly stop using other payment processors in favour for it. Well, sell your stock in PayPal cause eventually everyone will move to using my software instead. Now you want a piece of that pie, but I don't sell stock, and I don't sell my software for money, it's free and open source. Except there'd still a way for you to profit from my software gaining in popularity. If you find a way to acquire some of its digital coins, for less than what people will be willing to exchange for them in the future, you can profit from it. Thus it becomes an investment vehicle.

Sorry for the length, hope that explains it though.

Storing of value is not just "hoarding", useless activity. It is an important ingredient in making many of the business processes and just things work in general. It is a very impotant function. And thus if we have tools that make that function work well, - they will be valueable.

And as it turns out, there aren't that many things that work well as a store of value. It's not like you can take any thing or instrument or contract or whatever else, and make it work as a store of value. In some sense, the ability to act as a store of value is scarce in itself. We already have some instruments, like gold, properties, land, etc. Stocks and ETFs and such are also kinda a store of value, but have a lot problems (but also other functions besides just storing the value). So yes, we welcome another way to store value, this market is by no means saturated as it turns out. Gold has it's own problems.

If I want to store value, what I am looking to avoid at all costs is volatility and risk. That's why instituations are even accepting to lose a little bit of value in return for security by buying bonds from Northern European countries.

It's kind of in the definition of the word "storing": If you want to store water you won't put your bucket of water on to a race car, even though it might drive through a heavy rain.

At worst your coin takes time and attention away from Bitcoin, and thus takes value. At best it outgrows Bitcoin, and grows the entire space.

But that's like saying you could build your own alternative to Facebook by whipping up some corporate partnerships and venture capital. Go ahead, we'll see which one wins in the long run.

Some people tried this before by branching off the bitcoin blockchain. That was called bitcoin cash, and it failed.

Bitcoins, meaning not any cryptocurrency but just actual bitcoins, are scarce and will almost certainly remain so.

I think it would actually be easier to increase the supply of gold via asteroid mining than to increase the Bitcoin supply. That doesn't require consensus and will probably happen someday.

This is a cultural property of the community, not an intrinsic property of bitcoin. If Satoshi signed a PGP message with a compelling call to alter the scarcity it would likely happen; maybe you disagree, but the point is that it's very possible to change the scarcity because it's a distributed computer program.

Bitcoin is not just "a computer program", it is a program and a blockchain. The same program with a different blockchain is not Bitcoin (there are plenty of those out there). Adding more supply to the Bitcoin blockchain would require large numbers of people to work against their own interests, decimating the value of their own infrastructure investments and bitcoin holdings.

It would be much, much more difficult to change Bitcoin than e.g. the supply of dollars or euros which are considered scarce enough for most purposes by most of the world. And, I contend, even more difficult than changing the supply of gold via asteroid mining. I doubt that even the second coming of Satoshi would be enough to do it (and I also very much doubt that Satoshi is still alive, or that he would want to if he was, considering his known political/economic stances).

> It would be much, much more difficult to change than e.g. the supply of dollars or euros which are considered scarce enough by most of the world

This thread is about gold not fiat money, obviously the scarcity of fiat money can change, that's the whole point of fiat money.

This is simply not the case - see 2017 bitcoin cash fork or Segwit2X push. At the end of the day money is a human invention, meant to facilitate value exchange between humans. So it requires consensus between the users of the money, if some fraction want to change the rules they are free to.

We went for something we found in nature with properties that were pretty good for that, but with some downsides (not absolutely scarce, difficult to transport, easy to steal) to something created specifically for the purpose.

There still has to be consensus on using gold as money, if there isn't it will lose its monetary premium to something that has better monetary properties.

This is a great point. The choice to value gold as currency over other rare metals is 'a cultural property of the community' and yet not 'trivial' to change, just as Bitcoin's consensus isn't.

A single bitcoin is infinitely divisible, unlike most physical assets. How does that affect scarcity?

You're right that it is a community belief. If enough people were convinced that supply should be increased, they could fork the blockchain and move to the new chain. The change in supply would alter the price appropriately.

But that's no different to the community belief that it has any value to begin with. If everybody was convinced that gold was worthless (outside of its practical industrial uses), it would cease to be a store of value too.

A 10 year old asset that has wild price fluctuations is a "store of value"? By what measure?

And not just a little bit more value..

Is an index fund a store of value? Would you recommend someone store their value there if they wanted it back out in less than 4 years? Gold? Property? Or would you suggest those stores of value are only suitable for longer time frames? How much more value does someone who stored it in Bitcoin 10 years ago have now?

Gold is a physical thing that is scarce and has real uses other than being treated as 'money'. We have only mined a cube with 28 meter sides of gold from the dawn of time! It's useful- that's why it has value.

If it wasn't useful (pretty for jewelry and an essential industry product) then it would be fairly worthless.

You say crypto is scarce? The scarcity is artificial, and you can create an infinite number of crypto currencies...

So yes, useful cryptocurrencies are scarce.

I'm not sure this is a rock-solid argument. Ponzi schemes also have value (until they don't). MLM's are often massively valuable, too. But most people would acknowledge they're little more than scams to the huge majority of people "invested" in them.

Everyone is investing in bitcoin on the promise that its going to be so much more useful than dollars, in the hopes that they will make a lot of... dollars? Do you see the contradiction? If they think it's going to be so much better than dollars what are they going to do with their long term investment dollars if, in the long run, bitcoin surpasses them?

Don't use economics terms to explain the usefulness of bitcoin when economics itself disagrees.

Not thinking about the value of it, but of its future usefulness as value store and as mean of payment

I don't believe you can separate the value of Bitcoin and it's usefulness because the more valuable Bitcoin is, the more useful it becomes.

The more people who hold Bitcoin, the more scarce it becomes and therefore the more valuable it becomes. In 20 years, Bitcoin could go to 0, or become a widely used currency and skyrocket in value.

Once the number of Bitcoin holders reaches equilibrium then the value would remain stable, but we are definitely not at that point yet.

For the simple reason that it exist in the physical space and can't disappear, unless the laws that regulate our existence change, which is quite improbable

Gold will also work and retain a value even if society suddenly shuts down and reset to a "sticks and stones" state

Bitcoin advocates have this weird tendency to completely ignore decades of game theory

That's why people don't trust them

I doubt this is true in every case, maybe even most cases. Though this sentiment does seem to become more rigid toward the core of the crypto community, a huge swath of other investors are playing price action. There are tons of technical traders in crypto, and they tend to care much more about MA deviations, gaps, pennants, and candlestick forms than what's going to replace USD.

You can also think of it as a play by (people who don't have as many concerns about the dollar) off the fears of (people who are afraid about the future of the dollar).

IMO there is a lot of room in a speculative ecosystem for non-value, non-traditional-economics, and even hugely irrational viewpoints. They can all meet with success by using their own sets of strategies.

You're not alone if you feel that cryptocurrency doesn't make sense as an investment vehicle, but the HN community will make you feel crazy for not seeing what a great thinking this is an incredible new opportunity and "things are different this time!"

There is no better indication of a bubble then people telling you that you're the crazy one for questioning it. I remember people telling me I was crazy for not buying a house in 2007, and crazy for not trading tech stocks in 1999.

[0] https://www.stephendiehl.com/posts/crypto.html

I'm not sure that's a good indicator with so many counter examples: the internet, large touch screen phones, Cloud in the earlier days, etc.

We truly have no idea what the future if Cryptocurrencies are.

And for every technological advance met with skepticism that eventually succeeded, there are orders of magnitude more that crashed and burned (e.g., the segway, 3D televisions, HD DVD, and countless others)

That's not true, as is obvious with only basic fact checking. Apart from it not being obvious what you mean by "internet" (does ARPANET count?), the internet proper saw its first commercial access providers appear in 1989[1] and it certainly was nowhere near popular in 1999 as it is now. In fact, I would say the change from that period is almost fundamental. Remember, 56k modems were popular back then and a very small part of the world's population had internet access.

My point is, this certainly fits into the larger picture of where Bitcoin is right now. It's vastly more popular then 10 years ago, because now my plumber and barber ask me about it, it is regularly talked about in the news and there are almost no countries without laws enacted as a response to it.

[1]: https://www.rogerclarke.com/II/OzI04.html#CIAP

The internet had 248 Million users in 1999 [1] Bitcoin has, estimating very liberally ~28M users worldwide [2].

> It's vastly more popular then 10 years ago, because now my plumber and barber ask me about it, it is regularly talked about in the news and there are almost no countries without laws enacted as a response to it.

Nobody's disputing that. As in my previous examples, we've all heard of 3D televisions, segways, HD DVD's, 8-track, beta max, Theranos, Juicero, and tons of other laughably bad ideas. That doesn't indicate success.

[1] https://www.internetworldstats.com/emarketing.htm

[2] https://www.buybitcoinworldwide.com/how-many-bitcoin-users/

Of course it does not, but it certainly is not a good argument for failure either.

What an excellent reason not to invest in X!

Now, some risks are smarter than others...

You can take on more risk that if you have the appetite, but if that's the case you could also just use levered beta (e.g. 3x levered S&P 500). This would significantly improve your portfolio while still being fundamentally much easier to understand than a novel asset.

If your portfolio has a decent risk adjusted return and very low volatility and beta exposure, it's safer to just leverage it up to the same risk as the S&P 500. This reduces the chance of you blowing up your capital in the long run.

I would argue there are very few investment goals for which extreme risk is sound (especially if it's unhedged!).

If you use a 3x or other leveraged fund, then you run into tracking issues (look at https://www.etf.com/etfanalytics/etf-comparison/SPXL-vs-SPY) where you see tracking break down), you can lose everything (remember XIV?), and you have other potential issues.

So it's not as simple as leveraging up a low-risk portfolio to assume a given risk/return ratio. There's also diversification to keep in mind.

The lower the risk of an instrument, the more it will be saturated with investors, the more thinly per-investor share of profit will be spread. Therefore there is no such thing as "low risk, high returns", unless it is a scam. There is no unexploited profit opportunity that is risk free, if one thinks they have found one, they must have just missed accounting for the hidden risks.

> There is no unexploited profit opportunity that is risk free

This is essentially encapsulated by a Sharpe ratio (among other things). On the contrary, it is not especially difficult to produce a relatively high Sharpe ratio, accounting for transaction and margin costs, if you don't have a large amount of money to invest (large means single digit billions or more). This is especially, but not exclusively, the case if you don't care to compound your returns.

Sure, there are asymmetries in real life and information takes a while to dissipate to all agents, but unless you're a robo-trader doing high frequency temporal arbitrage, I don't buy for a second that you can beat the market on a continuous basis. You might think you do, but that would be just some hot-hand fallacy.

> This is essentially encapsulated by a Sharpe ratio (among other things).

You're conflating two things. Sharpe ratio is about a profit opportunity with regards to its well established degree of risk. Unexploited opportunity is when you asymmetrically discover a new return opportunity upon what was already priced.

In both cases it comes down to the belief that "I am smarter than other investors, and can profit from an angle they haven't thought". I will not assert a strong efficient market hypothesis, but in overwhelming majority of the cases, no, you're not.

Beating the market is not mysterious, it's just difficult to do it by a lot or at scale. Just because well performing portfolios are well known doesn't mean they cease being effective in principle, the way you seem to think would happen. These days a risk parity portfolio isn't enough to solicit funds from savvy investors because it's well known and they won't pay management/performance fees if that's all you're offering. But it's been a staple since Dalio developed it 30 years ago for good reason.

You can find code for running through the kinds of things I'm talking about, as well as more in-depth discussion here: https://qoppac.blogspot.com.

Yes we do...

Why in the utter hell would I ever use crypto that has ABSOLUTLY ZERO GUARANTEE after I pay someone?

The HN community is strongly hostile to crypto. Few people here like the downvotes when they speak positively about crypto, although I keep taking them!

I don't think you're using the term "appreciate in value" correctly. I think what you meant to say is that gold can be mined infinitely (on earth, in space) and therefore has potentially infinite supply, whereas the total supply of bitcoins is capped at 21 million.

https://www.youtube.com/watch?v=XbZ8zDpX2Mg

Can you provide me some evidence that people are using crypto at a large scale, and that that scales in increasing in a way that it is anywhere near competing with banking services? It seems that even after a decade of enthusiasm people are still mostly "investing" in it.

Land prices in very, very few areas have increased sufficiently to match a risk adjusted return (or even the nominal return) of a broad market index fund, such as VOO or VTI. Especially considering the liabilities and ongoing maintenance costs with owning housing structures.

The labor adjusted return is far better too, you spend minutes and a few clicks investing in an index fund, versus hours and days on real estate.

One thing to not forget is the amount of leverage provided for you in the housing market is disproportionate compared to the leverage you would get in stocks (20% down is 5x leverage, and there are some options to get in on a house with even less than that).

If you look at the real rate of return on everything (paper from 2017, analyzing the period between 1870 and 2015 in several developed countries), they claim the return on property is around 8% per year, which is comparable to stocks but with a lower variance.

A caveat though is that housing outperformed equity slightly 1870-1950, and equity has outperformed 1950-today. Housing is also a very locale-specific thing, since there is no global private 'housing' market you can invest in.

https://www.frbsf.org/economic-research/files/wp2017-25.pdf

But I think almost everyone who doesn't have an interest in doing the grunt work of real estate investing would be better served sticking their money in an index fund ETF rather than real estate. It's drastically less work, less worry. Extremely low cost broad market index funds and ETFs are relatively new too, I'd be interested in seeing an analysis of performance after they went mainstream.

Bitcoin's total capitalization today is $200 billion. The total value of the dollar is harder to measure and depends on what you count as money or just money-like. But M3 is $20 trillion, and add in short-term T-bills and money markets and it's substantially higher. So in this scenario, it's possible for BTC to rise from $20,000 to $1,000,000+ or higher.

Given that, I think it's prudent to allocate 1-2% of your overall net worth to crypto exposure. Especially because we expect it to out-perform in high-inflation/low-growth environments, which is the worst environment for traditional 60/40 portfolios.

I'd say it should be called a speculative vehicle. The word speculative carries a negative connotation, so financial companies won't make money off of bitcoin trades, so hence the name investment vehicle. It's as manipulative as the name almond milk, which is not really milk.

Except that is not technically true. Unless buying stocks purely for dividends, you are investing in a secondary market of shares and the "value" you're talking about is the expected value the other secondary market participants will appraise the stock for, independent of the company's operations. There is only a directional correlation because there is a tacit assumption between the investors to equivocate between the two. If you look at the historical trends of P/E of S&P composite price index, prices have gone way more up than the actual earnings.[1] so there is an element of wishful self-deception here.

Consider this; bitcoin might one day build enough track record to prove itself a good enough investment for a large amount of people, and then the stock market will have to seriously compete with this non-derivative instrument for investment money of those people, which will reduce the price of stocks in aggregate, independent of the "value" of underlying company performances.

If you take that into account, crypto-or-not a currency is simply another instrument which we bet for the future expected value for gains. In fact, while the value of traditional currencies are backed by their purchasing power performance in a given market, crypto currencies theoretically don't have that limit because it has unlimited supranational reach.

Mind you, US stock markets have at most one century of roughly-comparable historical data, and that is just not enough sample size to make 30-50 year assumptions (speaking for retirement buy-and-hold strategies).

[1] https://en.wikipedia.org/wiki/Stock_market#/media/File:IE_Re...

I see Bitcoin as a store of value. Keeping some of my assets in Bitcoin keeps some of my assets out of the hands of governments and banks and will not be affected by devaluation. There's no risk of a bail-in [0] for example.

I don't invest all my assets in Bitcoin, currently perhaps 10% of my net worth. I do feel Bitcoin will rise to 100.000 USD in the next few years and possibly even 1.000.000 USD in 10+ years, my aim is to gain a total of at least 3 BTC or so in the next year. I just hope Bitcoin doesn't rise too quick in value in that time period, since I can only afford to buy for maybe 1.000 USD per month.

I might sell a bit of my Bitcoin assets after my total Bitcoin asset value reach around 500.000 USD, since at that point I should be able to take things slow. At that point I would diversify a bit more into ETFs or stocks.

Perhaps this video [1] by Raoul Pal can give you some insight in my point of view, as I agree with him on most points.

---

[0]: https://www.forbes.com/sites/nathanlewis/2013/05/03/the-cypr...

[1]: https://www.youtube.com/watch?v=qL2LfVRl3J0

The most likely success story for crypto is it will be only for banks while regular people will be banned from owning it. There is simply no way a government will allow irreversibly hackable assets in the wild. There are no limits to the damage entities can do with anonymous GDP-scale wealth.

Actually Iran is using cryptos right now to circumvent some bans from the US government. Certainly Iran would not be in favour for banning crypto.

As Raoul Pal mentions, this is the state of game theory. One country might ban, another might adopt. If you can't spend (or exchange for fiat) the cryptos in your own country, you might move to another country.

I don't believe Bitcoin will be banned ... at least not while Bitcoin is still a relatively small asset class. Especially since institutional investors are now entering the crypto markets. And perhaps at some point, if enough institutional investors have entered the crypto markets, governments might hesitate to ban crypto, as it could destroy a lot of wealth in pension funds, etc...

Those are his main points. And I think they are both wrong. The gold example is from ancient times without KYC/AML and absolute surveillance. There is nothing substantial you could possibly do nowadays without proper invoicing and inventory tracking. Regulators will notice instantly.

The tech behind bitcoin isn't really that advanced and hiding from the government was never a focus. The tech used by regulators has evolved significantly from the times of previous "defeats". People don't realise how much work goes into tracing payments worldwide. Remember FATCA took only two years to deploy worldwide along with a roadmap to tighten control over the next decade.

I would also point out that the market expectation clearly isn't aligned with currencies being 'in trouble' - very low inflation in general right now.

So yes, a bet on crypto is a bet against the market consensus, sort of by definition :)

I need to read up on TIPS, haven't heard about that before. Yes, gold is a decent option as well. However I view Bitcoin as digital gold and it has a few nice properties that gold doesn't have (of course gold has some good properties that Bitcoin doesn't have). One of the aspects of Bitcoin that I appreciate the most, is that it's very easy to carry around with me, for example when travelling on an airplane to another country. The same is not true for gold.

> I would also point out that the market expectation clearly isn't aligned with currencies being 'in trouble' - very low inflation in general right now.

Inflation is actually really high, but its mostly hidden in rising prices for stocks and real estate.

Sort of. There's inflationary forces (fiscal / stimulatory policy) battling deflationary forces (mainly technological innovation), mainly netting out to a low inflation rate at the moment, as defined by the CPI.

Assets that are not affected by the deflationary forces (such as land, and some types of housing), do tend to increase in value, though some of that is increase is just due to interest rates being so low (since for most consumers the house payment is more important than the absolute price; when interest goes down, prices normally go up).

It would be interesting to do a graph of interest-normalized house/asset prices over time.

As for the portability of Bitcoin ... OK, but then Bitcoin > Bitcoin ETF, if your goal is to transport and spend it outside of online brokerages.

You're right that crypto currencies are not like equities. It's an investment vehicle in a similar way that gold is considered an investment vehicle.

>why would cryptocurrency ever be considered as a good investment vehicle

That's another question. I don't think it's a good investment vehicle.

Ethereum’s ETH token, for example, is an asset that will appreciate if demand of the Ethereum network increases for real-world business applications (not just financial payments). That makes it much more like investing in a limited resource (ex: oil) that will go up in value.

It’s still speculating, but most stock investments are close enough to speculation that you can’t really tell the difference.

Gold (and commodities more generally) have fundamentals - just different ones from equities. You can't take advantage of the universe of sound investment opportunities if you restrict your attention to equities.

So I guess the point I'm making is that often a lot of gold makes sense too.

Investing in profitable companies by itself does not generate above average returns. Only 1 of the original companies of the Dow Jones is still in it today, G.E. and it's performance as investment has been below average the past 20 years.

Small companies become bigger, driving returns. That's why you don't just buy the DJIA but rather index the whole market. Of course there will be turnover - the point isn't to lock into any one stock - don't look for the needle, buy the haystack (i.e. a broader-market index).

If you want to include crypto in the haystack, sure, fine, whatever, but at market weights, it's going to be a very small portion of the investable market of stocks, bonds, cash and other asset classes. At some point, it's enough to just keep it simple and broad. A fraction of percent of this or that won't make or break a diversified portfolio.

The thing not many people seem to talk about is that the 20th century had unprecedented growth in terms of population around the world (which has slowed significantly in the last few decades, although the effects usually lag by quite a bit - when the children enter the workforce and such). We're making up for some of it with technological progress, but ultimately what impact that makes is up to everyone to think about individually (look at Japan as a potential leading indicator of what demographic change can do).

Not always, tons of companies are losing money but the share price goes up.

What about staking? In this case, you're providing a service to the network and being compensated for it.

This is literally anything economic on planet Earth.

>So far that has never been an issue for people investing in the global stock market

the global stock market is at its highest valuation ever, good luck with that. I'll keep buying Ethereum

Doesn't that tell you all you need to know?

There is a decade old meme of getting stock market gurus to comment about crypto and their sycophants repeating their predictably abysmal view of something outside of their wheelhouse.

Commodities traders never had an issue and volatility is also not an issue in that market. There are no “permabulls” in commodities outside of a few rare metals, and trading in those markets primarily factors in seasonal and cyclical supply and demand.

Buy and hold works ok in some crypto assets. But the permabulls that never traded anything else, and the stock market investors that keep a stock certificate their grandma gave them 20 years ago should just not be in this market.

You are conflating “good” investment vehicle with “valid” investment vehicle, where its a mixture of whether being a permabull works alongside whether enough institutions that you respect have said positive things. make your own choices about what you want to trade.

Where I get stuck, and maybe someone could help me here-- generally, you don't have to try to hard to imagine a future with cryptocurrency being more useful then it is today. That is, it is more valuable. BUT, why should that mean that its price should be higher? It's like looking at the pithy saying, "price is not value" in reverse.

some examples to explain what i'm saying, not necessarily what i think will happen per se

bitcoin replaces, or at least augments, gold as a "store of value inflation hedge" - in theory it should be a great inflation hedge. there are a limited number of bitcoin, 21 million max, but we keep printing trillions and trillions of new dollars. gold also doesn't do anything productive, it just sits there and acts as a hedge on inflation.

in this scenario, the market cap of gold is something like 8 trillion. if bitcoin takes some of this job, it's market cap must get a lot bigger. functionally, we have 8 trillion "dollars" of wealth that are currently stored in gold. if we wanted to "store" 8 trillion "dollars" of wealth in bitcoin, we can't currently. the entire market cap of bitcoin is only a few hundred billion. For it to be an inflation hedge on the scale of gold, the price has to rise tremendously.

this same calculation can be done for whatever potential usefulness you come up with. Like if you think it can replace the USD as a reserve currency for setting international oil trades, the market cap of bitcoin has to get exponentially bigger just to handle the scale of those markets.

now, i don't think it's likely to become the world's reserve currency, certainly not anytime soon, but if it were you can see where it would have to have more value to be able to do so. I do think it is a great inflation hedge, and I think lots of money managers are going to start recommending to client to put 1-3-5% of their portfolios into bitcoin as a hedge. That's happening right now. IF that goes mainstream, the market cap of bitcoin HAS to go up significantly to handle all that new demand, given that the supply is capped.

Yet, a somewhat sizeable category of people still invest in gold ...

Could it be that the definition of "investment vehicle" is broader that what you may have willingly restricted yourself to?

What? Gold us physically useful and relatively scarce, THAT is why it has value.

You are acting like people just got together and said "hey, let's take this useful hunk of garbage and assign it some value to see how rich we all are".

Correct. Gold's value in an industrial sense is no different from any other relatively scarce material. This is precisely why gold is not an investment. Its value is simply a group of people assigning a value to something driven in part by scarcity.

I have no idea where this thinking comes from that it's novel other than people are sold on the hype of the concept without thinking about the concept from a different angle.

If we did "Bitcoin by hand" and threw out increasingly large numbers, and whoever could figure out its factors would be awarded a ticket, and lets say there's only 100 million tickets, what would be the difference?

That it can't be counterfeited? That the central bank can't print more tickets? That's it? Wow, OK. You know, the counterfeiting issue isn't one that modern economies face in significant portion anymore. And if you wanted to prevent the printing of money, you could just ask your local representative to advocate for the US to go back to the gold standard.

Except it doesn't work anymore. So why would it work in software?

The fundamentally useful thing about Bitcoin is it's proof-of-work shared ledger that allows transactions to be conducted and verified between individuals (through the shared network) independent of any third party or broker.

It is the electronic equivalent of handing someone a physical coin.

It is genuinely pretty neat.

Any actual meaningful application of this use has yet to be realized.

This captures my feelings exactly about BTC, thank you for phrasing it so succinctly!

It seems lots of well known financial people are getting on board right now. It seems like a ponzi to me but those people aren't dumb.

A Ponzi Scheme relies on a central authority, BTC by definition has none.

Maybe you were trying to say "market manipulation" or "securities fraud?"

Which would be...not a Ponzi Scheme. What makes you say that besides "junk on social media?"

https://www.investor.gov/introduction-investing/investing-ba...

So...not a Ponzi Scheme, by the definition you linked to

> Ponzi used funds from new investors to pay fake “returns” to earlier investors

> they use money from new investors to pay earlier investors and may steal some of the money for themselves

There is no "Ponzi," no "they," no one "paying" anyone directly, no "stealing." It's about as far from a Ponzi Scheme as you can imagine. It's The Wizard of Lies without de Niro.

If I go online and post "Apple stock is great!" and it makes someone buy AAPL, and I profit off that as a shareholder, is that a Ponzi scheme? No?

Well BTC is that but without even the business to hold stock in. How could you possibly argue that was a Ponzi Scheme unless, say, you didn't know what that was before you googled it...

I've always liked the saying 'sell pickaxes to the miners' - rather than investing in the virtual gold, why not sell things to those who want to go find it? The real winners will likely be the companies who facilitate things (much like active trading platforms make money while the options traders on them often lose money overall).

If you believe that more and more payments will be handled through it, its value will go up, thus making it a good investment.

If you take Bitcoin, there's a small pool of total Bitcoin and that's guaranteed by the technology. Each new coin costs real money to mine, due to needing physical compute resource to do so, and it gets harder and harder overtime. That means as more and more people transact in Bitcoin, the demand for Bitcoins will go up, thus your Bitcoins are going to be worth more.

Similarly for Ethereum2, there's not a fixed maximum, but there are set rates and limits that affect how much new Ether per year will be added. So there's some guarantees that there's a restricted supply. So again, if you believe that more and more people will rely on its network to transact, the demand for Ether will go up, thus its value.

Let's say you and I agree that a day's wages is worth 30 or so units of my currency--well pick any value, it doesn't matter for this example. And yet the currency keeps growing in value week over week. Should I not be paying you less and less over time? If the currency increases in value 7% in a month, should I not decrease your pay proportionally?

And are you really going to negotiate that day-to-day, week-to-week, month-to-month, year-to-year? What if the value drops significantly in the middle of the day? What do I pay you at the end of the week?

After all, the value of the currency is going up. I didn't decide the value of your labor was going up. It's staying the same.

The problem you're describing is really nothing new. It sounds like you're just very used to thinking in USD. People all over the world do hedges to control for exactly this risk.

If you want to tether wages to USD, you can use USDC instead of BTC. Also you can pay those wages with such low transaction costs that you could pay by the day instead of by the week or month, using current technology.

Pretty soon the transaction costs will be low enough that you can pay those wages continuously. Eliminating the idea of a "pay day" is a great social good IMO.

On the other side, the receiving party can spend their funds in "USD" with a crypto-backed credit card that draws against their USDC balance.

> And are you really going to negotiate that day-to-day, week-to-week, month-to-month, year-to-year? What if the value drops significantly in the middle of the day? What do I pay you at the end of the week?

Whatever we agree on. My current pay is mostly company stock, and that has a big fluctuation, yet tons of people seem fine to pay in stock and be paid in stock.

This argument of technology + limited supply is fallacious. If the technology is so useful the coin can just be cloned with more supply. The technology itself doesn't force me to participate in a limited supply market in order to get the benefits.

I'm not sure what you mean here. The technology does indeed force you, that's part of it. If you want to trade in its currency, you can't cheat it and make more coins for it, the network consensus will catch you and prevent you to cheat.

If the tech fails to deliver this property, nobody would trust its currency, and nobody would use it for transacting.

With Crypto, you hope that the coins you acquire from it are worth more in the future.

Same thing.

Energy requirements of Bitcoin are a technical limitation, but as proof of stake is trying, that might just be a matter of time till it's minimized. Similarly, physical settlements today is also costly, moving real physical dollar bills across borders obviously comes with its own energy expenditure. So I don't know which one is wasting more.

If demand for fees in the ethereum economy outpaces supply, the price is likely to rise.

https://cryptofees.info/

Aside: If I issue equity in my company, I'd do it directly on a decentralized network like Ethereum > IPO. I'd prefer to not have an underwriter like goldman sachs take 3%+ & manipulate retail investors.

ETH's fundamental value is that it's the only form of payment accepted to use the eth network. It can and does have secondary value as a medium of exchange but that's what's at the bottom and the reason you need ETH opposed to something else.

There's only 4 main assets classes:

1) Equity valuations are at all time highs by nearly every objective measure out there

2) Fixed income is really vulnerable to the onslaught of inflation that looks ever more likely with all the MMT that's been going on.

3) Real Estate is a possibility but not scalable and not tax efficient and takes a great deal of skill and time to execute properly. (not counting REITs and other real estate ETFs)

4) All that leaves is commodities: Gold and Bitcoin.

By the time you know what you're buying, it's priced in. When everyone agrees that some opportunity is amazing, they also agree the vehicle that provides it (shares, bonds, coins, whatever) has got to be expensive. At least more expensive than when it was just ideas.

New fiat currency is constantly being created and all assets are competing for the biggest possible chunk of that new money.

The reason why crypto is doing well comes down to a contrast between monetary abundance and scarcity. Some people in this world have access to an essentially infinite supply of fiat currency at 0 risk... So fiat currency is not worth anything to these people; so if these people start buying some scarce resource, they will quickly realize that it will drive up the price of that resource ad infinitum. The only other variable is how hard people HODL the asset.

If enough of these people buy up the same scarce resource, the growth of that scarce resource will outpace that of all other scarce resources.

Bitcoin is a speculative bet that it will become a popular global currency. The idea is eventually you will be able to use the bitcoin as currency once it scales up.

Bitcoin was originally worthless, now it's ~19k a coin. Anybody that bought or mined a large amount of coins back in the day and held on to them, is now rich, so a pretty good investment. The same forces that acted on bitcoin and brought it from worthless to 19k are still acting on it now.

Doesn't seem like it's very difficult to understand why bitcoin is considered an investment vehicle.

There are certainly good arguments for why may or may not be a poor investment vehicle or not the right one for a particular strategy, but arguments of whether it is one are moot.

Who knows what it will be used for, but it will be used.

And you certainly don't "own" it by owning Bitcoin. You can go download the software and own it.

As for why would you want that? Ledgers are a fundamental part of how many things work. Blockchain is an evolution of the ledger. It literally makes things faster, cheaper, more secure.

Bitcoin's blockchain will disrupt (evolve) something. The leading use case is a store of value. If that is to be adopted then bitcoin's value will be in the trillions.

How? I'm pretty sure if this was true, everyone would be using it for database work now, except no one does. So these claims are baseless.

> Bitcoin's blockchain will disrupt (evolve) something. The leading use case is a store of value. If that is to be adopted then bitcoin's value will be in the trillions.

Evolve what? You don't even seem to be sure and are just guessing that it's novel and surely has some value, but you don't know why. Trillions? Where do you get this number from? Do you somehow take the size of an existing market and assign a value per consumer? Where is the rigor behind your claims?

Business are doing exactly that. They are using private blockchains to improve their existing architecture and enable new features. There is also an entire 'altcoin' market around this.

> So these claims are baseless.

I'm not going to give you a report in HN comments. You should DYOR.

> Evolve what? You don't even seem to be sure and are just guessing that it's novel and surely has some value, but you don't know why?

I'm not the deciding factor in what bitcoin becomes and won't try to guess what its use cases will be. We didn't know why/what the Internet was going to be used for and then it grew and evolved into what it is today.

> Trillions? Where do you get this number from?

Bitcoin's leading use case is a store of value, sometimes referred to as 'digital gold'. It has several improvements to the store of value use case. Gold's market cap is ~$9 trillion. Bitcoin already has a $350mm market cap so trillion+ is likely in the next several years.

Most of what I stated are just facts, you can argue against them all you want. You don't understand why blockchain technology is so important.

If you are a boglehead, just stick to no-load, low fee diversified funds. It's the smart way to go for most people. If cryptos are worth investing in, eventually you'll get cryptocurrency exposure via the funds you own or maybe a dedicated crypto fund through vanguard or whomever. I wouldn't take any investment advice on a social media platform.

In this sea of non-sense economic reality, Bitcoin actually makes lots of sense.

BTC isn't very good as a currency but acts as a deflationary asset over time (i.e. there is a fixed amount that can exist).

I, personally, hold BTC as part of my portfolio simply because of it's ensured existence and massive upside potential.

I wouldn't put a terrible amount of my net worth into it, but a small fraction may serve you well in the future.

Short story. Had the chance to invest 300k in 2012 (~$10 per coin). Didn't pull the trigger. Too much net worth. However, I should have used ~10k (maybe a little more). Wouldn't be nearly as worried about $ as I am today if I was just a little more conservative on investing up front.

The cool thing about bitcoin is that this is a shared decision made by everyone.

Ok, technically, it is made by the groups contributing the majority of compute power to the network. And technically, central governments can be representative of everyone and therefor enable that same shared decision making but that's kind of a bigger discussion.

The point is, changing the network to "add more" BTC is probably much more likely than breakthrough replicator technology that can turn hydrogen atoms into gold atoms.

It would be, if those were hard (non-inflationary) monies.

In a hypothetical future equilibrium where Bitcoin is a world reserve asset, buying Bitcoin is approximately isomorphic to buying spoos or other wide-market indices.

How is any negative-yielding bond even considered an investment vehicle? I would classify myself as a Boglehead and I believe in the fundamentals of investing in bonds because it all its technicality (and given the buy-and-hold strategy), you are indirectly lending to a government by buying its bonds, which naturally means that you will and do get returns on it, both in terms of the interest (coupon payments) and value growth (further decline in those bond yields).

That being said, again, why would negative yield bonds ever be considered a good investment vehicle? Isn't it analogous to me investing in my money in a depreciating car, which will only lose value unless the car happens to have a random spurt of high demand that lets me unload it at a profit?

So, it's a speculative "investment". I suppose whether it's an "investment" depends on your definition of "investment".

BTC is not a Ponzi Scheme ; Satoshi is not steering the profits from a pump-and-dump. Passively profiting off new investors buying BTC does not make a Ponzi Scheme.

Market manipulation is not a Ponzi Scheme. A Pyramid Scheme is not a Ponzi Scheme. "Ponzi Scheme" has a real definition.

2) Many crypto protocols are already capital assets that generate income streams. These income streams can be discounted to the present just like the income streams of companies. Examples: - Ethereum (ETH): It has multiple use cases such as collateral and gas for execution (think oil) both of which contribute to it's value as usage grows, but it's also a capital asset that can be staked and used to validate transactions to generate an income stream. This is not much different than real estate or farm land being used as a productive asset to generate returns. - MakerDAO: Protocol that generates a stablecoin (DAI) backed by debt based collateral (think mortgages against homes). The interest from minting DAI is repaid to unlock the collateral and burns (think stock buybacks) MKR. - Yearn.finance: Protocol that takes stablecoin (crypto pegged to USD) assets and generates returns across decentralized money markets. Returns have been averaging between 10%-35% APR depending on the pool and strategy.

Finally consider the current macro environment. Stocks generate a stream of future income based in USD and fiat currencies. In 2020, the central banks of the major currencies have not only increased currency supply by over 50% (FED balance sheet in march was 4.3T, today 7.2T) but worked with top level governments to hand out the new printed money directly to consumers which is now money that will be hard to pull back out of the economy and they did it while GDP and economic activity has been stifled.

So a larger amount of currency backed by a smaller amount of economic activity is a depreciating asset. If the return on equity of your profitable companies is smaller rate than the depreciation of the currency you have a negative real return.

In order to prevent this companies may start to transact in a currency that has a deterministic monetary policy and can not be changed by the whims of a select few bureaucrats. As the most stable and longest running crypto network, Bitcoin stands to be such an asset. See Micro strategy (MSTR) and Square (SQ) moving treasury reserves into Bitcoin.

The way you value Bitcoin is you estimate the amount of global GDP (140 Trillion) that will shift to transacting in it and then divide that by the velocity of money or how often it changes hands. This will tell you how large a marketcap it will have in order to support that level of economic activity.

So for example if 1% of global GDP is transacted in Bitcoin and it's velocity becomes something like USD (1.5x) or the Euro, let call it a velocity of 2 then: 140 * 1% / 2 = $700 Billion marketcap.