Terrible headline, but the article makes a really good point.
A currency is not supposed to increase in value or have wild fluctuations in value. Both of those degrade its utility as a medium of exchange. It's supposed to be stable and, if anything, very gradually lose its purchasing power over time. It's not supposed to be an investment, it's supposed to be a temporary token that we use to exchange one thing of value (our labor) for something else of value (goods, services, or investments). If what you're buying is not doing that, then its not a currency.
Bitcoin today is a speculative investment, not a currency. So long as its market value is so volatile and overall increasing, it won't be used as a currency.
Bitcoin solves a core issue with fiat currency; central banks have a history of hyperinflating its value. Fiat currencies, on average, last 27 years. Governments use central banks to finance increased spending by printing money in the form of debt. That money has to be paid back eventually. Governments can either raise taxes or print more money to pay off the debt created by printing money. The former has immediate negative effects on the economy while the latter kicks the can down the road so future politicians have to deal with the consequences. Governments always choose the latter. Its a self destructive feedback loop that ends up forcing the central bank into hyperinflating its own currency to pay off its debt.
The USD became a fiat currency in 1971 when it was taken off the gold standard. It's managed to stay incredibly stable as a world reserve currency. It's used for trade between countries, giving it extraordinary demand. Without that demand, the Federal Reserve wouldn't be able to print money at its current rate without creating immense inflation. USD M1 supply increased 25% in 2020 alone. It's creating asset price inflation with stocks at ATH, yet living expenses haven't increased substantially. There's too many reasons for low inflation to list, but a couple major factors are that people are hording cash during this recession and technology is lowering prices. The bottom line is that the money printing won't slow down and inflation will catch up to us eventually. The US government isn't going to raise taxes to pay off debt and the Federal Reserve won't be able to raise interest rates without crashing the economy. It could be 40 years before it's a problem, but who knows.
The USD isn't going to last forever, we will need to move to a different system eventually. Bitcoin is a step forward in the right direction because its supply is fixed. We know exactly how much bitcoin there will be 100 years from now. Bitcoin is volatile, but its volatility is decreasing. USD on the other hand will increase in volatility years down the road. Eventually, (I'm taking 40 years into the future) bitcoin or some other decentralized currency will become less volatile than the dollar and people won't have option but to use it. People will see prices skyrocket in USD and remain relatively stable in crypto. They'll have a choice between holding a currency that increases in value or a currency the decreases in value. Inflating currencies may be better for spending, but to spend a currency you have to hold it first. Cryptocurrency will be an obvious choice in the future.
Bitcoin is a very limited technology. It can only handle 7 transactions per second. That said, second layer solutions can be made on top of bitcoin. People don't have to transact with bitcoin itself, bitcoin can be used as a reserve currency for financial institutions to back their customer's deposits. For example, PayPal can hold all of your bitcoin and keep track of your transactions. They don't have to make an on chain transaction every time a customer spends their bitcoin. Instead, financial institutions can make bulk transactions with each other every 10 minutes to ensure their holdings match the amount held by their customers. The institutions would manage all the transactions between customers themselves.
Crypto is a solution to fiat's supply problem. The only other solution known is gold and silver. Bitcoin is faster and cheaper to transact than gold and works in today's digital age.
Oh no, the best performing asset of the decade has volatility! It's dead! Again!
As a long time btc holder, it's fucking hilarious seeing these same articles pop up over, and over, and over, and over, and over; and despite bitcoin's many deaths, large institutions and millions of retail investors keep buying, putting btc at almost 40k at time of writing.
If you haven't bought btc yet, it's not too late. You don't need to rationalize sitting on the sidelines with these silly articles. Invest responsibly, a small portion of your net worth. Buy and hold for the long haul. Don't try to time the market. Take profits if you need them for your life. It's not hard.
You evidently didn't read the article. It doesn't say Bitcoin will go away; it says that it doesn't really work as a currency. Most merchants won't take it as a currency because its value is so unstable, and spending it doesn't make much sense because you could turn around later and find you've spent a small fortune.
As for buying bitcoin, I'm not interested in gambling.
Bitcoin has been insanely volatile from the beginning. Why is this person writing this garbage article now, more than 10 years after btc's inception as a digital currency and story of value? Perhaps because bitcoin is getting a lot of price action and page views? It's grift, pure and simple. Every time btc pumps, this starts happening. That you can't see it as pure grift is indicative of a closed mind commited to rationalizing your choice to sit on the sidelines. The truth of this reality cannot be more clear.
First of all, you didn't address anything in my response. Second, I made clear I am not interested in putting my money into something highly volatile. That's my decision. Frankly, the way Bitcoin supporters have mobbed this thread makes them seem even less reliable - like a bunch of fanatics who can't see things rationally.
Discourse on how bitcoin can be used are numerous. Feel free to read on your own. I don't feel like having an argument about btc's current usage as a currency for the 8000th time with someone who really has no interest in being open minded about it.
>Second, I made clear I am not interested in putting my money into something highly volatile.
The s&p500 is also highly volatile. What do you invest your money in? You can mitigate the downsides of volatility by simply not worrying about it. Buy and hold for the long term. I'm not proposing you buy derivatives on bitcoin, pal.
>like a bunch of fanatics who can't see things rationally.
Whatever you have to keep telling yourself. Someday you will realize that a global decentralized ledger has value. Many people already have.
There's definitely an article a week making this exact argument and it's mostly irritating because it's an entirely destructive argument that offers nothing helpful, not even a framework to start thinking about a better alternative.
I'd like to see an author like this tackle the stated goals of bitcoin - peer to peer, censorship resistant, independent, global currency, and propose a system that doesn't look like this. Or compare bitcoin to other currencies with similar goals.
Because the volatility argument in particular is not an easy to avoid problem and I'd be curious to hear alternative suggestions.
You can tie your crypto to the dollar, but that doesn't meet the goal of being an independent entity. You could write a crypto which issues more coins to combat deflation automatically, but that is unpredictable in an entirely different way, and not easy to create and secure. You can have a highly inflationary currency, but it's still subject to market forces which affect it differently at different economic scales, so volatility is not likely to be solved.
I also agree with other posters that volatility inevitably comes with growth in bitcoin. It's absolutely true that bitcoin adoption is growing, both as a speculative asset and a currency. The limited supply means growth causes it to spike in value, and this activity will increase speculative activity, until growth has reached some kind of plateau. Price stability will open up currency opportunities, leading to increased growth, leading to another speculative run.
Finally, these articles assume that bitcoin has reached full maturity because its price is astronomical compared to the last bull run. Bitcoin, and the crypto space, is in its childhood still - a niche plaything with insane potential. It's an evolving technology and it may die before adulthood, but for now it's at the highest levels of usage and speculative value in history, and still has a bright future. Satoshi opened pandora's box for the next generation of money, and it's not just going to fade away.
This has pretty much been my take on bitcoin for years now. There's 2 main groups who see value in it: investors and people who want to use it as currency, and their end goals for bitcoin are completely contradictory while simultaneously creating a feedback loop that makes both goals seem plausible (but the currency folks are definitely getting the short end of the stick).
Like the article said, nobody's ever going to use bitcoin as a currency when its value fluctuates so wildly because nobody wants to be the guy who paid $300 million for a couple of medium pizzas. On the flip side, the only reason the value fluctuates so wildly, and mostly upwardly (which the currency people love to point at as a sign of mass adoption), is because of the investors. If the currency folks give up on the idea, then investors are speculating on an intangible asset with no real value. If the investors get bored with it, the price tanks and the currency folks are left with a worthless currency.
Eventually, one side of the two groups is going to decide en masse that they're not getting the value they wanted out of it. I think it'll be the currency side, and then we'll get an absolutely ridiculous bubble popping from the investors. I wouldn't be at all surprised to see it jump to $100-200k before cratering to near zero.
With the boring predictability of a spinning planet, BTC goes up and then when it drops there's a wave of "BTC is dead/horrible/never lived" articles. This one is nicely formatted, but still in that pile.
Yeah, we don't really now what public general use cryptocurrencies are just yet. They're a lot closer to cryptocommodities than currencies, at least for BTC's design.
There's some circular logic here. Bitcoin isn't used by consumers or accepted by retailers because of it's volatile price. Businesses are hesitant that the bitcoin they accept is worth ~25% less than what they accepted within a business day. Individuals are hesitant to spend that bitcoin because the pizza or cup of coffee they're buying might literally be a downpayment on a house in a couple years. So because no one is spending/accepting, then it's not usable as a currency? And because no one is using it as a currency, it's dead?
Bitcoin is useful for lots of reasons; the store of value, combined with the ability to globally transfer/receive, all publicly legered but with a layer of anonymity, is interesting and unique outside of the crypto realm (obviously there are other crypto that do this). There's all kinds of speculative assets that double as something else. Real estate, art, trading cards, cs go skins, stocks. All of those things do one thing or service, and double as a tradable store of value. Bitcoin is the same.
Bitcoin opened up the world to cryptocurrency and other kinds of crypto assets. Even though there's other crypto that better accomplish what bitcoin does (faster, more secure, more anonymous, more contract complex), all those other coins are relative to bitcoin. And bitcoin has a cap, there's only ~10% left of the total to mine, and that remaining 10% will take over 100 years to mine. The inherent scarcity is exactly why it retains value, because even though relative to a fiat currency the price may fluctuate or go down, bitcoin won't inflate itself by creating more coins in the system.
I most often compare and use high end art and expensive real estate as the real world comparison for bitcoin. Both of those markets basically exist as a way for wealthy people to park money into assets, and even though the art world and the real estate market are volatile and non-liquid, more often than not the asset will appreciate. Both those markets are huge, but they're so slow moving and non-liquid it's often tough to move if you need it. For luxury real estate you have to have a slew of real estate agents, mortgage/loan officers, appraisers, stagers, insurance, utilities, not to mention crew to upkeep the property until you sell it/while you rent/occupy it. There's closing costs, taxes, escrow. For art, it's the same. There's auctioneer costs, appraisers, temperature controlled storage, insurance, and you're going to pay someone to make a replica that you keep out while you hide away the real one. Bitcoin does away with all of that. You have your store of value, and with an address and a network fee, you can nearly instantly transfer that value to anyone in the world, and the receiver can have the transaction checked and verified by the blockchain and confirm that the funds were actually received. The volatility is a cost you bear, and basically the only cost. I think that's pretty powerful.
I think there is a lot of nuance missed in both this article and some of the comments. Among those nuances: Bitcoin is a commodity, not a currency. Also, think what you want of Bitcoin, but it has created an entire cryptocurrency industry. This industry is allowing for economic innovation and reimagining of currency, which may lead to a new form of stable currency. Will it be Bitcoin? Probably not. But I expect future money will have been inspired by Bitcoin
I've read this article twice now and I'm still trying to figure out why it is trending. Perhaps someone can explain to me what I'm missing. Bitcoin had trouble being a currency from the start because there was no common market buy-in. There was the occasional story about a pizza place accepting bitcoin, but there wasn't a true market, industry, or region that said that bitcoin will now be as common of an exchange as traditional money. Second, a dip in the value of a currency doesn't signal it's end. It signals an adjustment, which will happen with a currency that has been purchased based on pure speculation. Finally, bitcoin is like any technology and will become whatever we make of it. As long as people see it as an investment it will continue to go up in value. If they start using it as a currency it will fluctuate, like any other currency. If they realize it is another tech fad you will see the bubble burst. As of right now I think the future is far too gray to make the speculations that were made in this article. I thought that was the discussion of all cryptocurrency since the beginning, but again maybe I'm missing something.
Bitcoin became, and I believe to a large extent remains, popular for ideological reasons as a libertarian and anarchists dream of the ability to divest the power of control over the currency from the govrnment of the country they live in and give that control to the market.
Regardless of any other pros or cons of bitcoin - and there are other cons - this on its own is an incredibly stupid idea. The ability of the people of a country as represented by their elected government to control and purposefully direct the behaviour of their nations currency is an incredibly useful thing to maintain direct control over in times of financial crisis.
Left to the market, the market will often panic when it should remain steadfast, be over exuberant when it should be cautious, and these are things that should be left to experts with the best interests of the people of the nation in mind, not the invisible - or rather, non-existant - hand of the market and the mob.
These same experts are also apparently steering us into depressions, recessions, and panics with disturbing regularity. The deft hands of the experts are the same ones that discarded all caution and overrode all regulatory concerns to deliver us the sub-prime lending crisis.
Your country may be run by a privatized fed full of self serving idiots. Many others are governed quite well and are doing very well for themselves, thanks very much. Also, the boom and bust is wonderful for lining the pockets of the already very wealthy. Look elsewhere than bitcoin to solve your problems.
When did I say I want to get rid of regulation entirely? Didn't I just criticize a lack of attention being paid to regulators?
I'm not sure what you think I'm arguing for, but it feels like you're disagreeing with points I haven't made.
That was a malevolent comment, possibly too general and exaggerative lol just reflecting on recent comments made by extremist republicans... Based off Recent behavioral events crypto currency was liquidated from the market
if i didn't listen to asshats like you ten years ago i'd have a house off bitcoin right now like my UPS driver, shut the fuck up with this cynical ass fascist ass doom and gloom
oh boy a fucking medium article with a clickbait title what fucking quality content article of an internet post this must be i can't wait to read all about how bitcoin isn't yet as static as established currencies and that's why it'll never contribute to denying power to entrenched elites or ever be meaningful in anyway aguuuuu fucking chodes
It doesn’t matter, the reality that there is a fixed supply fundamentally doomed it from day one as a currency. It’s a worse version of gold though it can certainly find a place as an alternative financial asset.
Is it truly fixed in the functional sense of the word? It’s an infinitely divisible asset so it could effectively reverse inflate and use smaller and smaller denominations over time. The lack of centralization seems to be the real problem. However, if some government wanted to acquire a sufficiently large amount of Bitcoin to a) effectively act as a central bank and b) lend legitimacy to it as a store of value then I think it could work as a currency.
The divisibility of the asset doesn’t matter here. Gold is infinitely divisible as a currency, as in I can write you a certificate for the value of an atom of gold or for half of the value of an atom of gold if I so choose, but even as a non-fixed asset (we mine immense amounts of gold every year so the supply grows every year) it still exerts deflationary pressure. You’re better off holding your gold than you are spending your gold. Bitcoin functions the same way.
Not one mention of the bitcoin lightning network in this article, which was specifically designed to address the central problem that was brought up. Its like they just hired an intern or junior level writer and told them "Hey, everyone is talking about bitcoin again. Write us something about it to put between these ads". Then it was put on the internet with no QC by anyone who is actually well informed about the topic. And no one cares if it is woefully poorly informed because they got their clicks and ad revenue.
Soooo, Lightning Network holds your transactions until they're confirmed in real life, *then* puts them on the blockchain? Doesn't seem like a great advancement. Also seems like a fork in the utility of BTC if some people use a parallel-child network for transactions but most people don't.
What is a fiat currency, company stock, or gold good for? They are a way to store value.
Bitcoin will only have value as long as a significant percentage of people believe it has value. Who knows how long that will last for, but it does have positive characteristics that hedge against the negative characteristics of our fiat currencies.
LOL. I remember all the middle-aged ladies who were going to make a killing with their beanie baby collections.
Two years ago one of the floats at a local parade were handing them out to all the kids: Guessing they got someone who cleaned out mom's house and donated thousands of worthless used stuffed animals.
Bitcoin has always bewildered me. I started really paying attention to it around 2014 when it was at its low point after the failure of mtgox (~$200 or a bit below there). Never invested.
It's now up to an incredible amount, about ten times higher than what was then considered a fantasy of delusional proportions. There was at the time literally a whole copypasta of some bitcoiner's fantasy of waking up and seeing a $5K bitcoin price followed by spending their day doing various activities with bitcoin integrated into the process.
Bitcoiners got the first part (the $5K value and then some to boot) but never got the second part. In fact I still can't think of any compelling use cases for bitcoin that I wouldn't rather use venmo/apple pay/wechat pay for. The author pretty much says this too and points out it's entirely a speculative asset, but I mean, even gold can be used in engineering applications, so it's even more "pure" as speculative assets go.
Looking at this, Tesla, and the way that... literally the entire stock market behaved in 2020, I'm just absolutely convinced that much of peoples' investments are based on nothing but hype, and they're making complete bank off of it.
Have I gone crazy? Is this just the way the markets work now? Have they always worked this way? I'm honestly afraid to put my money in now because I wonder when people are going to realize that much of the valuation that goes on right now have nothing to do with the utility/potential of the underlying asset.
There is quite a bit of proof that Bitcoin's surge in price happened due to manipulation via Tether.
Here's a Twitter thread explaining the whole scam: https://mobile.twitter.com/JacobOracle/status/1346133062204198917
Makes sense though. No one should be surprised that fraud exists on a major scale when the whole network is based on anti-regulation and anti-oversight. When there's billions of dollars in play and there are no consequences to defrauding anyone, why would people *not* cheat?
The only thing anyone "uses" Bitcoins for that's *not* speculation is buying drugs on the dark web.
There is no other use for Bitcoin as a currency. If you're not speculating, and you're not buying drugs on the dark web, it's basically useless. That "1.3% transactions from merchants" the article mentions, I'd wager a large majority of that percentage went to people buying and selling drugs on darknet markets.
> entirely a speculative asset
One frequent pro-bitcoin argument is the limited supply.
But then, there's "bitcoin cash", and not like other future forks are impossible.
So I suppose bitcoin have stayed the drugs currency, and a speculation [focal point](https://en.wikipedia.org/wiki/Focal_point_(game_theory\)).
>I still can't think of any compelling use cases for bitcoin that I wouldn't rather use venmo/apple pay/wechat pay for
While I don't think cryptocurrencies should be thought of as investment vehicles, I cannot understand anyone who doesn't see compelling uses for BitCoin. For example, it's been a huge relief to the people of Venezuala as their economy collapses.
Crypto also serves as a check on corporate power. Stripe just stopped processing donations to Trump, and, when Snowden was fleeing the United States, PayPal refused to process donations to his support fund. They're private businesses, they certainly have the right to make those decisions, but crypto provides a way for people to circumvent those corporate decisions when they don't agree with them.
Lastly, some people just really care about privacy. How many major corporate hacks have we seen in the last ten years (Equifax, LinkedIn, eBay)? I think it's more than reasonable that people would want to protect their purchase data from these corporations.
I don't think crypto is a great investment vehicle, but there are clearly a lot of really valuable uses for it.
People dont understand that if you want to move money from the US to Australia it physically takes several days. That "waiting for the check to clear" time is actual real time, and it literally takes that long and never will not take that long.
Bitcoin can move money anywhere in the world in an hour or two instead of a week or more. You or your recipient dont even need to have a bank.
At the minimum you gotta understand bitcoin puts remitters like western union out of business globally.
PayPal is also instant. So is Apple Pay and a gazillion other options.
Don't act like it's a feature of Bitcoin, when the only unique advantage it has is skipping regulatory hurdles like checks on money laundering and fraud.
Like all financial institutions PayPal is bound by laws, regulations and oversight. That's why it takes days.
It's not like Bitcoin is the only technical solution available to changing a value on a database table.
Thats not why it takes days, but I know you dont know that. Its because legacy banks literally run things in a queue once per day and you gotta get in line.
Bitcoin is available globally and laws are different in different places. The idea that bitcoin is valueless because you personally dont have a pressing need for it is just a dumb take.
Millions of venezuelans are finding it very useful right now. Their currency collapsed and bitcoin is letting them eat.
People in poverty areas of africa who literally dont have banks, but have cell phones, are able to hold money digitally instead of hiding it in their house.
The world is so much bigger than you.
That's just because most banks use the old system. SWIFT gpi makes transfers happen in a few seconds.
Bitcoin does have a few niche use cases, I'll give you that. Techwise there are better alternatives though, like Ether. Proof-of-work sucks.
I heard that Africa scenario first in 2013 and I still think it's far-fetched. I doubt people in extreme poverty have time or interest to care about cryptography. There are P2P money transfer apps like Abeg that are made for that specific market.
Bitcoin is good for speculation I guess. I just wish people were at least honest about their greed.
Nothing personal though.
It's called the "castle in the sky" theory of investing.
Typically, a company will have revenue, low debt, healthy reserves of cash, etc and are PROFITABLE. This their foundation, must a any castle needs a foundation to actually exsist. Speculation is low, returns are real and the company and stock price grow accordingly.
In Castles in the Sky, there is little actual foundation and people are speculating heavily on what the future will bring, regardless of the state of affairs as they are TODAY.
No you aren't crazy, this has been around since markets have been over 500 years. I could go on forever but ill just leave it att that. Goodluck!
> Have I gone crazy? Is this just the way the markets work now? Have they always worked this way? I'm honestly afraid to put my money in now because I wonder when people are going to realize that much of the valuation that goes on right now have nothing to do with the utility/potential of the underlying asset.
The past few years have been an exercise in upending some assumptions about inflation. For all the money going around and the money printer brr memes, inflation isn't meaningfully rising. That doesn't mean certain things haven't risen in cost dramatically, but the cost of goods is mostly stable.
I suspect the chief reason for this is the unprecedented income inequality we're experiencing. For all the extra money sloshing around, at the end of the day, people aren't using that money to buy more clothes, food, cars, etc., because the people who have access to that money already have all the consumer goods they could want. So the extra money they have just piles back into itself as the rich people have nothing better to do with it but reinvest it into the stock market.
You might be interested to read into [Modern Monetary Theory](https://en.wikipedia.org/wiki/Modern_Monetary_Theory). An extremely oversimplified point regarding it is that, the only thing you should worry about with printing too much money is when inflation for real goods starts to kick in. Otherwise, print away to try to eliminate issues like unemployment and poverty. Right now, all the extra money is going to rich people who aren't meaningfully consuming real resources with that money, but that still can give them plenty of power, e.g. voting share control over businesses, ad spending, and so on.
I can't back this up but I would bet a significant amount of bitcoin transactions are for drugs on the dark web. However, now that markets are shifting away from Bitcoin and encouraging the use of Monero, I can't see Bitcoin being useful for much longer.
No, it's weird to me as well. It kind of feels like essentially a fiat investment opportunity or (not quite a) ponzi scheme.
Investing in stocks/gold/national currency or whatever carries some level of risk/reward, but there's always at least some kind of actual item that's being invested in (even if it's nebulous like a company which can theoretically be dissolved). With bitcoin, you're basically just investing in the idea that more people will want to keep investing in bitcoin. Because, yeah, years after its initial popularity binge, it's still not really used as a currency as it was intended except for particular circumstances.
> Have I gone crazy? Is this just the way the markets work now? Have they always worked this way?
There's this company that put "blockchain" in its name even though it had literally nothing to do with blockchain technology, and their stock soared.
I wonder if things like that happened 30 years ago, too.
There are many examples. Look at this crazy example of an iced tea company rebranding as blockchain.
In the DotCom bubble of 2000, "tech" companies with a website, a commercial during the Superbowl and not much else gained a market capitalization greater than much more bigger, solid, valuable and profitable "old economy" stocks.
> so it's even more "pure" as speculative assets go.
i think thats the advantage, the extraction is predictable, the supply is known and limited, its a pure store of value even more pure than gold because you have to go find gold and some people actually want to use it
bitcoin makes as much sense as any store of value, they only have value if enough people treat them as such, its basically the platform effect. if enough people agree bitcoin has value as a store of value it does. humans are funny that way, things have value if we decide they do.
But some assets have intrinsic values at the baseline of its worth. Most commodities, even gold has application as conductors in electronics, not to mention its cultural worth in asian countries. Crypto has been the most honest pyramid scheme in history and its baseline is maintained by the next wave of speculators.
I feel like this is part of why so many bitcoiners are evangelical in nature. The more people who buy into the system, the more likely they are to gain value. I feel like nobody I know who has substantial investment in bitcoin is silent about it; they all constantly post on Facebook about how everyone needs to get in now, how valuation will keep rising forever.
It can also be bragging and a genuine want to encourage people to buy into something they think will be a success. I bought a small amount years ago and it's tough for me to keep my mouth shut about it because I'm pretty jazzed about how it's doing. I do keep my lips zipped for the most part though.
I chuckle now when I hear, "you've got to plot it on a log axis," especially in reference to Bitcoin. It's really a classic. Then again some of those people I used to laugh at are possibly many times richer than me now.
I mean log graphs are really useful for determining changes in exponential growth over time. But using it to imply future gains by having a graph where the vast majority of the space is dedicated to the scenario where the price goes down more than 99% is not exactly confidence inspiring
well right its the same with any platform a platform becomes more valuable the more people who use it, these people are just also a part of that value propagation so it does have the feel of mlm and im sure mlm types are attracted to it.
personally i didnt buy any until i saw major institutions investing and then i put 2% of my net worth into bitcoin and try not to look at it though the price discovery process is fascinating to me
Apart from very early on, yes, this is the way that markets have always worked.
Notionally a share is meant to be "how much is this portion of the company assets worth" with a topping of "and how much will it probably grow based on the current market", but that has long passed. In relatively recent history, some people earned really big money buying and selling shares for the purposes of investing retirement funds, these people had to justify why what they were doing wasn't gambling your money, so they came up with pseudo scientific values about P/E and undervalued/overvalued so they could appear legit.
As long as money keeps being poured into the market then the market will continue rising, people will consider the market a magic source of growth and high stakes gamblers will keep your money growing. The money flowing into the market is guaranteed somewhat by governments who define that pensions must be invested, so its not going to stop any time soon.
But the massive volatility and stupid P/E rates are reasonably recent because the market has been opened to normal people who don't even pretend to understand how to value a company, and as long as these people keep pumping in cash, a small number of well known stocks are going to skyrocket.
If a stock is likely to skyrocket then it would be foolish not to invest in it, so even institutional investors are now buying on hype.
The stock markets value isn't that complicated. Interest rates are incredibly low, so if you want any type of return on your investment you need to be in equities. And while there has been a global pandemic, the top 20% of earners haven't lost their white collar jobs, and are doing quite well, while at the time saving more and spending less, leading to an additional infusion.
Plus a lot of equity is focused in sectors like tech, but the industries that have gotten killed are areas like hospitality. Since they make up a smaller portion of the markets value originally, their negative impact is smaller.
I'm sure there are other factors, but those three are probably the main reasons the market is up so much.
This so much. I can either keep my money in my bank account with essentially no interest and watch its value dwindle, or I can throw it into the roulette wheel that is the stock market and hope for the best.
Even before the pandemic, when we were in the "best economy in history," there were tent cities crammed back to back where I live. I know time in the market is better than timing the market, but, Jesus Christ, it started to feel like a drunk pilot stumbled into the cockpit before take-off and the passenger next to me just shrugged his shoulders and said, "eh, flying is safer than driving."
Sure, over a long enough timeline. But I'm saving up for a down payment in an area where down payments are over $100k. If I put that money in the market, it could be at a trough when I need it; if I put it in my bank account, the value doesn't even keep pace with the price increases in housing. Doesn't feel like there are a lot of great options to balance risk and increased prices (yeah yeah, there is no inflation - except for housing, healthcare, childcare, school tuition, and everything else you actually need to live).
I totally feel you on the downpayment savings issue. I've had a huge drag on my portfolio for having a sizable emergency fund / downpayment savings. Only recently have I accepted that I'm not actually that interested in owning a house and have started to aggressively DCA that money back into the market.
> it started to feel like a drunk pilot stumbled into the cockpit before take-off and the passenger next to me just shrugged his shoulders and said, "eh, flying is safer than driving."
This is hilarious imagery, thank you lol
> I'm just absolutely convinced that much of peoples' investments are based on nothing but hype
When you have a marketplace where "consumer" opinion is setting stock price, yes--hype is going to be a major driver. It's not *what the stocks are gonna do*; it's what people think the stocks are gonna do and what people think people think the stocks are gonna do.
> it's what people think the stocks are gonna do and what people think people think the stocks are gonna do.
That's already true somewhat for stocks anyway. Investors are constantly making decisions on what they *think* might happen and how others *might* react to that. But with stocks it's all grounded in actual companies and businesses mostly.
It's gambling over hype. Tesla's stock, for example, is in a massive bubble. Musk has it himself. It's not about *if* the stock will drop, it's about *when*. I'd short TSLA myself, but like Keynes said, "The markets can remain irrational longer than you can remain solvent".
Pretty much. Except that even with gambling at least, the win or loss is based around a singular event (in general, sometimes maybe the results of a series of events like poker) and generally with roughly known odds. Bitcoin the result is dependent on more and more wanting to and continuing to gamble in the first place, and the risk is that if everyone finally says "nah fuck that" before you cash out you can lose everything.
Markets have not always worked this. Profit used to matter.
You're 100% right, it's all hype and speculation. Literally creating wealth out of nothing (most of them lose it anyway, when the hype fails). My brother has both licenses to trade as a broker and he left to do something else. He just couldn't wrap his head around what the hell was going on, it made no sense.
See also: 2001 Nikkei bubble, 2000 Nasdaq bubble, Qualcomm in 1999, 1997 "Asian contagion," 1994 Bre-X Minerals ([13,305](http://www.businessinsider.com/gold-greatest-bubbles-ever-2010-9)%) etc.
Part of it is markets work this way, but also how we choose to self-select media to consume. Tesla will be an asterisk to an asterisk even if it pops tomorrow. Perhaps it will become a fun fact like Microsoft in 1999. But we choose media that gives today a sense of importance and we consume that these little bubbles have a historical importance that's unlike other bubbles.
This is the example people always pull up, yes speculative bubbles have existed for a long time but most of the time the underlying market on which people are speculating still provides utility. Bitcoin has no utility whatsoever, its only real use as a currency was that it was untraceable which only matters when you're doing something illegal.
Agreed, and speculative bubbles used to be niche, now they're mainstream. The 2008 crash was due to people investing in something not worth the price. The dot com bubble also ignored profits. Steady growth used to be the name of the game; now even big corporations will tank their companies long term in favor of short term profit for investors.
The price volatility is due to new people getting into the coin and holding them rather than spending them, this causes price growth as supply dwindles and results in the the occasional short term bubble as people rush in to make easy money. However each bubble cycle is less volatile than the last and eventually the price will stabilise because over time the amount entering into supply shrinks while the amount in circulation reduces towards a certain amount. For anyone looking to speculate based on this, bare in mind that it might stabilize at a price point that is lower than the current.
These massive swings and growth simply can't last forever. None of this happens with state currencies since their adoption is much quicker and the price discovery is measured in days or weeks as a result. The price swings are simply due to the novelty of bitcoin, and its reduction in volatility over time is what's part of the design. If you're at all familiar with bitcoin you'll know about mining and mining rewards. At first the mining was reward was 50 BTC. Then after a certain amount of time the reward halves and then it halves again and so on, literally forever. This means fewer and fewer coins enter circulation and there is less and less reward to enter the network.
The real problem with bitcoin as currency is that it's slow and can be controlled by anyone who has a majority of the hashing power in the network. Right now most hashing power is in mainland China which means that the CCP has in theory control of the blockchain but theoretically they can be checked if other countries set up their own mining farms for no other reason than to counter the Chinese. But then you get into a problem where you're spending huge amounts of power just to keep the blockchain safe
The reality is that blockchain is a cool tech but bitcoin specifically isn't designed with strategic interests or widespread use in mind.