Update of "Cryptocurrencies"

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Artifact ID: c2daf31ac6d329911159bffa8728c2141e1e1fbfffcc9ca12874260c39663f3a
Page Name:Cryptocurrencies
Date: 2021-05-19 22:05:50
Original User: zie
Parent: 5efc14171cc6f1acd7166d078a28b4355571193421707faa8e0b833567b0fd90 (diff)
Next e84c37007d46fa2a03165d07b296815d433a8f613d1fd894b32042bef43d66a7

I currently have 0% of my assets into any crypto currencies, though I have mined a few coins here or there in my time and ran a bitcoin node once for a bit in it's very early days(back when the blockchain was measured in single to low double digit GB's in size, it's now into 3 digit GB's).

Think of it like speculative property. It's also taxed just like property in the USA. I.e. it is taxed as "capital gains"; either your normal income tax rate for short term capital gains or the lower LTCG rate, so you almost always want to wait 1yr if you need to sell it.

Bitcoin has a market cap of like 350 billion USD(last I bothered to care), so it's the dominate player in the cryptocurrency space, but it's still very small part of the economy as a whole.

Some people like to think of cryptocurrencies like "digital gold" which is somewhat fitting. You can sometimes trade Gold for goods(i.e. act like it's money) just like bitcoin. However generally Gold & bitcoin are not treated like actual money anymore, it's treated like property or an asset or a store of value. Except Bitcoin is highly volatile still, much more so than Gold anyways. Of course Gold has a thousand+ year history.

Bitcoin compared to the global equity market and gold It's useful to see that the dips in VT(the world equity market) follows the dips in bitcoin. It's so far, not a safe place to store money compared to the world equity markets. Gold has the opposite behaviour, when VT goes down, Gold tends to go up. Maybe the behaviour of bitcoin will change over time. We currently have very little history of bitcoin since it's so new, but so far it doesn't behave like gold does in the world economy.

If you want to think of Bitcoin as money(i.e. something to make financial transactions with) then you will probably be disappointed. It can be used for that, but it kinda sucks for that use case and there is no real way to refund or undo your transaction, since there is no central authority, which causes problems when using it for money.

Cryptocurrencies are not considered privacy protecting(despite any claims), if you transact on the blockchain, chances are you will be identified eventually, and the information is PERMANENT and PUBLIC. Using bitcoin to do illegal things in your jurisdiction won't do you any favours when police eventually get around to policing it.

If you treat it like an asset, so from a financial perspective; if you treat it like the USD reserve currency, then there is arguably value here. Bitcoin is traded 24/7/365. USD is traded whenever the govt says so(so 9-5 US business hours, minus holidays, major events, etc). Just like USD, it's available in basically every country, except the USA disincentivizes some countries from playing with USD(i.e North Korea and others that are non-friendly to US interests). Bitcoin has no such limitation. How valuable those things are in the long run are still unknown. It's possible bitcoin becomes the "reserve currency" replacing USD over time. If that happens(and that is a **VERY** large if), there is absolutely long-term value in bitcoin, but perhaps not for the normal average investor. There is little chance most governments would like a reserve currency outside of their control, and the USA would almost certainly not appreciate it. The US government announced they are going to start doing digital transfers, which might compete with bitcoin, but they are still a few years out(and will obviously still be centrally controlled).

Some companies like NASDAQ: MSTR are treating bitcoin as their treasury(i.e. their "safe" assets). It's unknown if that strategy will work out long-term. In their 6 months of experience(at time of this writing in 2021) seems to be working out so far. They currently have roughly $1 billion dollars invested in bitcoin. There is also GBTC a publicly traded trust holding bitcoin. Much like a gold ETF just holds physical gold in a vault somewhere.

Ethereum is the only other crypto with any noticeable market cap(size). Ethereum has "smart contracts" which makes it very interesting, but there have been some bugs, and last I checked, nobody is using the contracts for real legit things of any size and scale that might impact the economy, so it's still unproven to some degree.

I don't think bitcoin will go away, but like most people, still unsure where Bitcoin and friends will land in the larger economy, since it's still clear nobody really knows.

So in general, bitcoin is sort of a solution looking for a problem to solve. It's certainly worth *something*, but nobody really knows what yet. It was originally billed as privacy protecting digital money, but it's now proven it basically sucks for that. It could become a "reserve currency", but no govt really wants that to happen currently, and they would have to really want it. What is the use-case for bitcoin? *shrugs*. I imagine there is a "killer app" for cryptocurrencies, but so far the killer app hasn't surfaced and proven real yet. Note, for "proven real" I mean real in the world economy scale real.

I wouldn't recommend tilting more than 5-10% of your investable assets into something like Bitcoin or Ethereum, if you believe in them. This is the whole, if you are going to "sin", sin a little mantra. The risk is very high (less for bitcoin than ethereum). A simple web search will give you no end of potential risks of your favourite crypto-currency., no sense in re-hashing those here.

The rest are very much 100% speculative, they may or may not "make it big", but chances are most/many/all of them will fail. I recommend only use play/fun/disposable money for these.

If you decide to actually buy it:

Coinbase(a crypto currency broker), There is also GBTC a publicly traded trust holding bitcoin. Both of these involve someone else holding the bitcoin for you, so you have to trust them to not do something stupid. Neither of these will probably do something insanely stupid at least. Holding bitcoin yourself is a lot of hassle and not recommended for most people.

Non-Fungible Tokens(NFT's)

NFT's are these unique ID's(generally UUID's) that are provably unique and can be sold. You can attach these tokens to some "content" where that content can be a JPG or it can be a news article, or whatever else. That said, unique here is.. interesting. NFTs are only unique in the same blockchain within the same smart contract. Which is a very narrow definition of unique. This means if I want to create an NFT for this page, I can make 100 of them and then try to sell them. There is nothing stopping me from selling multiple copies, and there is nothing stopping YOU from creating 100 NFT's of this page and trying to sell it.

I mean, chances are nobody would buy such a NFT of this page, and someone might catch on if you list all 100 at once, but again, the technology doesn't care.


It’s fairly well established that a significant portion of BTC trading and price action is manipulative.