Bitcoin Low

[Teacher Terry]

1/18, I like this forum a lot but they always make fun of Bitcoin and it’s gotten old. My son made 100k and us 40k by mining. It’s no longer profitable to do so. We have 7 bitcoins left that we are holding. Of course it would never be our only investment. So glad your daughter did so well!

 

[1-31-18]

Geez, there are over 100 crypto currencies out there. What makes BTC so special? And if BTC goes bust, the world economy won't even notice:

There are actually about 2,000 crypto assets in existence (20X your number), although I hodl only one of them.

As for that one, it has been in existence for less than ten years. Not one coin existed 10 years ago. Would have to say this asset class has come very far very fast.

I was involved in the creation of exchange-traded funds. Haters said that would fail, too. Now it’s a $4 trillion industry. The pace of development in the two industries has been quite similar.

Gartner says blockchain tech will account for 10 percent of US GNP about 10 years from now. Hmmm.

 

[Chuckanut]

I

BTC is not really a currency. It is best understood IMO as a store of value and a long-term hedge against systemic collapse by Western democracies on the road to serfdom via entitlements. In that vein, it’s already proving mighty useful outside the US as a means of avoiding confiscation of wealth by the government. See “Venezuela, Collapse of” ....

I understand it as a pure speculation sold to people usually after a 'scare the heck out of em' presentation of carefully selected and interpreted 'facts'.

The dollar for all the government's economic faults (which are many) is still backed by a country with an economy that produces things and provides services.

 

[1-31-18]

Sorry I lost my appetite for the Bitcoin is just like AMZN argument when I read the author’s disclaimer in the beginning of the article.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

I do agree that bitcoin crashing is dangerous for equities in general.

Not sure I follow.

IMO, BTC in 2018 is very like AMZN circa 2002. Highly speculative. Largely unregulated. Possibly a total loss. And yet....

 

[steelyman]

I understand it as a pure speculation.

Seems like it, but I don’t understand what the underpinnings are (that’s also true of many traditional stocks for me). I’d say let those who choose to deal/mine, do so. If they also want to explain why, that may help others understand their reasoning. If not, then it remains a mystery and possibly just a shifting of “money” between participants.

 

[corn18]

Not sure I follow.

IMO, BTC in 2018 is very like AMZN circa 2002. Highly speculative. Largely unregulated. Possibly a total loss. And yet....

IMO, it's more like the tulip bulb of the 1600's. And yet...

 

[bobandsherry]

Not sure I follow.

IMO, BTC in 2018 is very like AMZN circa 2002. Highly speculative. Largely unregulated. Possibly a total loss. And yet....

Hardly, AMZN had products it sold, an income stream and cash flow and a plan for growth. BTC has none of these.

 

[flintnational]

A couple of quotes from Benjamin Graham might be applicable to our discussion about bitcoin.

“And back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence.”

― Benjamin Graham, The Intelligent Investor

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

― Benjamin Graham, The Intelligent Investor

 

[steelyman]

Good advice. Maybe the OP can comment?

 

[Chuckanut]

IMO, it's more like the tulip bulb of the 1600's. And yet...

A fun book to read about such things is “Extraordinary Popular Delusions and the Madness of Crowds”.

 

[1-31-18]

I understand it as a pure speculation sold to people usually after a 'scare the heck out of em' presentation of carefully selected and interpreted 'facts'.

The dollar for all the government's economic faults (which are many) is still backed by a country with an economy that produces things and provides services.

Huh. I’ve never been in a presentation where BTC was being sold to anyone. Who does that? I do attend fund manager presentations to institutional investors. Nothing of this sort happens there.

Does the US government back the dollar? What does that mean? What do you trust the US government to do about the dollar?

 

[1-31-18]

IMO, it's more like the tulip bulb of the 1600's. And yet...

Bitcoin is a measure of value that settles at digital speed on an impregnable global ledger, requiring no trusted intermediary, disrupting banking, clearance and settlement systems and all manner of government controls.

Tulips, in contrast, are flowers.

 

[bobandsherry]

Bitcoin is a measure of value that settles at digital speed on an impregnable global ledger, requiring no trusted intermediary, disrupting banking, clearance and settlement systems and all manner of government controls.

Tulips, in contrast, are flowers.

The technology is as you describe, however Bitcoin is trading at a premium to the value of that technology. Want proof? Look at all the other crypto currencies, they all use same technology but BC trades at a premium to those, that being the speculation aspect.

 

[1-31-18]

A couple of quotes from Benjamin Graham might be applicable to our discussion about bitcoin.



“And back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence.”



― Benjamin Graham, The Intelligent Investor



“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”



― Benjamin Graham, The Intelligent Investor

Might be. Or might not. Graham & Dodd. So well suited for its purpose, but irrelevant to pre-VC investing.

G&D is for conservative investors hoping for mediocre 60/40 returns over middling time horizons. VC and pre-VC investors are looking for better returns at greater risk over longer horizons. The people reading this blog overwhelmingly are in the former camp. Nothing wrong with that, but it is obviously thus.

How about the portfolio managers at Harvard and Yale and MIT (and Stanford and Notre Dame and Chapel Hill) who are investing parts of their endowments in crypto? Ya think they’ve ever heard of Graham & Dodd? At Columbia, too, where Graham taught? These guys should all be fired, I guess.... Or maybe not.

Next the no-coiners here will quote Dimon, ignoring his vested interest (a big bank), or Graham’s disciple Buffett, ignoring his vested interest (several big banks), or Munger, ignoring his advanced senility. What is it with old people, anyway — all this technophobia? And why is it that no-coiners are found in tech deserts, like Omaha and X and Y (locations omitted as a courtesy)? Hmmm.

If your point is that BTC was overheated and sold off — and I don’t think that’s your point — well, I agree with you. That’s why my brilliant, risk-taking, libertarian, techie daughter bought before anyone had heard of BTC and sold four years later. BTC was a screaming sale last December. Not now. And guess what... It will happen again. Boom and bust, boom and bust. That’s how new tech rolls out. Always.

Like railroads. And the steam engine. And the horseless carriage. And internet service providers. And on and on and on. Radical change is messy.

Cheers.

 

[1-31-18]

Hardly, AMZN had products it sold, an income stream and cash flow and a plan for growth. BTC has none of these.

Who is this “BTC” who you are talking about? Decentralized autonomous organizations don’t have “a plan.” There is no man behind the curtain, no Wizard of Oz, who manages the bitcoin blockchain. If ever there was a Satoshi, in 2018 he doesn’t operate this particular blockchain in any fashion. No one does. By the way, that’s why the SEC doesn’t treat BTC as a security: it’s completely decentralized and autonomous.

I’m sorry this new business model is so unfamiliar to you. But that reflects on you at least as much as it does on the new model. Everything about BTC is a radical break from the past.

 

[1-31-18]

1/18, I like this forum a lot but they always make fun of Bitcoin and it’s gotten old. My son made 100k and us 40k by mining. It’s no longer profitable to do so. We have 7 bitcoins left that we are holding. Of course it would never be our only investment. So glad your daughter did so well!

Mining is indeed unprofitable in the US, given prevailing conditions. But conditions change. Give it time.

Bitcoin is not for most people on this forum. But it’s a technology and an industry I know very well. I’m glad my college endowment is investing in it.

 

[1-31-18]

The technology is as you describe, however Bitcoin is trading at a premium to the value of that technology. Want proof? Look at all the other crypto currencies, they all use same technology but BC trades at a premium to those, that being the speculation aspect.

BTC trades at a premium because of its first mover advantage, mainly. It has a much larger network than any other coin or token to this point, and the network effect is the main driver of value in this new asset class.

Another coin could overtake BTC, but the likelihood is low in my estimation because of this factor. Hence the premium.

 

[corn18]

What exactly did those endowments invest in? (they didn't buy BTC)

 

[NW-Bound]

1/18, I like this forum a lot but they always make fun of Bitcoin and it’s gotten old. My son made 100k and us 40k by mining. It’s no longer profitable to do so. We have 7 bitcoins left that we are holding. Of course it would never be our only investment. So glad your daughter did so well!

... If your point is that BTC was overheated and sold off — and I don’t think that’s your point — well, I agree with you. That’s why my brilliant, risk-taking, libertarian, techie daughter bought before anyone had heard of BTC and sold four years later. BTC was a screaming sale last December. Not now. And guess what... It will happen again. Boom and bust, boom and bust. That’s how new tech rolls out. Always.

Like railroads. And the steam engine. And the horseless carriage. And internet service providers. And on and on and on. Radical change is messy...

If your point is that early traders make out like bandits, nobody here will disagree with you. I am sure early buyers of tulip bulbs and beanie babies got stupidly rich too. And dot-com company founders, etc...

We just do not want to be late-comers paying big bucks -- those fiat money that you despise, remember? -- for your bits so that you can get rich by dumping the "valuable assets" on us, and tell us at the same time that we are stupid not to see it as early as you did.

You want us to "buy high sell low", or "buy high and never sell", while you "buy low sell high"? Who do you think we on this forum are?

Yes, there were obviously people who bought your bits, so that you made money and now gloat about it. Your buyers are not on this forum.

 

[flintnational]

.......How about the portfolio managers at Harvard and Yale and MIT (and Stanford and Notre Dame and Chapel Hill) who are investing parts of their endowments in crypto?.......

I checked Yale's 10 year performance through their most recent investment year ending on June 30, 2018. Their average annual return was 7.41%. A simple portfolio consisting of 60% Vanguard Total Stock Market Index and 40% Vanguard Total Bond Market Index returned 8.06% per year over the same 10 year period. No bitcoin needed. (Portfolio Visualizer link- Sorry, you will need to reenter the data fields. I could not paste the results.)

"The university’s longer-term results remain in the top tier of institutional investors. Yale’s endowment returned 7.4% per annum over the 10 years ending June 30, 2018."

So, no I do not think it is advisable to speculate in bitcoin or crypto because Yale chooses to speculate.

 

[NYEXPAT]

I checked Yale's 10 year performance through their most recent investment year ending on June 30, 2018. Their average annual return was 7.41%. A simple portfolio consisting of 60% Vanguard Total Stock Market Index and 40% Vanguard Total Bond Market Index returned 8.06% per year over the same 10 year period. No bitcoin needed. (Portfolio Visualizer link- Sorry, you will need to reenter the data fields. I could not paste the results.)

"The university’s longer-term results remain in the top tier of institutional investors. Yale’s endowment returned 7.4% per annum over the 10 years ending June 30, 2018."

So, no I do not think it is advisable to speculate in bitcoin or crypto because Yale chooses to speculate.

What I find impressive about their performance, is that it was achieved with 60% of portfolio in" Alternative investments" ie. Timber and Beaver cheese futures!

 

[flintnational]

^^^Yea, I had to look up the definitions of some of their investments. Lots of alternative investments that some might say appear to be designed to justify the managers keep. And, it makes it almost impossible to benchmark their performance. Unlike Buffet, that benchmarks Berkshire against the S&P, Yale in the article I linked benchmarked themselves against other endowments.

 

[ERD50]

I checked Yale's 10 year performance through their most recent investment year ending on June 30, 2018. Their average annual return was 7.41%. A simple portfolio consisting of 60% Vanguard Total Stock Market Index and 40% Vanguard Total Bond Market Index returned 8.06% per year over the same 10 year period. No bitcoin needed. (Portfolio Visualizer link- Sorry, you will need to reenter the data fields. I could not paste the results.)

"The university’s longer-term results remain in the top tier of institutional investors. Yale’s endowment returned 7.4% per annum over the 10 years ending June 30, 2018."

So, no I do not think it is advisable to speculate in bitcoin or crypto because Yale chooses to speculate.

I'm on my first cup of coffee, but I can't make sense of Yale's 10 and 20 year numbers.

edit/add - OK, I now see the fine print - they had money going in and out, so I guess we just need to trust their numbers, but it seems that means their deposit/wd were timed well?

...
The university’s longer-term results remain in the top tier of institutional investors. Yale’s endowment returned 7.4% per annum over the 10 years ending June 30, 2018. Relative to the estimated 5.5% average return of college and university endowments, over the past 10 years Yale’s investment performance added $4.5 billion of value in the form of increased spending and enhanced endowment value. During the 10-year period, the endowment grew from $22.9 billion to $29.4 billion.


Yale’s endowment returned 11.8% per annum over the 20 years ending June 30, 2018. Relative to the estimated 6.8% average return of college and university endowments, over the past 20 years Yale’s investment performance added $27.1 billion of value in the form of increased spending and enhanced endowment value. During the 20-year period, the endowment grew from $6.6 billion to $29.4 billion.

Is there some "Beardstown Ladies" math going on here? 20 years:

6.6 + 27.1 = 33.7 , so the 29.4 must include deposits and withdrawals. OK, so use the initial 6.6 and their "Yale’s investment performance added $27.1 billion", which a 5.11x gain.

But 11.8% for 20 years is 9.31x gain? For a 5.11x gain, I get 8.5%.

Which is pretty good, the S&P returned 6.55% CAGR over that period.

https://goo.gl/TsMiyM

But their 10 year number (looks like same issues?) doesn't even match a 75/25 portfolio.

https://goo.gl/zV4kwv


Is this some kind of average number rather than the more useful and common "compounded" number? Or do I need more coffee?


FYI: To link to Portfolio Visualizer with data fields entered, you need to click the 'link' button, then copy the link in the address bar. I usually use a 'shortener' as it is a very long URL.

It shows up after you hit the "Analyze Portfolios" button, right under that button:

Portfolio Analysis Results (Jan 1994 - Oct 2018) Link PDF Excel
​

-ERD50

 

[Chuckanut]

And, it makes it almost impossible to benchmark their performance. Unlike Buffet, that benchmarks Berkshire against the S&P, Yale in the article I linked benchmarked themselves against other endowments.

I see your point, but I would like to add.....

I benchmark against what is reasonable for me to do when investing - stocks, bonds, CD's, Treasuries, etc. Realistically, I will not be buying wood lots in the forest, storage lockers, cattle farms, etc.

It may not be 'fair' but it's practical and it works best for me, and I suspect, many others.

As far as Bitcoin is concerned - don't confuse the technology - Blockchain - with a good or service that uses it.

 

[ERD50]

Originally Posted by flintnational
And, it makes it almost impossible to benchmark their performance. Unlike Buffet, that benchmarks Berkshire against the S&P, Yale in the article I linked benchmarked themselves against other endowments.

I benchmark against what is reasonable for me to do when investing - stocks, bonds, CD's, Treasuries, etc. Realistically, I will not be buying wood lots in the forest, storage lockers, cattle farms, etc.

Agreed. Benchmark against what you would actually do, not against some de-construction of what they did. That's really the only comparison that matters, not some theoretical.

-ERD50