help me understand crypto

[Hans]

In order to maintain some balance in the discussion (i.e., to bring more points of view than just that of "crypto evangelism"), here again is my response to the OP's question... for your convenience!

Here's an article on this topic from an economist with Cornell University and Brookings Institution.

The Brutal Truth About Bitcoin

Regarding "major changes that may or may not be occurring", the same author is preparing to publish a book about that.

The Future of Money

More from the same author:

Digital currencies are transforming the future of money

Five myths about cryptocurrency

The five myths listed are:

Myth #1. "A cryptocurrency is real money that can be used for payments."

Myth #2. "Cryptocurrencies are a good investment."

Myth #3. "Bitcoin is fading. Meme coins are the future."

Myth #4. "Cryptocurrencies will displace the dollar."

Myth #5. "Cryptocurrencies are just a fad and will fade away."

The article gives reasons why these are myths. Notice the absence of one-sided argumentation ("this will save the world" vs. "this is trash"). The above articles are more of an academic-type treatment, and may be useful as more neutral references in the midst of an overwhelming amount of evangelistic fervor.

 

[Markola]

^^^^^^^ Thanks for the Brookings Inst. articles.

 

[37andhappy]

In order to maintain some balance in the discussion (i.e., to bring more points of view than just that of "crypto evangelism"), here again is my response to the OP's question... for your convenience!



More from the same author:

Digital currencies are transforming the future of money

Five myths about cryptocurrency

The five myths listed are:

Myth #1. "A cryptocurrency is real money that can be used for payments."

Myth #2. "Cryptocurrencies are a good investment."

Myth #3. "Bitcoin is fading. Meme coins are the future."

Myth #4. "Cryptocurrencies will displace the dollar."

Myth #5. "Cryptocurrencies are just a fad and will fade away."

The article gives reasons why these are myths. Notice the absence of one-sided argumentation ("this will save the world" vs. "this is trash"). The above articles are more of an academic-type treatment, and may be useful as more neutral references in the midst of an overwhelming amount of evangelistic fervor.

A good discussion on the "myths" here. Well worth a listen:

https://youtu.be/kbNkiPrkd5c

 

[37andhappy]

K I have no bitterness about whether people do what I do.

OK good to know. Well you may not have any negative emotion (which is of course always the best state of mind when trying to make a rational and objective decision), but there are still many no-coiners (often somewhat older of our demographic - 40 years plus) who do harbor a bitterness, (or even a kind of "anger"/"hatred" towards Bitcoin.

There are good reasons for this emotion. Primarily because of the emergence and adoption of Bitcoin threatens some people's core beliefs, in a fundamentally important area. And of course maybe a kind of frustration or fear that the adoption occurred around them, and they "missed out". (On the latter point is still super early in the process, if you do believe this really is a long term trend).

What we, as investors need to do, is separate emotion from investment decisions (applicable both to what we do, and what we don't, invest in).

The "mindset" which causes such varying, and sometimes extreme, emotions related to Bitcoin are discussed here:

https://youtu.be/7EahaWJVG8o

Great video, not just related to Sats, but rather to investing and life in general.

 

[Markola]

^^^^^^^ So, you’re clearly all-in on Bitcoin. Mind revealing how much crypto you actually own? The % of your net worth in crypto? We’re over 200 posts into this thread, so I don’t want to dig backwards. Please refresh my memory if you already revealed your stake.

 

[Hans]

A good discussion on the "myths" here.

You'll get a better treatment on the topic from the Brookings articles I linked to. You should read them.

There are good reasons for this emotion. Primarily because of the emergence and adoption of Bitcoin threatens some people's core beliefs, in a fundamentally important area.

I see that crypto evangelists like to "psychoanalyze" people who don't share their opinions.

Everyone needs a hobby!

 

[37andhappy]

^^^^^^^ So, you’re clearly all-in on Bitcoin. Mind revealing how much crypto you actually own? The % of your net worth in crypto? We’re over 200 posts into this thread, so I don’t want to dig backwards. Please refresh my memory if you already revealed your stake.

Me? Will I don't mind sharing (although my specific allocation is actually irrelevant to whether BTC is a good investment and/or what allocation others should make).

I am what would be classified as a HNW (or UNHW?) with assets over USD 30m.

I calculate my allocation half yearly (end of August and end of Feb) and just did my latest this weekend.

At a high level my allocation is:

Total Assets in equities 52%
Total Assets in property 31%
Total Assets in cash/gold/BTC 16%

My equities are global although weighted to Asia 70%, Europe 20%, US 10%.
My properties are heavily weighted in Asia (including Australia) with a little in Europe, and zero in the US.

My cash/gold/BTC split is 10% cash, 5% BTC, 1% gold.

It didn't start like that, but the BTC increased in value over time, and I didn't trim or rebalance it, nor to I plan to, although at some point I might eventually rebalance. (When would that be? Hard to know but probably if it got to 20% of my net worth).

Would be happy to share more on my allocation strategy (perhaps on another thread though?). Every half year I also assess slight adjustment strategies, usually done by how allocate any surplus income being generated (which is a lot compared to my living expenditure). For now my focus us moving more towards preserving wealth, de-risking from any single occurrences (via diversification among asset classes and countries) and continuing to generate a solid income.

Anyhow, if the question you are really seeking an answer to is "how much should I allocate to Bitcoin?", I would answer that it should definitely not be zero. My usual advice to friends who ask, is to start with a 0.05-1% allocation, and build up to no more than 5%. Having said that, in my circle of associates, there are a number who have 70%-95% of the wealth in Bitcoin (and/or ETH). (Age ranges around 48-60ish) So they pretty much already live and calculate their value and other costs in Sats, This is far too extreme for me, but always fascinating to observe, discuss etc. (The net worth of this circle of friends is around 5m at the low end to 20ish on the upper end, not that I specifically ask but can roughly figure out).

 

[37andhappy]

On the BTC energy FUD, sometimes a graphic can help provide a little perspective.

(And bear in mind that an estimated 60% of that already very small sliver you see there comes from entirely renewal sources, and that this % will grow over time...).

 

[Markola]

My cash/gold/BTC split is 10% cash, 5% BTC, 1% gold.



….My usual advice to friends who ask, is to start with a 0.05-1% allocation, and build up to no more than 5%. Having said that, in my circle of associates, there are a number who have 70%-95% of the wealth in Bitcoin (and/or ETH).

Your advice and 5% allocation seems prudent. Good luck to your friends.

 

[thepalmersinking]

Bitcoin and other "proof of work" derivatives make computationally intensive calculations a core security measure. These computations escalate in complexity over time, presumably to keep up with Moore's law. It's a whole lot of busy work and outrageously wasteful and getting worse over time.

Ethereum is transitioning away from POW to "proof of stake" security that is much more computationally efficient.

Proof of History. That is the real thing.

 

[indiajust]

I just read several articles on Solana. This is the first whitepaper on crypto that I have been unable to understand the details. I get that establishing history creates a time arrow that allows ordering of transactions and the use of a single chain, no sharding required.

The calculations in BTC get more difficult to match the effort/expense of supporting the network as the price goes up. BTC is the reward that pays the bills, doing the calculations supports the ecosystem. If they get out of whack, it dies. I would say Moore's law influences the supply of computational resources cost on the supply side. Demand also has a big influence.

 

[37andhappy]

I just read several articles on Solana. This is the first whitepaper on crypto that I have been unable to understand the details. I get that establishing history creates a time arrow that allows ordering of transactions and the use of a single chain, no sharding required.

The calculations in BTC get more difficult to match the effort/expense of supporting the network as the price goes up. BTC is the reward that pays the bills, doing the calculations supports the ecosystem. If they get out of whack, it dies. I would say Moore's law influences the supply of computational resources cost on the supply side. Demand also has a big influence.

Its good you are reading whitepapers. Surprisingly few people do.

Now, I am not trying to be rude here, as I do think any well-intentioned discussion is good, but do you really think this particular FUD you mentioned about BTC is correct and has not been thought of or addressed, and that what you have mentioned is an actual "insight" with any validity?. I won't take the time to answer in detail, but please research the bitcoin mining difficulty adjustment, which occurs every 2,016 blocks (around every two weeks at the moment), which helps maintain a target block time of 10 minutes. This will put you on the path to answering this issue, and maybe also be a small step toward being more comfortable owning a little BTC.

I feel kind of like this is a forum from back in 2017 when new potential first time entrants into the BTC market were trying to figure out the feasibility of Bitcoin. Which is fascinating in itself, as this is likely due to an entirely new demographic (retirees!) taking an interest in Sats.

 

[Markola]

^^^^^ Or maybe this forum has a lot of members who have already made it and are not excited to strive for more by investing their hard-earned stash on an entirely new asset class. One only has to make one fortune, right? I respect that position.

People call Bitcoin “digital gold”. I, for one, am not interested in owning gold, nor are a lot of people here, so it’s not really a selling point for us. Nevertheless, I’m considering buying some Bitcoin for the harmless speculation. I’ve read a few times that, if the majority of asset managers incorporate a 5% stake in crypto, Bitcoin is likely to go to $400K - $500K. That suggestion has my attention.

 

[37andhappy]

^^^^^ Or maybe this forum has a lot of members who have already made it and are not excited to strive for more by investing their hard-earned stash on an entirely new asset class. One only has to make one fortune, right? I respect that position.

People call Bitcoin “digital gold”. I, for one, am not interested in owning gold, nor are a lot of people here, so it’s not really a selling point for us. Nevertheless, I’m considering buying some Bitcoin for the harmless speculation. I’ve read a few times that, if the majority of asset managers incorporate a 5% stake in crypto, Bitcoin is likely to go to $400K - $500K. That suggestion has my attention.

Yes, I think you are right. Most people here have "made it" and so their primary focus is (and should be) not to lose money. (Hence the caution on Bitcoin). Also generational factors at play.

The irony of course, is that the primary purpose of holding Sats is exactly that - BTC is a defense a range of scenarios that could cause massive loss of wealth, (and that we all also know that fiat currency, over time, with certainty loses value). And yet we have more "conservative people" avoiding Bitcoin (as opposed to having some allocation towards it).

What we have seen though, is one fund manager after another (typically men in their 60s) one by one move over from skeptics to fans.

I'm in general also not a "fan" of gold, (and in general I love yield-producing assets), but do see its place for defensive purposes and have a a few bars and coins in physical stashed away. (Damn heavy they are, but I do enjoy the "weight" of the coins in my hands).

YEs, one motivation for buying BTC could be for some fun speculation, but I would suggest there are better mindsets to adopt which may support the decision stack Sats! These include personal freedom and immediate decentralized global storage transferability of wealth. Whilst many of us have had it quite stable in the US for the last 50 or so years, do NOT under-estmate the types of things which can happen very quickly (or indeed insidiously and by stealth) which we see in many parts of the world, and in many times in history.

 

[indiajust]

Its good you are reading whitepapers. Surprisingly few people do.

Now, I am not trying to be rude here, as I do think any well-intentioned discussion is good, but do you really think this particular FUD you mentioned about BTC is correct and has not been thought of or addressed, and that what you have mentioned is an actual "insight" with any validity?. I won't take the time to answer in detail, but please research the bitcoin mining difficulty adjustment, which occurs every 2,016 blocks (around every two weeks at the moment), which helps maintain a target block time of 10 minutes. This will put you on the path to answering this issue, and maybe also be a small step toward being more comfortable owning a little BTC.

I feel kind of like this is a forum from back in 2017 when new potential first time entrants into the BTC market were trying to figure out the feasibility of Bitcoin. Which is fascinating in itself, as this is likely due to an entirely new demographic (retirees!) taking an interest in Sats.

I read the BTC white paper back in 09 when I was still calling it unemployment instead of FIRE. I loved the idea of merkle trees and byzantine generals. The mathematical structures are a big part of the fascination for me. ChainLink and its gossip about gossip. The simplicity of filecoin. The novelty of creating self referential programmatic cultures. Real creativity with a purpose.

NH was the recent focus for a Treasury/FBI putsch. I got a few blandly pandering contact attempts on linkedin from friendly strangers before the warrants were served with gratuitous destruction and malice. Once the empire is done making examples of a few unlucky subjects I may be tempted.

I am torn between the first mover advantage for BTC, and avoiding the pioneers with arrows in their back. Solana and FTX are a huge leap forward from BTC and Mt Gox.

 

[target2019]

I read a book, and found it very interesting. Of course it can get too technical, but I feel this book offered reasonable critique along with the explanations.

Blockchain Bubble or Revolution: The Future of Bitcoin, Blockchains, and Cryptocurrencies Kindle Edition by Neel Mehta (Author), Aditya Agashe (Author), Parth Detroja (Author)
Publication date ‏ : ‎ June 11, 2019

I prefer books over yutube influencers.

 

[37andhappy]

I am torn between the first mover advantage for BTC, and avoiding the pioneers with arrows in their back. Solana and FTX are a huge leap forward from BTC and Mt Gox.

There will only ever be one immaculate conception. And that was Bitcoin. Every other "alt" is basically a scam on the concept of Bitcoin. And there are of course an infinite number of coins that a promoter will tout as "having superior technology" or being best suited for a particular niche.

A good discussion as to why all alts should be treated as trash (or with at least extreme skepticism and with very limited exposure) took place here:

https://youtu.be/XyyEB9LtgoM

As for the Mt Gox exchange, the issue here was entirely with the security of the exchange. Every single Bitcoin still exists, and not a single Sat was lost The blockchain functioned perfectly. Its like if a bunch of gold coins were stolen from a bank vault. The problem is not the coins. The coins remain perfect. But due a fault in a vault, the coins were stolen.

So, with Bitcoin, its either best to self custody. ETF or listed trust holdings also should be fine. And lastly, the major exchanges have now massively improved their security. So for example, with regulated exchanges such as Coinbase, or Gemini etc, I am not aware of any successful attacks of any significance on the exchanges themselves.

 

[Ramen]

Not quite sure how to ask this question, as I'm still trying to digest the jargon. Does anyone here know about "staking" or "stake pooling"? I recently met a young couple (early 30s) who were visiting in town and said they retired on passive income from this (i.e., "rewards"). I don't know what their outlay was, but they say they are now making several thousand dollars per day. It all sounded too good to be true, but I watched a couple of videos attempting to explain staking and why it's not a scam. But if it's so easy, why isn't everyone doing it? One video notes this is more of a side gig thing, not a gold mine. Maybe these folks I met were exaggerating?

 

[teachme]

Does anyone here know about "staking" or "stake pooling"?

Here is one article on a site I use for calculating staking rewards
https://www.stakingrewards.com/journal/staking-how-to-earn-yield-safely-with-crypto/

Lots more articles if you choose to spend the time
https://www.stakingrewards.com/journal/category/research/

But if it's so easy, why isn't everyone doing it

From people I've introduced to crypto it usually seems to come down to volatility and crypto being so new people just do not want to take the time to learn plus they have to navigate all of the bad information and advice in the crypto space and that take time. They just want something turn key and new tech like crypto is not as easy. It can take some to understand better times to enter/exit the market and as you know it is extremely rare anyone can consistently time the top/bottom. However, I've found the returns on crypto are so skewed that I don't have to, just get close enough and be okay with missing the "exact" bottom/top but at the same time understanding this is a new space and there is substantially more risk than traditional markets which is why you don't allocate substantial portions of your net worth.

One video notes this is more of a side gig thing, not a gold mine. Maybe these folks I met were exaggerating?

Could be or they could just have been in the right crypto but they're also giving you numbers in a bull market for crypto right now. When the next bear market hits their income will drop significantly. Example: ADA (Cardano), if you were staking a year ago on 100K coins you would have been making ~US$50/month. If you had done nothing and kept holding you would now be making $1000/month. Purchase price on those 100K coins a year ago $10K, today $210K.
source:
https://www.stakingrewards.com/earn/cardano/ (staking calculator)
https://www.coingecko.com/en/coins/cardano (historical price)

I'll always due some staking but macro selling (IOW not day trading but watching larger trends) is much more profitable as the above example demonstrates.

 

[joesxm3]

I have found this guy on YouTube to provide some high quality analysis on the crypto space and on options investing.

I have not gotten involved with staking or earning yield (rewards), and the previous post seems to provide a lot, so I will just mention a couple things I saw on the videos.

It seems that "staking" is locking in or pledging your crypto coins to support a given project and you are rewarded with more coins for doing that. Your "profit" depends on the value of the coins. Invest Answers has pointed out that a lot of these projects keep creating more coins to pay the stakers and therefore have a high rate of inflation like fiat currency, which may lower the value of the coins over time.

The other staking-like thing is depositing your crypto to earn yield on places like celsius.com. In that case the company takes your crypto deposit and loans it out to large trading firms at a high rate of return and gives you a high rate of interest. This basically involves a lot of re-hypothecation in order generate the yield. IA points out that wherever there is a high rate of return it is most likely linked to a correspondingly high level of risk.

https://www.youtube.com/channel/UClgJyzwGs-GyaNxUHcLZrkg

 

[joesxm3]

I was the original poster on this thread and have been trying to learn about crypto over the past several months.

The more I study the space, the more I am led to believe that we may be in the middle of some sort of dramatic shift of the financial landscape. Definitely something that deserves more attention and study.

I am a big fan of the "Fourth Turning" theory of generational cycles in history and that would claim that we are in the middle of the cycle associated with crisis, upheaval and creative disruption. When you combine that with facts like the boomer generation controlling most of the wealth and the younger generations that are cycling in being stuck with lots of debt, faced with very high house and asset prices and basically getting the short end of the stick, you can see how those generations would embrace financial disruption such as may be occurring in the crypto space in order to have a shifting of wealth back to their generation as they come into control.

You can also make the case that a lot of the decentralized finance protocols or projects have the potential to cut out the middle man (banks, financial institutions etc.) that have their hand in the pie and are taking a cut of every transactions.

 

[aja8888]

You can also make the case that a lot of the decentralized finance protocols or projects have the potential to cut out the middle man (banks, financial institutions etc.) that have their hand in the pie and are taking a cut of every transactions.

It seems like that same thing is going on with the crypto space too. High transaction fees, skimming in the "staking game", fees for this and that, etc.

 

[37andhappy]

Not quite sure how to ask this question, as I'm still trying to digest the jargon. Does anyone here know about "staking" or "stake pooling"? I recently met a young couple (early 30s) who were visiting in town and said they retired on passive income from this (i.e., "rewards"). I don't know what their outlay was, but they say they are now making several thousand dollars per day. It all sounded too good to be true, but I watched a couple of videos attempting to explain staking and why it's not a scam. But if it's so easy, why isn't everyone doing it? One video notes this is more of a side gig thing, not a gold mine. Maybe these folks I met were exaggerating?

1. There is generally no such thing as "easy money" for any sustained period, without consequent risk (which may often be overlooked or mispriced).

2. If you don't understand an area like this well, you are right to be cautious and skeptical.

As to where this stems from in the crypto space, is that you have people increasing moving their wealth into Bitcoin (or alts), and then wanting to earn a yield. So, not just being satisfied with say a 400% pa increase value from Bitcoin (which is the increase we have seen over the last 12 months), they also want to earn an "income".

This is where the "staking" and "yield" come in. (And you will probably have heard of term "De-Fi" (decentralized finance).

Most forms of "staking" essentially involve you lending your Bitcoin to a 3rd party who is prepared to pay you interest for a period of time. This may be through an intermediary or direct via an entirely decentralized platform.

In reality, much is this staking involves the "borrower" using those funds to speculate on the future direction of the market with leverage, with the hope of making more money that the cost to borrow it. They pay a yield for the ability to use your coin to do this. If done correctly, you are protected, in that they are simply cancelled out / margin called if the market moves to the point where their position is wiped out. You then get your coin back + interest, and they lose the amount they initially had as security to support their leveraged borrowing.

Its quite a murkily space in my view. If you do explore this, I would strongly suggest you only use regulated exchanges such as Gemini. There are many off-shore providers, where you really have no realistic recourse, and where you really have no idea what is going on "beneath the hood".

In almost all forms of staking, you are essentially "giving up your keys". And if its one key phrase a Bitcoiner gets drilled into them is "Not your keys, not your coin". As soon as you relinquish control of your keys, you create risk. All this Defi is good, until its not.

I would suggest simply buying Bitcoin and holding. That's really all you need to do. If you really want to explore the DeFi space, don't ever put more than 10% of your coin onto a single exchange offering a staking se4vice, and stick with regulated exchanges. (You will find that its generally the regulated exchanges that offer the lowest rates, and the more murky ones which offer more attractive rates. There's a reason for that.

Oh, and if this young couple are trying to suggest to you to use a particular platform or scheme, be very weary. Some of these staking providers are essentially ponzi schemes. I've see a few "rug-pulls" in my time. A professional looking off-shore website can be set up in minutes. Once you transfer your Bitcoin, it can essentially be gone, never to be returned again.

 

[indiajust]

Staking smells like unsecured lending. Hard to determine what your funds are used for and how likely you are to see them returned. Can be easy to stumble onto a Ponzi scheme. There are legit needs in this space, as well as fraudulent scams.

Unsecured lending to unknown strangers for unknown purposes.

 

[37andhappy]

Discussion here may be of interest:

"Should cryptocurrency be a part of your retirement savings?"

http://finance.yahoo.com/video/cryptocurrency-part-retirement-savings-211042127.html