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What exactly is the problem with a store of value with 500% annual returns? I read people talking about the supposedly awful volatility, but they fail to menti

What exactly is the problem with a store of value with 500% annual returns? I read people talking about the supposedly awful volatility, but they fail to mention that the volatility has a very distinct trajectory. Bitcoin is volatile as it increased in value by orders of magnitude year after year. The article repeats this fear of volatility in the context of one's live savings. How frequently do people tap their life savings to pay for grocery runs? Isn't it the case that Bitcoin is by far the best possible store of value one could have adopted for their life savings over the past five years?

lxmorj 12y ago
Dude, go look up tulips on wikipedia.
- sassypants 12y ago
  Bitcoin has shown predictable, steady growth sustained over a many year period. https://i.imgur.com/kV2IRT5.png https://i.imgur.com/kV2IRT5.png Tulips experienced exponential an order of magnitude shift in price during the course of one year in 1637. Unlike tulips, Bitcoin is widely appreciated for its utility. I don't think the comparison is as meaningful as critics would make it out to be. Steady logarithmic growth in valuations is a normal phenomenon among tech startups -- yet it seems to me that many otherwise smart people are flustered by this growth when applied to Bitcoin, thinking it must be too good to be true.
  - teraflop 12y ago
    > Tulips experienced exponential an order of magnitude shift in price during the course of one year in 1637. Did you fail to notice that your Bitcoin graph shows several occurrences of order-of-magnitude change over less than one year? Anything can be made to look "steady" if you plot it on a log scale.
boucher 12y ago
Unless of course they invested when bitcoin was over $1000. Ever heard the phrase "past performance is not an guarantee of future returns?"
- maaku 12y ago
  Gold is the typical store of value asset, and the story there is very similar.
  - marincounty 12y ago
    Gold has experienced rapid growth since 2008, but historically the growth curve has been flat. I have never heard a competent Financial Advisor recommend gold. But this boom is weird? I wonder if HFT's will be to blame, when we have the crash?
    - bduerst 12y ago
      Gold is a good asset to hedge with, because it is typically inversely correlated with the markets. Hence the boom around 2009. A competent Financial Advisor would calculate correlations between Gold price performance and your portfolio, and use the coefficient to recommend the right amount of gold to buy. Or they just spare you the jargon and do it for you.
    - baddox 12y ago
      How do you define the competence of a financial adviser?
- sassypants 12y ago
  I've been meaning to build a chart to evaluate this. The question would be: What are the longest periods of time one could have held Bitcoin and lost money? And secondarily, how frequent were the opportunities to have lost money? My ballpark guess would be that the longest you might have held Bitcoin at a loss were if you purchased during a few day span during the peak of 2011. You would have had to have held for almost two years to have turned a profit. But on 95-99% of days in which you could have purchased bitcoin, you would have profited within 1 year. I'll try and put that together. Should be interesting.
zby 12y ago
The growth has to stop very soon - exponential functions can go on only so long. And when it stops the volatility will not stop - this is a prediction of course - but I am pretty sure that it will be this way.
- sassypants 12y ago
  But why would it stop sooner than a $200 billion market capitalization? Or $700 billion for that matter? When Facebook was raising money at $10 billion valuations would it be wise to predict that it had to "stop very soon"? I don't disagree that Bitcoin will at some point stop revaluing upwards by orders of magnitude, and I don't pretend to know what the market cap will be in a few years time. But I don't think it would be all that surprising if Bitcoin were to be more valuable than say, What's App. And for that to happen we're going to likely see another order of magnitude adjustment.
  - boucher 12y ago
    When Webvan was raising money valued at $1 billion would it have been wise to predict that it would "stop very soon"? Anecdotes are not market principles.
    - sassypants 12y ago
      But that's my point. Arbritrarily declarations that exponential growth must stop soon are not meaningful in the positive or negative. There are reasonable methods, however, to estimate likely outcomes of successful growth. I think its reasonable to predict that Bitcoin is likely to reach valuations of large publicly traded corporations. There are those that estimate it reaching valuations similar to gold, or the GDPs of industrialized nations. But saying that the growth must stop because growth must stop isn't really saying much at all.
- brg444 12y ago
  exponential growth of other technologies did not stop until they reached mainstream adoption. Bitcoin is very far from that
kaonashi 12y ago
The problem is with a medium of exchange with 500% annual returns.

lxmorj 12y ago

Dude, go look up tulips on wikipedia.

sassypants 12y ago
Bitcoin has shown predictable, steady growth sustained over a many year period. https://i.imgur.com/kV2IRT5.png https://i.imgur.com/kV2IRT5.png Tulips experienced exponential an order of magnitude shift in price during the course of one year in 1637. Unlike tulips, Bitcoin is widely appreciated for its utility. I don't think the comparison is as meaningful as critics would make it out to be. Steady logarithmic growth in valuations is a normal phenomenon among tech startups -- yet it seems to me that many otherwise smart people are flustered by this growth when applied to Bitcoin, thinking it must be too good to be true.
- teraflop 12y ago
  > Tulips experienced exponential an order of magnitude shift in price during the course of one year in 1637. Did you fail to notice that your Bitcoin graph shows several occurrences of order-of-magnitude change over less than one year? Anything can be made to look "steady" if you plot it on a log scale.

boucher 12y ago

Unless of course they invested when bitcoin was over $1000. Ever heard the phrase "past performance is not an guarantee of future returns?"

maaku 12y ago
Gold is the typical store of value asset, and the story there is very similar.
- marincounty 12y ago
  Gold has experienced rapid growth since 2008, but historically the growth curve has been flat. I have never heard a competent Financial Advisor recommend gold. But this boom is weird? I wonder if HFT's will be to blame, when we have the crash?
  - bduerst 12y ago
    Gold is a good asset to hedge with, because it is typically inversely correlated with the markets. Hence the boom around 2009. A competent Financial Advisor would calculate correlations between Gold price performance and your portfolio, and use the coefficient to recommend the right amount of gold to buy. Or they just spare you the jargon and do it for you.
  - baddox 12y ago
    How do you define the competence of a financial adviser?
sassypants 12y ago
I've been meaning to build a chart to evaluate this. The question would be: What are the longest periods of time one could have held Bitcoin and lost money? And secondarily, how frequent were the opportunities to have lost money? My ballpark guess would be that the longest you might have held Bitcoin at a loss were if you purchased during a few day span during the peak of 2011. You would have had to have held for almost two years to have turned a profit. But on 95-99% of days in which you could have purchased bitcoin, you would have profited within 1 year. I'll try and put that together. Should be interesting.

zby 12y ago

The growth has to stop very soon - exponential functions can go on only so long. And when it stops the volatility will not stop - this is a prediction of course - but I am pretty sure that it will be this way.

sassypants 12y ago
But why would it stop sooner than a $200 billion market capitalization? Or $700 billion for that matter? When Facebook was raising money at $10 billion valuations would it be wise to predict that it had to "stop very soon"? I don't disagree that Bitcoin will at some point stop revaluing upwards by orders of magnitude, and I don't pretend to know what the market cap will be in a few years time. But I don't think it would be all that surprising if Bitcoin were to be more valuable than say, What's App. And for that to happen we're going to likely see another order of magnitude adjustment.
- boucher 12y ago
  When Webvan was raising money valued at $1 billion would it have been wise to predict that it would "stop very soon"? Anecdotes are not market principles.
  - sassypants 12y ago
    But that's my point. Arbritrarily declarations that exponential growth must stop soon are not meaningful in the positive or negative. There are reasonable methods, however, to estimate likely outcomes of successful growth. I think its reasonable to predict that Bitcoin is likely to reach valuations of large publicly traded corporations. There are those that estimate it reaching valuations similar to gold, or the GDPs of industrialized nations. But saying that the growth must stop because growth must stop isn't really saying much at all.
brg444 12y ago
exponential growth of other technologies did not stop until they reached mainstream adoption. Bitcoin is very far from that

kaonashi 12y ago

The problem is with a medium of exchange with 500% annual returns.