[HN Gopher] Coinbase valued above $100B, ahead of direct listing
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Coinbase valued above $100B, ahead of direct listing
Author : DLay
Score : 182 points
Date : 2021-02-19 23:24 UTC (23 hours ago)
(HTM) web link (www.axios.com)
(TXT) w3m dump (www.axios.com)
| kevindeasis wrote:
| Ah yes, possibly the 5th company that I wished I joined this past
| 18 months...
|
| Historically there were some exchanges that have been hacked.
| This caused not only the company to go bankrupt but people losing
| a lot of money. How does coinbase prevent this from happening?
| This is very much one of the reasons I will never hold crypto
| (FYI: I've wrote my own Golang flavour of ethereum blockchain and
| solidity when it first came out, since im gonna get bashed for
| this post. I also regret not putting 1k during ethereums ICO when
| that was the only money I had in my bank account. This is not an
| investment advice). If my etrade or bank account got hacked, I
| can still get my money back through FDIC and SIPC. If a non-tech
| personstarted hyping a cryptocurrency and placed 100k in it, and
| they get hacked, essentially their 100k evaporates right? I guess
| there are worse ways to gamble your money
|
| What I like about crypto though is the 24/7 market. I wish there
| was something like this in the stock market.
| hakeberio wrote:
| Regarding your last line: futures trade nearly 24 hours, 6
| days/week. It's also several times bigger than the ETF market,
| in terms of average daily dollar volume, so you get the
| liquidity and smaller spreads as well. [1]
|
| [1]: https://www.cmegroup.com/education/courses/futures-vs-
| etfs/w...
| herpderperator wrote:
| TD Ameritrade's 24/5 is the closest we have to this at this
| time. The volume is quite limiting.
| kevindeasis wrote:
| That's interesting, I googled this and I didn't know this
| existed. Thank you
| tony101 wrote:
| It's not perfect, but I believe Coinbase uses a combination of
| cold (offline) storage for most of its coins and insurance for
| the rest. Also, as you probably already know, people should not
| hold large sums on exchanges if they can use secure their own
| keys (and wallets) instead.
|
| > "Coinbase prioritizes the security of our customer's digital
| currency through a combination of online "hot storage" and
| offline "cold" storage. Coinbase maintains 98% or more of
| customer digital currency in cold storage, with the remainder
| in secure hot servers as necessary to serve the liquidity needs
| of our customers. All digital currency that Coinbase holds in
| its online hot storage is insured. If Coinbase were to suffer a
| breach of its online hot storage, the insurance policy would
| pay out to cover any customer funds lost as a result."
|
| https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
| fy20 wrote:
| I'd imagine with SV money and SV knowledge building a secure
| exchange, with proper cold wallets and processes in place to
| secure them and manage access, is not that difficult.
|
| I get the impression that a lot of exchanges are (or were in
| the early days) built by 'enthusiasts' who know just enough
| tech to be dangerous.
| tradertef wrote:
| You are assuming cold storage can not be "hacked" or
| "stolen". It is much more difficult at Coinbase scale but
| such an event would have drastic impact on crypto markets.
| Coinbase is too big to fail :)
| kevindeasis wrote:
| Wow, that's a fun fact, there is an insurance. That's pretty
| cool, I wonder how much insurance are for these companies and
| brokerages
| Gunax wrote:
| It's great for coinbase, but I don't understand why it's winning
| the competition. It's fees are incredible, and it doesn't even
| seem to offer basic features like limit orders.
| yao420 wrote:
| Check out Coinbase Pro, also free and with better interface,
| features, and I think lower fees.
| tradertef wrote:
| It is super easy to use.. that's why. Fiat ramp-up in other
| exchanges are P.I.T.A.
| wave_function wrote:
| Maybe coinbase stock becomes the next cryptocurrency! One
| coinbase is one coinbase?
| herpderperator wrote:
| I wouldn't be surprised to see Coinbase stock track bitcoin
| extremely closely.
| throwsaways212a wrote:
| There can only ever be 21 million Coinbases
| antoniuschan99 wrote:
| Check out binancecoin. It shot up so fast last few days it
| looks like its #3 in market cap now!
| _rohan wrote:
| I see a lot of people talking about the market being in a bubble,
| and that they're holding cash waiting for a crash.
|
| Even if that's true, I recently read about the bubble potentially
| "bursting up": instead of prices coming crashing down, prices
| stay stagnant or grow slowly, while earnings grow quickly. The
| net result is the same (P/E ratios stabilize), but you lose out
| on a lot by staying out of the market.
| kirse wrote:
| I think the other practical issue is that a "bubble" can go
| high enough where a 70% downward correction could still land
| above where you originally decided to cash out. I made this
| error back in 2016 thinking that Obama had juiced things for 8+
| years and there'd be no way for Trump to keep the party going.
| And that taught me a hard lesson on the foolishness of trying
| to time the markets.
|
| The other issue we are dealing with now is also asset
| inflation, where the number on the screen does not reflect any
| intrinsic value, but moreso the ongoing devaluing of the dollar
| we hold in our pockets.
|
| I personally think this whole "modern monetary theory" is a
| game where the smart folks at the Fed realize that rather than
| have people watch the number on their savings and 401ks
| obliterated in a crash, they prefer to keep that number
| appearing the same and bury the "cost" of the bubble into a
| deflating dollar. It keeps the masses happy because they see
| the $s in their savings account still going up, which retains
| confidence in the system. Who knows when everyone will catch
| on, but it's been working so far.
| hiq wrote:
| > instead of prices coming crashing down, prices stay stagnant
| or grow slowly, while earnings grow quickly
|
| Do you have a link where I could read more about this? As a
| layman I fail to understand how this would work, and I couldn't
| find a page explaining it.
|
| My naive understanding is that a bubble pops when investors
| lose confidence in the market, and instead of anticipating
| growth, anticipates a correction and create a feedback loop
| down to a certain level (at which some counter feedback
| stabilizes the movement).
|
| How can earnings increase when investors have lost confidence?
| _rohan wrote:
| The market is overvalued when the price-to-earnings ratio is
| too high (ie, valuations outweigh the actual money that a
| company makes). When it gets really high, investors can
| panic, and sell stocks, driving prices down and hence
| reducing the PE ratio.
|
| The alternative I'm describing is one where panic selling
| doesn't occur. Earnings can continue to rise (because
| earnings reflect consumer spending and other similar trends),
| whereas prices don't go up as much because market speculation
| reduces and people are less bullish. It doesn't have to
| devolve to panic selling.
| lottin wrote:
| Bitcoin has no earnings so I don't know how that could
| possibly work in the case of the bitcoin bubble.
| emehex wrote:
| Perhaps a dumb question: why is Coinbase even entertaining an
| IPO? Give away shares for fiat money? Isn't that antithetical to
| what they're trying to do?
| bob33212 wrote:
| They are trying to "Exit". That is what they call a IPO or a
| Sale in startups. They get paid with cash, then they buy
| houses, stocks, bitcoin, cars with that cash. The "Mission" of
| Coinbase exists because they don't want to say "Our mission is
| to build a 100 billion dollar company and then cash out" it
| sounds better and feels better to say that you are
| democratizing and decentralizing power for the people.
| mikkelam wrote:
| Ah the unspoken words of most startups. No one will ever
| admit to it, but too many are conceited in their quest.
|
| I don't see anything wrong with it, but the status quo is
| that building a company has to be a true calling to change
| the world.
| vmception wrote:
| A direct listing is markedly different than an IPO or sale.
| It should just be added to your list of examples.
| TheBlight wrote:
| Both can be true. ie. wanting to build something cool and
| potentially good for society while also enjoying the fruits.
| bob33212 wrote:
| Certainly. Just look at some of the people on Etsy. Some of
| them are pure artists who do what they do because they love
| it, not because they were hoping become a 100M brand some
| day. Some of them make good money because their products
| are so great and unique. But those same people are
| generally not looking to sell their company.
| TheBlight wrote:
| You don't think an Etsy artist who became popular enough
| to hire employees and make a large brand would ever sell
| shares of their business? Or is that type of Etsy user
| immoral/incorrect? Not clear to me what point you're
| making here.
| bob33212 wrote:
| Why did they create their Etsy store? Was it to make as
| much money as possible? If the goal is just to make money
| then they should cash out at the peak of their brand.
| TheBlight wrote:
| What I meant to convey with my original reply is that
| making as much money as possible and trying to improve
| society aren't necessarily mutually exclusive. Then you
| proceeded to seemingly present a mutual exclusion of
| either someone making art for art's sake or making art
| simply to make as much money as they can.
| bob33212 wrote:
| You can only have one #1 priority. Maybe following your
| #2 priority helps achieve #1. Is that what you are
| saying? Selling a Crypto Company for Fiat makes Crypto
| more legit?
| dehrmann wrote:
| Especially when you're running a company that facilitates the
| exchange of high-price trading cards. If those cards are
| popular and expensive, and the market thinks you're worth 22%
| as much as JP Morgan, it's a great time to cash out. They
| might be eyeing a direct listing because institutional
| investors know that price is ridiculous, but also because
| they see Coinbase as something of a competitor, so the only
| interest will be from retail investors.
| alasano wrote:
| If somehow you could dissociate the tech from the currency
| aspect, would you still qualify cryptocurrencies as "high-
| price trading cards"?
|
| I wonder because where some people are attracted to crypto
| because of the monetary gain and then learn about the
| technology, others are turned off by the constant focus on
| the $ value and then don't learn about the technology.
|
| I truly find it fascinating to imagine our future running
| on a crypto layer. I'm not talking about bitcoin
| specifically due to its inherent limitations (which may or
| may not be bypassed through second layer solutions).
|
| But playing around with some of the DeFi stuff, seeing
| directed acyclic graph ledgers perform at 10k tps and
| seeing projects which truly can bring value to people
| really gets me hyped about these things working seamlessly
| together.
|
| The internet is not worth a lot because of the protocols
| underneath it but because of what people have built on it
| over the years. These various cryptocurrencies interacting
| with each other more and more gives me the same impression.
|
| Every boom/bust cycle crypto goes through brings in more
| creativity from people who are building on this new world
| and I have trouble finding fault with it.
|
| Would love to hear some arguments on how this view of
| things could be biased or perhaps wrong.
| ErikAugust wrote:
| What projects do you believe truly can bring value to
| people?
| silexia wrote:
| The three comments preceding mine are brilliant at cutting
| through the pump and dump hype around Coinbase.
| globular-toast wrote:
| Maybe you're confused about what they're trying to do. I'm
| pretty sure they're trying to get rich and nothing else.
| qeternity wrote:
| 21st century Levi Strauss
| willio58 wrote:
| I don't think it's antithetical, going public is a natural step
| for many companies. It makes the people at the top of the
| company that much richer. Also in a weird way going public is
| sort of decentralization because suddenly the people running
| the company are answering to the shareholders instead of a few
| key stakeholders.
| Proziam wrote:
| I'm someone who used crypto to buy my current residence. Until
| you and your staff can pay their rent and taxes in BTC, fiat
| money is the only real money.
|
| That said, I have my doubts about the 'purity' of any crypto
| company.
| graeme wrote:
| Only tangentially related: How do bitcoin network costs scale
| with market price?
|
| We can expect the marginal cost to mine a coin to scale with
| price. So if btc worth $52,000 then people will invest on average
| $52,000 in equipment and electricity.
|
| There are 6.5 coins mined every 10 min. So daily network cost
| approximates to 6.5 * 6 * 24 * $52,000 = $48,000,000
|
| This is not strictly accurate as past equipment costs less and
| people may over invest expecting appreciation. But it should be
| close enough.
|
| So to run the network at a price of $52,000 you need $17.76
| billion dollars to enter as fresh capital to be burned as
| electricity and equipment, correct?
|
| And if the price hit $1,000,000 as boosters claim, mining
| difficulty would rise to adjust and the new annual maintenance
| cost would be: 6.5 * 6 * 24 * * 365 * $1,000,000 =
| $341,640,000,000
|
| And then this would decrease as halving happened. In May 2020 and
| then 2024. So the annual cost to run a $1,000,000 btc network
| post the may 2020 halving would be about $170 billion per year.
| That much new capital needs to enter the market and be burned up
| simply to maintain the price at $1,000,000. And to be useful to
| the world a $1,000,000 bitcoin would need to generate
| $170,000,000,000 in value annually.
|
| Have I got this right or did I make a grievous error somewhere?
| csomar wrote:
| You are not wrong. However
|
| 1= $1m/bitcoin is x20 from here. And here is already a pretty
| high price.
|
| 2= $170bn is a lot of money. But on an international/global
| scale, it's a drop in the bucket.
| graeme wrote:
| Yeah I just want to think through the claims of the
| maximalists. For example I often hear them say "it's digital
| gold, so it has 10x to grow".
|
| That would be $85 billion for mining, whereas gold mining
| annually is about $1.3 billion. ~$1000 per ounce mining cost
| * 130 million ounces mined.
|
| Of course it's not an exact comparison as you prob ought to
| add in storage costs for gold but then maybe you'd need to
| add crypto online wallets and it gets messy. Mining to mining
| is clear and simple.
|
| It _is_ a drop in the bucket globally, but it also means you
| need that much capital flowing in to maintain the market
| price. Just to maintain. So you would want the network to be
| producing that much value at least.
| andruby wrote:
| Just wanted to point out that 130M * $1000 = $130B, not
| 1.3B
| graeme wrote:
| Whoops. That's a radical difference. Thanks for catching
| that.
| beaner wrote:
| > you need that much capital flowing in to maintain the
| market price
|
| There's something off about the argument that you're making
| and I think it's that you have cause and effect backwards.
|
| You keep phrasing this as if mining moves first before
| price, and investments in hardware are necessary to sustain
| high prices. But the reality is that high prices come first
| and incentivize investment. That investment is _not_
| required for Bitcoin to continue to operate, it 's just an
| expected effect for a given cause.
| csomar wrote:
| Think about it this way: There is 7bn people on the planet.
| $170bn works out an average of $24/person. Or $2/month.
| Even poor people in poor countries can afford that. It
| might actually be cheaper for them, many poor countries
| (think Africa, Argentina, Brazil, etc...) are going through
| hyperinflation that it is safer and less volatile to hold
| Bitcoin.
| graeme wrote:
| That calculus doesn't work as a store of value. For the
| substantial minority of people earnings ~$2 per day, $24
| per year is a sizeable fraction of wealth.
|
| As far as currency goes, it bitcoin transactions rise,
| does that have no impact on price? I realized my price
| thinking makes no mention of them and I don't know how
| they affect things.
| csomar wrote:
| $24 is not a sizeable fraction of wealth by any measure.
| And here we are talking averages. The average per capita
| GDP is $18k. $24 is a very small number to that.
| graeme wrote:
| The median wealth per adult in africa is $1600.
|
| And the cost per adult would be over $24. At least a
| quarter of people in africa are under 18 I think, though
| I couldn't find great stats. So the correct number would
| be more like $32. 2% of wealth per year.
| TheTaytay wrote:
| I think you're on track. I found this article to be a great
| analysis of the electric consumption as it relates to the price
| of BTC. https://www.ofnumbers.com/2021/02/14/bitcoin-and-other-
| pow-c...
| martinko wrote:
| You've got it right. That being said, I dont think anyone
| realistically expects 1m / btc this decade.
| graeme wrote:
| Right just thinking through the claims of the boosters to
| their logical end.
|
| If it did happen in nine years the next halving is 2028 so
| the cost would be ~$85 billion per year. And that would be
| less than it is now due to inflation.
|
| Ok that's actually not as bad as I thought, though still
| pretty expensive. You need $85 billion from new entrants in
| burnt capital just to maintain the value of existing bitcoins
| at that price, and people need some reason for putting in
| capital other than price appreciation assuming appreciation
| stops.
| usehackernews wrote:
| You seem to have a good grasp of creating high level
| models.
|
| I always see people referring to the energy consumption of
| bitcoin as though it's strictly additive.
|
| What I'd be interested to know is how it compares relative
| to energy costs for transacting with and securing fiat
| currencies.
|
| Second, what people tend to ignore is that innovation
| doesn't come in a vacuum - there are second, and third
| degree improvements triggered from it. In a world where
| bitcoin is $1million, it means the world has agreed on the
| benefits, and we will see innovations to address the
| tradeoffs that come from this. For example, we could see
| significant investment into renewable energy as a means to
| support the energy consumption of bitcoin.
|
| Third, and this isn't directed at you, just a general
| statement based on arguments I see on HN - cryptocurrency
| itself does not have high energy consumption. Proof-of-work
| mining does. There are methods to support cryptocurrency
| that do not result in high energy consumption (Proof of
| Stake, DAGs). It's wrong to generalize energy consumption
| issues to all cryptocurrencies.
| graeme wrote:
| > What I'd be interested to know is how it compares
| relative to energy costs for transacting with and
| securing fiat currencies.
|
| Very hard to compare. One thing I'm unsure of for
| bitcoin: do costs go up if there are more transactions or
| does mining difficulty adjust so that costs don't rise no
| matter how many transactions bitcoin does? I realize this
| is a major gap in my understanding.
|
| The finance and currency system does much that bitcoin
| doesn't currently do. So comparing as a whole isn't
| adequate _unless_ bitcoin network costs don't scale up
| with numbers of transactions because mining gets easier.
|
| Actually how do miners make money once there are no more
| coins to mine?
|
| > In a world where bitcoin is $1million, it means the
| world has agreed on the benefits, and we will see
| innovations to address the tradeoffs that come from this.
| For example, we could see significant investment into
| renewable energy as a means to support the energy
| consumption of bitcoin.
|
| That actually doesn't follow. All that follows is that
| the world has decided to move $170 billion in capital
| into bitcoin per year.
|
| The world is presently set to move about $20 billion of
| capital into bitcoin per year, and there's no real
| consensus above usefulness.
|
| The world could be putting $170 billion in because there
| is value, or it could be a massive waste of resources.
| The world has certainly misallocated resources before.
|
| And yeah I was restricting my own comments to bitcoin.
| Ethereum et al I know much less about.
| dragonwriter wrote:
| > Actually how do miners make money once there are no
| more coins to mine?
|
| With BTC (and I would assume most other
| cryptocurrencies), by transaction fees.
| graeme wrote:
| Wait is my whole calculation wrong then? I thought miners
| only got paid for receiving bitcoins.
|
| They also get additional payments in fractions of a
| bitcoin for transactions and this is in addition to the
| costs I wrote above?
| rantwasp wrote:
| miners are getting payed for every transaction. if you
| don't include transactions fees your transaction will
| spend a lot of time in limbo and may actually never be
| mined.
|
| the way it works, let's say you have A bitcoins and you
| want to pay someone B bitcoins. you create a transaction
| that say: I want to move A to B and A-B-fee the miners
| see it and see the fee. it gets included (ie mined) in a
| block.
|
| actual example 50BTC -> 20BTC + 29BTC
|
| when the miner mines it, it will send the tx fee to its
| own wallet
|
| also, most miners sort transactions by the most
| profitable to less profitable and mine only the most
| profitable ones
| dragonwriter wrote:
| > They also get additional payments in fractions of a
| bitcoin for transactions and this is in addition to the
| costs I wrote above?
|
| Yeah, the basic design of bitcoin is for the block
| rewards to dominate early on with no/low transaction
| fees, but transaction fees to gradually take over as the
| main reward for miners maintaining the network.
| graeme wrote:
| Ah interesting. Any estimates of how transaction costs
| scale? Currently iirc it is 100 million transactions per
| year at $20-$30 each, so adds about 10-15% to network
| upkeep costs at that transaction volume.
| Cullinet wrote:
| good question about baseline infrastructure energy cost
|
| > >I always see people referring to the energy
| consumption of bitcoin as though it's strictly additive.
| What I'd be interested to know is how it compares
| relative to energy costs for transacting with and
| securing fiat currencies.
|
| the base load of the combined major central banks,
| transfer networks and custodial institutions is
| undoubtedly considerable
|
| not least I'm thinking how much still runs on Itanium and
| OPENVMS. Just ten years ago I would have wagered the
| majority is on Itanium running vms or nonstop or the
| Honeywell legacies virtualized by Unisys. now a
| significant UK clearing bank ( at clear.bank) has run on
| Azure with white label customers who would have brought
| plenty of attention in the event of any problems, I'm no
| longer sure at all that I have any real idea what
| infrastructure is on.
|
| re the energy costs of the network and that growth, I'm
| baffled - surely bitcoin should have moved to a custody
| model of settlement in view of the energy and other costs
| and risks of on chain transactions by now?
| Cullinet wrote:
| imagine I have a bitcoin account and my bank lends me to
| trade against the bitcoin as collateral.
|
| if the account is a true bitcoin account I borrow btc and
| owe a greater amount of btc to settle.
|
| it's not unreasonable for my bank to expect me to close my
| trading profits into my bitcoin account.
|
| that's just two regular bitcoin demanding and regular
| transactions creating more demand
| soared wrote:
| > We can expect the marginal cost to mine a coin to scale with
| price.
|
| This feels correct but I don't think it is. For example gold
| has decreased by $200/oz recently - it definitely didn't just
| get cheaper to mine. I know mining is different and it's not a
| great comparison, but costs don't scale immediately, miners
| don't make decisions entirely based on the price of btc now,
| etc.
|
| Economic principles like supply and demand meeting on an agreed
| price are very muddy.
| graeme wrote:
| No no bitcoin mining and gold mining don't have the same
| economics. Gold mining average costs are determined by the
| actual physical costs of mining. Marginal costs will rise in
| marginal mines if the gold price goes up. But that won't
| affect average gold mining costs in existing mines.
|
| But in bitcoin average costs have to work out to marginal
| costs. When more mining power enters mining gets harder to
| compensate and mining costs rise.
| pilord8 wrote:
| That makes a lot of sense. On the other hand, that also
| suggests that if the price of bitcoin were to rise rapidly,
| mining costs would take some time to catch up, no? The
| connection between mining costs and price is an economic
| one (that can be in temporary disequilibrium), right?
| graeme wrote:
| Depends how rapidly. You can buy the hardware as a
| commodity, and connect to the power grid. Existing miners
| prob have expansion plans too they can accelerate. So the
| market may move pretty fast.
|
| Though I read an analysis that there were surplus profits
| in the 2017 bubble.
| samvher wrote:
| You say "it definitely didn't just get cheaper to mine",
| which sounds obviously true, but in a way I'm not sure it is.
| If the price of gold decreases by $200/oz, that probably
| makes a bunch of mines unprofitable, leading them to close
| down (or at least pause) their operations. Which in a way
| would mean that (on average) gold got "cheaper to mine". And
| it seems to me that the Bitcoin mining market works basically
| the same in that sense.
| Cullinet wrote:
| stock exchanges separate (and occasionally reacquire for
| commercial reasons) trading from custodian services.
|
| I'm not at all up to date but I long ago presumed bitcoin
| needed to move to a custody transfer market instead of
| processing on the block chain and the expense involved or
| beholden attachment that creates to a miner.
|
| if Citi (eg) will lend me to trade against collateral of my
| existing holdings finding risk less (cp counterparty and ops*)
| liquidity from stock borrowers (typically short players) and
| happily create a new income that's limited by the value at risk
| of my trading up to my collateral underlying assets and
| therefore greater than the principal, surely so can Coinbase. I
| assumed that was why the London Stock Exchange invested in
| them.
|
| edit I forgot *: see Herstatt Risk inherent in closing currency
| cash dealing causing the eponymous bank's failure in 1974.
| possibly more interesting to today was a year earlier in the
| Cedar Bank crisis in '73 that although little known was the
| most existential threat to the markets certainly pre LTCM and
| I'd say still far more dangerous. relevant today because Cedar
| was a pseudo official shadow bank living by profits from high
| risk secondary mortgage loans. Cedar was only a bank under a
| statutory loophole the infamous (to my career at least) Section
| 123 of the English banking act. interestingly none of the UK so
| called challenger banks are clearing banks the only new one in
| 400 years is a white label specialist running on Azure called
| Clear.bank at that url. a notable lot of UK transactions are
| happening on Azure with Clear.
| Proven wrote:
| In line with the rest of new State- and Fed-driven parasitic
| economy - out of control consumer spending, ever moar gov debt,
| zero interest rates, nobody makes anything in the US (gov spends
| 2bn of taxpayer money to send a robot to Mars but needs foreign
| companies to set up semiconductor fab in the country).
| ggm wrote:
| It doesn't much matter to me if its crypto currency or real
| goods, when markets, stock exchanges float, I think we're insane.
|
| The marketplace should not of itself be valuable. If it is, its
| extraction of value for the goods/utility being traded. Its rent
| seeking. The only possible value derives from what is a tax on
| trades by volume and value, to NOT fund the engine which runs the
| trades. Sure Lloyd's of London is priceless. Priceless really
| should mean "does not usefully have a price, in that sense"
|
| If coinbase is worth $100b what does that even mean in terms of
| the sustained value of the dollar?
| [deleted]
| logicchains wrote:
| >The marketplace should not of itself be valuable. If it is,
| its extraction of value for the goods/utility being traded.
|
| Due to regulatory capture Coinbase gets away with charging
| literally 10x higher fees than international exchanges, as US
| regulations essentially ban Americans from trading on most of
| the popular international exchanges, so Coinbase has little
| competition.
| ggm wrote:
| Yea... that's a scaaaaam. Its not sustained value.
| runako wrote:
| +1.
|
| I do think that a $100B public company engaging in the
| activity makes a really strong case for regulatory reform.
| I would expect it to be straightforward for other markets
| to add crypto for US residents once Coinbase goes public. I
| don't know that I would want to own Coinbase stock once
| CME/ICE/CBOE have crypto exchanges with lower fees.
|
| Coinbase could end up being the victim of its own success.
| [deleted]
| uhhhhhhhhhhhhhh wrote:
| Very American to bump prices for the sake of national
| identity lock-in.
| airhead969 wrote:
| What underlying value does btc buy or hold? It's rarely
| accepted anywhere.
|
| How can it be made stable? It's risky to invest large sums in
| if it can just collapse at any time.
|
| Is it even demonstrably secure against the potential of
| malicious original owners/operators running away with large
| sums of money? If there are original owners/operators, where's
| the governance, paper trail, and audit of them?
|
| What if there are security or structural flaws? Who's going to
| fix them? Who decides what fixes to implement? Who reviews the
| fixes?
|
| How can it can be converted to money if countries make
| exchanges illegal or tax it into oblivion?
| DennisP wrote:
| > Is it even demonstrably secure against the potential of
| malicious original owners/operators running away with large
| sums of money?
|
| Are you talking about Bitcoin itself here? There are no
| operators holding your money. It's secured by standard
| cryptography implemented in open source code, and the entire
| ledger is public.
|
| There are developers who fix bugs that come up, and make
| minor improvements to the protocol occasionally. Ultimately
| it's everybody running the software who decides whether the
| changes actually deploy.
|
| (If you're talking about Coinbase, they do hold your money
| and they are regulated and audited.)
| ketamine__ wrote:
| What is the biggest crypto exchange? Binance?
| onlyrealcuzzo wrote:
| ICE who owns the NYSE had a net income of $3Bn last year and is
| worth $68Bn - for context.
| walexander wrote:
| Not sure what the operating costs look like for Coinbase, but
| here's some napkin math based on just the Coinbase Pro exchange
| .
|
| They get roughly $200 per bitcoin trade. That's on both sides,
| so $400 per bitcoin transaction. Today was a slightly higher
| volume day but they did $1.6B in BTC-USD, so around ~30k
| bitcoin changed hands.
|
| 30k * 400 = $12Million
|
| Bitcoin is 1/3 of their volume (they have a lot of other crypto
| currency pairs), so let's take 3x of that = $36 Million in
| trading fees today.
|
| Bitcoin is a 24/7 market, so 365 days = $13.14 Billion per
| year.
|
| This does not even count what used to be (still is?) their main
| business of just buying and holding bitcoin for people through
| DCA buys or on their app. They also are starting to have a
| bunch of other revenue streams through loans, debit cards, etc
| and invest in a number of early crypto projects.
|
| I'm not sure what the multiple is going to be like since I
| don't know their expenses, but since most tech companies are
| valued from revenue and future growth expectations anyway, who
| knows.
| pushrax wrote:
| "Coinbase generated $141 million of net income on $691
| million in revenue for the first nine months of 2020,
| according to documents shared with investors."
|
| Though 2021 will be higher, will it be 20x higher?
| walexander wrote:
| The first nine months bitcoin was at a $10k and below
| level. They are making considerably more money since the
| boom took off after that.
|
| I don't know if it will be 20x higher either. Just saying,
| this makes more sense than say, Zoom, which trades at $120B
| mcap.
|
| I dont think the volumes will last, but if you look at
| volumes today and extrapolate further growth, then sure
| $100B makes sense.
| vmception wrote:
| About to have a lot more once they start liquidating their
| Coinbase shareholdings
|
| How much do they own now?
| bpodgursky wrote:
| The same week SpaceX raises at $78B.
|
| Doesn't quite add up, but what do I know.
| ketamine__ wrote:
| Elon is promoting cryptocurrency. I would assume it makes him
| feel powerful when the price goes up.
| bpodgursky wrote:
| I suspect launching cars into space makes him feel powerful,
| while pumping memecoins makes him feel somewhat entertained.
| raiyu wrote:
| One important thing to note is that these are secondary
| transactions and not where the stock may potentially trade.
|
| Secondly, Coinbase doesn't allow any secondary transactions, this
| was a company sponsored (approved) secondary. As a result this
| created immense scarcity so you can see how much the price
| changes just in these limited sales.
|
| Third, as we saw with the last bull run of Bitcoin everything
| with blockchain in the name had a halo effect so there is
| definitely upward momentum.
|
| Fourth, there is no Bitcoin tracking security on public markets.
| Obviously if Bitcoin succeeds so does Coinbase, this is an Avenue
| to get exposure to that without having to invest in Bitcoin
| directly and since Coinbase makes money on volatility which
| Bitcoin has a tremendous amount you get to ride the swings up and
| down by investing in Coinbase and not having exposure to Bitcoin
| directly. Investing in the shovels not the gold.
|
| Eventually companies grow in to their valuations and that is
| determined by supply and demand and ultimately revenue and
| profits. Coinbase is still growing rapidly and profitable so in
| today's market there will be a huge premium for that.
|
| Technically it most closely resembles zoom from a financial
| perspective and from a capturing the trends perspective so while
| the valuation may seem high if Coinbase isn't worth this then
| neither is zoom.
|
| When will there be a market correction it's impossible to know.
| We could have said the same thing for the post two years and it
| still hasn't happened.
|
| Don't forget that getting yield outside of stocks is increasingly
| difficult and while we are on HN trapped in the echo chamber of
| tech and tech stocks when you look at the old staples like Coca-
| Cola they haven't appreciated during this time.
|
| Large mutual funds could be rebalancing their portfolios to move
| more into tech which they should have done from 2010 onwards but
| largely resisted outside of FAANG stocks.
|
| The only thing that is certain is that this is a wild ride.
| ianai wrote:
| https://en.wikipedia.org/wiki/Gresham%27s_law
|
| Not sure of how it applies but there it is.
|
| One way I could see this going: the smallest unit of a Bitcoin
| is a Satoshi. What happens when that value is greater than a
| transaction base cost?
|
| Right now it's $0.0005 or 100 millionth the cost of a coin.
| This implies a lot of runway.
| tracedddd wrote:
| It can be extended if necessary.
| hnrodey wrote:
| >Fourth, there is no Bitcoin tracking security on public
| markets.
|
| $MARA and $RIOT are publicly traded companies in the US that
| professionally mine for Bitcoin. Their stocks ride the same
| wave as that of Bitcoin.
| dehrmann wrote:
| > Third, as we saw with the last bull run of Bitcoin everything
| with blockchain in the name had a halo effect so there is
| definitely upward momentum.
|
| We did, but blockchain tech rallying on the bitcoin price is a
| little like paper producers rallying on a baseball card fad.
| But markets are irrational, so...
| wonderwonder wrote:
| The grayscale products come pretty close.
| kgwgk wrote:
| > Fourth, there is no Bitcoin tracking security on public
| markets.
|
| Bitcoin futures are available since 2017 on CME and CBOE.
| maxilevi wrote:
| > Fourth, there is no Bitcoin tracking security on public
| markets
|
| Because of their big purchases Microstrategy stock (MSTR)
| tracks Bitcoin pretty well.
| dan-robertson wrote:
| If you buy microstrategy because you want to be exposed to
| bitcoin then you will be overpaying by a lot.
| skeeter2020 wrote:
| >> When you look at the old staples like Coca-Cola they haven't
| appreciated during this time.
|
| Pretty tough to eat appreciation; meanwhile Coca-Cola (and all
| those other old, boring companies) pays ~ 3.5% dividends
| annually. I'm sick of companies using my money for free to only
| fund their own growth.
| skinnymuch wrote:
| Long term capital gain taxes are lower than dividend taxes
| which are taxed as income, no?
| OiNG wrote:
| dividends can also be taxed at long term gain rates if the
| stock was held for some period of time before hand (see
| qualified dividends)
| skybrian wrote:
| Yes, dividends count as a valid source of income and that's a
| reason to own Coca-Cola. However, appreciation of a publicly
| traded stock is fine too, better even. When a publicly traded
| stock goes up, you can sell some stock and the money is just
| as good. Furthermore you're paying less income tax since it's
| capital gains, and you get to decide when to pay taxes on the
| gains.
|
| This is why stock buybacks are better in some ways than
| dividends for returning money to shareholders.
| tracedddd wrote:
| "Obviously if Bitcoin succeeds so does Coinbase"
|
| This seems obvious, but I'm not sure it's the case anymore.
|
| DeFi has been growing, although hampered by ethereum right now,
| could eventually consume much of Coinbase's income stream.
|
| They may need to pivot to more of a banking role as ethereum
| solves tx fees and DeFi grows on L2. Whether that means more or
| less profit is not clear. I have a theory this IPO is really a
| calculated approach to facing such a reality, while they're
| still considered untouchable.
| Cullinet wrote:
| I sincerely hope that the corollary doesn't apply
|
| edit meaning that you at least wouldn't want that to be
| exclusively true
| beaner wrote:
| Coinbase's primary function isn't to supplant blockchain
| transaction volume, it's to provide a fiat gateway to
| acquiring cryptocurrency. Transaction throughput on ethereum
| only helps Coinbase, because it makes what they sell more
| attractive.
| sjg007 wrote:
| >Fourth, there is no Bitcoin tracking security on public
| markets.
|
| There are a few in Europe look up Exchange Traded Products.
| Voloskaya wrote:
| There is a Bitcoin etf on the TSX since this week, both in
| CAD and USD
| giarc wrote:
| So when markets closed on Friday, BTC was at about $55,000
| and BTCC-B closed at $10.83. BTC continues to trade over
| the weekend obviously and is now at $57,000. Given this
| inbalance in trading times, should we see BTCC-B pop on
| Monday morning to catch up to BTC? Could one not buy/sell
| BTCC-B each morning depending on overnight activity of BTC?
| wcoenen wrote:
| > _Could one not buy /sell BTCC-B each morning depending
| on overnight activity of BTC?_
|
| If the price went up, the sellers also know this and will
| adjust their offers though, so you won't be able to buy
| underpriced BTCC shares in the morning. You can bid at
| the previous day's closing price but good luck getting
| your bid filled.
| sjg007 wrote:
| I think the real arbitrage is between crypto exchanges.
| sjg007 wrote:
| Probably yes. It works the same way with after hours
| trading on the stock market.
| moneywoes wrote:
| Low interest rates and secular trends justify this I guess?
| ketamine__ wrote:
| Low interest rates don't effect whether a stock goes up or
| down. That is determined by earnings growth.
|
| Edit: Peter Lynch agrees with me. Instead of being a passive
| aggressive downvoting asshole leave a comment.
|
| https://youtu.be/UNrMnFM3VvE
|
| Edit: Lol, I can't respond to your comments because everyone
| downvoted my comment and HN rate-limited me. Later.
| eloff wrote:
| Low interest rates definitely increase the amount of money
| chasing equities. There's no where else to get a good return.
|
| This pushes up the price of equities and decreases their
| return too.
|
| Also Peter Lynch is no fool, so I'd like a source for you
| saying he thinks there is no connection before I believe he
| said that.
| ketamine__ wrote:
| https://youtu.be/UNrMnFM3VvE
| colinmhayes wrote:
| Imagine thinking fundamentals have anything to do with stock
| prices.
| taylorwc wrote:
| This seems a little myopic. Definitely earnings growth is a
| factor, but it can't really explain what just happened with
| GameStop and WSB, nor most of Amazon's rise over the past
| decades. Future expected cash flows, market size, interest
| rates (and therefore capital seeking yield via equity
| markets) are all factors. Alongside human tastes, cultural
| perception, and pockets of irrationality.
| ketamine__ wrote:
| You cherry picked examples. I'm talking 99% of cases.
| PKop wrote:
| Of course they do.
|
| Lower interest rates enable growth in corporate debt, which
| has been used to buy back stock.
|
| There is a _direct_ connection between decades of lower
| rates, stock buy backs, and asset appreciation including
| stocks.
|
| https://archive.is/NMR1R
| ketamine__ wrote:
| I'm talking about over the long-term. You know, investing?
| 1helloworld1 wrote:
| I am afraid that we might be on the verge of another dot com
| level bubble. It's interesting to see how one inflated asset is
| propping up another. Tesla - which rose by 1000% in 2020, bought
| bitcoin. Ark Invest Etfs - some of the biggest actively managed
| etfs, hold significant amount of Tesla, and with the profit
| generated from Tesla's phenomenal rise, they are investing more
| on bitcoin. I believe in the future of cryptocurrencies, but the
| current state of bitcoin is abysmal. It's slow, expensive and the
| hacky patches on top (lightning network) either haven't been
| widely adopted or are still buggy. This all seems so much like
| the pets.com of the dot com bubble era. Great idea but terrible
| implementation.
| https://www.forbes.com/sites/billybambrough/2020/07/09/bitco...
| cm2187 wrote:
| the nice thing with that bubble is that because it is
| manufactured by the Fed, you have an easy signal for when it
| has reached its top, just look at the weekly fed balance sheet:
|
| https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
|
| And right now they are still printing more and more.
| PragmaticPulp wrote:
| Fed contributes, but it's hardly a singular explainer for the
| current market mania.
|
| The chart you shared hasn't even changed significantly since
| July.
|
| The Fed didn't print enough money to buoy Tesla 1000% or send
| Bitcoin up 100% in a month. There's no mechanism directing
| money straight from the Fed into the riskiest assets. Market
| mania has taken hold.
| jesusthatsgreat wrote:
| It definitely plays a role in driving overall sentiment
| though. And indirectly plays a role in people taking more
| risks. There's a view that the economy won't collapse
| because central banks will just keep printing money... and
| it's probably correct because there's no real alternative
| right now unless you want civil unrest because that's what
| you'll get once you shut down the economy and then turn off
| the money taps simultaneously.
|
| But at some point, in order for fiat currency to retain any
| sort of reliable buying power, there does need to be a rug
| pull of some sort. Doing it while so many are out of work
| and so many industries are effectively shut down by
| government regulation would be extremely dangerous (for the
| government of the day).
| rapsey wrote:
| For bitcoin at least, Tether printed enough.
| tracedddd wrote:
| If you assume tether is largely legitimate, the
| observable behaviors would look indistinguishable from
| the claims of fraud.
|
| Tether "being printed" is per design. Just like wire
| transfers and account signups to Coinbase, they align
| with spikes in price.
|
| That's not to say they are legitimate either, but the
| constant conjecture about it is mostly people confused
| about causation.
| wtf_is_up wrote:
| Tether FUD Era of this bullrun ended 15 Jan. See you in a
| few years.
| tjs8rj wrote:
| Is this like the dot com bubble? My understanding is that the
| mindset of the time was a true mania - people were convinced it
| was the new normal and that businesses got insane valuations
| preproduct even. It seems like with a lot of these bubbles
| everyone is like "get in this stupidly inflated asset with
| money you can lose to try and make a quick buck" with retail
| investing at all time highs rather than some dramatic
| distortion in people's perspectives. Even while assets are so
| inflated the investor sentiment still seems sober.
| otabdeveloper4 wrote:
| > people were convinced it was the new normal and that
| businesses got insane valuations preproduct even
|
| How is that any different from today?
| mewpmewp2 wrote:
| Everyone is constantly saying it is a bubble and will pop
| soon. So sentiment is exactly the opposite.
| cma wrote:
| I think Flooz coins had Super Bowl ads at the time.
| programmertote wrote:
| I started paying attention to ARK funds lately because of
| seeing it here and there online. Then I subscribed to their
| YouTube channel last month and listened to this month's update
| from their fund principal manager (Cathie Wood). I have to say
| I learned some new stuff about Macro econ from listening to her
| video, BUT her talk about AI innovation
| [https://youtu.be/uwajUw4RFVk?t=1207], just convinced me that
| she is overestimating the potential of the AI's impact at least
| in the near term.
| hackypatch wrote:
| Could credit cards not be considered a "hacky patch" or really
| a layer 2 solution to the slowness of adoption and traditional
| banking policies?
|
| And they eat up 2%+ fee even for people that wish to pay in
| cash?
| lottin wrote:
| No.
| uhhhhhhhhhhhhhh wrote:
| So rather than a bubble, more of a crystal. Instead of burst it
| can shatter, or maybe sheave (chain fork?)
| stunt wrote:
| Everybody is selling EVs now. I wonder what happens to TSLA in
| Q4 2022 when car manufacturers publish their numbers. Enjoy it
| while it lasts indeed but I'm worried if that will have a
| cascading effect into other stocks or even also crypto.
| awat wrote:
| I will preface with I don't have much domain knowledge in crypto.
| Is there a good faith expectation that this can even go higher?
| ketamine__ wrote:
| Good faith is the most overused phrase here.
| uyt wrote:
| Yes, because there's enough people like you who would blindly
| throw money at it just because of FOMO then back-rationalize
| the decision using whatever HN tells you. Stonks only go up.
| wyxuan wrote:
| I think a bet on coinbase, not bitcoin is the best bet for anyone
| who is looking toward betting for a future of cryptocurrencies.
|
| Bitcoin has a lot going against it- the tether fraud stuff,
| connections to money laundering, slow transaction speed.
|
| Coinbase is tied to none of those things, and has the unique
| advantage of having a reputation in both security and compliance
| in an industry full of greenhorns.
| vmception wrote:
| The ICE man is going to pump this so hard. Too bad his wife isn't
| still on the Senate oversight committee, but it wont matter
| blhack wrote:
| ICE man?
| bdcravens wrote:
| Jeffrey Sprecher (wife is Kelly Loeffler). He's the head of
| the Intercontinental Exchange (ICE) (also chairman of NYSE)
|
| https://ir.theice.com/governance/executive-management-
| team/d....
| [deleted]
| willyg123 wrote:
| No matter if you think we're in a bubble or if this valuation
| supports your view that we are in a bubble, at the end of the day
| we are all losers who have decided to spend our precious time on
| a Friday night glued to HN.
| practicalpants wrote:
| People in other parts of the world are not in your timezone
| fyi.
| wsc981 wrote:
| It's Saturday morning for me in Thailand right now. I'm gonna
| drive a bit around on the 2nd hand motorcycle I bought this
| week - my own very first motorcycle. Lots of fun!
| aminozuur wrote:
| I'm flying to Thailand tomorrow. Feel free to DM me if you
| wanna connect :)
| HAL9OOO wrote:
| Where ya at in Thailand?
| wsc981 wrote:
| I stay in Mea Thalop, a small village near amphur
| Chaiprakan in the Chiang Mai province. Close to the border
| with Myanmar.
|
| Next Friday I plan to do the 2-3 hour trip on motorcycle to
| Chiang Mai city. It's through a mountainous snake road and
| with good weather very beautiful to drive.
| systemvoltage wrote:
| What model motorcycle did you get?
| wsc981 wrote:
| Honda CB300F. It's an excellent beginner motorcycle.
| crossroadsguy wrote:
| dang should offer us an easy way to delete account and
| anonymize comments. I don't know why there's no such option
| (other than of course dropping the email).
| ardit33 wrote:
| Talk about yourself, I am waiting for my build to finish
| compiling... (seriously)
|
| while checking out HN, TikTok, Clubhouse and Facebook at the
| same time
| justinclift wrote:
| The "noprocrast", "maxvisit", and "minaway" settings in your
| profile are meant to help with that.
|
| They're for limiting your max amount of time on HN in a single
| stretch. :)
| faramarz wrote:
| I've got a 9 month old. when she sleeps, I'm catching up on the
| week
| Waterluvian wrote:
| I'm in the bath relaxing and learning. How u doin'
| randomopining wrote:
| Yeah dude I gotta quit this and my other forums lol. I spend so
| much time reading about stuff and trying to learn... instead of
| chilllin.
| rakejake wrote:
| Same here. I convince myself by saying, hey this is not
| reddit or some sportsforum or <insert-forum-here> but this is
| probably a worse form of procrastination. At least when I
| visit /r/nba or espncricinfo, I can relax a bit and just
| enjoy.
| thekashifmalik wrote:
| I swear I was just thinking the same thing :(
| bustin wrote:
| Covid makes it harder to be someone who has plans on a Friday
| night. Don't be so hard on yourself, it gets better.
| vmception wrote:
| I was thinking about writing that it gets better, but its too
| presumptuous when you dont know someone's life circumstance.
|
| If they aren't of a mind stable enough to stay on this plane
| of existence, don't not not stay.
| etaioinshrdlu wrote:
| I was on hacker news on a Friday night long before Covid! And
| I likely will be after as well.
| [deleted]
| eganist wrote:
| > at the end of the day we are all losers who have decided to
| spend our precious time on a Friday night glued to HN.
|
| It gets worse. Many of us are probably reading HN while
| listening to Clubhouse at the same time.
| skinnymuch wrote:
| What are you listening to on there? I never have any idea
| what to do with the app
| mdoms wrote:
| It's Saturday afternoon, I've already driven to another town to
| inspect a car and purchased and planted 10 trees today. Speak
| for yourself.
| [deleted]
| theXspidy wrote:
| https://thesnippets.substack.com/p/bitcoin-records-a-new-hig...
| fergie wrote:
| What about the environmental impact / physical limitations of
| cryptomining? At this point BTC alone consumes more energy than
| Argentina (https://www.bbc.com/news/technology-56012952)- will
| legislators allow this to continue? Will it even be possible for
| it to continue much further?
| wtfrmyinitials wrote:
| Most crypto mining is done with renewables because it's the
| cheapest kWh when you don't have to factor in energy storage.
| qeternity wrote:
| And? If miners use it, it means John Doe needs to use coal
| power to charge his Tesla instead of renewables because the
| mining setup next to the hydro plant is gobbling it all up.
| endisneigh wrote:
| So what happens to global valuations once the world population
| starts shrinking? I also wonder what would happen if there was
| another significant war - surely peace cannot continue forever.
| djrogers wrote:
| > once the world population starts shrinking
|
| What's your reason for such a firm belief that this is
| absolutely going to happen in any timeframe that matters to
| this valuation?
| [deleted]
| eloff wrote:
| That's a long time out, maybe not in my lifetime (I'm mid
| thirties)
|
| The population is not really the factor here, it's economic
| growth, which is connected to population.
|
| Growth must slow eventually too. I'm not sure how long that
| would take or how we'll adapt.
| redact207 wrote:
| We're just at a point in the economy where it doesn't make sense
| to hold on to cash. It's just completely losing its value thanks
| to a long sustained QE.
|
| People are just putting their money into anything as a hedge -
| real estate, stocks, crypto, gold. Until the value of the at can
| be sustained and inflation comes back, it's unlikely much else
| will change.
| Ekaros wrote:
| I'm really starting to wonder what makes sense to hold?
|
| Maybe I need to start looking into land prices. And for that I
| mean forest or agricultural...
| solosoyokaze wrote:
| With land you'll have to pay property tax, which will be
| impacted by inflation as the land will be reappraised. Just
| something to keep in mind.
| dragonwriter wrote:
| > We're just at a point in the economy where it doesn't make
| sense to hold on to cash.
|
| One of the whole purposes of conversion to pure fiat is to
| eliminate any reason to hold cash other than short-term
| liquidity in order to encourage investment in productive
| assets, driving production.
|
| > It's just completely losing its value thanks to a long
| sustained QE.
|
| Except...it's not, the quantity of direct, utility-producing
| goods and services you can get for a given number of dollars is
| declining much slower than the long-term average rate. Easy-
| money policies aren't driving significant inflation, probably
| because we'd be seeing significant deflation without those
| policies given other conditions.
| tedfernau wrote:
| Isn't cash losing value the definition of inflation?
| Cullinet wrote:
| conceptually holding more cash than you can usefully spend
| reduces your cash value and doesn't have to happen with
| inflation
|
| I remember Buffets letter to shareholders apologising
| Berkshire Hathaway wasn't able to continue delivering the
| same historic returns because that trajectory would require
| them to own every publicly traded asset in the world after
| ten more years.
|
| even now you can potentially eliminate the major inflationary
| risks by holding property without debt and rely on policy
| consumer price regulation to hold basic necessities in check
| but I personally think that energy risks and not only
| exceptional weather events put that out of contention for
| sanity sake. In fact if energy infrastructure and general
| infrastructure development is increasingly critical for the
| future it makes little sense to have a cash savings incentive
| in the economy despite this is unfortunately not a explicit
| case for the generational savings deprecated in a way that I
| readily appreciate.
|
| edit to remove accidental negative from I personally [don't]
| think that energy risks....
| Sparkle-san wrote:
| Yes, and it's been sitting around or below 2% for some time
| which economists generally consider a good level for spurring
| spending.
| csomar wrote:
| The 2% is complete b.s. unless you are homeless and
| surviving on canned food.
| ric2b wrote:
| Sure, until you want to go to college, or buy a house, or
| have access to healthcare or buy some stocks to save for
| retirement.
|
| But if you don't want to improve your life and just want to
| survive until the next paycheck sure, I guess inflation is
| low.
| Sparkle-san wrote:
| Given that all of those things have increased in cost at
| rates far beyond 2%, I don't really see how you blame
| that on the inflation of the USD as a whole. They have
| their own systemic problems attributing to their
| astronomical costs.
| lottin wrote:
| It has never made sense to hold on to cash, and it has
| absolutely nothing to do with QE. Read Keynes' theory of demand
| for money.
| adventured wrote:
| > We're just at a point in the economy where it doesn't make
| sense to hold on to cash.
|
| We're not at that point, and I'm speaking as someone that
| supports a gold standard or equivalent to prevent rampant fiat
| debasement. I take it you didn't live through the 1970s. There
| have been numerous times in the past century where currency in
| major economies was prominently debased far worse, far faster
| than what we're seeing today. Sutained QE has done far less
| damage to the USD as one example, than what the 1970s did to it
| or the extreme destruction we saw during the George W Bush
| years (go to Google, type in "Belgium GDP", Netherlands GDP,
| Czech GDP, or Brazil GDP, almost any nation; you'll see a
| comical liftoff in their GDP chart, far beyond any real growth
| rates, that's the dollar getting massacred thanks to the
| idiotic fiscal policies during the GWB years).
|
| Gold went from around $250 to $1900 over a little more than a
| decade from ~2000-2011, before sustained QE became a thing. In
| the 1970s it basically went up 1,000%. Not much has actually
| changed about how governments destroy currencies, it's the same
| old same old. Perma QE didn't change much, it's not a new tool,
| and nothing is very different today versus the past (except
| that so far this is a cakewalk compared to the destruction in
| the past; maybe it'll get a lot worse yet, of course).
|
| You're better off holding cash than Tesla shares at $800 or
| $900. I'd rather take a 3% average debasement per year than sit
| in the S&P 500 at these levels (especially given what the US
| economy is going to look like in the coming decade). From these
| heights I'll bide my time for the next inevitable crash or
| significant decline, that's when the serious returns are
| generated, not chasing mania ever higher in markets at late
| stages. The big money was already made in Bitcoin, from $0 to
| $50,000; the upside from here is a joke by comparison to the
| risk. So it goes to $150,000 (maybe). That isn't a crazy return
| vs the outsized risk, that's the kind of return you could have
| gotten in any cloud stock after IPO. Yet it takes an
| extraordinary move of adding ~$2 trillion in market cap for
| Bitcoin to get there. The risk vs reward in Bitcoin at these
| levels is like a lot of absurdly overvalued stocks presently.
| And of course everyone becomes certain that something is
| fundamentally different today - it's not, this mania won't
| endure either (to be clear, we're not just in an asset bubble,
| this is a mania, the 8th or 9th inning of a bubble phase).
|
| Significant inflation isn't coming back anytime soon (not until
| or unless they start devaluing the USD directly, but that isn't
| for at least 20 years yet), the US is in a heat-death stage of
| economic erosion. Ever greater sums of capital are being put
| into the freezer in the form of very low yielding debt, that
| process will continue to rob the US of dynamism and growth,
| trending growth toward zero as it goes. This is the exact same
| process Japan went through, and it's why they were unable to
| spark traditional inflation with their crazy spending and QE-
| like programs, they tried everything in the Keynesian book and
| it all failed (for the same reason the US didn't drown in
| inflation from 2010-2020 despite the rather insanely low
| interest rates over that time). We're not going to see a
| serious wave of inflation this decade now for the same reason
| we didn't the prior decade.
| naveen99 wrote:
| If the bull case was only $150k, I might agree with you. The
| bull case is $5 million. But bitcoin has always been risky
| and can always go to 0 rather quickly.
|
| Anyway, there is no point at looking at nominal values given
| inflation, population growth, general progress. I like to
| look at everything as a ratio against total global numbers
| (global wealth, global debt, global population, global
| equality etc.). Unfortunately it's hard to find reliable
| global numbers.
|
| The IIF only gives its numbers to a few hundred global banks
| and similar sized institutions.
| graeme wrote:
| At $5 million, at current mining rates, it would cost $1.7
| trillion dollars per year in energy and equipment costs to
| run the network. That is fresh capital that needs to be
| shovelled in and burned each and every year.
|
| Not to increase the price, just to maintain the network.
| What is the network doing that would justify that
| investment?
|
| After halving the cost would drop to $850 billion a year
| but still.
| solosoyokaze wrote:
| It doesn't really make sense to measure this in USD if
| one of the major hypothesis driving Bitcoin is that USD
| is being hyper inflated. Yeah, it might cost $1.7
| trillion dollars but at that point a 3bd house might cost
| $5M. If you're going to pin BTC to USD, you need to use
| inflation adjusted numbers.
| dragonwriter wrote:
| > It doesn't really make sense to measure this in USD if
| one of the major hypothesis driving Bitcoin is that USD
| is being hyper inflated
|
| "USD is being hyperinflated" is an easily falsiable (and
| obviously false) statement, so basing anything on it is
| nonsense.
|
| (That it is imminently going to slide into hyperinflation
| is less easily falsified, which is why that is actually
| the perennial cry of cryptobugs, as it was for goldbugs--
| sometimes, the exact same people--before then.)
| solosoyokaze wrote:
| Isn't it easy to verify? How much did a house cost 20
| years ago? A 4 year college degree? How much were you
| paying per month for health insurance in the 90s?
| Salaries have not kept up. They've been amazingly static
| my entire life.
| dragonwriter wrote:
| You've mentioned three items that have experienced
| specific inflation at higher than the general rate of
| inflation (but even then mostly not at rates anywhere in
| the remote neighborhood that would qualify as
| hyperinflation [> +50%/month] even if they were the rate
| of general inflation.)
|
| So,yeah, when even the rapidly inflating _segments_ aren
| 't anywhere close to hyperinflation, it's pretty clearly
| _not_ general hyperinflation.
|
| And stagnant wages are a completely unrelated issue to
| hyperinflation, though obviously wage increases mitigate
| and wage stagnation or decline exacerbates the effect of
| whatever inflation there is on wage earners.
| anm89 wrote:
| They also just listed the set of the largest expenses for
| a vast majority of our society (even if you don't pay for
| education)
| dragonwriter wrote:
| > They also just listed the set of the largest expenses
| for a vast majority of our society
|
| Buying a house is an asset acquisition, not an expense.
| _Housing_ is an expense (and typically the single
| greatest household expenses), but that expense has
| increased in price less than home prices.
|
| The next greatest expenses are food and transportation.
| graeme wrote:
| Further people are buying more housing than they used to.
|
| If people buy four household computers that isn't
| inflation, but how does buying a 4 bedroom home rather
| than two bedroom show in inflation stats?
| adventured wrote:
| Once the bullish case is set at $5 million you might as
| well set it at $5 trillion.
|
| At $5 million it's approaching the value of all stocks on
| the planet. I don't have to elaborate on the economy those
| stocks represent, the annual profit generation.
|
| $100 trillion is nearly all household assets in the US, and
| nearly double all household assets in China.
|
| I like Bitcoin, it's simply not a believable bullish case
| at all.
| naveen99 wrote:
| Total wealth 500 trillion. Frequently Recommended
| institutional allocation 30-50% bonds. Bitcoin replaces
| the bulk of cash equivalents. Not impossible.
| adventured wrote:
| Getting nearly everyone on the planet to do that,
| including all governments to allow it, is impossible. As
| one very prominent example, the odds are dramatically
| higher that China will banish Bitcoin from being legal
| inside of their country than that they'll allow everyone
| to switch to using Bitcoin instead of the currency system
| they directly control (and can manipulate as it fits
| their aims). All nations generally feel the same way
| about controlling their own currency, they more than
| overwhelmingly prefer to retain that power in their
| political system. If Bitcoin actually threatens that they
| have all the guns that matter and will act accordingly
| legislatively. They might be willing to allow Bitcoin to
| be a store of value competitor to gold however, but
| that's all they're going to allow.
|
| We don't have gold backed currencies for the same reason
| we're not going to see Bitcoin overtake all national
| currency systems. The guys in power with the guns
| determine how your currency system works and they all
| universally say no: you may not have your fiat currency
| backed by gold (or in the future, swapped out for
| Bitcoin).
| linsurance wrote:
| > Yet it takes an extraordinary move of adding ~$2 trillion
| in market cap for Bitcoin to get there. The risk vs reward in
| Bitcoin at these levels is like a lot of absurdly overvalued
| stocks presently.
|
| Bitcoin is not a stock, it's a deflationary asset. There are
| not just a limited amount of bitcoin, but a constantly
| decreasing amount and a constantly increasing amount of
| people wishing to use them. People sounded very much like you
| at every step of the way, including in the rise to $1,000.
| "The risk isn't worth it."
|
| > Significant inflation isn't coming back anytime soon
|
| I mean except in the commodities markets, the housing market,
| the price of ammo, of course. Unless you believe those are
| just "bubbles" as well.
|
| > We're not going to see a serious wave of inflation this
| decade now for the same reason we didn't the prior decade.
|
| We are seeing inflation, it's just occurring in hard asset
| classes like real estate.
|
| > and nothing is very different today versus the past (except
| that so far this is a cakewalk compared to the destruction in
| the past; maybe it'll get a lot worse yet, of course).
|
| https://fred.stlouisfed.org/series/M1
|
| It is worse though.
| hiq wrote:
| > a constantly increasing amount of people wishing to use
| them
|
| I find this hard to believe, at least not to the extent
| you're implying. People don't actually use Bitcoins that
| much, they mostly speculate on it.
|
| Bitcoin was created after the last financial crisis. I'm
| genuinely curious to see what will happen when the next one
| hits.
| TheBlight wrote:
| Holding bitcoin as a hedge is use.
| louloulou wrote:
| Yeah, people call it the everything bubble, when the
| obvious explanation is the money is being massively debased
| to pay debt that can't be serviced otherwise.
|
| In all historical episodes of hyperinflation, at the start,
| everyone holding assets just thinks they are getting rich.
| 55555 wrote:
| I would like to subscribe to your newsletter.
| antoniuschan99 wrote:
| What's your strategy? Because if that's the case with the US
| then holding cash has its own issue too?
|
| Even Silver is being pumped.
|
| Can't we say the reason why gold isn't up 1000% is because
| its digital form of it, bitcoin, took that position?
|
| Isn't QE inflating assets instead of monetary value hence why
| stocks/equity is going up?
|
| Btw very interesting take thank you!
| adventured wrote:
| No I don't think gold would be up 1,000% if Bitcoin didn't
| exist.
|
| Bitcoin is a more of a speculative investment than a store
| of value at this stage, because it has been producing such
| extraordinary returns (whereas gold is the opposite, on
| average far more of a store of value than a speculative
| investment (with some rare bursts of euphoria)). Bitcoin
| still isn't very widely/greatly (immense sums) held by the
| rich or the elite institutions, they're only beginning to
| dip their toes into it. Will Bitcoin end up primarily as a
| store of value over time (and less of a speculative
| frenzy)? Sure, that appears to be the likelihood at this
| point.
|
| Gold moves, across time, in line with the destruction of
| the US Dollar (it'll see occasional temporary bursts due to
| fear / panic / commodity bubbles etc). Gold is
| overwhelmingly priced in dollars. Most commodities are. If
| gold would be up 1,000% as representative of enormous
| inflation / destruction in the USD, we'd be seeing that in
| an epic commodity bubble of the sort we saw in the 2000s.
| You'd see it in everything from copper to oil to silver.
| While those commodities are clearly seeing some
| inflationary push-up from the dollar losing value (and bets
| on future dollar destruction), it's not remotely close to a
| 1,000% gold move type debasement.
|
| Low interest rates over a very long period of time, is
| indeed inflating assets, exactly as it helped cause the
| 2003-2007 real-estate bubble previously. I wasn't disputing
| any of that in what I said. Those low interest rates are
| causing housing values to rest far beyond where they
| otherwise would be (people buying more house than they
| otherwise could, due to artificially low mortgage rates).
| Those low interest rates are driving speculative money into
| most asset classes, from art & collectible cards to stocks
| and real-estate and most everything inbetween. It took a
| while but the high asset prices became a bubble which then
| became a mania, which will then either crash or otherwise
| be forced to stagnate across a very long period of time
| (think: Nasdaq from 2000 to 2015). This market doesn't have
| to crash, it may just decline or swing in tantrums, while
| inflation erodes its value and brings the valuations back
| in line with the mediocre US (and global) growth rates. The
| China boom phase is well over and there is no next China-
| like outcome coming soon, so global growth will largely
| disappoint this decade. This current market is a rather
| extreme case of future returns - distant future returns -
| being pulled forward. How many decades will it take for
| Tesla or Snowflake or Shopify to grow into their
| valuations? Tesla needs to become as profitable as 2 to 4
| Toyotas to justify its present valuation, that should only
| take about 40 years of perfect execution and world
| conquering dominance. When you pull returns forward from so
| far into the future, the penalty you pay is stagnation as
| you eventually pass through that future time. And if this
| market does crash spectacularly, they'll pump and pump and
| pump and reinflate the valuations again at some point, most
| likely, even if it takes the better part of a decade to do
| it (which isn't to say those valuations will reach present
| mania levels again, maybe that doesn't happen but once
| every several decades; but to get back to abnormally
| elevated valuations, they can certainly drive us back to
| that after a crash with QE and low interest rates plus 5-10
| years).
|
| My strategy is to pay as far below what I consider to be
| fair value as I can for high quality assets. It ends up
| being taking advantage of the fact that very few investors
| are capable of objectivity, capable of controlling
| themselves, capable of controlling their greed or emotions.
| Markets always go too high and sell down too low; you sell
| into the froth and buy the panic (Buffett's mantra of being
| greedy when others are fearful, and fearful when others are
| greedy, it is that simple; then repeat it with discipline
| across a lifetime). The disciplined win over time. I
| generated enormous returns from both the run up to the
| present, and the March quick crash. You don't need to do
| that very often to make a lot of money over time, as
| returns compound, you only need a few giant hits rarely; as
| such you can afford to be very strategic and very patient
| about it; this is one of the points that amateur investors
| most often fail to learn, they think you must always have
| your money at work, you must always be doing something,
| it's entirely wrong. Understanding there are many times
| when you should do nothing, when you should be patient, is
| very important. There are critical times to act, where you
| can strike and generate the extreme bulk of max potential
| returns, and that doesn't happen constantly (although
| people think it does during mania phases, a lot of those
| people will ride the mania back down the other direction
| though; see: Dave Portnoy as a microcosm of a typical
| bubble amateur routinely losing playing with a mania he
| doesn't understand). One of the most important rules is to
| first do no harm, first don't lose money, and if you can do
| that compounding returns will generate an extraordinary
| outcome over time. The people that ride this mania back
| down (which will be most investors), may see their progress
| reset by a decade (or worse), as happened with the dotcom
| bubble crash or real-estate bubble crash. It can take a
| very long time of average returns to climb back out of a
| 40% or 70% drop in your portfolio (eg playing with
| speculative fire in a stock like Tesla that could drop by
| 90% and still be overvalued).
|
| I don't know whether we'll see sustained damage to the
| economy from whatever the next crash-type event is, such
| that stocks stay down for a long time, or if we'll see
| something more like micro crashes more frequently (with QE
| & low interest rates bouncing valuations back up faster).
| Either way, my strategy is to take advantage of any event
| where I can buy value cheaply or cheapish. I don't need
| that to happen very often, I only need to make sure I get a
| nice hit when that pitch arrives, and I can safely stay out
| of the mania while others take all that risk (I seek to
| unload my previously purchased assets to buyers during the
| mania, rather than be buy-heavy at that time, in other
| words; then I'll reload later at a cheaper value). The only
| way this fails is if values never - literally never -
| become cheap, or reasonably priced, ever again. I don't
| believe that's going to be the case. If you generate a huge
| return from doing this, you can afford to sit out the
| volatile ending mania stage, even if it lasts multiple
| years, you become free to disregard all of it, the risk
| gets assumed by everyone playing in the fire and they're
| ultimately the desperate sellers I'll buy from later on.
|
| As a side note, this isn't timing markets (which is a
| common misconception). This is calculating value and making
| a determination about what one considers a good price to
| pay for an asset. When Buffett sits out the insanity, as in
| 1999, he isn't timing anything, he's deciding not to
| overpay based on his personal judgment about price vs value
| (price is what you pay, value is what you get). We all make
| such value judgments, consciously or subconsciously; you
| have a choice as to whether it's conscious & deliberate or
| abdicated, you can be calculated about it or you can throw
| dice or play follow the leader in a mania (eg they're all
| buying GME on Reddit, so I should too; shit it crashed from
| $500 to $40). You can train yourself to get good at judging
| price vs value, or you can offload to someone else's
| opinion of that. Those are the only choices.
| antonislav wrote:
| > You can train yourself to get good at judging price vs
| value
|
| Could you give some guide lines on how to achieve this?
| adventured wrote:
| Some if it is time and experience. Seeing markets come
| and go, seeing valuations come and go. You could perhaps
| study historical markets to gain some of that, but there
| is no better teacher than going through it (including
| taking some beatings along the way, along the process of
| learning and instilling discipline).
|
| The absolute easiest things to look for (things most
| anybody can do), is growth vs valuation, along with
| having enough of an understanding of the business you're
| buying part of, to know whether they have an enduring
| position in their market, whether they have a moat or
| edge that isn't going to easily vanish. It's important to
| understand the context of the business you're buying
| into. Ultimately if you're going to self-manage, you have
| to decide what kind of ratio on growth vs valuation
| you're willing to accept, what's too high. These are
| largely subjective decisions, there is no right or wrong
| answer in most cases, only answers that entail more or
| less risk (the worse the ratio (eg high valuation +
| negative growth), the closer you get to it being an
| objectively wrong, dangerous answer though). Personally I
| prefer a balance on that equation. I'm a value investor,
| and it's commonly thought that value investing is a
| conservative, low return approach, however that's not
| inherently the case, that's up to the investor's approach
| (Benjamin Graham was a cigar butt value investor, looking
| for a last puff on cheap stocks, and his approach
| produces far lower returns over time than Buffett's
| approach to value investing). If a stock has a medium or
| high valuation, it can be a great value proposition if
| the necessary growth is there as a proper offset.
|
| For example, if you go back to December 2018, Facebook
| was trading for around a $370 billion market cap, around
| 14.8 times operating income for that year. Why didn't
| more investors see that opportunity? It should take only
| a few minutes at most to run a basic extrapolation of a
| modest growth rate and see how that Facebook value
| proposition would end up a few years into the future. And
| yet, sentiment on the stock was irrationally bearish.
| That's nothing more than emotion, herd behavior, and it's
| extremely common. It's investors listening to other low-
| value opinions, it's Wall Street money being the typical
| followers that they are. People are generally terrified
| to stand apart on any decision, much less an investment.
| Many of those investors end up being the desperate
| sellers you want to buy from as they sell you FB at $137.
| They have no idea what they're doing, they have no idea
| when to buy or sell. And that's true of most of the
| professionals on Wall Street, they're almost all clowns
| (very highly paid clowns, because they're operating in a
| protected cartel). Was Facebook's social monopoly - their
| moat, their edge - going to vanish soon circa December
| 2018? That was an absurd, silly, borderline stupid
| premise, and yet it was a commonly floated notion; there
| was wildly bearish sentiment going around at the time -
| and yet back in objective land, where you always want to
| remain, their business was still firing soundly. So if an
| investor could brush away the irrational people spewing
| their emotional bias about FB, you could focus on the
| actual business and what it was actually doing, and run
| some very straight-forward projections into the future
| (even being conservative about it).
|
| I'll give you another obvious example from my
| perspective. In March I posted here about which stocks I
| thought were interesting during the crash. I argued about
| Square and why I liked it. For that stock I looked at a
| few things. They did $4.7b in sales in 2019 and their
| market cap was down to like $17-$19 billion during the
| crash, so it was trading for around four times trailing
| sales with a solid growth profile (and, in theory, a lot
| of growth ahead of them, as they were still relatively
| early into their growth phase). Their operating
| profit/loss picture had persistently improved as well,
| they weren't at any risk of bleeding to death. Now,
| that's a laughably obvious value opportunity, that's dirt
| cheap value. That's a margin of safety or moat of safety
| that is massive, a lot of things would have to go wrong
| for Square to not be a great buy at that price. The
| calculation when you input all of that, including its
| business context (putting in risk for the pandemic), is
| that they could probably see their sales fall by a lot
| during the pandemic and their growth rate plunge and it'd
| still be fairly valued at near a $18b market cap with
| maybe some further downside risk of 1/3 from there if the
| damage were really bad. And then you'd have to believe
| they weren't going to resume growth, that they'd never
| get back up, to think the position would be really dire.
| That easily goes into the low risk camp.
|
| Most stocks and situations aren't so obvious, so easy.
| The principle is the same though, it just takes more
| effort, thought, measurement, well considered projection,
| to reach a conclusion about the price you're paying vs
| the value you're getting. Start by asking: what value am
| I getting for my money? What value is represented behind
| that price. That includes the business comprehensively,
| its prospects, its growth near-term, its potential or
| likely growth longer term, its risks; and often it can
| include externals, depending on the business (is this
| business depending on a trend sustaining, on a commodity
| price remaining high/low, on politics in China, on
| hurricanes in Florida, and so on).
|
| Getting really good at rapidly extrapolating with
| multiple outcomes is a great skill to acquire. Take a
| stock, absorb its P&L statements from the last 3-5 years
| or so, learn some about its business, and run some
| scenarios in your head (or write it down, whatever
| works). It's a training exercise, and over years you get
| to mentally compare your projections vs reality, and you
| can adjust your mental models if you're missing by too
| great of a margin about how you gauge such things, how
| you extrapolate forward. Over time you learn some things
| - risks, potential upsides - to look out for in
| businesses, to put into the calculations, that you maybe
| didn't know in the beginning. Did you include a variable
| and apply a discount for the potential that corporate
| income taxes might increase (and is this corporation's
| earnings primarily domestic, like an airline or bank)?
| Etc etc. Eventually you can look at the profile of a
| company, its valuation and P&Ls, and get a great sense
| almost immediately whether it's in your risk wheelhouse,
| on what value its presenting at the current price.
|
| Run a value calculation on a bubble stock. What value is
| Snowflake presenting to me at a $82 billion market cap?
| That when it finally gets around to $3 billion in profit,
| it'll have a 27 PE ratio and probably low growth to
| match, all just to get it to where it's already at. What
| do I think its growth will look like in the century it
| finally gets there? Why should I pull returns so far
| forward for that stock, what extraordinary value am I
| getting to make up for the hyper price I'm paying? When
| Salesforce had a $82 billion market cap back in 2017,
| they were set to do $8 billion in sales that year.
| Snowflake presents something around a 20x worse value
| proposition than 2017 CRM (when you include their
| horrible burn rate and dramatically lower sales). Who the
| hell in their right mind would go anywhere near that? It
| has disaster written all over it (or at best, extended
| mediocre returns). And 2017 CRM wasn't a steal, that was
| a rich valuation. Snowflake requires that you pay an
| extreme price for growth. That's where an investor has to
| decide what ratios they think are acceptable; place those
| settings in the wrong place and you increase the odds of
| getting crushed, getting trapped in a lost decade, or
| taking a haircut you have to potentially spend years to
| recover from. Do I think I can buy Snowflake in the
| future at a steep discount to the $429 highs it
| previously hit? I wouldn't be surprised if it can be
| picked up in the future below $100, possibly far below
| that. Do I think this market's hyper valuations will
| persist forever? No. And you can go from there.
| Inevitably something will crash the stock, something
| won't go right, growth will be weak for a year or
| multiple quarters, any number of a thousand things, and
| it'll tank the stock hard, and they're priced for
| perfection. Snowflake has to execute to perfection for
| the next decade, non-stop, to prevent that stock from
| tanking at some point, and even then the market may kick
| their feet out from under them regardless. Do I think
| it's likely they can execute like that for a decade? No,
| hell no. They'll have their Qwikster moment too, and if
| they're lucky they won't go out of business (classic
| dotcom bubble scenario, high burn rate, market crashes,
| economy tanks, business vanishes; the supposedly
| impossible happens).
|
| Why are people buying Tesla at $780 when they could have
| had it for under $180 a year ago? Where were these people
| a year ago? It's a great buy at four times the price and
| wasn't back then? Wild irrationality, a complete failure
| to understand anything about Tesla, a failure of due
| diligence, people generally buying things having no idea
| what they're doing. The market is always filled full of
| investors looking to buy your high priced stock at the
| wrong time, and later they'll be begging you to buy it
| from them at 10% or 20% the price. Rinse and repeat, it
| never stops happening, it will never stop happening, it's
| standard issue human behavior, and you can generate
| consistently great returns taking advantage of that fact,
| so long as you can control yourself and maintain
| discipline about your behavior during times of manic
| greed or intense panic (because the other people sure
| can't).
| wtf_is_up wrote:
| I find it interesting that BRK did not sell any SNOW in
| its latest 13F. They own 12% of SNOW...
| adventured wrote:
| Yeah they don't tend to talk very openly about who is
| doing the buying for what. Occasionally in the last few
| years Buffett will indicate if it was him specifically
| buying something, usually outsized positions.
|
| I think either Ted or Todd is likely is doing the buying
| on Snowflake (at least instigated the premise), perhaps
| with Buffett's sign-off (given it's an increasingly large
| position). I also think one of the other buyers is likely
| responsible for Berkshire's position in VRSN.
|
| There's a high risk that Snowflake position will
| humiliate Berkshire Hathaway. I think it's a mistake. It
| wouldn't be Berkshire's first mistake in dabbling in tech
| but it looks like it could be the biggest.
|
| I have great respect for Buffett's historical
| performance, however I consider him mostly done at this
| point. He's conservatively managing the end game of his
| career now, he seems to be intentionally avoiding doing
| anything that might stretch beyond his lifetime now (I
| don't think he wants to do anything that might need a
| decade to manage that he might have to offload onto the
| next person). I think he should have taken advantage of
| KHC's weakness for example, to strip Heinz back out of
| the conglomerate and break it up and sell off the rest of
| Kraft, the stock was so cheap at times you could have
| almost gotten Heinz for free in the process. Instead
| Buffett is sitting on a hundred plus billion dollars
| yielding squat (KHC was down to near half the market cap
| it currently sports, which was the general time to grab
| it to try to get the Heinz business, and then sell off
| the lesser pieces, either after you repair what was
| ailing KHC or immediately depending).
| antonislav wrote:
| Thanks for all the detailed responses. Very much
| appreciated food for thought.
|
| I have a specific question about the calculation of the
| fair value. My understanding is that there are two steps:
|
| 1. Project the future earning (that is the difficult
| part)
|
| 2. Discount the earnings and get the NPV - the fair value
| of the company
|
| Currently the interest rates are so low that the NPV will
| be quite high and not that far from the current
| valuations. Indeed, this seems to be the rationalization
| by many for the sky high valuations of today. But this
| seems wrong to me. What would you advice? Pick some other
| interest rate, maybe an aspirational rate of return for
| ones investing? Or don't try to compute the NPV and think
| in terms of multiples like P/E and P/S?
| adventured wrote:
| When I say fair value, it's what I consider to be fair
| value. As an investor you always have to ultimately make
| those decisions for yourself, or you have to defer to
| another person's judgment on the matter (whether a
| talking head on TV, or pump & dumpers on Reddit, or
| newsletters, etc). I'm not basing that on something some
| guy put into a book 70 years ago about how to value a
| stock, even if some textbook'ish knowledge can be worth
| learning to use as you go about coming up with your own
| valuing formulation (as in the case of Ben Graham). It's
| based on my past ~26 years of experience with stocks and
| what I look for in investments. You'll find with
| experience as an investor, if you're self-educating and
| or managing some or all of your own investing, you'll
| come up with your own tests for investments, your own way
| of valuing what you're buying & selling (or you should
| anyway). You can take pieces here and there from others
| and assemble it based on how you like to invest,
| inevitably over a lifetime it no doubt becomes an amalgam
| from what you learn.
|
| So for example if I think the fair value for Coca Cola
| (KO) is 30% to 50% lower than where it's at today, that's
| not based on a textbook valuation approach. I base it on
| what I'm willing to pay for growth, and Coca Cola is a
| pathetic non-growth machine (not to mention a giant sugar
| liability). I look at Coke's financials and, with some
| understanding of their business, I ask: what am I willing
| to pay for zero or negative growth across time? China's
| boom has come and gone and Coke's growth - as a global
| business - has recently been stagnant, mediocre, so what
| are their prospects going forward? I don't like that
| picture at all. I might be willing to pay somewhere
| between 8 to 15 times earnings for zero growth (depending
| on context; I might pay less for a financial firm than a
| tech firm, and so on), if there is something I like about
| a company. Coke's multiple is closer to 27-33 lately. Why
| would anybody ever pay 30 times earnings for zero growth
| and bad prospects for growth? Coke is a very easy fair
| value calculation as far as my personal judgment is
| concerned, their persistent growth problems make that a
| super fast decision. I'll look elsewhere. McDonald's is
| in a similar boat as Coke, it's a horrific value
| proposition, 30+ times earnings for a business with very
| little (or negative) growth. I might pay 12-15 times for
| MCD or KO, maybe. Personally I tend to really dislike
| companies with no growth or weak growth prospects going
| forward, it's a giant negative in the margin of safety
| calculation (growth is a first-aid kit for problems that
| inevitably crop up in a business over time, random
| messes, it applies a bit of a balm, helps as an offset in
| the value calculation; if you don't even have growth,
| inevitable problems are that much worse when they
| happen).
|
| Fair value means I've looked at the stock in a way that I
| prefer to approach a stock and I've made a determination
| for myself, for my investment purposes, as to how much I
| think it should be worth. And I may come up with a few
| versions of that, one for an average market (with typical
| multiples), one for a slightly bubbly market; typically I
| disregard trying to come up with a value based on a
| mania, I'm not a buyer at that time in most cases. Those
| variations, models, are meant to inform myself as to the
| flex in my investment. If valuations merely go back to
| where they were in 2012 or 2016, how might my investment
| perform if its multiple is reset 1/3 lower? Will I get
| killed on the price I paid? It's modeling.
|
| Interest rates will absolutely distort the context of
| deciding what something is worth, that falls into the
| variations, models, you build for different scenarios.
| The point of doing that is to check / prepare your
| position against a bad outcome. People claim that low
| interest rates will keep stocks inflated, so there's
| nothing to worry about; I like to point out that
| multiples were far lower at numerous points in the past
| decade when interest rates were at zero and we also had
| QE going on. How about if we just roll back to where
| multiples were in 2014 when rates were zero (and our
| economy was better positioned in 2014 than it is now,
| although our headline unemployment rate was similar)? If
| I were a buyer today I'd absolutely be running that
| simulation for myself whenever I buy.
| antonislav wrote:
| Thanks!
| jiscariot wrote:
| I really appreciate your insights on this. Thank you for
| taking the time to write this up.
| 55555 wrote:
| Along these lines, any reading recommendations other than
| https://www.amazon.com/dp/B000FC12C8/ ?
| adventured wrote:
| I don't generally recommend the Intelligent Investor. I
| think it's almost always a mistake for ... 99% of new
| investors to bother with Benjamin Graham. His material is
| far too dense and often advanced for anyone that isn't
| quite an experienced investor. I'm sure there are
| exceptions, however I've found it's a huge turn-off for
| most new or newish investors, it delays / stunts their
| learning process, it's an obnoxious book to try digest if
| you're starting out. It'll make you hate investing or
| think that value investing is difficult (it's not, it's
| simultaneously the best approach for generating
| consistently high returns over time and very easy to
| learn).
|
| Here is what I point new investors to:
|
| - Buffett: The Making of an American Capitalist, by Roger
| Lowenstein.
|
| - Margin of Safety, by Seth Klarman
|
| - The Little Book That Still Beats the Market, by Joel
| Greenblatt
|
| - Common Stocks and Uncommon Profits, by Philip Fisher
|
| - Business Adventures: Twelve Classic Tales from the
| World of Wall Street, by John Brooks
|
| - This article from 1984 by Warren Buffett:
| https://www8.gsb.columbia.edu/articles/columbia-
| business/sup...
|
| - Peter Lynch also has a couple of optional books that
| are decent and very easy to digest for a new investor,
| very common sense oriented.
|
| - Also optionally, Buffett's various writings are often
| excellent, however they're all over the place in focus,
| so it's hard to pick one. His annual letters for example
| can be acquired on the Kindle or from Berkshire's website
| and many are worth reading (if somewhat boring for most
| people I suspect).
|
| The single most important thought in investing, in my
| opinion, is to always be cognizant of price vs value.
| What you're paying, what you're getting in return. Then
| always be aware of, always estimate as best you can, what
| your moat is for the investment at the price you're
| paying (what Klarman and others have called a margin of
| safety). How much can go wrong with your investment
| before you drown? How much room for error is there in the
| price that you paid? I like the Buffett book I reference
| above, because it pounds home that concept while
| introducing how Buffett came up, how he thinks (I don't
| particularly like his book, The Snowball, for that).
|
| Also, Margin of Safety is out of print. However, there is
| a certain Archive site with a time machine, that if you
| were to put this url into it:
|
| https://files.leopolds.com/books/Margin.of.Safety.1st.Edi
| tio...
|
| You'll find an archived copy of the book in PDF format.
| Alternatively you can put that file name into Google and
| find some other copies of it floating about still
| (Klarman refuses to put it back into print and had been
| having the PDF copies taken down).
| reducesuffering wrote:
| Bless your dear soul for the Margin of Safety link. I've
| been meaning to read it for quite awhile, but you can
| guess why not. All your other commentary is top notch,
| although I still think the SP500 is fairly valued (won't
| have great 8% returns going forward, but won't be 0%
| stagnant).
| [deleted]
| airhead969 wrote:
| I have a large selection of common tulip bulbs. They're only $800
| USD each. Get them while they're still a bargain.
| randomopining wrote:
| I don't get how everybody is just making a killing right now.
| What goes up must come down? Are people going to get uber burned?
|
| Like somebody who put in 50% of their net worth today, and maybe
| it drops?
| WrtCdEvrydy wrote:
| The market can stay irrational something something.
| antoniuschan99 wrote:
| There's a lot of stimulus so assets are being inflated. It will
| pop at some point though and yea lots of people will get burned
| so don't get too greedy on the ride up!
| PragmaticPulp wrote:
| Stimulus isn't entirely responsible for this. Stimulus is
| partially offset by COVID losses.
|
| This is a market mania at this point. Everything _thinks_
| stimulus is all-powerful at this point, but there 's a lot of
| FOMO going on too.
| nine_k wrote:
| Since everyone thinks that buying stock is a good idea,
| stocks grow, and buying more stock becomes a _rational_
| decision, fueling the flame even more. It becomes a self-
| fulfilling prophecy -- for some time. A crash-up before a
| crash-down.
|
| Jumping off this train in time is what takes a real skill,
| not jumping on it.
| PragmaticPulp wrote:
| Prices go up because money flows in.
|
| In a bubble (up to you to decide if this is a bubble) a lot of
| people end up very wealthy on paper, but they only keep what
| they manage to sell before the retraction. Sadly, a lot of
| people can't resist the urge to double down as prices get
| higher and higher, meaning they lose more on the way down than
| they thought they were risking on the way up.
|
| > Like somebody who put in 50% of their net worth today, and
| maybe it drops?
|
| YOLOing your net worth into stocks isn't something that happens
| in the real world very often, contrary to what you see on WSB.
| The only people doing that either have severe gambling
| problems, or small enough net worth that they feel like they
| don't really care if they lose it all because they can start
| over.
|
| The weird thing about this bubble is everyone he gets rich on
| extreme gambles seems to want to post it for internet cred.
| Makes it look like everyone's doing it.
| Hydraulix989 wrote:
| YOLOing is different than making cautious educated trades and
| investing in an index fund
| bdcravens wrote:
| It's happened before, it'll likely happen again: a new high
| that's multiples of the previous high, months of exuberance,
| and then a 70%+ drop. 2-3 years of teeth gnashing and
| accumulation, and repeat the process. It seems to come several
| months after Bitcoin's halvings.
| lazylizard wrote:
| why must it come down?
|
| there is no gravity.
| 01100011 wrote:
| Isn't inflation the economic equivalent of gravity?
|
| If an asset isn't growing faster than inflation, it's losing
| money. If there are other assets offering better risk/reward
| then money will flow to them and out of the inflated assets.
| PragmaticPulp wrote:
| Inflation is high, but it's nowhere near enough to explain
| the recent market mania. Likewise, stimulus isn't enough to
| explain the market mania, especially after you subtract out
| COVID economic losses.
|
| Personal savings rate is up, discretionary spending is
| down, people are stuck at home, and everyone is glued to
| their phones. I think a lot of people's extra money is
| going into crypto and the market. FOMO reigns supreme, at
| least until the numbers turn red.
| lottin wrote:
| Inflation isn't high at all.
|
| https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
| stass wrote:
| CPI might not be high, but inflation can show itself in
| different places. Asset inflation has been increasingly
| high since 2019, which is clearly visible in stock
| market, real estate and commodity markets. Similarly,
| construction materials are up significantly.
|
| It may or may not show up in consumer prices eventually.
| lottin wrote:
| Sure, but this is not inflation. Inflation is an increase
| in the price level. When some prices are up and others
| down so that there is no general increase in prices, we
| cannot speak of inflation.
| eloff wrote:
| All bubbles pop eventually. I think there's little doubt
| crypto is a bubble right now.
|
| Maybe it pops tomorrow, maybe it goes on for years. I don't
| know, nobody really does.
| chillacy wrote:
| If you value stocks based on book value + dividends and
| discounted cash flow, this bubble's been going on for
| almost a hundred years by now. We've just gotten used to
| the new multiples.
| Aunche wrote:
| You also have to factor in growth into the equation as
| well. That's the most subjective part of a company's
| valuation.
| eloff wrote:
| I don't see that. You'll need a source if you want to
| argue that. We've gone through cycles of higher and lower
| valuations. You also need to compare that to interest
| rates, because lower rates make the market more forward
| looking.
| tradertef wrote:
| >> All bubbles pop eventually. I think there's little doubt
| crypto is a bubble right now.
|
| Same thing was said in 2013 and 2017..
| eloff wrote:
| I don't think it was wrong then either. I think this is a
| greater fool style of bubble like the famous tulip
| bubble, eventually we'll run out of fools.
|
| That's my opinion, but we'll see.
| mewpmewp2 wrote:
| The other possibility is that it will be widely used in
| the future as a store of value or for some other
| purposes. Might be rational to put at least some
| percentage of your net worth into it. People need and
| want something like that to exist where they have
| complete control over their assets without any worries
| about government or institutions.
| badjeans wrote:
| > People need and want something like that to exist where
| they have complete control over their assets without any
| worries about government or institutions.
|
| The government can always just make a law and take
| whatever it wants from you (or imprison you). Doesn't
| matter if it's from a bank account or bitcoin cold
| storage on planet Musk.
| solosoyokaze wrote:
| > Doesn't matter if it's from a bank account or bitcoin
| cold storage on planet Musk.
|
| It's _a lot_ easier for the government to pilfer your
| bank account, than for them to torture you to hand over
| your seed phrase (that is if they even know your real
| identity). Decentralization absolutely takes power away
| from the state. That 's not even touching the truly
| anonymous crypto like zCash.
| badjeans wrote:
| They don't have to torture you, just hold you in contempt
| of court until you give it up. e.g.:
| https://en.wikipedia.org/wiki/H._Beatty_Chadwick
|
| Works the same as with bank accounts or scamcoins.
| solosoyokaze wrote:
| They can't take the money from me though. They can hold
| you in contempt _and_ access your funds without your
| permission with USD in a bank.
| lottin wrote:
| > People need and want something like that to exist where
| they have complete control over their assets without any
| worries about government or institutions.
|
| Are you sure? I have never in my life met anyone who
| thought they didn't have control over their assets or
| that they needed to have more control.
| eloff wrote:
| In reality it is probably both.
|
| Unless governments take a hard line against bitcoin by
| banning it, something they mostly haven't been doing to
| date, I expect it will have a future as a kind of digital
| gold. However, gold has tens of thousands of years of
| history as an asset class, while bitcoin is a little less
| proven. Don't forget it used to be illegal to own gold in
| the US, so bitcoin is not as safe from government as
| people might think.
|
| But all financial assets tend to follow cycles of booms
| and busts. So the question is, where are we in the cycle?
| Are we nearing the top in the near term? I think we are,
| the growth of bitcoin has gone nearly vertical lately.
| endless1234 wrote:
| I get this argument if it was for e.g. gold. A physical
| asset, thousands of years of people appreciating it,
| nothing else like it. But why might it be rational to put
| some of your net worth to bitcoin? What speaks for
| bitcoin existing in a meaningful form 50 years from now,
| instead of some improved, different (blockchain-based or
| not) digital asset?
| qq4 wrote:
| That's the thing about bubbles, you don't know you're in
| one. My life is a bubble. I'm not going to worry about when
| it pops.
| koonsolo wrote:
| I will leave you with this cartoon:
| https://images.app.goo.gl/dzZNEDdz4HkcSEaS8
| throwawaygulf wrote:
| After they cleansed themselves from toxic activist SJW leftist
| employees, it looks like they've only gone up.
| rvz wrote:
| There you go right there, sounds like those who stayed were the
| smart ones or even there are some who want to time it perfectly
| after the direct listing + the lockup period.
|
| Given the industry-wide reaction to Coinbase's apolitical
| policy last year and the peak of the political chaos of 2020, I
| doubt they considered staying.
|
| In general, If you get woke, you'll only go broke.
| [deleted]
| technotony wrote:
| How does the lay person get in on these test the market secondary
| offerings?
| nine_k wrote:
| I'd suppose by educating themselves first, as not to be so much
| of a layperson anymore. Then thinking twice, based on the
| acquired knowledge.
| runako wrote:
| The chart here provides context:
|
| https://twitter.com/JohnStCapital/status/1362859527230672896
|
| In case the tweet is deleted, a summary. Coinbase is now being
| valued at over half the combined market value of the companies
| that collectively own most major global markets outside of China.
| Those markets trade everything from currencies to stocks and
| bonds to commodities.
|
| For scale of asset pools: The value of all Bitcoins ever mined
| just hit $1 trillion. The CME Group exchanges trade nearly 6x
| that _daily_. This funding values Coinbase ~50% higher than CME
| Group.
| radicality wrote:
| Something similar that intrigued me recently is that Airbnb is
| valued at more than all the USA publicly listed hotel chains
| put together (Marriott etc)
| runako wrote:
| In that case, the comparison is between a capital-efficient
| tech company and a real estate management company where
| capital is tied up in real estate around the world.
|
| If there's a similar distinction between the business models
| of Coinbase and e.g. CME Group, I have yet to hear it.
| pgwhalen wrote:
| > If there's a similar distinction between the business
| models of Coinbase and e.g. CME Group, I have yet to hear
| it.
|
| Traditional finance and crypto finance are often hard to
| compare, but here's a surface level comparison: Coinbase is
| an exchange, a brokerage, and a clearing house all wrapped
| into one. I'm not aware of entity in traditional finance
| that is all three, though plenty are two out of three
| (Robinhood is a brokerage and clearing house, CME is an
| exchange and clearing house).
| csomar wrote:
| That's meaningless. For all we know, these companies could be
| buried in debt and thus have little value in their assets.
|
| The price is a prediction of future payouts (whether in
| dividends or value of the assets the company is holding).
| vmception wrote:
| Coinbase will make a lot on their staking products, I can see
| huge growth there!
|
| I am surprised by this multiple but I can see it, as the law of
| diminishing returns has not set in and won't for a while.
|
| Pretty much all aspects of this require growth in other parts of
| the market to support, but they are all things I agree with.
|
| For example, Coinbase should be allowing people to pool their REN
| to run hosted darknodes - darknodes function as a progressively
| more trustless exchange letting people move assets across
| blockchains. Coinbase already lists REN. Taking a cut of that as
| the volume grows there will essentially allow Coinbase to double
| dip. They get the transaction fees when people trade, move funds
| off of their exchange, and a cut when people move funds to other
| blockchains through RenVM, which will be a many-to-many
| relationship. The Forex market does several trillion $ a day in
| trades, so another mere order of magnitude in growth of the
| crypto economy would support the growth of all the infrastructure
| projects inside of the economy.
| practicalpants wrote:
| I wish Coinbase would support more cryptos or allow storage of
| ERC-20 tokens so people would be more encouraged to spin up ETH
| projects. Feels like Coinbase is trying to be the big corporate
| face of crypto, kind of going against the spirit of it IMO.
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