[Gshaheen]

“Jackson: In Vanguard’s view, crypto is more of a speculation than an investment. This is at the root of our decision to not offer crypto products, whether our own or others. With equities, you own a share of a company that produces goods or services, and many also pay dividends. With bonds, you get a stream of interest payments. Commodities are real assets that meet consumption needs, have inflation-hedging properties, and can play a role in certain portfolios. While crypto has been classified as a commodity, it’s an immature asset class that has little history, no inherent economic value, no cash flow, and can create havoc within a portfolio.“

Well said, this has been my own thinking on crypto, nice to see it so succinctly summarized.

[rainsford]

It was well stated, and I'm glad to see Vanguard explicitly stating the lack of inherent economic value as part of their reasoning. It's actually worse than that, since creating cryptocurrency requires investment of things of real inherent value (capital investment, energy, etc) but only provides a purely speculative asset as an output. Cryptocurrency is basically an economic sink.

[loandbehold]

Exactly. Capital investment is a positive sum game. E.g. you build a factory and over its lifetime it produces more than what was the cost to build it. That's the root of economic growth. Bitcoin is a negative sum game. All money that has even been invested into Bitcoin - total cost of mining = all money that investors will ever get back.

[rjmunro]

> All money that has even been invested into Bitcoin + total cost of mining = all money that investors will ever get back

Don't you mean "All money that has even been invested into Bitcoin - total cost of mining = all money that investors will ever get back"

Cost of mining has left the system. "Investors" will never get it back.

[loandbehold]

Sorry fixed

[thaumasiotes]

This identity (with the minus) would be true if the only things you could do with Bitcoins were create them (at some cost) and then later destroy them for some kind of reward.

Since they can be transferred, it's analogous to saying that the amount of value produced by Visa is equal to negative one times Visa's revenue.

[rvnx]

They will get the money back, but only if they can manage to keep convincing new people to inject new money.

Which is what they are doing now.

[toss1]

You just wrote an excellent description of the Greater Fool Theory. [0,1]

The greater fool theory argues that prices go up because people are able to sell overpriced securities to a "greater fool," whether or not they are overvalued. That is, of course, until there are no greater fools left. [0]

Crypto technology had potential, but those involved never resolved the critical usability and security issues, and just went straight for killing the golden goose — get the money now and nevermind whether it ever becomes anything. Those now pushing for a "US Strategic Bitcoin Reserve" are attempting to cash out making the rest of the US taxpayers the last Greater Fools, and leave them holding the steaming bag...

[0] https://www.investopedia.com/terms/g/greaterfooltheory.asp

[1] https://en.wikipedia.org/wiki/Greater_fool_theory

[bqmjjx0kac]

Isn't that the definition of a Ponzi scheme?

[est31]

Ponzi schemes usually involve promises to get back X times the money after N time. And in terms of actual cash. So whoever runs the Ponzi scheme needs to keep it growing exponentially in order to create exponential payouts. Eventually, it will grow so large that it collapses.

With Blockchains, they are more stable, as there is no such guarantee. Many people choose to HODL instead, and this gives the coin some stability. As long as there is less interest in cashing out than people trying to cash in, the value is growing. And as long as the value is growing, people cash out.

For a Ponzi scheme with guarantees in terms of currencies not minted by the scheme creator, they are bound to collapse sooner or later. Blockchains could go on forever in theory. However, latter still requires more people to cash in than people to cash out. If there is enough people trying to cash out, maybe larger number of people will panic and cash out as well, leading to an avalanche like race to zero.

Both are united by the requirement for a "greater fool", just with Ponzi schemes, this greater fool is exponentially growing while with Blockchains it can grow linearly.

[miohtama]

Bitcoin could be more compared to a national currency like Argentinian pesos. The value can go to zero as it is no longer accepted (people do not want it), but there is no inherited promise in the first place it goes up forever.

All it matters that it will stay more stable than other assets. And we know from economic history that assets tied to nations may disappear overnight, e.g. Cyprus.

[rsynnott]

Strictly speaking a Ponzi scheme involves a single person or entity doing that, consciously. Bitcoin is… an anarchist self-organising Ponzi scheme? :) It has many of the features of a Ponzi scheme, but largely by accident; there is no _intent_.

[zoechi]

Depends on how many coins the creator owns and when he sells. The creater starts with a few bits in a chain that suddenly are worth billions. When he sells be gets a big chunk of that in Dollars and the value of the rest collapses to zero for everyone trying to sell later.

[saalweachter]

Eh, crypto is weirder and worse than a Ponzi scheme in a way that deserves its own moniker.

A Ponzi scheme typically involves a small inner circle perpetuating a fraud; even if "everyone knows" it's hinkey, it is ostensibly returning fabulous returns through actual investment/economic activity. Eventually, the insiders stop being able to keep the game going, and go bankrupt, get arrested, flee the country, or some other ignoble end.

Crypto has lost its layer of fraud; it used to be "this thing will be the future of money and therefore have value", but for the last five+ years it's all just been "this will be worth more in the future because people will buy it so you should buy it," a naked Ponzi.

Meanwhile, it is distributed, even if it is highly centralized at every point from mining pools to exchanges. There's no single person who has to go to jail or disappear with his money to collapse the whole system. It's happened dozens of times, and every time it does a new set of criminals steps up to keep the fraud going.

In summary, even if individual enterprises (eg, FTX) are classic Ponzi schemes, crypto as a whole deserves to be the name of its own type of scam.

[wslh]

Just thinking out loud, but the problem I see is that even if you define Bitcoin as a scam, it could very well have been created by Satoshi Nakamoto (or the group behind the name) in good faith. The real issue now lies with the responsibility of companies like BlackRock to clearly and transparently identify what they are selling to the public.

It is also different than a casino: "Even if crypto investing is considered gambling, there is a factor not present in traditional casino games: the time variable of holding. Holding roulette chips has no effect on their value, while in crypto markets, prices change in time. By holding crypto assets for a longer duration, investors can potentially benefit from market fluctuations and price appreciation, making it a unique aspect compared to classic gambling games." [1].

[1] https://www.coinfabrik.com/blog/the-science-of-crypto-asset-...

[southernplaces7]

What you say is complete nonsense of the reactionary kind that pervades on this site against crypto, by which at all costs it has to be defined as a scam, against all normal, rational definitions of the word.

If for whatever reason, something my go up in price because there's demand for it despite widely available and mostly correct information about its utility or lack of it, that's not a scam. This is the case with bitcoin. It's growth has fueled interest in a bit of gambling by members of the public about possible future growth. There's no central party running it as something it isn't or perpetuating a core lie by hiding some key information about what bitcoin really is.

People insisting on buying something despite it having an unstable market value and debatable concrete utility doesn't make that thing fraudulent. A scam requires intent and misdirection, regardless of how you and others who share your view try to redefine the word scam arbitrarily. You might as well also call all forms of speculation a scam by the same ridículous logic.

[mistercheph]

Thought experiment: what would happen to the price of gold by 2125 AD if nobody born after the year 2025 believed it had value outside of its industrial applications?

[EVa5I7bHFq9mnYK]

See my below comment about 16 Psyche, a 140-miles asteroid made of gold floating out there in the sky. By 2125 AD we'll sure find a way to tow it to our shores.

[miohtama]

It's a definition of a pension fund.

[throw310822]

Or shares: they have a value as long as someone else is willing to buy them. Or just like any other type of transferrable representation of value, including precious metals.

[joshlemer]

If Bitcoin is a ponzi scheme because of this, then literally every asset which has resale value is a ponzi scheme.

When people buy bonds, stocks, commodities, or purchase a car, a house, or even an Xbox, they are taking into account the resale value of that asset. If you supposed that when you're done with your house, it would be worth $0, you would be willing to pay a lot less for it. There's nothing fundamentally different here wrt Bitcoin.

[rsynnott]

A house produces value; you can either rent it out, or live in it (thus avoiding paying rent to someone else). Stocks produce value; the companies make money (and generally either pay dividends, buy back stock, which is just a tax dodge approach to paying dividends, or invest in growth, and will thus eventually be in a position to pay more dividends). Bonds produce value; they are literally loans which (hopefully) get paid back. All of this allows a value to be assigned to them; that value may be greater or less depending on market conditions, demand, future value of money, etc (for instance, if your house is in the middle of nowhere and, by the time you’re done with it, needs a new roof and windows and so on, then its market value may actually approach zero). Things like bitcoin are different in that they do not produce value. You can’t value bitcoin based on X years of expected dividends/quasi-dividends or anything; any value is purely speculative.

To be clear, there’s speculation involved in buying stocks, too, to an extent (particularly buying _individual_ stocks), but ultimately you have a share of some real thing. That is not the case with bitcoin.

[atq2119]

The difference is that Bitcoin only has resale value.

The other examples you mentioned generally have some significant additionally value beyond just resale value -- e.g. stocks pay dividends or are expected to at some point, a house is something you can live in or get an income from by renting it out, and so on.

[mistercheph]

What happens to a store-of-value asset like gold or cash if you can't convince the next generation to trade another store-of-value-asset, hard asset, or labor for it?

[stouset]

This is precisely why financially literate people hold on to the amount of cash necessary to buy and sell goods, keep some excess in an account that bears interest, and the bulk of the rest goes into productive assets.

[dehrmann]

Would you like to buy some tulips?

[Ekaros]

I also have some stamps to sell. A real example of collectible that has fallen in value outside few very rare and perfect specimen.

[brazzy]

The funny thing is: tulip bulbs were actually a productive asset. You could plant the bulbs to create more of them.

[cft]

Since we are hypothesizing, here is another hypothesis. Crypto, being non-government controlled, maybe be better than the hypothetic alternative: a government ledger, where the central planners decide which economic activity is "good" and which leads to de-banking, and where decisions are made by government-controlled AI. Then this p2p economic liberty is worth the investment.

[stouset]

You’re the only one hypothesizing here. “Crypto isn’t a productive asset and is an energy sink” is a simple and straightforward observation.

But if you’re going to hypothesize things out of thin air, you can give them literally any property you want. That’s hardly interesting.

[mistercheph]

Pencil and paper, two questions "What is money?", "How does a money start?", half an hour in a park

[pjc50]

If you think that a public leger on the public internet is somehow not controllable, I have a crypto bridge to sell you.

[cft]

Public, yes. Interpretable- recent transactions- no. Have you done chain analytics on pay-to-Taproot key-path transactions?

[verdverm]

If they think having everyone's transaction history on the public internet is a good idea, I have a hyper detailed data bridge to sell

[Spooky23]

Crypto is a commodity that is a fraud machine by nature of its trivial transferability. The lack of transfer controls makes it great for a variety of grifts, as demonstrated time and again.

Even without my cynical opinion, Vanguard doesn’t have a heavy commodity focus, and it’s hard to diversify crypto.

[kgwgk]

The new people are also investors, will they get their money back?

[austhrow743]

Trade is a positive sum gain and Bitcoin makes it easier.

[stouset]

Which trade, specifically, is Bitcoin facilitating in practice?

[austhrow743]

Darknet marketplaces.

It's responsible for facilitating a ton of fantastic trips amongst myself and friends.

We had extra money. There were some people on the Netherlands with some extra lsd. We swapped using Bitcoin. Value was created.

[stouset]

I genuinely believe this is a valuable use of cryptocurrencies.

That said, I would wager enormous sums of money that on net, they have been dramatically negative. Once you factor in the vast quantities of energy wasted (even using up energy that would have otherwise gone to waste simply decreases the demand for batteries or competitiveness of other marginal-value uses) and all the funding of crime such as theft, fraud, hitmen, blackmail, money laundering, scams, and so on it’s very hard to see “I was able to get LSD” as compelling.

And I love LSD.

[nout]

As an example it's much easier and cheaper to send money from a bank account in US into a bank account in another country when you use bitcoin as the rails for this. All of this can be done fully legally, using companies like Strike, Revolut, Relai or similar. If you ever tried doing international wire or even using Wise, you will definitely appreciate bitcoin.

[krab]

You're missing the value the Bitcoin network provides in facilitating trade that's illegal or shady.

I don't want to make any moral statement here. I'm just saying that Bitcoin can be positive sum or negative sum. I don't know which is true and I don't know whether it's better or worse for humanity to have a global mechanism for unregulated money transfers. But that's what we have.

[cobbal]

I really hate to be defending cryptocurrency, but doesn't this same argument apply to banks? They don't produce anything either, they just shift made up numbers around.

[woodruffw]

Banks produce economic services: they provide the structure and liquidity needed to convey value through the rest of the economy.

(A typical form of blockchain apologia is that blockchains also do this. This is true only if you ignore the social and regulatory structure that allows companies and individuals to treat banks as mostly interchangeable assets.)

[ninetyninenine]

Loans. They control money supply.

[woodruffw]

Who is "they"?

[tinco]

Banks are service providers. They are the middlemen between entities that have money and entities that need money. They make the deal (a loan/mortgage) and then skim some off the top. There is real economic benefits derived from banks.

There are some real economic benefits to Bitcoin as well, but I don't believe they justify the valuation though that's neither here nor there.

[RippingMadMan]

> They make the deal (a loan/mortgage) and then skim some off the top.

Thanks to fractional reserve banking (i.e. institutionalized fraud), they also create new money along the way (i.e. debase the existing currency).

Thus, the amount they're skimming off is even more than one would originally think, since they're charging interest on something they didn't entirely have in the first place (second-order fraud).

That is quite the service being provided. How fortunate we all are!

[sdvsfqe]

> How fortunate we all are!

I think so.

As someone who makes things, they solve a really important chicken-and-egg problem for me.

i.e. Where does the money needed to make a thing come from before you make it so that you can sell it and make money from selling the thing?

I suppose technically I could risk my money, assuming I have some. But I'd much rather risk the bank's, and I understand that they will charge me for that.

[oblio]

Creating new money helped propel economies since a long time ago. It has downsides but almost universally countries have agreed that the positives are worth the downsides.

[bluecalm]

You can say that banks manage risk of lending and charge for that. Imagine that instead everyone can take a loan from a government without any checks. Soon financial system would collapse as a lot of irresponsible or too optimistic people would take loans for various purposes and those loans wouldn't be paid back. You need an institution that manages it and take the hit of unpaid loans for the system to be stable.

[rsynnott]

A loan, say, _is something_. You loan money to a company, they use it to build a factory, which produces, in the long run, more economic value than the cost of building it (hopefully). They pay you back, with interest. It’s a somewhat abstract something, but it is still something-by-proxy. This is generally not the case for a cryptocurrency (it might be for a lender dealing _in_ cryptocurrency, though, well, historically those usually turn out to be scams of some sort).

[LVB]

As a very specific example, I can go to a bank with my W-2s and credit history and get a mortgage. That’s a complex and valuable decades-long relationship they’re facilitating.

[smoovb]

It's not hard to imagine your tokenized income stream and tokenized assets, algorithmically qualifying you for a defi loan with out need for some guy at a physical desk in a physical building. Hence it's also not hard to imagine the economic value you attribute to banks, as value eventually accruing to crypto.

[stouset]

One important difference here is I don’t have to imagine a mortgage.

Bitcoin proponents always talk about how it has the potential to do x, y, and z. Okay so do it already.

[ttt333]

Banks provide a service to the economy of connecting people with more money than needed right now (savings) to people with less money than needed right now (loans). They make money in between when this goes well. So I would contend the shifting of numbers around actually does provide a good to the economy

[beepbopboopp]

It's unpopular but, crypto as it exists looks a lot like sports betting with "prop bets" "Futures bets" and "lines." They basically. found a way to sell sports betting to STEM people.

[pavlov]

There’s a tremendous market for gambling disguised as something more intellectually and morally palatable.

[nradov]

I'm sure there are a new wave of stealth startups furiously working on schemes to turn real estate investing into something closer to casino gambling. I mean there's already speculation in that asset class but the slow rate of actual transactions makes it less like gambling than stocks / options / currency / commodities. (I'm not saying this will be a good thing, just that it seems like the next logical step in enabling gambling on everything.)

[rsynnott]

I mean, see the last financial crisis. A lot of that was more or less precisely this; activities relating to real estate lending were made more profitable, but riskier (in a way which was poorly understood at the time, though obvious in hindsight).

As a result of that financial crisis, real estate is somewhat heavily regulated in most countries, and exotic financial instruments based on real estate (which you’d need to make this work) are treated with suspicion. Probably not the most fertile ground for the aspiring scammer.

[nradov]

That was something a little different. Degenerate gamblers don't want to wait months or years to see if their bets hit. If someone is going to turn real estate into outright gambling then they'll have to find a way to accelerate the cycle time.

[Ekaros]

If a few stories I read were true. The part of the thing was absolutely certainly going to blow up sooner than later. Certain loans were economically impossible.

[stouset]

And there’s a lot of people to prey on who don’t understand the difference between day trading and investing.

[hipadev23]

If you think crypto is only with STEM you're woefully out of touch. I'd wager the adoption and continued interest in crypto is actually lower among STEM than many other professional circles.

[dehrmann]

STEM people might have been early adopters for crypto as a currency, but are they really the main people speculating, these days?

[conradev]

Gold is an economic sink, too. It is primarily used to preserve capital, even though it has unique atomic properties. Mining gold also takes real inherent value.

Gold as a store of capital isn’t accessible to a lot of people, though, because it is easy to steal and thus hard to store. So instead, I can buy a gold ETF.

It does make sense that Vanguard doesn’t have a Bitcoin ETF, though: they don’t have a gold ETF either, for the same reason

[tim333]

That's not actually true. The biggest use is for jewellery. (see https://www.gold.org/about-gold/gold-demand/by-sector) And largely has been for 4000+ years since ancient Egypt.

[erikpukinskis]

Right, so gold has a financial use and a material use.

So, if I were to print bitcoin keys on firewood and sell that, would it become a “good investment” in your mind?

That’s basically what gold is. A commodity with some limited material value, whose price has become completely detached from that value due to its use as a financial instrument.

[lelandfe]

Satoshi Nakamoto is actually a Trisolaran alien who came to Earth to hasten climate change and have humanity kill off itself.

[koakuma-chan]

Every civilization reaches a point where they invent cryptocurrencies, burn through all their resources mining imaginary coins, and that's why the universe is so quiet.

[antiraza]

The universe is a dark mint.

[ryandvm]

"Crypto is one of the great filters" is a hilarious take.

[oblio]

Hey, at least they're not making paper clips.

[mistercheph]

How much energy are we spending to try to summon stochastic parrot but world-ending doomsday edition?

[1659447091]

Two wrongs does not a right make

[DennisP]

Proof of stake doesn't require that kind of investment. Ethereum for example has a large decentralized set of validators like Bitcoin, but runs on regular computers with the energy usage of a few hundred average American households. It's similar to any other internet protocol.

Economic value is whatever people are willing to pay for, and I do mean "pay for," not "invest in." If you want to use applications on the Ethereum network, you have to pay ETH to do it and the ETH gets burned. As long as people keep doing that, the economic value is demonstrably there. Whether that equates to any other kind of value at this point, I won't try to argue, but for significant periods after proof-of-stake rolled out, ETH has had a P/E comparable to some high-growth stocks. This does not apply to Bitcoin, which doesn't have the burn mechanism or much in the way of applications.

ETH and BTC are the two cryptocurrencies with ETFs available. It's unfortunate that even now, so many investment professionals don't understand their differences.

[cryptoegorophy]

What I don’t like about eth is when you think extremes and I mean 10000x supply growth of eth or 99.9999% burn all of these are possible scenarios which is not a good idea. Remember how eth forked to save someone’s crypto? Basically defeating the whole idea of crypto currency. Bitcoin on the other hand - hardcoded, meaning supply can’t change.

[DennisP]

ETH's supply growth without the burn maxes out at about 2% annually, in the case of almost the entire supply being staked. That's still less than major fiat currencies. Its current growth rate is less than Bitcoin's.

For the burn to be so extreme, the demand for transaction space would have to be much greater than the space available. Since they're also making large improvements to scaling, with the roadmap going to millions of transactions per second and the hardest parts already done, that also seems unlikely.

As for the infamous fork, that happened in Ethereum's first year and it didn't change the ETH supply. Nothing like it has happened in the nine years since. Bitcoin forked when it was eighteen months old, and that actually did change the Bitcoin supply.

[paulryanrogers]

There are several serious forks of BTC. The fact that they haven't overtaken the original entirely doesn't make it a good example

[akimbostrawman]

>but only provides a purely speculative asset as an output

i would expect this kind of technical ignorance from the news or my mom but not "hackernews". there is real value in exchanging value/currency P2P globally relatively quickly and cheap. you know "internet money" people dreamed about decades ago...

[stouset]

Next to nobody is actually using it as a means of exchange because it is poorly suited for that purpose in practice. The only type of commerce for which it’s viable in practice are typically crime or crime-adjacent. There is of course a small market of users for “legitimate” and ethically reasonable purposes, but they are by far in the minority.

The overwhelming majority of users are holding it as an asset. Which it’s also poorly suited for in the long run: it generates nothing in and of itself and requires constant feeding of money and energy to keep it going. The only way to see a return is to trade it to a greater fool.

[Animats]

> Next to nobody is actually using it as a means of exchange because it is poorly suited for that purpose in practice. The only type of commerce for which it’s viable in practice are typically crime or crime-adjacent.

Yes. The size of the money-laundering, exchange control evasion, and tax evasion industry was way underestimated.

What surprised me is that after China banned cryptocurrencies in 2021 [1], the price didn't drop.

Outside of Bitcoin and Ethereum, almost everything in crypto eventually tanks. The entire NFT market has tanked. Even the big names, such as BAYC, are down. BAYC is down 80% since launch. In memecoin land, "eventually" can be measured in days. Check out TRUMP.

Even Ethereum peaked back in 2021. Bitcoin has had 75% drops. If you bought and held anything other than BTC, you're probably under water now.

Then there are the constant collapses and "rug pulls".[2] US$76 billion total so far.

[1] https://www.bbc.com/news/technology-58678907

[2] https://www.web3isgoinggreat.com/

[akimbostrawman]

You and everybody else in the replies talk about BTC specificly while I and OP are about cryptocurrency in general. BTC does indeed suck as a currency.

[epistasis]

For Vanguard's customer base, this is quite true though. They have access to easy avenues for exchange in the form of USD and other assets.

There is some value for those without access to stable currencies in their home country, but that use case is absolutely dwarfed by the other use cases out there at the moment. Perhaps this will change if the US goes through an economic collapse due to bad tariffs or something.

[discardedrefuse]

And yet that's not what we have. Bitcoin, the most popular cryptcoin in the world, is far from quick and cheap to exchange...especially during times of volatility. That dream of "internet money" is just a fantasy to lure potential bag holders.

[erikpukinskis]

> Bitcoin, the most popular cryptcoin in the world, is far from quick and cheap to exchange

Compared to what?

Let’s say your goal is to get some wealth out of Tibet into India.

Is it “quick and easy” to do that with dollars? Or Yuan? How about gold bricks? Maybe goats?

I’m not sure what the Chinese authorities at the border would have to say about those things.

With Bitcoin you can memorize a phrase like “witch collapse practice feed shame open despair creek road again ice least” and with that information in your brain you can move any amount of money anywhere your brain can go.

That is one _utility_ of Bitcoin. Just like one _utility_ of a dollar bill is I can put it in a Coke machine.

[discardedrefuse]

"Committing crimes is easier with bitcoin," is an interesting argument.

[dns_snek]

A crime can be just about anything that the current government doesn't like, for any reason.

The first thing that many governments will do when a protest of any kind starts becoming too effective is to make it a crime to participate or support the protest. I think we should all keep this scenario in mind when discussing what the future of our financial system should look like.

It's foolish to gloss over the word "crime" like it only describes human trafficking and international drug trade, especially with everything going on in the US. What was "going to the doctor" yesterday could be "committing a crime" tomorrow.

[stouset]

And in your hypothetical scenario, how did you get that value into Bitcoin to begin with?

[rsynnott]

Insofar as cryptocurrency is valuable for this at all, it’s really more stablecoins than bitcoin. And even then the concept predates crypto; notably, there’s the Eurodollar (not to be confused with euros or dollars) which is a stablecoin-like thing which has many of the same applications (though a more limited scope).

[miohtama]

Hacker News ceased to be a news site for hackers and founders years ago and is now a generic discussion forum with all sorts of people with all skill levels and from all political spectrums. Hating cryptocurrency is especially popular here.

[brap]

While I’m not a fan of crypto, I don’t really understand how bitcoin is different from other commodities.

Would you say gold’s value is determined mostly by its practical use? Because it seems demand is largely driven by speculation as an alternative currency.

[selectodude]

Gold has a commodity value above zero. It’s used industrially. Even if everybody decides it’s not worth its precious metal value, it’s not worthless. Bitcoin has zero intrinsic value. None.

[LudwigNagasena]

Which makes it better. Using gold as a store of value is inefficient. Only 11% of gold is used industrially, 89% of gold is literally wasted in financial games where bitcoin or any other fiat store of value with low supply inflation could be used instead.

[sgt101]

My wife can't wear a bitcoin. She can wear a gold necklace and will be pleased to do it even if the price goes to 10%

[LudwigNagasena]

What’s better: someone’s wife wearing a gold necklace, or a gold ignot sitting idle in Fort Knox?

What’s better: someone living in a house, or a house sitting idle as a store of value?

What’s better: someone storing his wealth in houses and gold ignots, or in special financial assets that don’t take away products from other people?

[rvnx]

Hoarded wealth is a stinking manure; used wealth is a fertilizer.

[mistercheph]

Would she be happy to wear a necklace that appeared identical to gold to the naked eye, but anyone with a $10 instrument could demonstrate was not gold but something relatively worthless? If so, I have something I would like to sell you that your wife would really love.

[1659447091]

I doubt she would be too pleased with the green stain left behind when taken off

[pfannkuchen]

Doesn’t the appeal of gold as jewelry rely on it being expensive? I think if the price cratered its use in jewelry would probably plummet.

[viraptor]

It's the look. You also get resin / rock / clay / steel / ... (anything really) jewellery. It's not just about the price. And even then, a jewelry-sized gold piece is quite cheap.

[rsynnott]

Yes, using gold as a store of value is inefficient. You would generally expect returns worse than global equity markets over any significant period of time. You are at significant risk of _losing_ most of your money (adjusted for inflation, gold has never returned to its 80s peak, and was _much_ lower for most of the last 40 years). ~No-one should be investing in gold.

And bitcoin is even _worse_ than gold, on the fundamentals; gold does have at least have that bit of intrinsic value (plus a few millennia of cultural cachet). Bitcoin has _nothing_.

[pclmulqdq]

Industrial uses of gold aren't the only uses of gold. Like it or not, jewelry (among other decorative objects) containing actual gold is an enduring status symbol that is hard to 100% fake, and there is quite a large amount of the world's gold that is used for decorative purposes.

[B-Con]

It makes it hard to value Bitcoin.

It's not only almost 100% speculation, it doesn't have much history track record.

Crypto bros need to understand that they aren't the first people to discover a speculation market, and just because they can dream of utility doesn't mean they test if the world wants to treat it as a reality. What they're doing is, from a financial perspective, boring and in many cases outdated.

[cubefox]

That's a stupid argument. When someone finds some niche applications of crypto currencies in payment services, or something like that, it's economic value is above zero. But what matters is how close the economic value is to the market value, not whether the economic value is literally zero or not.

[rsync]

The difference is that I can create an infinite number of different block chains and or crypto coins.

I can restart forks of both bitcoin and Ethereum on my laptop at this moment. I can restart 10 forks each. Or 100.

I cannot do that with gold.

[EVa5I7bHFq9mnYK]

Bitcoin holds 57% of total crypto value, Ethereum another 11%, some 15% is in centralized instruments like USDC or XRP, which are not really cryptocurrencies.

In addition to that, there are also 10.5 million altcoins (10000 new are created every day). But all of them together hold just 17% of crypto value. So you can, of course, create another millions of forks, but it won't make a dent in Bitcoin value.

[est31]

Sure you can create 10 different blockchains but will those have "stable" value 10 years from now?

In China, it's nearly impossible to invest your assets without friends in the government. The government strictly controls conversion of their currency to non-Chinese currencies. As strange as this sounds, but with cryptocurrencies, you can export value from your country to something more stable.

Same goes for many south american countries.

I still wouldn't invest into Bitcoin or Ethereum but I live in the west where there is the rule of law and one can invest into a large variety of asset classes.

[cubefox]

That's irrelevant. You can choose to speculate with literally anything, not just newly invented crypto currencies or gold. Historically people have speculated with tulips and countless other things. The problem is the missing economic value, not whether you can create similar things. It's irrelevant for the economic value of gold whether new elements can be created or not.

[r33b33]

> The difference is that I can create an infinite number of different block chains and or crypto coins.

Yes, but Russian Federation uses only one to evade sanctions.

[selectodude]

>When someone finds some niche applications of crypto currencies in payment services, or something like that, it's economic value is above zero.

No it isn't. My credit card has an intrinsic value of zero. It might even be negative due to the massive amounts of infrastructure necessary to run it, similarly to bitcoin. The value is in the networks surrounding it, not whatever method Visa uses to move the bits around, be it blockchain, databases, or whatever. And even then, Visa's value add is only a few points on the transaction. It's in no way a speculative asset and if Visa went away tomorrow forever, it would suck for maybe a month while we adjusted to using cash again. In the same vein, if bitcoin went away tomorrow, I wouldn't notice until reading a panicked article about it.

If the US dollar went away tomorrow, however, I'd be happy to have stocked up on ammunition and cured meats.

[r33b33]

How much of gold value is honest commodity value and how much of it is speculative value? I think you will determine speculative value is something above 80%. If that is the case, then arguing that there should be a huge disrecepency between price of BTC and price of gold is intellectually dishonest, since 100% speculative value and 80% speculative value isn't THAT different.

[selectodude]

>How much of gold value is honest commodity value and how much of it is speculative value?

It really doesn't matter. The honest commodity value is the same price as the market value. 60+ percent of new gold mined every year goes towards jewelry and electronics. The base price of gold is high due to demand, not due to speculation. Gold is pretty and pretty hard to find - thus the price goes up.

[scyclow]

I agree about Bitcoin, but other cryptocurrencies like Ethereum or Solana have use as gas to power transactions on their respective networks. So it's interesting to see Vanguard nix those two as well and then say "We do have a lot of interest in blockchain, the technology behind cryptocurrencies. We believe its application to a number of other uses besides crypto will make capital markets more efficient, and we’ve been actively involved in research to use blockchain technology."

[patmorgan23]

Bitcoin has transaction fees too, that's all gas really is, doesn't really change the fundamentals of the system.

[DennisP]

It does, but Bitcoin's transaction fees are just paid to the miners. On Ethereum they are mostly destroyed. Combined with the lower issuance of proof-of-stake, this means that the supply of ETH sometimes actually shrinks.

That makes ETH is comparable to shares of a company, where fees are revenue, new issuance to stakers is cost, and any net profit is paid out to ETH holders in the form of stock buybacks. You can calculate a PE ratio.

[scyclow]

Yes, but BTC can only be used as gas to power the transfer of gas. Meanwhile, ETH can be used as gas to power the storage and indexing of information on world computer. If we're talking about creating underlying value, I feel like the former is tautological and latter has an application outside of itself.

[SilasX]

True, but you can do a much richer set of transactions with Ethereum/Solana, like moving stablecoins and making collateralized borrows, including against real world (tokenized) assets.

[ksd482]

Bitcoin has no intrinsic value. It is not backed by anything real.

Gold has its uses. It’s a pretty metal and has practical uses in engineering and medicine.

It has been a choice for jewelry for thousands of years.

[smoovb]

Paper bills, or “fiat” money, also have no intrinsic value.

Using paper money has already defined you as a participant in accepting the societal construct of money.

As such, Bitcoin having no intrinsic is not novel or consequential and has no bearing on its utility.

[rsynnott]

Well, I mean (a) it is unwise to accumulate a big pile of paper money (or the equivalent in a bank), like a common Disney duck plutocrat; if you do this, you will in the long run lose money in real terms. By design. Money (or at least modern money; things were somewhat different in persistently-deflationary pre-industrial economies) is not designed for investment. Money should not be the comparison; it’s a tool, not an investment vehicle.

But (b) money is given some real grounding by states; you can pay tax with it, in particular. It’s not much, and it’s not bulletproof, but by comparison to cryptocurrency, well, it’s _something_.

But really, it makes no sense as an argument that hoarding cryptocurrency is a good idea, because hoarding _money_ is, notoriously, a _bad_ idea.

[dnamlin]

Modern money has operated as you describe for less than one human lifetime. It might not work long-term, and indeed there are significant reasons for worry that it won't. Not that it _can't_ in principle, but that it _won't_ due to mismanagement and misaligned political incentives. A future alternate system might well have deflationary characteristics.

[rsynnott]

If you mean Bretton Woods, that is in many ways an implementation detail. Ignoring the Great Depression (which probably _should_ be treated as a special case), and brief (~1 year) shocks after WW1 and 2, the last time the US, to take an example, saw _persistent_ deflation was the late 19th century.

[amrocha]

Fiat currencies have value because you have to pay your taxes with it. There’s no choosing not to participate.

[cubefox]

> Gold has its uses. It’s a pretty metal and has practical uses in engineering and medicine.

Would you say gold’s value is determined mostly by its practical use? Because it seems demand is largely driven by speculation as an alternative currency.

[Spooky23]

It’s practical use both increases demand and removes the commodity from the market.

BTC is more volatile than gold.

[jazzyjackson]

>> Commodities are real assets that meet consumption needs

Granted a commodity's value may be driven by speculation, but at the end of the day it's a material that is consumed by various industries.

[keymon-o]

This will not be an argument but my perspective as an amateur investor.

Main difference between gold and bitcoin is in its history. Gold as a type of investment instrument has already earned its reputation and status. It’s not just a commodity, it’s a financial instrument that had its use in building and making of history and it’s well integrated, recognized and supported by most government and societies.

We still don’t know what Bitcoin really is and how it behaves. It could be valued 10k times up or down next year and there could be no clear reason why that happened. Bitcoin is not in hands of most powerful companies, people and governments and change of its value would not affect anything but net worth of certain individuals or organizations.

By no means, I think bitcoin is here to stay and it has a very clear future as an investment and payment instrument. But I think it’s really silly to say Bitcoin is speculative as much as other investment instruments.

[beau_g]

>We still don’t know what Bitcoin really is and how it behaves We know both of those things 100%, it's in the source code and ledger of every transaction that has ever occurred from it's inception. We certainly do NOT know that in regards to gold, nobody has a good picture of the world's total gold reserves and where they are, the extraction rate, or it's exchange. A lot of what people say is true of bitcoin but not of gold seems to be precisely the opposite.

As far as what should bitcoin's utility be valued at to the world at large, sure this is in a volatile state, but I don't see how that bears on it's classification as an asset.

[icegreentea2]

Gold is also not like other commodities. No one treats gold the way you treat iron or lithium or even platinum/palladium.

And for what it's worth, Vanguard doesn't have a pure gold ETF.

[tcbawo]

Besides practical use, gold also has aesthetic use: jewelry, as an external status symbol of wealth. That is not possible for crypto currencies in the same way. Of course as online presence and social structures mature, this might change. Maybe not in my generation’s lifetime, but who knows.

[__turbobrew__]

Im hate crypto as much as the next person, but is jewelry as a status symbol that different from an NFT as a status symbol or having a bitcoin wallet worth $1mil as a status symbol?

People in CS:GO pay (tens) of thousands of dollars for skins which are just digital status symbols.

Maybe the property of gold is that it is a status symbol which has a long history and cannot be duped.

[tcbawo]

In general, yes. Jewelry can be melted down and repurposed. It’s also visible in the physical world, which means more to many people today (maybe not to future generations). In that way, I think NFTs are more comparable to, say collectible mechanical watches, baseball cards, stamps, art. It might be worth dollar for dollar to some people, but the market for gold is much larger.

[davidw]

I'm not into gold or crypto but gold jewelry has a tiny bit more of a track record than nfts

[thelastgallon]

Is a picture of gold jewelry (NFT) worth the same as jewelry?

[tim333]

Gold's fundamentals are it is mined and used for jewellery. Speculation and hoarding can cause it to fluctuate a fair bit but long term the price is driven by the mining cost. See the 200 year inflation adjusted price https://www.marottaonmoney.com/wp-content/uploads/2013/05/st... It's remarkably constant in the long run.

Bitcoin is different. Although it's mined, the mining difficulty constantly adjusts to keep the block time at 10 minutes. The price is set by the people in the market buying and selling it and so fluctuates all over the place.

[loeg]

I think the unsatisfying answer is that Bogle was a bit of gold bug -- he had a 5% gold allocation.

[tcbawo]

Gold was historically uncorrelated to other asset classes, so there was a portfolio theory reason to allocate in gold. In times of uncertainty and fear, people would flee to gold. Afaik, this effect has been muted in recent years. I don’t know if it has been fully explained, but it’s likely due to the highly available and interconnected investment products of today. Bitcoin has been shown to have a high beta with credit and other investment assets. So from a portfolio theory perspective, it is functionally more like a leveraged ETF than a hedge. This doesn’t mean that neither deserves a place in a modern portfolio. As they say, past returns are no guarantee of future results.

[rsynnott]

It’s arguably a _bit_ of a myth that people flee to gold in times of uncertainty. It’s something that many people believe happens, and it does seem to happen to _some_ extent, but not to the extent that people believe. Adjusted for inflation, gold has never reached its 1980s peak again, and may never do so, despite a number of greater economic and social shocks since that peak.

[DennisP]

So it bubbled and crashed forty years ago. In the past 25 years it's had decent returns, and in particular:

2007: 31.59%, 2008: 3.41%, 2009: 27.63%, 2010: 27.74% [1]

Owning too much gold is terrible, but a modest allocation to gold in a portfolio of mostly stocks, which you rebalance every year or two, works out pretty well. [2]

[1] https://www.macrotrends.net/1333/historical-gold-prices-100-...

[2] https://portfoliocharts.com/2021/12/16/three-secret-ingredie...

[rsynnott]

I mean, each to their own. I don’t understand how anyone can look at that chart, and look at, say, an S&P500 returns chart (or an MSCI World chart if you want some more diversity) and say “yes, gold is a good long-term investment”, but you do you.

(NB. Gold enthusiasts will sometimes try to cloud the waters by comparing gold to, say, S&P500 price only (ie pretending dividends aren’t a thing). This honestly still doesn’t leave gold looking very attractive, but it’s also dishonest. To compare like with like you want to look at S&P500 with dividends reinvested, and at that point gold just isn’t even in the running.)

[eadmund]

> gold has never reached its 1980s peak again, and may never do so

Very true. OTOH, if you bought gold one week, one month, six months, one year, five years, ten years or twenty years ago you would have made money.

I am not really a gold bug. It has a place, but it’s not the best asset ever. As others correctly point out, it is unproductive in itself. OTOH, if you have two uncorrelated assets, you can make money simply by rebalancing periodically between them. Not a lot of money, but not nothing.

Note too that cash itself is unproductive. Dollars ultimately derive their value from the fact that Americans have to pay their taxes in them, not because pieces of linen paper are useful for a lot.

[rsynnott]

> OTOH, if you bought gold one week, one month, six months, one year, five years, ten years or twenty years ago you would have made money.

Well, yes, but that's a rather unusual condition (the last time that would have been true would have been for a period in 2011, and before that for like a day or two in early 1980).

By contrast if you'd bought a broad index fund you'd have made a lot _more_ money (except for the one week example, due to Nvidia shitting the bed today). Like, a _lot_ more money.

> Note too that cash itself is unproductive.

Sure; approximately no-one will argue with you on that one. But cash isn't really the alternative to gold.

[wbl]

If all you give me is leveraged beta I can replicate that more cheaply.

[rainsford]

I honestly don't know how much of gold's value is driven by practical uses rather than speculation, but I think there's an important difference between "some practical use" and "no practical use" when it comes to commodities. The practical uses mean gold is unlikely to ever be worthless, but the same can't be said for a cryptocurrency.

Even from a speculative standpoint, gold or similar commodities have the advantage of being actually support limited. Now obviously the supply of an individual cryptocurrency can be limited, such as with Bitcoin, but the supply of cryptocurrency in general is essentially unlimited with very little barrier to entry. That's not great for even speculative investment, since you're essentially betting on the continued popularity of whatever currency you invested in with relatively little history to support that trend.

[njarboe]

Does it really matter if the value of something is 95% speculative or 100%? Loosing 95% of the value of your investment is not a lot different than 100%.

[NAHWheatCracker]

Bitcoin is certainly extremely high on the speculative spectrum, but claiming gold is anywhere near the same level of speculation is specious.

Gold has the Lindy effect going for it. Humans have been trading it for thousands of years. Bitcoin has been around for 16 years.

Gold has industrial uses and if its value dropped, its uses would expand. Bitcoin has no such inherent supply-demand curve.

[njarboe]

I like gold and bitcoin. But productive assets seem more useful to hold in general. Fiat, gold, and bitcoin are debt tokens on future humans. I'd rather own things than future human labor. Feels a bit like owning people.

[RandomLensman]

Taking an investment position in a commodity vs a speculative position indeed could raise some non-trivial questions (if you believe in/subscribe to some sort dichotomy there).

I seem to remember in the past, commodity investments where viewed with an eye towards diversification benefits, for example.

[arccy]

an alternative currency because humans have a long history of treating it as a valuable item, mostly for jewelry / decorative purposes. crypto only copied the speculative currency part, but it's not useful even for showing off...

[mrtksn]

You can't eat or burn bitcoin, therefore doesn't need to be balanced or made sustainable through economical instruments.

You know all those economical instruments? They actually serve a purpose(like making the price stable or making the supply and demand predictable. This is important because it usually takes months to years to produce these things and you don't want to destroy your producers or production capacity for a glitch) and they're not just a gambling machine with strength rules.

[linsomniac]

>[economical instruments are] not just a gambling machine

Oh really? With stock buybacks, splits, and options, financial trickery, and market cap not matching production?

There are lots of forces in the market that make it very much a gambling machine. For example SMCI produces very real things, I've owned hundreds of their products, but some questionable decisions resulted in a huge drop despite them being well positioned for all the AI growth. Or TSLA, which has recently doubled from a point where many felt the stock price didn't match the available market.

[mrtksn]

The point is that their reason for existence isn't gambling. It wouldn't be surprising if more rules and restrictions are introduced if they end up not being able to serve their core purpose.

[linsomniac]

Don't take this the wrong way, but the way you say "their core purpose" makes me think that you agree that their reason for existence isn't gambling. I'd agree that they haven't lived up to their core purpose as much as they could have, and it's a lot gambling

[mrtksn]

Not functioning as intended is different than the original intentions and it is important when arguing for one more function.

[linsomniac]

Full disclosure: I've probably "lost" more by following advice like this article than everybody on this thread has lost on bitcoin.

[cyberax]

Gold looks nice, golden jewelry can be beautiful. This is not going to ever change. Even if it does, gold's ductility and chemical resistance will still be important for industrial applications.

And the scarcity of gold is not likely to decrease in the near future, unlike with diamonds that can now be cheaply manufactured and bought on AliExpress.

[EliRivers]

Other commodities have a physical existence. That's quite a big difference.

[bryankaplan]

Certainly true. Gold is difficult to transport and expensive to protect, whereas Bitcoin is neither.

[EliRivers]

Indeed. Other commodities have other strengths; oil can be turned into a huge range of products that make people's lives better, wheat can be literally used to make food to radically enhance people's lived experience, aluminium is a key component in an enormous range of goods covering almost every aspect of life. If what Bitcoin can offer isn't having any actual application that improves anyone's life but is easy to move around, well, gotta go with your only strength, I guess.

[vishnugupta]

In India gold demand is driven by its use as jewelry. It is also used as a safe asset that can either be pledged or sold in time of need. This has been the case for hundreds of years if not more.

[Demlmlm]

Gold is also no longer a good thing but still better than crypto.

In an apocalypse gold s still usable and gold has other uses. Like industrial and as jewelry

[stouset]

Gold is also a generally terrible asset to hold as a long-term store of value.

[anonfordays]

Not true: https://moneyandmarkets.com/gold-vs-stocks/

[carlosjobim]

Gold is the single best thing that exists in the world and that has ever existed. That's where the value is.

[DonHopkins]

You seem to have Gold confused with Tacos.

[ggddv]

I bought bitcoin, I hate it, I think conceptually it’s really dumb, but the first rule of investment is to diversify. I just can’t ignore the fact that it’s a store of value like gold it is very bizarre why it is prioritized, but it is.

[andsoitis]

> first rule of investment is to diversify

That does not mean buy anything. Intentionality matters. Diversification is a risk mitigation strategy, but holding bitcoin increases a portfolio’s risk. So if you want to diversify to reduce risk, purchasing bitcoin is the exact opposite of what you want to do.

[dnamlin]

https://www.blackrock.com/institutions/en-zz/literature/whit...

[ascorbic]

As the article points out, bitcoin is so volatile that having it as even 5% of your portfolio will "drastically raise its risk profile".

[cedws]

Unless you’re playing around with derivatives, crypto is actually fairly safe. There are price swings but the supply doesn’t magically increase because someone was ordered to print more. Therefore there is always a reasonable expectation that its value will increase over time.

[crazygringo]

The price swings with crypto are on the demand side. It is completely unsafe because there's no rhyme or reason to its demand, people just following whichever way the crowd goes, in whichever direction, and variously hoping it continues or reverses.

It's not even like gambling on an external event like whether a horse wins -- it's betting on how other people are betting.

There is absolutely no reasonable expectation that its value will increase over time. There's no reasonable expectation of anything because it has no demand-side fundamentals whatsoever.

[cedws]

>It is completely unsafe because there's no rhyme or reason to its demand, people just following whichever way the crowd goes, in whichever direction, and variously hoping it continues or reverses.

How is this any different to any other security? There's speculation in all markets.

[crazygringo]

It's different because other securities have a fundamental present value of future cash flows. You expect corporations you buy stocks in will pay dividends and/or be purchased by another corporation that does.

If stocks get too expensive or too cheap from what people's estimation of that present value is, we know a correction will come at some point. It always does.

But with crypto, there's utterly on sense of "too expensive" or "too cheap" or "correction". It's just betting on betting.

Regular securities are fundamental value plus limited speculation. Crypto is purely speculation that is unbounded. Two totally different things.

[grajaganDev]

No, there is always a reasonable expectation that crypto will crash to near zero.

Crypto valuation is based on the greater fool theory and one day you will run out of fools.

[erikpukinskis]

If you’ve got a lot of working years left (and therefore can survive losing a large % of assets any given year) it’s generally a good thing to drastically raise your risk profile. Assuming you’re also raising your expected returns.

[dnamlin]

That was so funny they left out "and returns"

Like, it's valid to point to its historical volatility, but it struck me as intellectually dishonest to say it's been (historically) risky without also acknowledging that holders have (historically) been well-rewarded for their risk appetite. High Sharpe ratio, etc.

[rsynnott]

I mean, diversify, sure, but not into _everything_. Like, there are plenty of old fax machines around, but you probably shouldn’t add any to your portfolio. You have to consider whether the diversification is into something sensible.

[lifty]

I think they are consistent. They also don’t have an ETF which invests directly in gold.

[thegabez]

I never understood the argument against speculation. Many stocks are losing money or do not yet have a working product, so how is speculating on these kinds of stocks any different from speculating on cryptocurrencies?

[NAHWheatCracker]

Vanguard says it's more of a speculation than an investment. Vanguard isn't saying speculation is bad entirely.

Stocks are ownership of a tiny part of a company that has assets, cash flow, and does something in the world. Stocks are a speculation as well, some more than others, but the balance of speculation to investment is weighted differently.

Bitcoin on the other hand is almost always only purchased for speculation that the exchange rate will go in your favor. You don't own a tiny part of anything.

From my perspective, a big issue with Bitcoin speculation is that it's inherently zero-sum. Investing in a company is usually positive-sum (even if it you don't profit).

[andirk]

You own a part of a finite pie that people want to have a stake in. So that's not nothing, however speculative it clearly is.

[niij]

There's a potential for them to produce value. Not the case with crypto.

[bornfreddy]

Ability to send vale across the world, to anywhere, for relatively low fees, could count as providing value, don't you think? A lot of people do.

Bitcoin got labeled just a "store of value", but with Bitcoin Lightning it can be used for low fee payments too.

Pity about mining though, I wish they followed Ethereum into staking. It doesn't matter how much value you provide if you burn the planet along the way.

[jayd16]

If it's working as intended then there's no point in holding on to the crypto itself as there should be a race to the bottom to keep fees low. By investing in crypto as a technology you're hoping that the technology becomes popular but remains expensive.

[LudwigNagasena]

Being a store of value and a medium of exchange provides value by itself.

[globular-toast]

Yeah but that's the network, not the Bitcoin itself. Money as a system is valuable but that doesn't mean it's worth holding cash.

[everfree]

Blockchains can potentially produce value by receiving transaction fees and burning them. This is similar in some ways to a stock buyback.

Both Ethereum and Solana are currently coded to do this, though AFAIK neither of them are currently cash-positive due to their burned fees not being enough to offset issuance yet.

[rsynnott]

If you’re buying stocks in a company which _doesn’t have a working product_, then, er, yeah, that’s not a million miles away. You probably shouldn’t do that. Arguably those stocks should never have made it onto the public markets; where this happens it’s generally due to SPACs, which arguably should never have been allowed in the first place.

“Losing money” is a bit different; if a company is, deliberately, investing in growth rather than generating a net profit, that _can_ be a _good_ thing, as it implies greater future profits. Amazon, say, _could_ have become profitable far earlier than it did, but it would be a much smaller company if it had. If they’re buying something for $20 and selling it for $10, then yeah, not so much, but again that’s in the class of companies that you should not invest in, that most people do not invest in (they’re not in the major indexes), and that arguably should never have been allowed to float.

When people talk about investing in the markets, they’re usually talking about either investing in an index, or in some approximation of an index (whether through active management or cobbling together their own portfolio of real companies which will generally more or less mirror the top 10 of at least one major index). They’re not talking about buying shares in weird scam companies; _that_ is speculation.

[chpatrick]

I think it's just not what Vanguard is about if you look at their history.

[gosub100]

Aside from that, wouldn't the same train of thought preclude buying overvalued stocks?

Even if BTC was determined to have value, wouldn't the risk of tether be enough to avoid it (if - aside from giving BTC value - speaking from verified facts only. Meaning it's an established FACT that the people who control tether have not proven it is or was ever backed by an equal amount of capital).

[andirk]

Seems like a lot of HN is bitter about not buying a tech-centric in-their-face asset when it first started that they thought about but didn't grab a bag and could have changed their lives from great to giant multi-millionaire. Stonks are traded at some > 40x their company's worth, but somehow's not laughed at on here.

[throw0101d]

> “Jackson: In Vanguard’s view, crypto is more of a speculation than an investment. […] While crypto has been classified as a commodity […]

While Vanguard isn't against commodities completely (e.g., VCMDX):

* https://investor.vanguard.com/investment-products/mutual-fun...

* https://corporate.vanguard.com/content/dam/corp/research/pdf...

It's not really their thing either.

[bryanhogan]

While I agree with the quote, I also believe that Bitcoin can have value as a currency with unique properties. The fact that it is driven by flat hierarchies and is not limited to national borders (decentralized) makes it an asset that could have overall value. Thus it's something people may see as worthwhile and want to invest in, whether for personal financial gain or to support its broader vision.

[enether]

The modern stock market is largely fuelled by speculation.

Companies don't pay dividends, so even if you have a claim on the underlying cash flow - you aren't really getting it in practice.

Further out, some pieces of equities are so overvalued that you're basically paying for 99% speculation rather than the underlying cash flow.

It's a spectrum.

[graeme]

A buyback is functionally equivalent to a dividend except it is more tax efficient. Much of the decline in dividends has been the rise of buybacks.

[TeaBrain]

Buybacks are functionally accepted as an alternative to dividends, but are not really equivalents. An important distinction is that buybacks not only benefit the shareholders like dividends do, but also benefit the perception of the company's performance by boosting per share financial figures, due to less shares remaining following the buyback. This incentivizes the leadership of a company more towards buybacks, as it not only potentially increases the value of their largely stock based compensation, but it also makes their performance look better.

[bornfreddy]

Off topic, but I wish finance sites published "buyback yield" metric or equivalent (what percentage of total stock value was bought back in last quarter / year / TTM. If buybacks are treated as dividends, investors should be able to assess their returns in a similar way, imho.

[strix_varius]

It's true that the modern stock market is a spectrum ranging from highly speculative "growth stocks" to blue chips / income stocks. Bonds are even further down the safe-claim-to-future-money spectrum.

While your argument is technically correct, there's a world of difference between cryptocurrency where the inherent value is definitionally $0, and stocks/bonds/commodities/real estate where the inherent value is almost always above $0 and can, if you want, be a large percentage of its total price. That allows an investor to determine their own level of speculative risk.

[wooque]

Bitcoin is useful commodity, it's used for money laundering, sanction dodging, various criminal activity, etc. It infinitely more useful in modern world than gold for example.

[puntium]

This shows a fundamental misunderstanding of how money works.

Historically all kinds of things have served the role of money. In recent examples, prison environments consistently give rise to people using "commodities" like ramen packs or cigarettes as a unit of money.

The reason why gold has been the choice over most of human kind's history is that it has properties that make it suitable for money. It's scarce. It's difficult to make more of it. It's difficult to fake (until recently). It's easy to "hold". It's durable. But above all, it has a history of social consensus that it is the asset that is globally agreed upon to serve this purpose.

If you think prisoners ascribe value to ramen packs as money because of their ability to eat it, you have a fundamental misunderstanding how money works and how moneyness gets assigned to physical objects.

It's difficult to understand what an introduction of a new type of money looks like, because most people haven't experienced that in their lifetime. That's ok. But as a crowd of people here of who frequently espouse first-principles thinking, it's unfortunate to see people repeatedly falling for the "it has industrial uses" argument for gold. Yes industrial use creates a demand floor and a price floor. But if you think most of the price of gold is driven by it's industrial use then I have a bridge to sell you.

[bryant]

> The reason why gold has been the choice over most of human kind's history is that it has properties that make it suitable for money. It's scarce. It's difficult to make more of it. It's difficult to fake (until recently). It's easy to "hold". It's durable. But above all, it has a history of social consensus that it is the asset that is globally agreed upon to serve this purpose.

"It's easy to 'hold'" is literally true for precious metals, without quotes. And unless someone taints your stash with radioactive fallout or atomizes it, it's also relatively difficult to lose via Act of God.

Crypto?

It might just be the hardest asset class to "hold."

---

Also, all it takes for Bitcoin to lose literally all value is for miners to stop. While you might think the risk of this is zero, the risk is most assuredly higher than the risk of gold going to zero, which would only happen if all utility for gold disappears even outside its use as a store of value.

[puntium]

Why don't more people hold physical gold then? It's annoying to transport. It's difficult to prove that it's real. Someone can physically steal it from you. And it's certainly easier to hold large amounts if you're on the move.

The broader point here is that no form of money wins on all dimensions. While bitcoin is most closely compared to gold, it doesn't win on all fronts. I'll be first to admit that in my lifetime, I don't think people will find the idea of private key management easier than stashing a gold bar under their mattress. But the point is bitcoin represents a different point in the design space of money -- one that has characteristics and tradeoffs that make it particularly relevant in today's increasingly digital world.

> Also, all it takes for Bitcoin to lose literally all value is for miners to stop. While you might think the risk of this is zero, the risk is most assuredly higher than the risk of gold going to zero, which would only happen if all utility for gold disappears even outside its use as a store of value.

This like saying "gold loses most of its value of everyone suddenly decides its not worth what it is".

The miners are here ultimately because of the social consensus (and price) that has been building around bitcoin. This kind of thing doesn't just unwind overnight. It has been building for 15 years.

If you're holding gold and believing that there is similar risk in loss of social consensus, but you're saying "well at least it won't go to zero, i'll be able to get 15% out", does that really make it that much better as a store of value?

[bornfreddy]

> Also, all it takes for Bitcoin to lose literally all value is for miners to stop.

And all it takes to regain (some value) is for a few people to mine again. The difficulty will adapt. There are bigger threats than that, but all miners stopping is not one of them.

(didn't downvote you - I appreciate the discussion)

[omnee]

I agree with you on how many different objects, such as seashells or even certain types of stones have been used as money by some cultures. However, the point of this article is about real returns, and the real return of Gold over centuries - for example - has been zero, and this is with it having aesthetic and intrinsic values. Hence, Gold is not an investment class that Vanguard supports. So, why would Bitcoin give a postive real return, whether as a wealth preserving asset or currency?

[puntium]

Vanguard can have whatever policy it wants to, it's a free country.

But I do think it's somewhat hypocritical of them to not have things like gold and bitcoin when they do give access to other currencies -- many who's fate is also ultimately dependent on political decisions and global social consensus.

It's one thing to say we're not going to be let people speculate -- it's also another to say we're not going to let people hold assets that can hedge against global turmoil or hyperinflationary periods.

In terms of returns, I agree -- bitcoin's supposed "return" doesn't come from a productive use case in the same sense as other forms of capital (at least not yet.. though it is increasingly being used as a productive form of collateral in many cases, much in the same way that gold used to be used in contracts). But if you believe there is a trend of net shift in consensus away from gold and towards bitcoin, then it's also easy to see why you might expect the price per unit of bitcoin to go up.

It seems weird to me that vanguard lets you a make a statement like "I believe in the US gov's solvency so I'm going to hold all my financial worth in a sweep fund that earns money off of short term gov debt", but then at the same time not say things like "I think there's a small chance that the US gov might f' it up, or the balance of economic powers might shift in the world and so I want to hold other consensus assets that might diversify outcomes in those scenarios".

[peterjohn014700]

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[slekker]

I'll share this every time someone asks me about crypto, beautiful!

[ein0p]

What do you own if you hold a money market cash position? The exact same thing as Bitcoin - faith of other people that currency is worth something. Look, I'm not a crypto bro or anything, but Vanguard talking about speculation is the absolute comedy gold. They operate a casino.

[klipt]

> They operate a casino.

On average you lose money at a casino because it is a business designed to make you lose money.

My vanguard funds on the other have gone up very nicely on average. Because they are invested in businesses designed to make shareholders money.

[cantSpellSober]

For discussion, what's wrong with the statement "if you hold a money market cash position [you hold] the same thing as Bitcoin [or a crypto ETF]"? Or, say, you hold one of Vanguard's Gold ETFs. (Good faith)

[seanhunter]

You don’t own the exact same thing as bitcoin. A money market cash position is backed by money market instruments whereas bitcoin is bitcoin. A gold etf is backed by gold holdings. That’s not the same as bitcoin either. It’s like saying a baguette is the exact same thing as a mac and cheese. It just isn’t the same. You might like them all equally, like some but not the others or like none of them. Any of those positions is fine because it’s your money - but it makes absolutely no sense to think they’re the same.

[bluecalm]

Money we are using now is backed by obligation of people to pay it back and very well developed institutions that enforce it. If you hold 100$ you know someone, somewhere needs it to pay their debt. If you hold Bitcoin no one ever needs to buy it from you unless they hope they can find a bigger sucker later.

Instruments in money market are of the kind of: "give me 100$ now and I will give you 101$ 3months later". Bitcoin is not backed by such contract. It's only backed by the hope of finding a bigger sucker later.

[Glyptodon]

I don't think Vanguard offers a gold ETF. (Gold ETFs do exist, Vanguard just doesn't do it.)

I'm pretty sure there's a lot of evidence that gold is a great inflation hedge but otherwise doesn't offer much in the way of returns on a long run basis. Which is a reason in various cases to hold or diversify into it over a money market fund (essentially over cash). That said, currently crypto has not proven itself to be either much like cash or much like gold.

[lostmsu]

That doesn't address the spirit of the argument you are replying to.

Vanguard is 1. what they mention in their anti-cryoto thesis, all the real value makers that you don't need Vanguard to get into + 2. a casino on top of 1.

They sold you the idea, that their casino on top of 1. brings you money. I sincerely doubt it. You are making money on 1, true, and probably losing them on Vanguard.

Also, in BTC your Vanguard funds went down significantly on average.

[klipt]

Are you complaining about Vanguard's tiny fund management fees? I think they are worth the convenience to not have to buy 10,000 different stocks myself.

Vanguard is not a for-profit business, it's more like a credit union, it is owned by its own customers.

[lostmsu]

> I think they are worth the convenience to not have to buy 10,000 different stocks myself.

That's exactly the claim, yes. But how do you know just owning crypto (at infinity) does not have the same outcome?

[B-Con]

This is incoherent nonsense.

Vanguard is a service that manages your portfolio so you don't have to. Literally the definition of providing an economic service.

Owning the portfolio does come with risk, but it's not fixed odds, rather the odds track the literal economy. If you buy index funds, your ballot tracks the value of the country you invested in. When society does well, so do you. And guess what? Everyone, including the government, spends their life trying to generate value and wealth.

It isn't a casino. Likening the US economy to a casino is perhaps the most disingenuous nonsense I've heard from the church of crypto.

[lostmsu]

> Vanguard is a service that manages your portfolio so you don't have to. Literally the definition of providing an economic service.

How is it different from Bitcoin conceptually? Bitcoin reflects financial markets overall just as well as any Vanguard-managed fund. It does not matter that Vanguard intention is precisely that while Bitcoin's isn't if the outcome is the same.

Just in case I'll explain what I mean by an analogy: Imagine we are sailing an ocean in a small ship, and consequentially the ship rocks really hard. There's a table with two straight sticks on it in everyone's room, and the sticks constantly slide around the table due to rocking. And for whatever reason the parent comment author is tasked with keeping them as parallel as possible, while not stopping their movement alltogether. To do so he makes a contraption with electric motors attached to one end of each stick and sensors that detect when sticks are not parallel, which causes motors to align them. In the mean time in my room I took my sticks from the table and attached them to the ceiling instead because they look nice there. Here despite the lack of intention on my part my sticks will tend to stay parallel without much effort.

[B-Con]

> Bitcoin reflects financial markets

No it doesn't.

Bitcoin has no intrinsic tie to the financial markets.

The financial markets are all based on goods, services, and economic value. They build meta layers on top of it and sometimes those layers are bad, but nonetheless they are based on value.

Bitcoin is based on speculation. It offers no inherent value. No one needs or wants Bitcoin. People do want or need food, shelter, health, entertainment, education, human connection, etc, that the rest of the financial markets are based on.

I think a lot of crypto advocates don't understand that the stock market isn't made up. Yes there is volatility, yes it isn't perfect. But it isn't a pure casino.

Bitcoin has sometimes* correlated with the broader financial markets, but not because it was an indicator of the markets but because it was accidentally caught up in them as an inconsequential side thought. It got treated as an investment commodity by some big asset managers and thus followed the same trading patterns. When the asset managers thought outlook was poor, they sold a bit of everything, and everything would go down.

[ein0p]

You forgot to say "so far". One of my managers was also flying high circa 2000 - multiple lakefront properties, Porsches you name it, the guy was living the life. In 2002 he was bankrupt - didn't sell his tech stocks in time, thought they'd "bounce back".

But I'm not talking about stocks. I'm talking about cash here. Cash is literally an article of faith and nothing else. It's not backed by any asset.

[klipt]

> multiple lakefront properties

Let me guess, bought on credit, he over leveraged

> Cash is literally an article of faith and nothing else. It's not backed by any asset.

The US dollar is backed by the federal government, a behemoth that handles more assets than any other entity on earth. For example we know they target 2% inflation on average. So US dollars are much more stable than if I were to issue my own "klipt bucks" currency.

[robertlagrant]

I would love to get in on the ground floor with klipt bucks. I am sold on kliptomania!

[ein0p]

US dollar is also constantly and arbitrarily diluted by the Federal Reserve, to the tune of $2-3T a year. If it was a stock, you'd run away in horror.

[selectodude]

Cash isn’t an investment. It’s a temporary store of labor value. Since work now is worth more than work later, of course cash has value decay. If it didn’t, it wouldn’t be very good at its raison d’être.

[klipt]

Yeah I know the dollar is intended to lose value on average:

> we know they target 2% inflation on average

That's why you don't put all your long term savings in USD. But it's good to have your emergency fund in USD because it has less short term fluctuations than assets like stocks.

[rsynnott]

… I mean, yeah, you’re not _supposed_ to invest in cash. Cash is, essentially, for using. If, say, your pension is in cash, you’ve been very poorly advised.

[selectodude]

Cash is a thing that has, at its base, value in so far as you can pay your taxes with it. If the whole world (including American citizens) stopped using USD tomorrow, it would still have value since the US Government still demands it.

[cyberax]

I dislike that take. Taxes don't really matter, and there are examples of currencies that are worth something and that are not used for taxation. Cigarettes in prison is an example of a currency that is not taxed per se, the early US dollars are another example.

Currency is useful because people have faith in its properties: scarcity and ubiquity as a medium of exchange. Dollar is important because people have faith in the US government to not dilute it (too much), and because everyone in the world accepts it.

Bitcoin _is_ a currency. Its scarcity is limited by its construction, and it's widely accepted. But it's a bad currency, that is mostly backed by illicit transactions, and its "mechanical" usability just sucks due to delays and transaction fees.

[selectodude]

>Cigarettes in prison is an example of a currency that is not taxed per se.

Yes, cigarettes, like the dollar have an intrinsic value. You can smoke them and nicotine makes you feel good. It is similar to the way that I can pay my taxes in USD and feel comfort in the fact that I won't have to barter for cigarettes in federal prison.

Bitcoin is not a currency because it no longer meets the primary economic definition of currency - a medium of exchange. It is a speculative asset. A security, if you will. It can be used as a currency in the same way as gold bars and bricks of cocaine can (barter system) but it's not a currency.

[matwood]

Makes you wonder if Vanguard will change their position if the new administration gives crypto any sort of US backing. So far it seems like the new admin has only been interested on the scam side of crypto though.

[randerson]

That money market account is backed by bonds, which are assets. Why not also make the argument that stocks are an article of faith. You have faith that the business will act in your interests and the currency you invested in will still exist when its time to sell.

If your old manager went bankrupt by mis-timing the market with a handful of tech stocks, then he most certainly didn't invest the Vanguard way: diversify and hold on for the long haul.

[bluecalm]

>> I'm talking about cash here. Cash is literally an article of faith and nothing else. It's not backed by any asset.

It's backed by contracts to pay it back. There are powerful institutions employing people with guns and other means to make you pay back. "Faith" undersells the situation. We developed the whole system to force people to pay their loans back.

[ajmurmann]

Can I buy (foreign) cash as an investment on Vanguard (I genuinely don't know)? The money market fund is about interests from debtors not currency speculation.

[marchie_uk]

Cash is backed by a government that can exert influence and control over its population and counterparts with policy, laws or - at the extreme end - force.

[harimau777]

I think the difference is that the US dollar is actually used regularly as a currency and has the power of a government (and in particular the world's most powerful government) working to make sure that it operates as a useful currency.

On the other hand Bitcoin doesn't seem to have significant use as a currency outside of crime. Meme coins are even worse in that they don't have any use at all other than speculation.

[Glyptodon]

In all fairness a money market cash position is basically accepting central bank interest while you decide what actual investment you want to put your money in.

People use it as part of an allocation, sure, but nobody plans to retire with interest from a checking account, which is pretty much what you'd be doing if you invest in a money market fund.

You may have a point that since fiat currency has no inherent value compared to physical commodities there's no reason that the right crypto couldn't function as a fiat currency, which seem true. But if crypto were fit for use as a fiat currency, you wouldn't expect it to be an investment at all - at least no compared to stocks, bonds, etc.

[pjc50]

It always gets me when people are like this about, of all things, the US dollar. You can argue that there are faith problems with, say, the Turkish Lira, but the USD is the hard currency that people flee to when others fail, and is accepted unofficially as hard currency in a lot of countries that have currencies of their own.

Even bitcoin is priced in USD and operates trades via a Tether/Circle "stablecoin" "backed" by USD.

[RandomLensman]

Do you think the daily volatility of purchasing power of the USD domestically is similar to that of bitcoin?