[sassypants]

What exactly is the problem with a store of value with 500% annual returns?

I read people talking about the supposedly awful volatility, but they fail to mention that the volatility has a very distinct trajectory. Bitcoin is volatile as it increased in value by orders of magnitude year after year.

The article repeats this fear of volatility in the context of one's live savings. How frequently do people tap their life savings to pay for grocery runs? Isn't it the case that Bitcoin is by far the best possible store of value one could have adopted for their life savings over the past five years?

[boucher]

Unless of course they invested when bitcoin was over $1000.

Ever heard the phrase "past performance is not an guarantee of future returns?"

[sassypants]

I've been meaning to build a chart to evaluate this. The question would be: What are the longest periods of time one could have held Bitcoin and lost money? And secondarily, how frequent were the opportunities to have lost money?

My ballpark guess would be that the longest you might have held Bitcoin at a loss were if you purchased during a few day span during the peak of 2011. You would have had to have held for almost two years to have turned a profit. But on 95-99% of days in which you could have purchased bitcoin, you would have profited within 1 year.

I'll try and put that together. Should be interesting.

[bottled_poe]

If I understand you correctly, your estimate is way off. Have a look at the bitstamp exchange rate for the last 8 months. Looks like around 40% of days closed at a price above the current price.

[sassypants]

In my example I was using a 1 year horizon. So none of those closing prices would be charted until they had a year to mature.

I think I would need to make a slider so that you could explore the concept at various time horizons -- 8 months might bring a 50% occurrence of profit.

But my expectation is that at 1 year 95% of investments are sound, while at 2 years it would be 100%.

[maaku]

Gold is the typical store of value asset, and the story there is very similar.

[marincounty]

Gold has experienced rapid growth since 2008, but historically the growth curve has been flat. I have never heard a competent Financial Advisor recommend gold.

But this boom is weird? I wonder if HFT's will be to blame, when we have the crash?

[bduerst]

Gold is a good asset to hedge with, because it is typically inversely correlated with the markets. Hence the boom around 2009.

A competent Financial Advisor would calculate correlations between Gold price performance and your portfolio, and use the coefficient to recommend the right amount of gold to buy. Or they just spare you the jargon and do it for you.

[baddox]

How do you define the competence of a financial adviser?

[zby]

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

[sassypants]

But why would it stop sooner than a $200 billion market capitalization? Or $700 billion for that matter?

When Facebook was raising money at $10 billion valuations would it be wise to predict that it had to "stop very soon"?

I don't disagree that Bitcoin will at some point stop revaluing upwards by orders of magnitude, and I don't pretend to know what the market cap will be in a few years time. But I don't think it would be all that surprising if Bitcoin were to be more valuable than say, What's App. And for that to happen we're going to likely see another order of magnitude adjustment.

[boucher]

When Webvan was raising money valued at $1 billion would it have been wise to predict that it would "stop very soon"?

Anecdotes are not market principles.

[sassypants]

But that's my point. Arbritrarily declarations that exponential growth must stop soon are not meaningful in the positive or negative.

There are reasonable methods, however, to estimate likely outcomes of successful growth. I think its reasonable to predict that Bitcoin is likely to reach valuations of large publicly traded corporations. There are those that estimate it reaching valuations similar to gold, or the GDPs of industrialized nations.

But saying that the growth must stop because growth must stop isn't really saying much at all.

[brg444]

exponential growth of other technologies did not stop until they reached mainstream adoption. Bitcoin is very far from that

[Vik1ng]

So you are saying once it reaches mainstream adoption you risk that the price will start dropping? Seems like a pretty bad road to go down.

[kaonashi]

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

[lxmorj]

Dude, go look up tulips on wikipedia.

[sassypants]

Bitcoin has shown predictable, steady growth sustained over a many year period.

https://i.imgur.com/kV2IRT5.png

Tulips experienced exponential an order of magnitude shift in price during the course of one year in 1637.

Unlike tulips, Bitcoin is widely appreciated for its utility. I don't think the comparison is as meaningful as critics would make it out to be.

Steady logarithmic growth in valuations is a normal phenomenon among tech startups -- yet it seems to me that many otherwise smart people are flustered by this growth when applied to Bitcoin, thinking it must be too good to be true.

[teraflop]

> Tulips experienced exponential an order of magnitude shift in price during the course of one year in 1637.

Did you fail to notice that your Bitcoin graph shows several occurrences of order-of-magnitude change over less than one year?

Anything can be made to look "steady" if you plot it on a log scale.