The fact that an article like this has to be written should say enough about these type of cryptocurrencies and the people who "invest" in them. If you don't understand the time value of money, the value of liquidity, or how bubbles work, you probably shouldn't be in charge of your own investments.
Anyone writing about arbitrage in the tone of "free money found!" can and should be discounted.
Arbitrage doesn't create value, so its profit is always taken out of someone else's hide. Always, always, always. If you think you've found it, you need to explain why the people you're fleecing haven't seen the same thing you have, and why they won't act to interrupt you as soon as you start the process.
The people seeing an easy profit for the DAO have failed at both of those tasks, apparently failing to understand that they would be engaging in illiquid currency speculation and moreover that they would be doing so publicly, open to price manipulation.
the more FUD (like your post) that comes out about ethereum, the stronger my urge to invest in learning Rust, in order to use Parity[0]. I've been downvoted every time I buck the trend, and I've experienced financial gains almost proportional to my downvotes. I'm still living off the profits I made after the last bitcoin debasement (check my post history to see when). Bought back in at $400/BTC, and _really_ enjoying the profits I'm currently looking at.
Yet, if you had invested in bitcoin 5 years ago you would have outperformed Berkshire Hathaway's lifetime performance. In my opinion if you are young, it makes sense to make these kind of bets, and it doesn't necessarily mean that you are misinformed. Cryptocurrencies are certainly onto something, and it's still not clear which one(s) is(are) going to win, so by buying them you are not only making an investment but also voting with your money. I do believe that the DAO will crash and burn, but the truth is that among the people that bought DAO tokens, I don't know anybody that invested a significant amount of their savings. Furthermore most of the people used the Ether they bought at 100th the current price when it first launched. Last but not least, as an economist, the DAO is a fascinating experiment, but I do hope that nobody loses their life savings because of it, which brings me back to your initial comment that raises a good point.
> Yet, if you had invested in bitcoin 5 years ago you would have outperformed Berkshire Hathaway's lifetime performance.
Berkshire Hathaway's net income last year alone was 24 billion USD. I don't think you would be able to generate this income no matter when you invested in Bitcoin, to say nothing of matching it in a single year.
I get that you are talking about the return on investment as a percentage of stake, but the scale we are talking about, as well as the difference in risk profile, means you are very nearly comparing apples and oranges. I can point out any number of various schemes which have gotten people rich over the years - that doesn't make them sound investments.
>Yet, if you had invested in bitcoin 5 years ago you would have outperformed Berkshire Hathaway's lifetime performance.
Same thing if you had invested in the winning lottery numbers. Just because something paid off once doesn't mean it will continue to pay off. Especially when you are talking about bubbles/ponzi-schemes.
I agree that these can be interesting experiments. I first played around with Bitcoin 5+ years ago when I could mine 50 Bitcoin every couple days on a cheap laptop. And like you I also have also have a background in economics. My conclusion at the time is the same as it is today. Most of these cryptocurrencies were a bunch of software developers thinking they knew more about economics that economists. That is where my comment comes into play. The issues discussed in this article are stuff you would learn about in any intro econ class. The fact that an apparently large percentage of people are "investing" in these currencies without knowing these concepts leads me to believe that they are a rather uninformed lot (uninformed is not necessarily the same as misinformed). That is the easiest sign that this is a bubble, people that know very little about it parking their money there and calling it "investing".
Regarding the returns, I will refer you to our old friend Keynes. "Markets can remain irrational a lot longer than you and I can remain solvent." Cryptocurrencies and related technologies have potential, but I have seen little evidence to suggest that current prices aren't completely irrational.
"Yes" is a surprisingly good answer. While in many (most?) countries Bitcoin is regarded as digital currency, there are a few countries (like Australia) where the tax authorities treat Bitcoin as an investment, ie "an asset for capital gains tax (CGT) purposes".
The dollar doesn't necessarily have inflation in comparison to my national currency... and it may be the most readily available investment opportunity that helps you avoid poor national economic policies.
Yes, this. Hence its worldwide popularity. The dollar is the #1 u.s. export by an order of magnitude; because it is a terrible investment for u.s. persons and a marvelous investment for non-u.s. persons.
They're literally saying that because bitcoin had a bubble and "outperformed", any of the new younger cryptocurrencies "are onto something" and could go big at any moment.
It's a system of independent probabilities, hence gambler's fallacy.
I was thinking about getting into bitcoin mining when it was still plausible to do it by yourself. Kicking myself now, but really it was a weird longshot thing at the time.
But then in CA we wouldn't have a way to pay for education... because by the same reasoning the state planners shouldn't be allowed to play the lottery either.
That's a pretty condecending opinion to take while Bitcoin reaches its multi year high and Eth and DAO are at all time highs. Maybe it's people who don't understand disruption and technology who shouldn't be in charge of their investments? Not really though since no one should concern themselves with anyone else's investments...
All time highs are kind of a sign of a bubble, and say nothing about the liquidity of any investments or the time value of the return you can expect from them.
IG Index has bitcoin as an instrument. The spreads are terrible though so I wouldn't recommend it. If it was easier to short DAO tokens I'd think about it.
By all means don't invest then. It's pretty presumptuous to think people who see things differently need to be "educated" though (as the OP is attempting to do).
I imagine the few people sitting quietly with >1k btc understand quite well the problem of liquidity, that it's impossible for them to sell of such large quantities without crashing the market and taking huge losses, their only choice if they want to cash out is to slowly trickle it out without disrupting the market.
For everybody else, whose potential trading volume is very small relative to the total btc supply pool, btc is just like any other security.
Liquidity is a problem, but not at the 1k BTC scale. 24 hour volume was 300k BTC yesterday, so moving 1k BTC over a day shouldn't cause a market crash.
Even moving a small amount of counts can affect the market, because there is no real anonymity: people watch the large wallet balances and large known holders for signs of coins moving to e.g. an exchange.
Truth that conflicts with the HN hivemind is regularly greyed. Best to see what the top voted comments in cryptocurrency-related posts say, then do the exact opposite.
