“Bitcoin has no underlying rate of return,” said Bogle, 88, who started the first index fund in 1976. “You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing. There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it.”
Didnt quite understand this quote - is he down on gold too?
Bogle advocates buying broad stock and bond indexes[1], so yes, he's down on gold too. But that doesn't stop Vanguard from offering a precious metals and mining fund [2] or actively managed funds[3].
Note that the Vanguard Precious Metals and Mining Fund (VGPMX) invests in companies that pursue "mining of or exploration for precious and rare metals and minerals" and that it's not a fund that invests in gold itself. Some investors say you should invest in gold because ... reasons ... but that's not what VGPMX does.
At the end of the day asset managers' offerings will reflect investor demand even if it disagrees with the personal outlook of firm leadership. Also worth noting that Bogle has been retired for a while and likely has little influence over Vanguard's product offerings.
That's what I've been realizing latey: there is something to support Bitcoin, and that something is the blockchain. The reason banks and big financial companies are interested in it is not for its speculative value. They are interested in the fact that it is both decentralized and immutable. As long as financial corporations are willing to exchange Bitcoin for USD, then Bitcoin is a reasonable store of value.
There's also value in Bitcoin because it's a good entry point into other cryptocurrencies that could turn out to be better general-purpose exchange media, like Litecoin.
It's a bit like US Treasury Bonds. Nobody buys them for the tiny rate of return they offer, but they have genuine, valid use as a financial instrument. Normal people, however don't typically buy them, and normal people probably shouldn't be buying Bitcoin either unless they have some spare cash to gamble on it.
Nah. Banks and big financial companies interested in the blockchain will spin up their own version without tying it to the unstable mess of bitcoin. e.g. https://ripple.com/
And people do by treasury bonds for their rate of return, when the investment must be as riskless as possible.
> The reason banks and big financial companies are interested in it is not for its speculative value. They are interested in the fact that it is both decentralized and immutable.
None of the blockchain projects or proposals being worked on by enterprise financial institutions are decentralized. A decentralized ledger is conceptually antithetical to a small group of organizations which trust each other and want to retain control over the shared ledger.
It can be immutable, but for that matter I don't really think it's immutable in the same sense as a decentralized, permissionless ledger is. The organizations in charge of the blockchain can create a hard fork, which everyone participating with the organizations will have to abide by, because the blockchain is not decentralized.
In fact, what we actually have is a consortium of companies deploying distributed database structures and calling them blockchains. I'm sure there is a legitimately new innovation that can emerge from this sort of blockchain, but it won't be decentralization or immutability.
> They are interested in the fact that it is both decentralized and immutable
So like https://ipfs.io/ or various other append-only logs? Or the certificate transparency project?
The blockchain is the least efficient way to create a distributed append-only log if there are a fixed number of trusted actors publishing to it.
Banks can far more easily publish append-only logs of transactions without the extra noise of "mining" and comparing longest chains based on proof-of-work.
US Treasury bonds are backed by the military and economic might of a superpower, and the fact that it's an IOU that's almost bulletproof. That's a really big part of their value. It's the safest investment possible which is why governments funnel money into treasuries.
Bitcoin just has the power of faith in the network and that liquidity will exist when you want to cash out. Neither of which is certain.
Bitcoin really doesn't have any support. Exchanges don't have close to the liquidity needed to allow everyone to withdraw their coins in fiat currency.
Here is Warren Buffet's similar argument against gold from his 2011 annual investor letter [0]. The argument also applies to Bitcoin and other assets that are driven more by speculation than productive income streams:
"The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.
As “bandwagon” investors join any party, they create their own truth – for a while. Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B."
Edit: If you enjoyed the above excerpt, I'd recommend reading it in context, pp. 17 (start at the heading) through end of 19. I've excerpted only the middle part on gold, but he also explains the dangers of holding cash, and further explains why he favors productive investments.
The thing about, say, cropland is that you can't take it with you. If the area where you own that cropland suffers from political instability or a government that decides to confiscate it for whatever reason, that land investment is effectively worthless. I believe it was fairly common for some religious and ethnic minority groups to keep some of their wealth in gold exactly because they could carry that with them if they were forced to flee.
Imagine you are living in the past, when gold had only industrial, probably jewelry use, and you invent the concept of money. Would you buy the gold then? Hint: industrial use accounts for maybe 1% of the price of gold.
That is what is happening with bitcoin, people realize it can have monetary use and buy it to capture the difference between intrinsic value (zero) and future monetary value. Of course, this can fail badly if bitcoin won't be used as money.
Additionally, there is a positive feedback mechanism that can be deadly for fractional reserve fiat currencies. People get credit, buy bitcoin, this inflates the fiat supply and drives bitcoin price higher, alluring more people to repeat the process. This process is called hyperbitcoinization.
Current price of bitcoin is ~9.9k total supply is well over 17 million. lets call it 10k and 20 million. We're sitting at ~ 0.2 trillion. For that you could buy paypal, square, moneygram and Western Union and still have plenty left over.
That's fairly surprising. Bitcoin alone is within striking distance of the market cap of visa.
Gold is certainly the ideal model for something like Bitcoin but in terms of projectable value gold has time on its side. I will happily invest in Bitcoin when its history as a store of value and a medium of exchange is measured in millennia.
> Gold is certainly the ideal model for something like Bitcoin
I disagree. I don't think Bitcoin should strive to be a store of value like Gold is. Today most Gold investing is just based on fear, because people see a government misbehaving and lose faith in its ability to maintain the value of its fiat and then flee to something that still has some properties useful in monies.
This is no where near the main usefulness of Bitcoin though, which IMHO are: its extremely divisible, portable, efficient and has cheap transaction costs. Its also by far the most free in terms of your ability to enter into a transaction with anyone the world over, regardless of what a particular government thinks about that transaction.
> I will happily invest in Bitcoin when its history as a store of value and a medium of exchange is measured in millennia.
The history of Gold as a medium of exchange and store of value has virtually no bearing on whether or not you should invest in it in 2017.
Gold pays no dividends, has no interests, does not appreciate over the long term, and can't protect against incident forms of inflation. On top of all that, it has none of the above mentioned technological advantages Bitcoin brings.
There are arguments to be made for Gold but they are in its utility in modern industry, etc.
> I will happily invest in Bitcoin when its history as a store of value and a medium of exchange is measured in millennia.
So is USD out for you too, then? It's not even 300 years old yet. If you mean fiat currency in general, that's also out, as we haven't had that for multiple millennia yet either.
Gold does not produce anything, unlike stocks which yield dividends, or land which yields crops. And yet it's a wonderful investment over the very long haul. From 1972 to 2015, BOTH gold and the S&P went up 17-fold.
Moreover, investors flee to gold in times of panic. If you hold 50%-50% gold and stocks, one will tend to up when the other goes down, letting you sleep at night.
Money laundering. Illicit transactions. Any number of things government money stored in banks is not much good for. How big a market is that? I'm guessing much, much bigger than most people think.
Gold has practical uses in industrial applications and electronics. It also has a floor, which is the cost to mine and ship. Gold has a minimum theoretical value although I'm unsure off the top of my head how low that might be.
Bitcoin's only value is what people will pay for it and has nothing backing it up.
Investors like him and Buffet see gold as something just sitting there. if you buy a company, they will increase earnings, market share etc.
Gold just sits on a vault--which is a great thing for rich people to use a small % of their wealth for. Just in case.
Gold has other uses and a 5000+ year history. Compare it to hundreds of coins out there
Sounds to me like he is just rambling a bit there at the end.
Gold actually does have some intrinsic value—it's useful. It's stable, nonreactive, resistant to corrosion and conducts electricity. It's been used as a value store since antiquity above others particularly because it is stable and noncorrosive. The conducive properties are just an added benefit we now have a use for. A gold coin from a hundred years ago is still a gold coin. A Bitcoin from today may not be a Bitcoin as we know it a few years from now. And if it is, it may be difficult to transact.
Bitcoin, on the other hand, really has no use. There was this idea that it might be used to speed up transactions but as we saw leading up to the fork, that's not guaranteed. Anyone with enough capacity can basically seize control of the currency, so it's anything but stable. I think things like Ripple have a far higher value proposition than Bitcoin today—more of what Bitcoin once was.
Well, the use case for Bitcoin is decentralized, censorship resistant, electronic transactions.
Ripple is run using a different consensus algorithm, and is effectively managed by a central authority.
The point of Bitcoin has very little to do with speeding up transactions, all though this isn't a negative.
The point is sending transactions that are very difficult to censor. And yes, it does a very good job of this as there are a whole lot of transactions that governments would love to censor, but they AREN'T being censored, right now.
> Sounds to me like he is just rambling a bit there at the end. Gold actually does have some intrinsic value—it's useful
Actually I think you are misunderstanding him? He isn't saying that gold doesn't have intrinsic value; he's saying it doesn't inherently generate more value.
> Anyone with enough capacity can basically seize control of the currency, so it's anything but stable.
The amount of resources required to execute this attack is moving higher at a rapid pace. Also, a 51% attack can gum up new transactions and potentially double spend, at least until people realize the attack is happening and stop signing new transactions. It can't rewrite blocks from the distant past to send everyone's coins to the attacker's address.
Large public companies that are unlikely to ever issue dividends or be acquired also fit this description. For those companies, there is no legit expectation of an investor capturing the underlying cash flows, other than on the capital gains from the market price of the stock being gauged against the current P/E consensus (or valuation metric of your choice.)
But yet there AMZN, GOOG, and others sit, responsible for a large part of the return in Bogle's revered index funds.
This is slightly specious. There is an expectation that AMZN or GOOG will eventually issue dividends or repurchase shares, and there's noting fundamentally preventing them from doing so. There's no way to form a valuation otherwise.
Bitcoin is not a traditional investment, it is a speculative one.
Blockchain technology is not proprietary to bitcoin, so given this is fungible what value are you pricing in when buying bitcoin? Access to use bitcoin...
Bitcoin is becoming a value store. With slow transaction confirmation and high fees, what are the real-world applications for Bitcoin supposed to be now? And for those applications, are there not other cryptocurrencies more specifically targeted at being better at that application?
nothing at the moment, it's being used as a speculative investment. I imagine in time the volatility will reduce as other cryptocurrencies become more mainstream and actually used for real-world purposes.
The increased price makes the system more valuable because it increases the amount of funds that can be transferred through and decreases the cost of that transfer (more order depth for getting into and out of bitcoin).
Today, it's feasible to send $1M with Bitcoin. A few years ago, there wasn't enough market depth to do that very efficiently.
The other 'killer app' is companies/organizations holding all of their funds in a transparent, public way by making their addresses known. I think there will be a lot of value in this, but we're probably a decade away from the space maturing.
Bitcoin has the best security model. In 10 years does a single massive ledger make more sense than transactions at the edges? The value proposition of Bitcoin has always been transaction scalability by elimination of charge backs. With a fundamentally irreversible ledger as a base layer, networks and services will develop around it that provide whatever combination of speed, fees, and liquidity you're looking for.
The biggest red flag is it's clear the exchanges don't have the liquidity for everyone to cash out. Since there are no banks to provide credit lines it's entirely dependent on people getting into the market to provide the fiat currency to cash out.
A run on these exchanges will destroy the value of bitcoins and cause a panic.
The way the system works provides little in any sense of a line of liquidity. Unlike normal banking the exchanges operate ledgers where the fiat currency they have on hand is directly tied to how many people have put fiat currency into the exchange network. Given the extremely rapid rise of the price of BTC, it's extremely unlikely they have anywhere close to the amount of fiat currency if large numbers of people cash out.
Isn't the "value" of a currency in it's relative stability over time? That is, the confidence by those who use it that it will be exchangeable for roughly the same amount of goods and services today, tomorrow, six months or a year from now (accounting for nominal inflation, of course).
If you accept that premise of what a viable currency should be, then it seems like the volatility of Bitcoin and other cryptocurrencies have thus far made them failures. I mean, if a national currency had similarly rapid changes in value, wouldn't we see financial chaos, riots, and revolution?
The second link does nothing to refute the idea that bitcoin, as an investment instrument, is purely speculative. The author simply argues that bitcoin is unique among money-like assets.
The first link describes the hypothetical utility of bitcoin, but does nothing to explain a natural reason that bitcoin should have returns or appreciation. In fact, since the author describes bitcoin as a "medium to store wealth," the assumption should be that every buying transaction has an opposite selling transaction, which means there would be little to no overall price impact from any of the described activities.
I wouldn't scramble to dismiss what Jack Bogle says. He may be 88, but he has earned a reputation as a clever, knowledgeable, and decent fellow.
"There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it.”
Genuinely asking, isn't this the plan for many people? How is bitcoin different than other commodities or property in this regard? Would Bogle say the same thing about those investments?
There is a big difference. If you buy wheat futures and nobody wants to buy them, you can take delivery of a bunch of wheat. If you buy investment real estate and nobody wants it, you can live in it, or build things on it. If you buy stock in a random Fortune 500 company and nobody wants it, you can take possession of a bunch of desks or factories or inventory or whatever their deal is. And if you take possession of a bunch of US currency you can be assured that you'll be able to use it to settle debts or pay your taxes as long as the US government is around and has better guns than everyone else.
> If you buy stock in a random Fortune 500 company and nobody wants it, you can take possession of a bunch of desks or factories or inventory or whatever their deal is
Not really, the value of the stock approaches zero, and when the company closes up shop I doubt you get anything at all as an investor. Assets would typically be sold to pay off outstanding debts.
Yes, there's really nothing that gives Bitcoin value beyond new investors being willing to pay more for it than previous investors. Most people don't transact using it and the network is far too slow to support that use case anyway. It is a "store of value" that loses or gains half its value every few months. The community is torn with 3 separate forks & some of the earliest Bitcoiners have gone all in on Bitcoin Cash. The majority of the hashing power is controlled by a few entities and is a far cry from the decentralization originally envisioned. The communities online no longer talk about Bitcoin as a useful tool. They just talk about getting rich off of it. coinmarketcap.com, a site only for checking the price of cryptocurrencies, is a top 500 site globally according to Alexa, meaning there are a lot of people checking the price of bitcoin, few people using it for anything.
Bitcoin is processing roughly an order of magnitude more transactions than Bitcoin Cash right now. Though the fact that Bitcoin Cash is only running at about 1/100th of its nominal capacity hasn't stopped the community cheering for another hard fork to increase that capacity limit further, presumably because its price is driven by speculation about how much it could do if anyone actually cared about it.
How is bitcoin different than other commodities or property in this regard?
The key distinction is that, mercurial though their price fluctuations may be - traditional commodities such as oil or real estate at least have some intrinsic value, and hence, an intrinsic floor to their valuations. Meanwhile, to the extent that any of these "coins" have such an intrinsic value - if they can even be thought of as "currencies" at all - it is extremely hard to pin down.
Which is Bogle's central point: to the extent that any of these instruments have "value", it's in the belief that ... that value will keep going up, and up, and ever up.
If I buy stock in a company, and the company pays dividends, I get the dividend income until I sell the stock. That is, I bought a future income flow. Same thing if I bought an income-producing property.
Raw land? Non-income-producing property? Gold? Not so much.
That is an interesting argument. These guys are selling financial products that are explicitly not pro bitcoin (yet). If they see value in bitcoin then they would probably pump them. That is most likely too soon. In a few years you will probably hear that bitcoin is a hedge against global instability. It might be rational for oil to trade in bitcoin. It's also a big way for the Chinese to get money out as well as the Russians. North Korea has nothing to lose with bitcoin unless it pisses off the Chinese and Russians.
> It’s “crazy” to invest in the digital asset, he added. “Bitcoin may well go to $20,000 but that won’t prove I’m wrong. When it gets back to $100, we’ll talk.”
Readit News
Didnt quite understand this quote - is he down on gold too?
[1] https://www.npr.org/2015/10/17/436993646/three-investment-gu...
[2] https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...
[3] https://investor.vanguard.com/mutual-funds/actively-managed
That's what I've been realizing latey: there is something to support Bitcoin, and that something is the blockchain. The reason banks and big financial companies are interested in it is not for its speculative value. They are interested in the fact that it is both decentralized and immutable. As long as financial corporations are willing to exchange Bitcoin for USD, then Bitcoin is a reasonable store of value.
There's also value in Bitcoin because it's a good entry point into other cryptocurrencies that could turn out to be better general-purpose exchange media, like Litecoin.
It's a bit like US Treasury Bonds. Nobody buys them for the tiny rate of return they offer, but they have genuine, valid use as a financial instrument. Normal people, however don't typically buy them, and normal people probably shouldn't be buying Bitcoin either unless they have some spare cash to gamble on it.
And people do by treasury bonds for their rate of return, when the investment must be as riskless as possible.
None of the blockchain projects or proposals being worked on by enterprise financial institutions are decentralized. A decentralized ledger is conceptually antithetical to a small group of organizations which trust each other and want to retain control over the shared ledger.
It can be immutable, but for that matter I don't really think it's immutable in the same sense as a decentralized, permissionless ledger is. The organizations in charge of the blockchain can create a hard fork, which everyone participating with the organizations will have to abide by, because the blockchain is not decentralized.
In fact, what we actually have is a consortium of companies deploying distributed database structures and calling them blockchains. I'm sure there is a legitimately new innovation that can emerge from this sort of blockchain, but it won't be decentralization or immutability.
So like https://ipfs.io/ or various other append-only logs? Or the certificate transparency project?
The blockchain is the least efficient way to create a distributed append-only log if there are a fixed number of trusted actors publishing to it.
Banks can far more easily publish append-only logs of transactions without the extra noise of "mining" and comparing longest chains based on proof-of-work.
Bitcoin just has the power of faith in the network and that liquidity will exist when you want to cash out. Neither of which is certain.
Bitcoin really doesn't have any support. Exchanges don't have close to the liquidity needed to allow everyone to withdraw their coins in fiat currency.
Deleted Comment
Year gold S&P500
1972: 64 118
2015: 1060 2044
Ratio: 16.5 17.3
True, gold does not have a yield, but it has gone up a lot over the years.
"The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future.
The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while. Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B? Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B."
[0] http://www.berkshirehathaway.com/letters/2011ltr.pdf
Edit: If you enjoyed the above excerpt, I'd recommend reading it in context, pp. 17 (start at the heading) through end of 19. I've excerpted only the middle part on gold, but he also explains the dangers of holding cash, and further explains why he favors productive investments.
That is what is happening with bitcoin, people realize it can have monetary use and buy it to capture the difference between intrinsic value (zero) and future monetary value. Of course, this can fail badly if bitcoin won't be used as money.
Additionally, there is a positive feedback mechanism that can be deadly for fractional reserve fiat currencies. People get credit, buy bitcoin, this inflates the fiat supply and drives bitcoin price higher, alluring more people to repeat the process. This process is called hyperbitcoinization.
Current price of bitcoin is ~9.9k total supply is well over 17 million. lets call it 10k and 20 million. We're sitting at ~ 0.2 trillion. For that you could buy paypal, square, moneygram and Western Union and still have plenty left over.
That's fairly surprising. Bitcoin alone is within striking distance of the market cap of visa.
And with bitcoin you can't even fondle the cube.
I disagree. I don't think Bitcoin should strive to be a store of value like Gold is. Today most Gold investing is just based on fear, because people see a government misbehaving and lose faith in its ability to maintain the value of its fiat and then flee to something that still has some properties useful in monies.
This is no where near the main usefulness of Bitcoin though, which IMHO are: its extremely divisible, portable, efficient and has cheap transaction costs. Its also by far the most free in terms of your ability to enter into a transaction with anyone the world over, regardless of what a particular government thinks about that transaction.
> I will happily invest in Bitcoin when its history as a store of value and a medium of exchange is measured in millennia.
The history of Gold as a medium of exchange and store of value has virtually no bearing on whether or not you should invest in it in 2017. Gold pays no dividends, has no interests, does not appreciate over the long term, and can't protect against incident forms of inflation. On top of all that, it has none of the above mentioned technological advantages Bitcoin brings.
There are arguments to be made for Gold but they are in its utility in modern industry, etc.
So is USD out for you too, then? It's not even 300 years old yet. If you mean fiat currency in general, that's also out, as we haven't had that for multiple millennia yet either.
Moreover, investors flee to gold in times of panic. If you hold 50%-50% gold and stocks, one will tend to up when the other goes down, letting you sleep at night.
And to credit Jack Bogle, six years after making that statement, gold is trading lower.
https://www.newsmax.com/finance/InvestingAnalysis/bogle-gold...
Note that gold has inherent value in its use for conductivity or jewelry, but it doesn't create any more, which is the same at bitcoin.
In other words, I think he would argue that there's nothing "wrong" with buying gold, but you buy gold as speculation and not as an investment.
Bitcoin's only value is what people will pay for it and has nothing backing it up.
It's not really comparable.
The speculative value is well out of line with its use value.
Gold just sits on a vault--which is a great thing for rich people to use a small % of their wealth for. Just in case. Gold has other uses and a 5000+ year history. Compare it to hundreds of coins out there
Gold actually does have some intrinsic value—it's useful. It's stable, nonreactive, resistant to corrosion and conducts electricity. It's been used as a value store since antiquity above others particularly because it is stable and noncorrosive. The conducive properties are just an added benefit we now have a use for. A gold coin from a hundred years ago is still a gold coin. A Bitcoin from today may not be a Bitcoin as we know it a few years from now. And if it is, it may be difficult to transact.
Bitcoin, on the other hand, really has no use. There was this idea that it might be used to speed up transactions but as we saw leading up to the fork, that's not guaranteed. Anyone with enough capacity can basically seize control of the currency, so it's anything but stable. I think things like Ripple have a far higher value proposition than Bitcoin today—more of what Bitcoin once was.
Ripple is run using a different consensus algorithm, and is effectively managed by a central authority.
The point of Bitcoin has very little to do with speeding up transactions, all though this isn't a negative.
The point is sending transactions that are very difficult to censor. And yes, it does a very good job of this as there are a whole lot of transactions that governments would love to censor, but they AREN'T being censored, right now.
Actually I think you are misunderstanding him? He isn't saying that gold doesn't have intrinsic value; he's saying it doesn't inherently generate more value.
The amount of resources required to execute this attack is moving higher at a rapid pace. Also, a 51% attack can gum up new transactions and potentially double spend, at least until people realize the attack is happening and stop signing new transactions. It can't rewrite blocks from the distant past to send everyone's coins to the attacker's address.
But yet there AMZN, GOOG, and others sit, responsible for a large part of the return in Bogle's revered index funds.
Blockchain technology is not proprietary to bitcoin, so given this is fungible what value are you pricing in when buying bitcoin? Access to use bitcoin...
If people lose faith that it will keep going up, then it stops holding value.
It’s pure speculation based on the greater fool theory.
This is being solved, see https://en.wikipedia.org/wiki/Lightning_Network
The increased price makes the system more valuable because it increases the amount of funds that can be transferred through and decreases the cost of that transfer (more order depth for getting into and out of bitcoin).
Today, it's feasible to send $1M with Bitcoin. A few years ago, there wasn't enough market depth to do that very efficiently.
The other 'killer app' is companies/organizations holding all of their funds in a transparent, public way by making their addresses known. I think there will be a lot of value in this, but we're probably a decade away from the space maturing.
A run on these exchanges will destroy the value of bitcoins and cause a panic.
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If you accept that premise of what a viable currency should be, then it seems like the volatility of Bitcoin and other cryptocurrencies have thus far made them failures. I mean, if a national currency had similarly rapid changes in value, wouldn't we see financial chaos, riots, and revolution?
Not everyone agrees with that statement. For example, see:
https://news.ycombinator.com/item?id=15797380
https://news.ycombinator.com/item?id=15796880
The first link describes the hypothetical utility of bitcoin, but does nothing to explain a natural reason that bitcoin should have returns or appreciation. In fact, since the author describes bitcoin as a "medium to store wealth," the assumption should be that every buying transaction has an opposite selling transaction, which means there would be little to no overall price impact from any of the described activities.
I wouldn't scramble to dismiss what Jack Bogle says. He may be 88, but he has earned a reputation as a clever, knowledgeable, and decent fellow.
Genuinely asking, isn't this the plan for many people? How is bitcoin different than other commodities or property in this regard? Would Bogle say the same thing about those investments?
Bitcoin is different from all those things.
Not really, the value of the stock approaches zero, and when the company closes up shop I doubt you get anything at all as an investor. Assets would typically be sold to pay off outstanding debts.
this is an absurdly untrue statement
The key distinction is that, mercurial though their price fluctuations may be - traditional commodities such as oil or real estate at least have some intrinsic value, and hence, an intrinsic floor to their valuations. Meanwhile, to the extent that any of these "coins" have such an intrinsic value - if they can even be thought of as "currencies" at all - it is extremely hard to pin down.
Which is Bogle's central point: to the extent that any of these instruments have "value", it's in the belief that ... that value will keep going up, and up, and ever up.
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Equity in a company means you own part of that company.
Owning Bitcoin means you own a BTC.
Raw land? Non-income-producing property? Gold? Not so much.
https://www.investopedia.com/ask/answers/09/difference-betwe...
One more in the many death's of bitcoin...
https://99bitcoins.com/bitcoinobituaries/page/10/