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Warren Buffett Predicts 'Bad Ending' for Cryptocurrencies (cnbc.com)
"97% of all bitcoins are held by 4% of addresses," reports Credit Suisse (in an article cited by Slashdot reader CaptainDork). And elsewhere this week, Warren Buffett told CNBC that speculation in bitcoin and other cryptocurrencies "will have a bad ending," adding that looking out five years he'd gladly bet against all of the cryptocurrencies.
Meanwhile, CNBC senior analyst Ron Insana has his own skepticism: I am predisposed to view them as just speculative tokens in a cryptocurrency bubble that has inflated more quickly than any other in financial market history. Admittedly I'm green with envy for failing to foresee the explosive rally in the price of bitcoin when it was first brought to my attention several years ago. Having said that, there are many things I find quite ironic about how bitcoin and other "cryptos" are described. First, they are largely denominated, or discussed, in U.S. dollar terms... If the dollar is archaic, as the crypto-enthusiasts believe, why not speak only in crypto-terms...?
It's much easier to buy and sell dollars, stocks or commodities than it is to trade bitcoin and its brethren. The conversion of one crypto to another is relatively easy on these embryonic exchanges. But getting your digital wealth converted into cold hard cash is more problematic... And while the growth has been impressive, it remains very difficult to walk into any establishment and exchange a digital token for goods or services.
The article notes that the U.S. dollar still accounts for 65% of all global economic transactions, due to its status as the world's reserve currency, and concludes that "The adoption of cryptocurrencies as a global source of funds has a long way to go before staking a claim to the world's economy."
Meanwhile, CNBC senior analyst Ron Insana has his own skepticism: I am predisposed to view them as just speculative tokens in a cryptocurrency bubble that has inflated more quickly than any other in financial market history. Admittedly I'm green with envy for failing to foresee the explosive rally in the price of bitcoin when it was first brought to my attention several years ago. Having said that, there are many things I find quite ironic about how bitcoin and other "cryptos" are described. First, they are largely denominated, or discussed, in U.S. dollar terms... If the dollar is archaic, as the crypto-enthusiasts believe, why not speak only in crypto-terms...?
It's much easier to buy and sell dollars, stocks or commodities than it is to trade bitcoin and its brethren. The conversion of one crypto to another is relatively easy on these embryonic exchanges. But getting your digital wealth converted into cold hard cash is more problematic... And while the growth has been impressive, it remains very difficult to walk into any establishment and exchange a digital token for goods or services.
The article notes that the U.S. dollar still accounts for 65% of all global economic transactions, due to its status as the world's reserve currency, and concludes that "The adoption of cryptocurrencies as a global source of funds has a long way to go before staking a claim to the world's economy."
Bitcoin is another tulips. Some cryptocurrency will always have value, just as tulips still sell for as much as $10. But they once sold for literally 10x the annual income of a skilled craftsmen.
My personal favorite is the wikipedia's page list of what was exchanged once for a single tulip bulb, which included (among other things) four tun of beer and two hogshead of wine AND a silver cup to drink it (1 hogshead = 79 gallons, 4 hogshead = 1 tun, so clearly a beer lover).
A mania is basically when non-professionals enter the market for speculative purposes, rather than because they want/need the core item.
This is clearly happening with the cryptocurrencies. The only question is, what will their real value end up after the mania has ended.
excitingthingstodo.blogspot.com
Currently, Cryptocurrencies are a means of allowing gamblers to gamble. This is highly constructive and productive for the general markets for a few good reasons.
Volatility in trading is a major problem. Classically, gamblers (investors) have creatively attempted to carve out niches that have had devastating impacts on society. For example, the price of grain isn't driven by supply and demand. The price of grain is driven by commodity trading. This means that if the gamblers on the stock markets who actually do not care what the price of grain is for practical reasons can generate enough trading volume to increase volatility of the share for any period of time, then due to trends, the price of grain can either be artificially forced upwards or downwards causing mass disruption in the supply chain or the commodity cost.
Let me explain, people like Warren Buffet, Icann or others of their ilk invest in companies and people who they believe in with the interest of seeing a stable and predictable return based on the performance of the companies they invest in. As such, a company with an investor like Warren Buffet will issue shares and Warren Buffet will take an interest in the company. If the company performs badly, he will along with other investors alter the management structure of the company through actions of the shareholders and the board to improve the performance of the company or change the structure of the company to dissolve it gracefully to give the best return on the investment. What Warren does is theoretically a form of inside trading as he is directly profiting from influencing the performance of the company. But trading regulations are in place to force him to act generally ethically. So for example, he can't short sell the share if he knows the shareholder report will kill the share value. He would instead have to publicly announce his trades in time to prepare the market for his change in interest and generally provide a reason for it.
The majority of traders out there however act on trends.
This means that without any knowledge of the company, they buy and sell shares which weren't issued to them by the company, but instead buy and sell shares which were owned by others through open trading. They are not gambling on the performance of the company. They have no interest in the health of the company. Instead, they are gambling on the value of the share. Often times, their behavior hurts the companies far more than they help. See, a trader will buy and sell based on whether the stock is going up or down. In some cases, dividends can be used to convince the shareholders to take an invested interest in the performance of the company, but generally, the average trader will have no particular interest in the long term aspects of the firm. Many investors buy into a company simply long enough to reap the rewards of the dividend and then dispose of the share shortly after.
I can go on, but in general, trend traders which are basically nothing more than gamblers trying to sell high and buy low based on upwards and downward trends have major negative impacts on the shares. Consider the "Essential Phone" which was just another Android phone. The leaders of the company managed to hype the share so much that the market cap of the company reached a billion dollars long before it ever sold a single device. The people who hyped the share, even if it completely tanks will still manage to walk away with a lot of money on their pockets. Many people will lose their investments but several people, thanks to an amazing stir and incredible management of selling the share will walk away wealthier than ever and start their next venture.
Cryptocurrencies provide a new gamblers hotbed. Thanks to the insane volatility of coins and lack of regulation, buy low sell high is an easy game to play. People excited about upward trends can ride it out several times a week. If they can manage to shift money in and out of the currencies, they can produce amazing returns on investment. These people have