Bitcoin Bubble

Lesley Resnick · 2020-12-18T06:10:49-08:00

I know this will bring out the haters and the, "you don't understand bitcoin". With that said here goes: Bitcoin hit $23,000 this week. What does that even mean? You and I agree that today one Bitcoin is the value a used Honda Accord? In December of 2019 it was under $4,000. That is an amazing growth. Imagine buying a house for 40 and selling it for 230 next year! Sign me up. The premise is that the value of bitcoin is a currency, exchange it to get something in return. As a currency it is inflationary, you get less for your currency over time. This sounds great, but prices will rise at the same pace. If you get paid once a month by the end of the month you will effectively make less than than the month before. Given the option you will get paid in a stable currency. For an examples Google: Weimar Republic, Venezuela. While the causes of the Hyper inflation are different the effect is the same. No government or corporation is benefiting from bitcoin. Regardless of your political bend it is an undeniable fact that governments want to tax and regulate and companies want to monetize. In fact the early signs of the governments crack down are showing up in the tax code. I can easily report currency swap trades, but if I trade bitcoin, then I must file a separate schedule for them. Facebook tried to start its own digital currency and was shut down. Why would it allow Bitcoin to continue? The Digi-dollar or the Digi-Yuan will render the Bitcoin useless as a currency. There is widespread agreement that a completely digital currency is necessary. The first government to issue one will have a significant competitive advantage in remaining or becoming the reserve currency. The pay off would be 2 people in third world with phones could transact in dollars with out any knowledge of the US or speaking English. While there are a lot of critics of the dollar and fiat currency, the US still owns assets. What is the Grand Canyon worth in a liquidation? Bitcoin on the other hand owns nothing and is accountable to no one. My bank gets hacked and I get my money back from them or the FDIC. What about Bitcoin, While block chain is a great idea, it is not fool proof. It will someday be hacked. To geek out a bit, I believe the block chain data is secure by its distributed nature, however access to it from the Client, (purse) will be compromised. If I have your pasword, (cats name, younges child, etc), I can access your account. The press has been covering the fact that Wall Street is getting into Bitcoin. These are the same people who brought us the Credit Default Swap and we all know how that turned out. Bitcoin is speculation. There will be people who make big money speculating and there will be a lot of losers in the game. It is not investing and as long as people do not think they are going to retire holding bitcoin they should be fine and potentially could make a few bucks. I, on the other hand am not a speculator.

Taylor L.

Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes

5y

I'm not big on speculation, either. I'm sad to say I knew about bitcoin wayyy back in the early days. I set up a mining rig, thought it was wonky and silly, and just abandoned it. I still think it's speculative and too difficult to be any kind of currency, but would that I had bought $100 worth and just sat on it...

1 Reply

Lesley Resnick

OP

Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes

5y

Thanks for responding. This has not been the barn burner topic I thought it would be. lol

Mining in the early days was profitable. Today they say the overhead costs, computers and electricity exceed the value of the coins mined.

2 Reply

Sean T.

Rental Property Investor · MA · Member since 2014 · 420 posts · 213 votes

5y

I have mixed emotions as well here. I was definitely among the lucky ones who got in while it was still in the 3 figures. I run my portfolio fairly tightly and as such carve off spec capital for seed funding, PE, and in this case crypto. I rode the wave and ended up selling late in 2017. Did great with it.

I think the utility about it is wrong. The usefulness is tough to apply in an economy with great banks and regulations. In an economy where governments can't support their people, banks are scarce, etc, it has value. Imagine your local currency was facing ultra inflation! Many folks use it as a store of value and to transfer money(lots of bad folks too).

All investments are speculation. Bonds fall as well.

1 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

5y

Originally posted by @Lesley Resnick:

Thanks for responding. This has not been the barn burner topic I thought it would be. lol

Mining in the early days was profitable. Today they say the overhead costs, computers and electricity exceed the value of the coins mined.

I get what you are saying and just a couple points / questions

Why would there be lots of losers if currently anyone who bought bitcoin previous to 1 hour ago and going back 10 years is ahead if they sold? Institutional investment is a negative sign? I switched my gold mining stock to bitcoin mining stock a few months back. Seems ok for now I guess. These fresh 100 mil a pop buyers are not flippers imo but who knows for sure.

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Karl B.

Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes

5y

I don't get why it's so high either. I get it - some people got very wealthy investing in it. I just don't get why people are valuing it so highly, especially since it isn't backed up by anything of value.

If one gets enough people interested in something foolishness can happen. Let's take sports cards for example. For fun and profit I collect sports cards and when living in L.A. I sold at a local show. I had a Topps Kobe RC priced at $10 and noone bought it. This was less than a year ago, March, when I stopped doing the show. Wanna know how much the card sells for on eBay now? Between $200-$300.

Why? Because a lot of clueless people entered the hobby last Spring/Summer (thanks to Gary V) for the sole sake of buying and flipping.

It's ridiculous. These flippers have entered the hobby and drove up the prices in a short amount of time. Now people who have no clue about sports cards are buying cards at exorbitant, head-shaking prices, much like Bitcoin.

There are guys who seriously spend hours a day at Target and Wal-Mart waiting for the rep to restock the shelves with cards so they can buy boxes/packs of cards to flip online.

When there's hype for something, common sense goes out the window. Some people recognize it and take advantage but most lose their hard-earned cash (or hours and hours of time waiting at Wal-Mart and Target).

2 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

5y

Originally posted by @Karl B.:

I don't get why it's so high either. I get it - some people got very wealthy investing in it. I just don't get why people are valuing it so highly, especially since it isn't backed up by anything of value.

If one gets enough people interested in something foolishness can happen. Let's take sports cards for example. For fun and profit I collect sports cards and when living in L.A. I sold at a local show. I had a Topps Kobe RC priced at $10 and noone bought it. This was less than a year ago, March, when I stopped doing the show. Wanna know how much the card sells for on eBay now? Between $200-$300.

Why? Because a lot of clueless people entered the hobby last Spring/Summer (thanks to Gary V) for the sole sake of buying and flipping.

It's ridiculous. These flippers have entered the hobby and drove up the prices in a short amount of time. Now people who have no clue about sports cards are buying cards at exorbitant, head-shaking prices, much like Bitcoin.

There are guys who seriously spend hours a day at Target and Wal-Mart waiting for the rep to restock the shelves with cards so they can buy boxes/packs of cards to flip online.

When there's hype for something, common sense goes out the window. Some people recognize it and take advantage but most lose their hard-earned cash (or hours and hours of time waiting at Wal-Mart and Target).

I hear ya. I guess we have to separate a fad from longer term trends. I sold hoverboards during a fad craze. It did not not last long and never came back to levels at peak. That was a fad. Where as bitcoin seems less fad like in that it surpasses previous peaks repeatedly and several times going back 10 years. This is in a longer term trend vs fad perhaps.

2 Reply

Alvin Sylvain

Los Angeles · Member since 2018 · 466 posts · 472 votes

5y

Originally posted by @Lesley Resnick:

Mining in the early days was profitable. Today they say the overhead costs, computers and electricity exceed the value of the coins mined.

I've read somewhere that 86% of mining operations take place in China, where all the infrastructure costs are much lower.

1 Reply

Matt Whitney

New to Real Estate · Chicago · Member since 2020 · 6 posts · 9 votes

5y

You know what's also speculation? Fiat currencies. The US dollar loses purchasing power each year because the Federal Reserve prints money out of thin air. Not to mention, with quantitative easing & the fed lowering interest rates, they're trillions of negative-yielding bonds worldwide as a result. Why would institutions keep their clients money in negative yield assets, when they could dip their toes in bitcoin? Only a 1% allocation from Wall Street would cause a mania unlike you've ever seen before.

The market cap of bitcoin is roughly $400 billion, the market cap of gold is $10 trillion, more or less. Bitcoin is gold 2.0 and could easily do 5x in the next decade, conservatively. You can't manipulate bitcoin either because it's decentralized and they're difficulty adjustments built-in (hard to explain here but there's crazy game theory built into the algorithm. I would recommend reading into that if you're curious.

You cant bring a million dollars worth of gold with you on an airline to another country, yet you can do bring a million dollars in bitcoin on a USB drive. Bitcoin is a store of value and safe-haven asset that cannot be manipulated. Real estate, gold bitcoin are all great investments in my opinion. My personal strategy is to dollar cost average into it every week with small amounts, which helps reduce the volatility risk. I'm up 173% this year

I'd be more than happy to address any concerns you have about bitcoin or share any resources!

Matt

9 Reply

Karl B.

Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes

5y

Originally posted by @Matt R.:

Originally posted by @Karl B.:

I don't get why it's so high either. I get it - some people got very wealthy investing in it. I just don't get why people are valuing it so highly, especially since it isn't backed up by anything of value.

If one gets enough people interested in something foolishness can happen. Let's take sports cards for example. For fun and profit I collect sports cards and when living in L.A. I sold at a local show. I had a Topps Kobe RC priced at $10 and noone bought it. This was less than a year ago, March, when I stopped doing the show. Wanna know how much the card sells for on eBay now? Between $200-$300.

Why? Because a lot of clueless people entered the hobby last Spring/Summer (thanks to Gary V) for the sole sake of buying and flipping.

It's ridiculous. These flippers have entered the hobby and drove up the prices in a short amount of time. Now people who have no clue about sports cards are buying cards at exorbitant, head-shaking prices, much like Bitcoin.

There are guys who seriously spend hours a day at Target and Wal-Mart waiting for the rep to restock the shelves with cards so they can buy boxes/packs of cards to flip online.

When there's hype for something, common sense goes out the window. Some people recognize it and take advantage but most lose their hard-earned cash (or hours and hours of time waiting at Wal-Mart and Target).

I hear ya. I guess we have to separate a fad from longer term trends. I sold hoverboards during a fad craze. It did not not last long and never came back to levels at peak. That was a fad. Where as bitcoin seems less fad like in that it surpasses previous peaks repeatedly and several times going back 10 years. This is in a longer term trend vs fad perhaps.

Cards have been popular, collectible and investments for decades - it's just that it has gotten ridiculous as of late. I started selling cards in large volume in the early-2000s (we sold to wholesalers who repackaged the cards and resold them at Target and Wal-Mart) and I began selling on eBay starting in 1996 or 1997. It has simply gotten to the point where me - a homer of sports cards - can only shake my head in amazement at the ridiculousness of it all.

Granted, some stuff hasn't appreciated much since this boom but some stuff has gone up to downright silly amounts. People bust boxes to get the cards graded and hope for a bid payday.

One could make the argument that sports cards are nothing but cardboard and it's insane they're worth anything at all and I understand that argument - I feel the same way about crypto though.

I reckon that's why we love RE - it's tangible and consistent.

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