MMM on cryptocurrencies

Possible duplicate:

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I agree that there are signs of a bubble. For the moment it doesn’t look too good for bitcoin to become a currency. To me it looks more like a possible replacement gold than for a currency. some people like gold in their portfolio, some don’t.

For me, he is still my guru when it comes to investments :wink:

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Ops missed the dupliccate thread. The mod can close this if they want

New MMM article on Crypto. What do you guys think about it ?


Just as I ordered my Ledger Nano :smiley:. OK I will give it a read…

(30 minutes later)

OK finished. The article makes a very good point. I almost feel bad I bought that Ledger Nano. It touches on some points I felt under my skin for some time. Like the open source nature of blockchain and the countless number of cryptos.

However, what got me sold on cryptos is this libertarian tinfoil hat fear that MMM mentions. I mean, countries like Venezuela or China are so oppressive, that many people will be anxious to keep their money in the bank. Also the trust that MMM puts into organizations like the Fed, and the US government, which are responsible for racking up a debt of $20 trillion, seems pretty optimistic to me.

The other thing is that bitcoin is not exactly the same as this Cancer Pill. Probably bitcoin in itself is a poor implementation of the blockchain. It uses up a lot of energy and is not really private. But we have this competition between cryptos, and it’s possible that one of them will win, and others will perish. And then this one crypto, outside the control of banks or governments, could be used by any people threatened by oppressive governments.

Thus, my plan is to put (deliberately not using the word “invest”) a small portion, like 2000-3000 CHF into every crypto supported by Ledger Nano, proportionally to their market cap, and just sit on it. However, it’s hard not to agree with MMM, that this is just speculation.


it probably serves well to put all the mustachian minds that don’t know what to to about it, to rest. The guru communicates his opinion^^
And it’s a good excuse for me not to bother any further


One word more about the Cancer Pill analogy. Imagine there would be a Flu Vaccine. But it would be the most effective, if everybody else was using the same type of vaccine. Many producers would develop their version of the vaccine, each slightly different, and would compete for widespread adoption. This analogy fits more to the blockchain IMO.

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3000chf seems ridicously low if you try to “save” yourself from the various catastrophic events people talk about.

It won’t make you rich if crypto get big and it wont save you if everything goes bad.

I believe crypto will get big once a big player creates a new one. I think Facebook will be the one doing it or maybe Google.

Disclaimer: I probably don’t like Bitcoin because I didn’t get it/mine it on the very early days when I could have easily ammassed them :open_mouth:

That’s not the plan. I just believe cryptos might be attractive for some of the people in some parts of the world. They don’t need to replace the fiat currency. Just become something what gold is today. Current gold cap is sth like 7 trillion, and crypto cap is 700 billion. So cryptos can still go 10x until they reach the gold cap.

Arguments provided by MMM are too convincing for me to invest more, and this 3’000 “investment” will soothe my FOMO a bit :slight_smile:

Well that defies the whole purpose of crypto, if there is a big entity behind it, at least for some people.

“behind” as “using it”. Maybe they will start with lots of coins, but nothing more.

Also humans follow trends. Facebook hast to start selling stuff on their site or on Whatsapp and instead of Currency/Paypal, they will start with a crypto coin they value stable enough etc etc.

This article basically just restates all the old criticisms of Bitcoin without adding anything new.

He say’s it’s all speculation: isn’t everything, really? Sure, VT is great, but you’re really just betting that the world’s stock market will be worth more to someone else in the future. You’re betting that the companies that it’s made up of will continue to produce things people want and can pay for. I wouldn’t bet against you, but don’t kid yourself thinking it’s a sure thing.

Like a piece of a profitable business or a rentable piece of real estate. An investment is something that has intrinsic value

A profitable business can become worthless really fast, and the same can happen to a piece of real estate. There’s no such thing as an intrinsic value of something, it’s only value is how badly someone else wants it. Sure, you could argue that the value of a business is it’s liquidation value if you were to sell everything, but even that assumes someone would want to buy it.

Next he goes with the classic “blockchain good, bitcoin bad” argument, which demonstrates a lack on understanding of both. The blockchain is only useful because it’s secured by miners that earn bitcoins in exchange. Here’s a great talk from Andreas Antonopoulos that explains how the two are intertwined.

The Cancer-Pill analogy is completely ridiculous and demonstrates a huge lack of understanding on the topic, bitcoin is not like that in the slightest. Andreas’ Internet analogy is way better: blockchain is kind of like TCP/IP and bitcoin is the Internet. Sure, the TCP/IP is open source and anyone can run their own network, and that’s useful on it’s own. In fact, we’re all using separate networks right now. The real value of the Internet is that it allows all those networks to talk to each other and all of us to interact.

You’ve got Bitcoin with a market value of $234 Billion Dollars, then Ripple at $92 billion with Ethereum right behind at $85,792,800,592.

These are preposterous numbers. The imaginary value of these valueless bits of computer data represents enough money to change the course of the entire human race

Seriously? If those numbers are preposterous, this is going to blow your fucking mind. Jeff Bezos could literally buy the entire market cap of the third largest cryptocurrency right now, and still have money left over to buy all of Litecoin. If he got together with Bill Gates and Warren Buffet they could buy all of Bitcoin just for fun.

Anyway, the way cryptocurrency market cap is calculated right now is basically useless. If I start my own cryptocurrency right now with 100 billion tokens and sell one to a friend for 2 CHF, my cryptocurrency is suddenly the second biggest. We certainly need better metrics.

Government-issued currencies have value because they represent human trust and cooperation. There is no wealth and no trade without these two things, so you might as well go all-in and trust people. There are no financial instruments that will protect you from a world where we no longer trust each other.

Wrong. Government-issued currencies have value because we had nothing better. History is rife with examples of governments breaking that trust. Bitcoin is the financial instrument that will protect you because the whole point is that you don’t need to trust anybody else.

So, Bitcoin is a protocol invented to solve a money problem that simply does not exist in the rich countries, which is where most of the money is. Sure, an anonymous way to exchange money and escape the eyes of a corrupt government is a good thing for human rights.

Just because the (now) rich countries haven’t abused their power lately doesn’t mean they won’t or can’t. If you don’t agree, please send me all your money. I promise I’ll give it back whenever you want it, I’ve never done otherwise!

Let’s get this straight: in order for Bitcoin to be a real currency, it needs several things:

  • easy and frictionless trading between people

Bitcoin is already easy and frictionless. You can install a wallet on your phone and receive bitcoin in minutes, no need to go to a bank to open an account, etc. You can transfer money 24 hours a day, every day, all over the world, nearly instantly. I’m not sure what else you want.

  • to be widely accepted as legal tender for all debts, public and private

Not really true, you just need to be able to convert it to other currencies as needed.

  • a stable value that does not fluctuate (otherwise it’s impossible to set prices)

This will come with scale, the market right now is tiny.

Bitcoin has none of these things, and even safely storing it is difficult (see Mt. Gox, Bitfinex, and the various wallets and exchanges that have been hacked)

Yes, being your own bank is difficult and this is certainly something that needs to improve. You’ll always have the option of someone else securing your bitcoins for you, of course, but it’s a trade-off.

The second point is also critical: Bitcoin is only valuable if it truly becomes a critical world currency.

Demonstrably not true. CHF is valuable even though it’s not a critical world currency and it isn’t accepted as legal tender in most of the world. That doesn’t make it worthless.

Also, a currency should not be artificially sparse. It needs to expand with the supply of goods and services in the world, otherwise we end up with deflation and hoarding.

A currency certainly does not need to expand with supply, that’s how you end up with inflation and no savings. Anyway, Bitcoin is inflationary until all the bitcoins are mined, sometime in 2140. After that, the monetary supply is fixed.

It also helps to have wise, centralized humans (the Federal Reserve system and other central banks) guiding the system. In a world of human trust, putting the wisest and most respected people in a position of Adult Supervision is a useful tactic.

Yes, it would be nice if people were infallible.

The world’s governments are not going to let everyone start trading money anonymously and evading taxes using Bitcoin. If cryptocurrency does take off, it will be in a government-backed form, like a new “Fedcoin” or “G20coin.” Full anonymity and government evasion will not be one of its features.

Good thing Bitcoin didn’t ask for permission, then.

Basically, the only thing this article gets right, IMHO, is:

  • Bitcoin may not be the one cryptocurrency to end all the others, but it certainly has the first-mover advantage and it’s the most likely candidate.
  • Cryptocurrencies are a volatile asset class right now, and should be treated as such.
  • It’s a very young market and it’s sort of like the wild west: beware of scams, inform yourself as much as you can and don’t take risks you can’t bear.

If you want a much more informed opinion on the future of cryptocurrencies, I recommend this article.

And if you want to understand more of the importance of bitcoin, I highly recommend another Andreas Antonopoulos talk, Peer-to-Peer Money in a Historical Context.


Thanks for that very well formulated post Alex - I was reading MMM’s article on Bitcoin and got more and more irritated with his very superficial understanding of it (tulip mania, etc.), despite his CS / engineering background.
Thanks also for linking to Medium and Andreas Antonopoulos; two very credible source for everyone interested in reading up on Cryptocurrencies, despite their bias.

Another great article describing not only the real use cases of the technology but also destroying the very misleading ‘Cancer Pill’ argument: A Letter to Jamie Dimon

And BTW: Jamie Dimon says he regrets calling Bitcoin a fraud)

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That’s a really cool reply, @Alex. It only proves to me that I really don’t know much about this topic, and all it takes is just a smart reply to change my mind yet again. I have no idea how things will turn out, but I see some potential. So I guess it’s not the worst idea to put at least a bit money in cryptos.

Thanks for that article, @Alexej, it was very interesting and enlightening.

You’re welcome, @Bojack, we’re all learning about this new world as we go along. If you want some more resources to learn, you can start with Jameson Lopp’s page or Andreas Antonopoulos’ youtube channel.

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Or merge both. The main thread on crypto currencies is already big enough, it is better if we can have smaller threads.

I think I can offer a counterfact to this.
Imagine having put 3000 into Bitcoin tokens back when it was worth $100 (or even less?).
How would one not be rich once that amount grows literally 150 times?

Now I am not saying (nor anyone can) that any of the current cryptos will mimick that growth, but your statement is incorrect IMO.
e.g. Ripple went up 10x in a couple of months, and there are other examples.

I am only playing with it, with amounts I am ok to lose.
But my holdings have gone 10-fold since I put them in from November on.

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Nice writeup, but you forgot one point where he has reason. 90% of the people right box are buying not because they understand the technology, but simply because things go up. They hope to resell in some months and cash out.
That is exactly what happened with the other bubble.
Most of people buying have no clue and just hope to cash out.

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I’m not sure anyone can judge what other people know or don’t know. You could say the same thing about the majority of retail investors in the stock market, I doubt everyone is informed about all the companies and markets they’re invested in.

Sure, things are a little crazy now, there are many overvalued crypto assets and everyone is getting on the hype train. Yes, this is kind of like the dotcom boom. That doesn’t invalidate the entire industry, though. After all, Amazon, eBay and Google are still doing ok.

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Well check this out:

And the Google Sheet linked in the article:

This experiment shows that you could be right, that it’s worthless to invest in cryptos by market cap, most of it will land into bitcoin, ethereum and ripple anyway. But investing 1% in each of the top 100 cryptos already looks like a sound strategy. Somebody even wrote that this is the strategy that some small venture capital firms use. They put a little money in every business idea to increase the chance that one of them will turn to be successful.

So, I don’t know, maybe I’ll just put 100 in each crypto from the toplist. I’m aware of the risk that you mention (artificially pumping market cap). I guess looking at liquidity might also not be too helpful, because it might just be the issuer of the crypto making transfers between his accounts. But at least this could be spotted by someone.

But even if a few of the top 100 appear to be scams, that’s just $100 lost. You just need one to succeed.

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