Friday, June 4, 2021

Whither bitcoin?

It kills me how people reporting in finance will sagely advise, either vaguely enough to be meaningless, or just incorrectly. Jim Cramer was infamous at one point for loudly hollering advice slightly worse than a coin toss. If you want good investment advice, listen to "the sage of omaha" here: BERKSHIRE HATHAWAY INC. SHAREHOLDER LETTERS

The text below is from a comment I made on disqus here:

At the end of this analysis, I feel like trading is like a social game akin to discussing astrology. To me, the narrative looks like this:

"We have technical indications we have seen before. Like other technical indications, it leaves us with this: It might go up, it might go down, could be a lot, or could be a little. We have to wait for it to unfold to be able to explain-predict what happened. "

If those various technical indications had predictive merit, somebody like me would have already incorporated them into trading software, thus nullifying the effect. The house always wins because over the long haul, a tiny percentage advantage becomes impossible to fight. In this case, I expect the house also always wins because it sees trades before they happen, and it manipulates outcomes. The GameStop situation gave a good indication that the game is rigged. A concerted effort by the little guys set back the short sellers on the house side, so they quickly shut the game down. 

Mercifully, I paid nothing for my tiny bit of bitcoin. I have held it for more than a decade. Recent drops in price don't make any difference to me. I break even at $0 per coin :). The price probably won't make much difference to me in terms of selling. I will sell on a whim or if I need the money for some reason. 

Over the long haul, I predict that bitcoin will continue its inexorable rise in value. Why? Because it is worth money, is permanently scarce, and although trading is clumsy and difficult now, it still allows the transfer of enormous sums quickly that are difficult to interfere with. Those suckers cost something like about $10K to mine. I expect that is a bit of a hard floor because they will surely cost more than that to miners going forward. They become ever dearer per coin to mine. In a sort of 'worst case' scenario, activity goes way down. If that happens, bitcoin will be the best of all possible worlds for people with means. The system will have all of its other advantages and become (again) faster and easier to use. 

As can be seen from the pricing, bitcoin is the 'gold' of crypto-currencies. It is intrinsically scarce, and intrinsically expensive to mine. Let's face it, if BTC crashed to $10 per coin, any sane investor would be buying on the chance, however small, that it rose again. 

Because of inherent deficiencies in its design, BTC will not become the crypto-currency people use for ordinary transactions. In my opinion, that has yet to appear, but it is only a matter of time. If it were me (could be), I would design a system with the scalability to transact micropayments in the trillions of transactions per second, backed with real assets, to create a hard floor, and correct other deficiencies which are difficult, but in my opinion not impossible, to correct. I'm sure about a lot of things, but still on the fence as to inflatability. My instinct is that inflation has to be built in, and variably responsive to circumstance to balance value, liquidity, and utility, but I as yet have no way to quantify what that should be. 

I think near-term (say 3-5 year horizon), like any other thing being traded, it is near impossible to predict any gain or loss. Like any other thing that is being traded, it likely has a slight tendency to gain going forward, but except for 'buy and hold'; I can't see any way that an investor could take advantage of that. Like any other thing, the price of BTC could evaporate entirely, so the long-term advantage comes at the expense of a long-term risk. 

If we discovered pits of gold in various parts of the world whose volume was hundreds of meters on a side, the price of gold would drop to the value of its utility other than as a store of value. Nothing is immune to loss of value.

Bottom line, short term it's anybody's guess what happens next, long term it's most likely it rises yet again to reach a new high. 

I made a similar post about the Facebook market cap, and I did it for the same reason, essentially an argument from boundaries created by the math. In 2012, I predicted Facebook would hit a trillion dollar market cap. In 2017, I did the math on the data to that point and extrapolated forward to when it would hit that mark. Here's the graph I published in 2017:

Of course, I could be wrong. Prediction is hard, especially about the future :)

Wednesday, May 12, 2021

Trust is the New Black

As we shift deeper into an attention economy, maintaining eyeballs will get ever more difficult. One of the things that will drive users off of a platform if they have a choice is loss of control, and compromised privacy. That is already an issue for holdouts that have not gone online in earnest. 

I have had more than a little interest in privacy for a long time. I knew it was coming, but the flagrance is still breathtaking to behold. Keep in mind, these are the *good guys*:

I posted a prediction that Facebook would reach $1 Trillion Market Cap back in 2012 when Forbes thought it was a short at $75B.

Facebook outperformed my prediction by hitting $900B ahead of schedule, instead of the $800B I predicted by now, but they definitely underperformed in capitalizing on their competitive opportunities to compete against Google. This situation is an opportunity for an aggressive, disruptive competitor as mentioned in the post below.

Facebook has not yet capitalized on The "Top Ten" strategies in the post below. In fact, the thing that prompted my reaction to this post is that the current move is counter to the strategies I believe are winners in the coming world. 

"The overall strategy is to ethically join forces with users, suppliers and advertisers against the competition. Do a 'grand slam' attack sweep of all low hanging fruit by leveraging their existing user relationship. Justify it by honoring the security and privacy of users."

Facebook, Google, and Microsoft, and to a lesser extent Apple and Amazon, are vulnerable to a nimble competitor in their most profitable, high-margin areas. 

Facebook's explosive growth is nothing compared to the growth we will see if the right competitor arrives on the scene providing social network, communications, storage, information on demand, online apps, and verifiable user privacy and control of their data. Those big companies have enormous built infrastructure, personnel, funds, and user bases. However, all of those are partially offset by legacy issues, management issues, shareholder obligations, and prickly user relationships. 

The big companies are predicated on old scenarios, costs, capabilities, and user expectations. All of them have to step over the various things these entail. The manpower used just for vendor relationships alone would be sufficient for an agile, strategic emerging competitor. 

A new competitor, starting with a clean slate can use all the knowledge gotten by trial and error by the other players. Judicious choices can be made to partner with users in areas that have high margins, and are easy to service. One big value add that is available at negligible cost to a new competitor is to keep faith with users. Keeping faith with users creates certain opportunities that can only be had with a trusting relationship. That ship has sailed for the big competitors in this space. 

All these companies are looking, basically, for ever more elaborate ways to cheat their users. Facebook, by being a bad partner with respect to privacy, Google for being a bad partner for pursuing advertising revenue at the expense of ruining their search engine, Microsoft for continually breaking faith with users and charging ever more for less, Apple for creating an ever tightening and expensive walled garden, and Amazon for being, well, Amazon, have all created a demand for replacements that will provide better value and a safer, more honest relationship. 

When you look at the enormous size and reach of these companies, they seem invulnerable, but they are definitely not. They have incredible resources, but nothing can erase their history as a user and vendor partner that is dishonest, unfaithful, and predatory. They cannot force their users to stay if they have a better place to go. 

Google and Facebook can have their ad revenue snatched away almost instantly by an ad platform that demonstrably performs better. Such a thing is entirely possible, driven by trust -- something nigh impossible for those companies to get. 

Apple and Microsoft have 'rights' to their specific offerings, but they don't entirely control manufacture, and each passing day makes their current offering increasingly vulnerable to better alternatives. 

The majority of Amazon's sales are actually by third party vendors. These sellers would jump ship in a heartbeat if there was even an equal competitor, let alone a better one. Their ongoing mistreatment of people in their ecosystem makes them vulnerable to the right competitor to simply step in and take over. 

I am enjoying the show, but I am also chipping away at designs to take advantage of the opportunities that missteps by these companies are making. 

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