Just remember the password people!

I have some tricks for doing this, which I have scrawled in the inner part of the margin of the manuscript.  Here is Matt Levine on Bitcoin:

I half-joked yesterday that “perhaps the cost of bitcoin storage — keeping your private key in a vault, worrying about hackers, etc. — is so high that arbitrageurs need to charge $1,000 for a month of it,” but maybe it’s the right explanation? Everything I read about bitcoin storage is utterly exhausting. “A private key printed out on a sheet of paper, cut into pieces, and distributed among family members who don’t know how to put it back together; an encrypted file loaded on a USB stick and buried in the backyard; a password committed only to memory;” a private key engraved on a metal plate and stored in a safe; a safe deposit box at a bank; an account at an exchange that gets hacked and loses its customers’ bitcoins. Buying bitcoin futures is a way to get exposure to bitcoin and avoid the bitcoin-storage problem: You never have to store bitcoins because you never own bitcoins; you just get paid dollars for the amount that bitcoin goes up. But the storage problem doesn’t go away; you just offload it to the arbitrageur who provides you the bitcoin exposure. Maybe the arbitrageur needs to charge you $1,000 to cover her storage costs. If you think these markets are efficient, then the gap between the futures and the spot is telling you how much — in out-of-pocket expenses, in theft risk, in psychic pain — it costs to store bitcoin.

Here is more from Matt:

If I told you that there was an asset that is an excellent store of value even in inflationary conditions, how much of your gold portfolio would you reallocate to that asset? One percent? Three percent? Fifty percent? All of it? Sure, whatever, if you believed me. But we are just assuming that bitcoin actually fulfills that function, in order to decide its valuation. Bitcoin has had a pretty good run, but so far it’s a short one; there’s no historical experience of bitcoin retaining its value in periods of global financial crisis or rich-world inflation or even just, you know, people not talking about bitcoin for a minute. So far the evidence that bitcoin is a good store of value consists of the fact that bitcoin’s price keeps going up. That is not bad evidence! But it is not a ton of evidence to build a store-of-value valuation around.

If Matt told me, I would allocate at least two percent.


On another topic , from the Link:

..."Treasury took the administration's growth assumptions about a different tax plan, plugged them unaltered into this tax plan, and found that it pays for itself, without showing any work. As a piece of economic analysis it is not especially compelling, but as an exercise in the art of writing a piece of paper that says what you were assigned to say, I find it rather impressive."

Sweet Home, Alabama !

Sounds like the algorithm that created the hockey stick. Plug in random data, and AGW!

What's the dollar value of all the gold in the world? In vaults? In jewelry that could easily be melted down? In industrial products where the gold couldn't be easily recovered?

What would you compare it to, the total theoretical value of all possible cryptocurrencies which could be mined, if everyone set their mind to it?

I already know someone who holds some of each, the top ten "coins" by market cap.

Solving for equilibrium, the more money that flows into "coins" the larger the market and the broader the diversification. But that seems a limit too, because Bitcoin is diluted by a viable Etherium market, Etherium is diluted by a viable Litecoin market, etc., etc.

Shall I compare Bitcoin to a summer's day?

A Bitcoin doth not a summer make.

To Bit or not to Bit, that is the question. Whether 'tis nobler in the wallet to suffer the slings and arrows of outrageous volatility, or to take a short position against a sea of troubles.

There's obviously a tension that more crypto-currencies give portfolio diversity and a bigger overall market but increase transaction costs by becoming intolerably small/volatile at the margin (to the point of unfeasibility?).

Where is the equilibrium?

You use Alistaircoin and I'll use Bearcoin.

No, probably not. Assuming a soft Bitcoin landing I take the wild guess of 10 to 20 mainstream and another 1000 wannabes.

as part of a pitch recently, I heard that there is $8 trillion gold, of which $2 trillion is used in industry, jewellery and so on, and the rest is a store of value.

+1 Useful. Certainly gold would be nowhere near it's price if it was mostly industrial use.

It's reasonable to include all the other precious metals where a significant part of the market price is store of value; platinum and silver at least.

You can't really have security, and the attempts to ensure it become comical.

And this is my main concern. There was a time when HTTPS was bulletproof secure. Now? Not so much, but the protocol is so ubiquitous that it's functionally impossible to update.

What happens to people's portfolios when this happens to Bitcoin?

Yes, but the attempts to insure it are just getting started.

Perfect security? Probably not, but that is true with everything.

With respect to the Bitcoin family coins, ETH, and ERC20 tokens (tokens created using Ethereum's network) there is pretty damn good security available today that is fairly convenient and accessible in the form of hardware wallets. The current leading example of this is the Ledger Nano. I would argue Ledger Nano's present a better risk/convenience proposition than the security measures used for most retail bank and investment accounts.

"So far the evidence that bitcoin is a good store of value consists of the fact that bitcoin’s price keeps going up."

Actually, that's evidence that people have been very skeptical of bitcoin as a store of value, so much so that they have been willing to purchase and hold bitcoin only at deeply discounted prices. Those past discounted prices are what enabled the subsequent run ups. As Levine explains, bitcoin futures trade at a significant premium to spot demonstrating the high risk of holding bitcoin, *even apart from bitcoin price risk (the risk that bitcoin falls in value)*. At one point the one-month future was trading at about a 7.5% premium. That's 138% annualized. So, investors demand 138% risk premium just to hold bitcoin without any price risk.

This was another very good column. On the one hand there are the risks of managing your own wallet, on the other ..

With the surge of nontechnical punters, the fraction of keys kept online (Coinbase, etc.) must have grown dramatically. That is necessary for mass market usage, but opens the possibility of truly massive thefts.

"In the third decade of the 21st century, the Forbes Rich list was dominated by Carlos Slim (telecoms), Warren Buffet (investing), Bill Gates (Software), and Petyr Ivanski (Bitcoin theft)...."

'I would allocate at least two percent.'

And to think that if you had done this two weeks ago, you would have only needed to allocate around 1% to have the same amount of dollars in bitcoins today.

Buy now, before you are priced out of the market forever. (Though honestly, does anyone think that Prof. Cowen is stupid enough to have allocated anything into bitcoin?).

The reason I was stupid enough not to buy 2000 Bitcoin in 2011 at $1 when I was casually thinking about it was largely the lukewarm opinion on this blog, the only one I read regularly. Sigh.. thirty million dollars...


To be fair to yourself, you would have sold well before now, maybe at 10x your investment, or 100x.

Exactly. My son wanted to buy at $5000. I told him he was nuts. I would have liquidated by the time it hit $2000.

What would have been the price in Papiermarks if the Krauts had invented something like bitcoin in 1923? It seems odd that the value of bitcoins is expressed in USD. What can the value of the USD be expressed as? Barrels of oil, dozens of eggs, live hogs, cigarettes, six-packs of beer?

Barrels of oil is an extremely useful way of looking at the American dollar, particularly considering the number of American dollars spent on ensuring that oil is always available using dollars.

I want to know if anybody has bought a car for 1 Bitcoin--maybe this is happening. Like Tyler says, the valuation seems to be a Mobius strip.

What makes money valuable? The Austrians say its anticipated purchasing power, from which they conclude that only commodities originally valued for their own sake can function sustainably as money. This doesn't seem right, since fiat money seems to function just fine for the foreseeable future, or maybe that's just normalcy bias. I've also read the explanation that fiat money is backed by all the goods and services available for exchange, which strikes me as a way of saying it's backed by the ability of market actors to compel its use as tender. Does Bitcoin have this ability and to what extent? The technology is way over my head, but my dim understanding is the relative scarcity is ironclad and the units are portable and divisible. Is it durable? Where do the bitcoins "exist" and can they be taken out with a well-placed EMP pulse or hack? Or maybe they're too diffuse for this to happen. If I print the code out on a piece of paper can I take my sheaf of papers to Publix and trade them for groceries?

Fundamentally, if all you end up with is a square of Python code derived from an increasingly difficult and eventually insoluble set of equations, then Bitcoin seems to be just a competing fiat currency. And if that's the case, is Bitcoin a bet that the dollar will crash spectacularly--i.e., that the ability of the USG to compel the dollar's acceptance as market tender will be severely curtailed? What are the odds on that bet? Pretty long from what I can see. I guess we'll find out when we find out.

Any way, the number of question marks probably indicates that at my level I have no business buying Bitcoin. So I'll just resume standing by the side of the road here with my cardboard sign: "Will work for food."

Is that opinion mag that was printed on a Mobius strip still around? I stopped subscribing to it because it was too one-sided

I cancelled too, the articles kept going on and on without getting to a conclusion.

You are doing it wrong. Your sign should say: "Will work for Bitcoins."


Here's a good summary of why predictions of Bitcoin's collapse proved to be so wrong (it's a mea culpa by the author): https://www.nytimes.com/2017/12/12/technology/bitcoin-predictions.html The story everyone (?) is missing is inflation. Inflation, what inflation? Yes, the kind of inflation that Larry Summers warned about in his Okun lecture given in 2008 as the financial crisis was unfolding. But there was no inflation in 2008, or today for that matter. So says Paul Krugman: https://www.nytimes.com/2017/12/12/opinion/what-happens-if-the-tax-bill-is-a-revenue-disaster.html Krugman's point is that if the tax bill passes, it won't add to "inflation", inducing the Fed to raise interest rates and cut off the economic recovery, because most of the benefits of the tax cuts go to the wealthy and they don't spend much on things that cause "inflation". Economists are so yesterday, back when "inflation" meant something altogether different than today (or 2008). We are so conditioned to see wage increases as the culprit for causing "inflation" that we miss the inflation all around us caused by too much capital (savings) chasing too few productive investments. Thus, Bitcoin.

What is amusing to consider is that bitcoin is not really a medium of exchange (at least in the sense that all previous mediums of exchange were based on something other than an abstract construct with no physical existence at all) nor a currency.

Which would seem to create the perfect opportunity for a situation where if you don't buy now, you will be priced out of owning nothing but a shared belief, forever.

Time to allocate more than 2% on profiting from faith alone, right?

So bitcoin transaction costs are definitely not zero!

definitely not zero: https://arstechnica.com/tech-policy/2017/12/bitcoin-fees-are-skyrocketing/

Nice link.

A few weeks ago I had about 0.5% of my net worth in crypto. Today it's closer to 2.5%. Do I rebalance or ride the wave?

You never go broke taking profits.

Yep. Perhaps take out your initial investment, or better yet 2x that, and ride the rest.

We would need a detailed analysis of your portfolio, risk tolerances, money utility, income, expected long-term earning power, education, expected inheritance, and whether or not you understand advanced nonlinear optimization techniques before we can help.

If you had no crypto and were making an initial investment today, would you allocate 0.5% or 2.5%? Aside from transaction costs, your answer to this question and your original question should be the same.

Go all the way up to 100%. Or 200%. Whatever. Crypto is the future. Nothing matters. Past results do predict future returns. YOLO.

You sound bitter you didn't buy in. That's OK, I sure am.

It is commentary, on stories like


@Anon. consider that the exchange of crypto to USD is quite complicate. There are daily/weekly limits. For short, liquidity is very very low.

1. In september of this year, Chinese government starts cracking down on Bitcoin
2. Since September, "investors" in Japan, South Korea and Vietnam have been driving the car


3. We know a good chunk of bitcoin --40% -- is basically illiquid and not being traded.

4. Most of the miners are in China.

5. What we are seeing is a giant pump and dump to get money out of China, in particular before end of year.

> What we are seeing is a giant pump and dump to get money out of China, in particular before end of year.

What does this mean? Pump and dump schemes are very different from an asset being used to move wealth from one place to another.

Even if you developed the perfect method of securing your private key... how exactly do you go about selling your bitcoin? At somepoint you will need to put out coin onto an exchange, and unless you are willing to babysit the entire process to enter your private key yourself to complete the exchange, you will need to hand over your private key to the exchange to automate the transaction, thus the weakness is going to be the exchange.

In a Mad Max world, bitcoin goes to zero.

What about Idiocracy?

True. Bitcoin is not _quite_ as good a store of apocalyptic value as gold. Max could presumably still barter with Krugerands. But it should be good for most things short of Mad Max where civilisation in some form keeps rolling.

The appropriate price of storage is a very interesting question, as for most users the same level of security you have from a bank deposit or having shares in Fidelity is just unattainable for a sensible amount of money.

It's already quite the troublesome situation for companies, as a good attack on a wallet infrastructure is company-ending: Imagine the equivalent in the non crypto world of someone laying claim to 50% of Vanguard's SP500 fund without having to actually sell the shares, with no recovery mechanism. What would stock exchanges do? We have techniques to lower risk, but it's going to be interesting to see what keeps happening when breaking a vault storage scheme can lead to a billion in profit.

Our best practices for individuals regarding passwords outside of crypto (Different passwords for everything,all stored in a digital vault, which is both local and on the cloud, and which is protected by a password you have memorized and that you keep in a physical bank vault) are sufficient for passwords that have alternate recovery mechanisms, like showing up at your local bank, or sending a company a picture of your driver's license. When any takeover or password loss is final.

What we get, in practice, is people choosing higher risks of loss, whether knowingly or unknowingly, if just because bank-like safety is just too cumbersome to have, if just because there's no FDIC to make people whole. At the very least, a large majority of individuals with bitcoin positions can't answer the simple question of how will their inheritors access the deceased's wallet.

This is how bubbles develop. The smart, rational people say it's overvalued. Then they look like idiots when it keeps going up. Which leads more people to invest, and so on.

Bitcoin is more akin to baseball cards than gold. Gold is special. Its value in a premodern world was obvious to all civilizations. Where wood rots and iron and copper rusts, gold was as permanent as stone but more malleable than iron or copper. The Spanish had no contact with the civilizations of preconquest America, yet found they had so conveniently gathered the gold into central locations. Gold is no longer as special in our technologically advanced world, but still has the force of history behind it. It is obvious it will hold at least a large fraction of its present value. So why allocate even 2 percent to something which could conceivably lose 99% of its value? You do so if you think it will go up. People can't think this forever. When they don't, they will move that wealth into something else.

I searched "bitcoin" on the local Craigslist and found a lot of wonderful strangeness. And entrepreneurship.


I searched "bitcoin" on the local Craigslist and found a lot of wonderful strangeness. And entrepreneurship.


Don't know how that double posted, sorry.

Bitcoin is just catching the overflow of the stockmarkets in a reach for yield. It's a Risk-On trade. When people want to hold safe assets again, they will put their wealth back into the USD and gold.

There's yield in bitcoin?

No, not literally. Bad word choice.

It's a reach for returns.

Then why did it go parabolic a few months ago? Markets have been Risk On for years. Not saying you're wrong but that it's far more than what you are mentioning.

It went parabolic a long time ago. As much as people are impressed with the move from 2000 to 15000, it was the move from 0.50 to 1000 that really was crazy.

Both are true, yes. But something happened a few months ago there's no doubt.

Someone pointed at this tiny detail today on one Bitcoins exchange:

"*Canada and Australia are currently supported for buys only. We are working to add the ability to sell digital currency for these countries as soon as possible." https://support.coinbase.com/customer/en/portal/articles/1392031-what-countries-are-buys-and-sells-available-in-

The market is a bit distorted. It's damned easy to buy while cashing out is complicate if not impossible.

On the arb of longing coins and shorting their futures:
1. Markets have corrected a lot of this arb already.
2. If you already held bitcoins for a while, this arb would leave you with asymmetric tax consequences and so it is an imperfect hedge.
2. Access is more limited than you'd think. It takes days to wire money to gdax. Further, interactive brokers isn't allowing its customers to short bitcoin futures.

I think one could get a sense of how the market prices this risk by comparing the pricing of bitcoin storage/options by bitcoin only operations (who, if hacked would presumably just declare bankruptcy having lost all their assets) and more diversified companies.

I heard on Bloomberg Radio that Mt. Gox, the Japanese coin trading site that was hacked and declared bankruptcy, actually still had some bitcoin that is now worth so much that they are being petitioned by creditors to come out of bankruptcy. The liabilities (coins stolen) are now dwarfed by their assets (coins remaining at today's price).

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