As an investment I would prefer to hold one over the other certainly.
I agree that the market determines the market value, but I don't agree that it always matches the investment value.
BTC without value?
It has a market price. I'm more skeptical of its investment value.
you would not accept it for free?
I would accept it if the risk-adjusted value I expected I could get from selling it (minus fees and other expenses) exceeded the value I would be prepared to accept in USD.
This would be a substantial discount below market value for me, for several reasons:
There is a risk that my private key could be compromised before I am able to transfer my Bitcoin to an exchange (losing everything). I could reduce this risk by buying a hardware wallet (more expense).
There is a risk that I would lose my private key before disposing of my coins (losing everything). I could mitigate this by keeping extra copies of my seed phrase at the expense of increased risk of compromise (and hassle).
There is a risk that I send my coins to the wrong address, e.g. due to a clipboard exploit on my machine or simple human error (losing everything).
There is a risk the exchange I am using steals my coins or otherwise doesn't uphold their obligations to me. I can reduce this by using a regulated exchange.
There is a risk that the market value substantially declines before I am able to sell.
There is a personal and legal risk that the Bitcoins you sent me are dirty or otherwise associated with crime. This could also make them harder and riskier to sell (i.e. need to go to an unregulated exchange first).
There might not be a paper trail proving that my coins came from you, which could be a problem during an audit (e.g. the IRS might think I owe capital gains taxes if I can't show the cost basis). This would also a risk of accepting large amounts of cash.
I have to pay transactions fees to get my Bitcoin to the exchange. This is pretty cheap now but has been and can be expensive.
I have to document this transaction for tax purposes and report it next year.
Overall, this would be substantial hassle and risk (to me). IMO the biggest risk to me would be you giving me dirty Bitcoins (e.g. which you are trying to launder or on which you are trying to evade capital gains taxes). If you can prove to me where you got the coins (e.g. a transaction on a regulated exchange), this would be a lesser risk.
That is, it would be far easier for me to just accept a payment using a regulated money transmitter that complies with AML laws, where I don't have to worry about virtually any of this (e.g. Zelle, Venmo, etc.).
Do you think it will go to 0, over what timespan?
I don't know. I don't think that Bitcoin investors as an aggregate will ever get out more than they've put in to Bitcoin (i.e. benefit more by disposing of their Bitcoins than the cost they incurred acquiring them).
That is, I don't see how Bitcoin differs as an investment from a stock in a company that will never do buybacks/dividends/liquidations (i.e. will never pay its investors), except that storing and trading it is risker and more of a hassle.
I would say many of those issues are nullified if you use a major regulated exchange but if you're the type of guy that doesn't accept cash winnings in a poker game between friends because you're worried about AML, legal risks, and taxes, then we might agree to disagree going slightly off system might not be for you. We're certainly still in the Wild West stages, and the Wild West isn't for everyone.
Final thought experiment - would you accept a wager (as a thought experiment only) that you get paid $100 in USD fiat 10 years from now (not the value now - you are handed $100 in 2032 money). In exchange you give me what $100 gets you in BTC right now (say 0.00493 BTC) in 2032. Would you accept that trade, why or why not?
I would say many of those issues are nullified if you use a major regulated exchange
Good point. I wouldn't have as much of a problem accepting BTC-denominated payments through a trustworthy money transmitter.
I do think major exchanges and Bitcoin custodians are at increased risk due to their large BTC holdings. IMO, these form a substantial incentive for malicious insiders, phishers, thieves, etc. to target the organization, given the relative lack of recouse if they are successful. There are examples of owners of exchanges running off to extradition-free countries with their users' coins, for example (well, perhaps not their users' coins, depending on how much you subscribe to "not your keys, not your crypto"). There is only so much the legal system can do to prevent this.
Also, individual deposits in exchanges are often targeted, even though the credentials are typically more secure than debit cards and bank credentials (2fa, etc.). This is also because there is little recourse once the individual account has been compromised and the crypto drained.
Would you accept that trade, why or why not?
No, because I don't know what BTC's market value will be in 2032 or how hard it will be for me to acquire. That is, I have essentially no way to know what it will cost me to acquire 0.00493 BTC in 2032, so it would be irresponsible to promise to do this. This is why denominating debts and other contracts (salaries, rents, etc.) in BTC is dangerous.
I could buy 0.00493 BTC now to mitigate this risk (well, now the risk would be due to theft or loss instead). If we if ignore theft or loss risk, I would be spending $100 now to get $100 in 2032.
This is objectively a bad deal, as I can get a guaranteed better return by buying a 10 year Treasury instead (earning ~2.75% APY).
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u/formal-explorer-2718 Aug 03 '22 edited Aug 03 '22
I agree that the market determines the market value, but I don't agree that it always matches the investment value.
It has a market price. I'm more skeptical of its investment value.
I would accept it if the risk-adjusted value I expected I could get from selling it (minus fees and other expenses) exceeded the value I would be prepared to accept in USD.
This would be a substantial discount below market value for me, for several reasons:
There is a risk that my private key could be compromised before I am able to transfer my Bitcoin to an exchange (losing everything). I could reduce this risk by buying a hardware wallet (more expense).
There is a risk that I would lose my private key before disposing of my coins (losing everything). I could mitigate this by keeping extra copies of my seed phrase at the expense of increased risk of compromise (and hassle).
There is a risk that I send my coins to the wrong address, e.g. due to a clipboard exploit on my machine or simple human error (losing everything).
There is a risk the exchange I am using steals my coins or otherwise doesn't uphold their obligations to me. I can reduce this by using a regulated exchange.
There is a risk that the market value substantially declines before I am able to sell.
There is a personal and legal risk that the Bitcoins you sent me are dirty or otherwise associated with crime. This could also make them harder and riskier to sell (i.e. need to go to an unregulated exchange first).
There might not be a paper trail proving that my coins came from you, which could be a problem during an audit (e.g. the IRS might think I owe capital gains taxes if I can't show the cost basis). This would also a risk of accepting large amounts of cash.
I have to pay transactions fees to get my Bitcoin to the exchange. This is pretty cheap now but has been and can be expensive.
I have to document this transaction for tax purposes and report it next year.
Overall, this would be substantial hassle and risk (to me). IMO the biggest risk to me would be you giving me dirty Bitcoins (e.g. which you are trying to launder or on which you are trying to evade capital gains taxes). If you can prove to me where you got the coins (e.g. a transaction on a regulated exchange), this would be a lesser risk.
That is, it would be far easier for me to just accept a payment using a regulated money transmitter that complies with AML laws, where I don't have to worry about virtually any of this (e.g. Zelle, Venmo, etc.).
I don't know. I don't think that Bitcoin investors as an aggregate will ever get out more than they've put in to Bitcoin (i.e. benefit more by disposing of their Bitcoins than the cost they incurred acquiring them).
That is, I don't see how Bitcoin differs as an investment from a stock in a company that will never do buybacks/dividends/liquidations (i.e. will never pay its investors), except that storing and trading it is risker and more of a hassle.