Here’s what I’ve read recently that’s worth linking and commenting on.
1. Is bitcoin a scam, a bubble, or a (nascent) platform? I’d answer yes, partial yes, and a maybe. Let’s go one at a time.
First up: scam. Kevin Drum argues Bitcoin Is a Long Con Aimed at Those Least Able to Afford It. Quote: “As near as I can tell, the Bitcoin market is split between cutthroat Chinese miners running huge racks of servers, and hopeful but clueless marks who would be better off putting their money into lottery tickets. So this is the test: Are you a cutthroat Chinese miner running huge racks of servers? No? Then you’re one of the clueless marks. Sorry.” The data here is clear enough, with a study finding 80% of ICO offerings in 2017 were scams. One of the most famous being Centra, where music producer DJ Khaled and boxer Floyd Mayweather Jr had to pay fines to the SEC. I disagree with Kevin Drum that bitcoin is only a scams. But the answer is yes, there are plenty of bitcoin/ICO scams.
Second up: bubble. Below are two charts which I created using blockchain.com. The first gives bitcoin value with a linear scale. The second uses log scale, which makes it easier to spot bubbles.
2. Bitcoin market price in USD, log scale
Looking at the data, Noah Smith argues Yep, Bitcoin Was a Bubble:
Formally, an asset bubble is just a rapid rise and abrupt crash in prices. Defenders of the efficient-market theory argue that these price movements are based on changes in investor’s beliefs about an asset’s true value. But it’s hard to identify a reason why any rational investor would have so abruptly revised her assessment of the long-term earnings power of companies in 1929, or the long-term viability of dot-com startups in 2000, or the long-term value of housing in 2007.
Scott Sumner disagrees with Smith, arguing Bitcoin is not a bubble:
His [Smith’s] main piece of evidence is that the price rose sharply and then fell sharply. But that sort of price pattern also occurs in 100% efficient markets that are highly volatile because the fundamental value of the asset is hard to ascertain. And if there ever was an asset with a value that is difficult to ascertain, it’s Bitcoin. I have no clue as to what Bitcoin should be worth, and I doubt anyone else does either.
Bubble theories are only true if they are useful, and they are not useful. The people who said it was a bubble at $30 were implicitly giving you advice not to buy. Ditto for those who said it was a bubble at $300. This advice was exceedingly non-useful; in fact if you followed the advice of bubble proponents you missed out on the opportunity to earn a massive profit investing in Bitcoin. That’s why I don’t follow the advice of bubble theorists; it’s not useful. BTW, I don’t own Bitcoin for unrelated reason; I prefer index stock (or bond) funds.
I happen to believe Smith and Sumner are both correct, with their disagreement being (mostly) semantic. Let me explain. Sumner argues declaring bubble offers no predictive value. You can’t make money from it. Bitcoin bubble has been declared again and again. Are the bubble declarer’s now rich? Nope. He hates the term bubble. Price volatility by itself doesn’t prove bubble. Some assets are just hard to price. I believe Smith would concede the point about predictive value.
Smith’s additional point is bitcoin prices were driven by irrational emotion and momentum. And here I think Sumner would concede (though he’d argue all prices work more or less that way).
So in the end whether to declare bubble is semantic. It’s a no from a “true value” point of view, since true value pricing of bitcoin is impossible for the present. But a yes from what’s driving the emotion and volatility (and yes scams). I’d lean toward a yes.
Third: bitcoin as nascent platform. Chris Dixon has been one the most articulate advocates of blockchain as platform. I’d paraphrase him as saying early in a platform lifecycle, things decentralize. Think early PC era against IBM. But later things get recentralized, for example the late Microsoft PC era. Then came the early internet decentralization. Followed by the Google/Amazon/Facebook/Apple recentralization. So what’s next for decentralizing? Dixon believes it’s blockchain. See his post here, or this recent interview.
Unfortunately a historical analogy isn’t proof. In particular one problem jumps out. Is this new platform ready to go right now? Or is it too early (the bane of all tech investors)? To see what I mean, compare this list of too early versus timed correctly: Apple newton v iPhone, Segway v electric scooters, Webvan v FreshDirect, Flooz v well…bitcoin, google glass v whenever AR glasses finally take off. You get the idea. Crypto currencies may become the next decentralizing platform, but it’s far less clear that’s happening now. For example: Out of 43 Blockchain Startups, Zero Have Delivered Products. It’s possible we’ll need another tech generation before things are ready.
To sum up. There are plenty of bitcoin scams, but don’t go overboard and say it’s a scam for VCs to make crypto investments. Bitcoin is bubbly, but be careful how you argue. As for blockchain as a decentralizing platform, timing is everything. Which means….maybe.
2. Waymo’s driverless cars not so ready to go. Announced as ready to roll out in December, the roll out happened, and….pretty quiet. From Timothy B. Lee: “It now looks to me like Waymo is nowhere close to ready for fully driverless operation in its initial <100 square mile service area, to say nothing of the rest of the Phoenix metro or other cities.” Also: “This means I have no idea how long it will take for Waymo (or anyone else) to reach full autonomy. It could take six months or it could take six years. Maybe Waymo will be forced to throw out big chunks of what they’ve built so far and start over.” Waymo (sister company to Google) is perceived as farther ahead than anyone else. So if they’re not ready, unlikely anyone else is either.
3. Ben Thompson on the state of tech at end of 2018. It’s a good post. Here’s the key paragraph:
This, then, is the state of technology in 2018: the enterprise market is thriving, and the consumer market is stagnant, dominated by the “innovations” that a few large behemoths deign to develop for consumers (probably by ripping off a smaller company). Meanwhile a backlash is brewing on both sides of the political spectrum, but with no immediately viable outlet through competition or antitrust action, the politics surrounding technology simply becomes ever more rancid.
4. Lyft continues gaining on Uber. Uber had 92% US market share in Feb 2015, 75% in Oct 2017, 69% in Oct 2018. Lyft went from 7% Feb 2015, to 25% in Oct 2017, to 28% in Oct 2018. Nice chart in the article. Both companies are going public in first quarter of 2019. More here.
5. Visualizing population density as 3D. An excellent data visualization. Population density as elevation, making big cities very spikey. If you click through, don’t miss zooming out from cities (starting with Paris) by scrolling right. Enjoyed this quite a bit. Recommended.
And that’s all for today. Thank you for reading.
Praxtime by Nathan Taylor 