This whole article is simplistic and inaccurate. They're making a straight-across comparison between two ETFs, one of which has high management fees and another of which has low management fees. The former happens to be a Bitcoin fund and the latter happens to be a gold fund.
Management fees vary widely across funds. They have everything to do with how money-grubbing the funds in question are and little to do with how expensive the assets actually are to secure. For example, you can pay >2% management fees on a really predatory S&P 500 index fund, the kind that John Hancock would sell you. Or you can pay .02% management fees on a top-level Vanguard fund tracking the same.
The only reason that the management fees on the Bitcoin funds is because they can be high since there's little competition so far, unlike with, say, S&P 500 index funds. It's not intrinsically expensive to store Bitcoin; far from it. It's far cheaper to store than gold, for all the obvious reasons that you don't have physical goods to secure.
"If gold can be stored in Fort Knox-like bunkers for just 0.08% per year, there is little reason it should cost 15 times more for bitcoin to be stored in similarly safe solutions. For now, though, it’s easy money for the custodians"
A better article title then would not have been "Bitcoin is more expensive to keep safe than gold" (which is untrue). It would have been something like "High management fees in Bitcoin funds caused by lack of competition in newly emerging marketplace".
The former is more to the point and accurate enough. I think all of us in tech knew what the article was going to be about before we read it.
The problem is real though. We must reckon with the possibility that all these anarcho-capitalist dreams will go to hell once the necessary minimum overhead of handling crypto turns it into an _even more centralized_ medium of exchange.
No, all of us in tech certainly did not deduce the correct meaning from the inaccurate article title and contents. If that were true my comment explaining the inaccuracy of the title would not be voted to #1.
Second of all, there are many many cryptocurrencies at this point and they are all thriving/competing with one another across various measures. Since fiat is incapable of competing with anything except on relative value, fiat is doomed to fail.
Fiat currency is competing very well in a category I really care about: “things which have existed for more than 15 years and which I can expect to still be around 15 years from now”.
Sure, fiat currencies can hyperinflate with less than 15 years’ notice, but 15 years from now I expect most fiat currencies will be similarly valued and most cryptocurrencies to be as gone and forgotten as a geocities homepage.
You think bitcoin will be gone in 15 years? It's already been around for ~10 years and it's just starting to reach mass awareness. If it survived ~10 years in relative obscurity, please explain how it's going to be be gone in 15 years now that it's well known?
Yes, it has reached mass awareness and now maintaining the network consumes more electricity than Ireland (https://powercompare.co.uk/bitcoin/). If the current rate continues it'll consume all the world's energy by 2020.
I don't know if it will be gone but something's got to give at this rate.
It’s failing to serve its primary use case as a currency. It’s now a speculative investment vehicle with exorbitant transaction fees. I struggle to see how that’s going to last.
Good point. I don't have a strong refutation of it. The main advantage of bitcoin over gold is that you can transfer it anywhere in the world to a potential anonymous recipient, which is why its main success stories so far have been in shady businesses. The current main advantage(s) of gold over bitcoin is it's still a lot easier for the average person worldwide to acquire and sell it, cultural tradition, there's been a few recessions where gold has at least held firm so it's trusted as a store of value.
So if bitcoin's competition is Gold (and not your local currency) it would need to get a lot easier for laymen to acquire and sell (I'm not just talking bay area engs, I mean like the Venezuelan farmers, which is why bitcoin enthusiasts trump up any and all reports of the like). The segwit x2 fork was at least an attempt at that, and coinbase has done good work reducing frictions. The 2nd and 3rd will take years but could happen.
I just feel like at this point all of bitcoins gains in the past year have been driven by wild speculators looking to make a quick buck, which tells me that when the recession hits they will dump their holding and btc will tank. This will make people less confident in btc as a store of value, and will consider it instead to be a wildly risky investment vehicle, which it is. At that point, it will default to its only proven use case thus far: anonymous worldwide financial transactions.
disclaimer: I have a smallish % of my portfolio in both gold and btc.
> The current main advantage(s) of gold over bitcoin is it's still a lot easier for the average person worldwide to acquire and sell it
I don't think this is true at all? All I have to do to acquire Bitcoin is sign up for an account at an exchange, link my bank account, and then hit the buy button. It's exactly as easy to acquire as stocks.
Contrast with physical gold, which I wouldn't know where to acquire.
In the third world, quite a lot of people don’t have a bank account, or at least not a conventional one as we would understand them. A common alternative is M-Pesa, which is phone based, and I don’t mean smartphone: https://en.m.wikipedia.org/wiki/M-Pesa
I'm not suggesting it will last forever, I'm just saying it has already survived far longer than most people realize and therefore it's more resilient than people probably realize.
That said, I think saying that bitcoin will be gone in 15 years is a bit like those people who thought the internet was just a fad. People who "get it" understand its usefulness and as long as there are enough of those people then it will remain.
Being “well known” solves precisely zero of the things which causes software projects to fail.
Being seen as a “low-risk-high-return investment” attracts developers, but only until it stops delivering that promise.
That said, my claim is that most will fail, not that all will fail. You may think that’s weasel words, but I will not accept a currency that even has a 10% chance of failing in 15 years (and if you think that’s harsh, imagine being a bank and taking a 10% risk of default on a relatively short 15 year mortgage), and judging by both http://deadcoins.com (looks like 600 entries, I stopped counting at 200) and the Wikipedia claim that there are over 1172 currencies, that risk is much, much higher than 10%.
I see your list of cryptocoin failures and raise you a list of fiatcoin failures (granted, the latter list, which is much longer, was accumulated over a much larger timescale...)
I’d describe Bitcoin as the AltaVista of cryptocurrencies: an early lead, people will remember it, but not fundamentally all that great and liable to be replaced as soon as someone invents a good (and trusted) alternative.
It might survive… but there’s no way I’d risk money I couldn’t afford to lose the way I would with any G20 economy’s fiat currency.
OK, so it's a comparison between two ETFs and then also some overpriced service from Coinbase that has similar characteristics to a mutual fund. The point still stands that there is as of yet very little competition in this space. Expect costs to come way down still.
The competition is simply buying bitcoin, which isn't possible to do for the S&P 500 without investing a few million and constantly incurring fees to adjust to its shifting composition.
The safe store is the only reason to buy this bitcoin ETF. Contrary to common myths, no investors, institutional or not, are constrained by regulations not to buy bitcoin directly.
Management fees vary widely across funds. They have everything to do with how money-grubbing the funds in question are and little to do with how expensive the assets actually are to secure. For example, you can pay >2% management fees on a really predatory S&P 500 index fund, the kind that John Hancock would sell you. Or you can pay .02% management fees on a top-level Vanguard fund tracking the same.
The only reason that the management fees on the Bitcoin funds is because they can be high since there's little competition so far, unlike with, say, S&P 500 index funds. It's not intrinsically expensive to store Bitcoin; far from it. It's far cheaper to store than gold, for all the obvious reasons that you don't have physical goods to secure.