If the only reason to buy a token is because you expect to sell it later at a greater price, then this is known as a pyramid scheme, not investment. This will end the same way as all other schemes that rely on continual capital gains: collapse when people want to withdraw their profits, turning capital gains into capital losses, and thus revealing that there was never any future profit to be had (unless you were lucky to exit early).
Investment differs from speculation in that it offers a yield on capital, not just a capital gain. When a company pays dividends to shareholders, all holders gain. When a company's stock increases in price, the profits of those who gain are taken from those who've lost. Speculation is zero-sum, investment is not.
A yield on capital is fundamentally different from a capital gain, because a yield is a flow of profit paid out right now, as opposed to an alleged gain that will only be realized in the future (at which point the whole thing collapses, because the system depends on continual appreciation). Importantly, a yield on USD is paid in USD, a yield on bitcoins is paid in bitcoins, etc. Paying a yield in a scarce currency is a challenge, while bidding up the price, as measured by some other currency, is relatively simple.
> If the only reason to buy a token is because you expect to sell it later at a greater price, then this is known as a pyramid scheme, not investment.
I don't agree with this. Would you classify Google stock a pyramid scheme? You get zero dividend, zero voting rights, etc. etc. The only utility of owning a Google share is to sell it later when it's worth more. An important difference is that Google generates value to back its increasing stock price, whereas pyramid schemes do not.
You're right, I went to far classifying this as a pyramid scheme. My point was to separate investment from speculation. I believe we can categorically separate the two.
With investment we can have win/win/win situations. For example: an investor purchases a bond with a yield (thus making a profit), the issuer -- a producer of some good -- uses the capital to buy more efficient machinery, thus enabling him to lower costs and sell more product (thus making a profit), and the end result for the consumer of this good/product is a decrease in price (a net profit also).
While speculation does have economic value, the profits made by speculators is zero-sum: those who bet correctly take money away from those who bet wrongly. As such, it's categorically different from investment, as outlined above.
On further thought, though, perhaps this classification of speculation only applies to commodities, and doesn't make sense for stock. After all, instead of paying out dividends, companies can just use this money to buy back stock, thus transferring profits to investors in this manner instead.
You can invest in Gold, which doesn't yield any return. The notion of investment implies a return, whether it is a cash yield or a principal appreciation.
But I would say bitcoins are more similar to fiat currencies than commodities. Commodities have an intrinsic value due to their rarity. You cannot manufacture gold (technically you can but in very small quantities). Which means that if you find a gold coin which ancient romans were buying goods with, you can still buy a suit with it today. You can call that a convention but it is a convention dictated by the laws of physics, not by some white paper.
Fiat currencies instead only have value by convention or law, anyone can manufacture a new fiat currency, like everyone can create a new blockchain. A government can by law change the algorithm behind any of these blockchains. But a government cannot create gold. If someone finds a bitcoin key in 2000 years, long after the western civilisation is gone, it will be an interesting piece of history that can but placed in a museum, but you won't be able to buy a suit with it. With gold you will.
> You can invest in Gold, which doesn't yield any return. The notion of investment implies a return, whether it is a cash yield or a principal appreciation.
By my definition, that's not an investment. Nor would buying a rare painting be an investment, but speculation. By buying gold, or a rare painting, and keeping it locked away in your house, you're not making capital available for productive use. You're just speculating that its price, as measured in dollars, will increase. A transfer of value from the next buyer to yourself happens when you sell it, but no value has been produced.
Regardless of the terminology we choose, can't we agree there's a fundamental difference between buying something with money and holding on to that, versus making that money available for productive use (e.g. a producer buying more efficient machinery)? When you buy a bond you're investing, because the issuer can use your capital to increase its productivity, while paying out a part of the resulting profits as a yield. When you buy a lump of gold and gold on to it, all you're hoping for is that the dollar will be devalued sufficiently to make it appear that you can sell it for a profit (in dollars). No increase in productivity needs to take place for the latter to occur, whereas in the former case bond issuers can't afford to pay interest without creating profits.
I am not sure you can define a line between investing, speculation, lending or gambling. They are essentially the same thing. For each of them you take a calculated risk with your capital in exchange for a future profit.
I think I'd view it that either things will have changed so much that the idea of exchanging physical objects for a bit of shiny metal seems ludicrously crude or that we've had a widespread total collapse and nobody is interested in shiny soft metal either (gold seems to have been used from 5th millenium BC which is a long time but definitely not "forever" in terms of human pre-history).
I agree with you, this is all true in theory, but this definition also excludes non-dividend stocks that offer no governance controls. Like Snap, Google, Facebook, Amazon, etc. In addition, the move to buybacks in lieu of dividends in many companies changes the shareholder dynamics considerably. So does the fact that a ton of money is indexing these days.
The market has fundamentally changed. Graham was right, as proved by Buffett, but even Berkshire can't make Berkshire returns anymore. To make money in investing you have to be right when other people are wrong, otherwise the value is priced in. So speculation does have economic benefit, in that it serves to help find new value and fund boundary-pushing projects. It is VC with more liquidity and lower barriers to entry.
Sure, a lot of speculators will lose their shirt, but who cares? As long as they aren't over levered, the rest of society benefits from the fruits of their risk.
Investment differs from speculation in that it offers a yield on capital, not just a capital gain. When a company pays dividends to shareholders, all holders gain. When a company's stock increases in price, the profits of those who gain are taken from those who've lost. Speculation is zero-sum, investment is not.
A yield on capital is fundamentally different from a capital gain, because a yield is a flow of profit paid out right now, as opposed to an alleged gain that will only be realized in the future (at which point the whole thing collapses, because the system depends on continual appreciation). Importantly, a yield on USD is paid in USD, a yield on bitcoins is paid in bitcoins, etc. Paying a yield in a scarce currency is a challenge, while bidding up the price, as measured by some other currency, is relatively simple.