# Crypto Yields Explained for Bitcoin and StableCoins(10-12 yields)



## Fain (Oct 11, 2009)

Crypto Shadow Banking Explained and Why 12% Yields Are Common - BNN Bloomberg







www.bnnbloomberg.ca





Pretty good article explaining why the Yields in Crypto are pretty big right now. 

Currently, you can get 10.5% yields on CAD Stable Coins and 10-12% on USD Stablecoins which put bank/credit union GICs to shame.


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## doctrine (Sep 30, 2011)

There is no free lunch. Recall high yields on "guaranteed" Iceland banks 15 years ago. Why not get 6-8% risk free? Until you never see your money again. In this case, you may not even know what the risk actually is.


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## Fain (Oct 11, 2009)

doctrine said:


> There is no free lunch. Recall high yields on "guaranteed" Iceland banks 15 years ago. Why not get 6-8% risk free? Until you never see your money again. In this case, you may not even know what the risk actually is.


Depositing funds is where you gotta research the counterparty. 

Better to pick a counterparty that has massive amounts of equity, regulated as a custodian and has insurance coverage. Sure you might not get the higher 12% rate with one of the riskier ones but 8-10% is still better than GIC rates.


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## MrMatt (Dec 21, 2011)

Fain said:


> Depositing funds is where you gotta research the counterparty.
> 
> Better to pick a counterparty that has massive amounts of equity, regulated as a custodian and has insurance coverage. Sure you might not get the higher 12% rate with one of the riskier ones but 8-10% is still better than GIC rates.


If they're paying 8-10%, they're not low risk.


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## Jimmy (May 19, 2017)

Fain said:


> Crypto Shadow Banking Explained and Why 12% Yields Are Common - BNN Bloomberg
> 
> 
> 
> ...


Good article . Interesting. Will do some due diligence into this w Ledn which seems to be the only Cdn savings account provider but wish they had a TFSA savings account.
Still if you are in a low tax bracket this is still far superior to anything else bonds, Preferreds, GICs etc even in a TFSA.

A risk is there is no CDIC or insurance like a regular bank.


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## james4beach (Nov 15, 2012)

> A swathe of shadow banks in the $1.6 trillion cryptocurrency market have figured out how to generate returns of 12% with minimal risk: Lend U.S. dollars to hedge funds so they can buy Bitcoin.


These are just a modern form of the HYIP forex scams from 10 or 15 years ago. In my anti-fraud work, I used to research these and helped track down some of the scam artists.

Back then, gamblers (the hedge funds) were doing foreign exchange speculation on currencies. They couldn't get funding from banks, so they collected the money from small investors and called it a high yield program (HYIP) giving juicy yields. Some of the HYIP schemes were outright scams. Others were funding leveraged forex, which was insanely dangerous. It worked out for some investors, but others lost all their money because obviously, as soon as the trade goes against a hedge fund, they blow up.

Today, just replace 'foreign currencies' with Bitcoin, and it's the same scheme.

The author is completely wrong when they write "with minimal risk". There is obviously enormous risk here. Think about what the hedge funds are doing. They are doing leveraged speculation on bitcoin; gambling. If they could borrow the money (get margin loans) from a bank or brokerage, they obviously would. But no sane bank would lend them this money; it's far too dangerous. So instead, they have constructed an unregulated, new kind of funding arrangement to raise the money themselves.

This journalist writes: "In this case, they’re lending to hedge funds that need cash to buy Bitcoin for a trade that is almost guaranteed to pay out at annualized returns that have recently hit 20% to 40%."

Is this guy nuts or something? Or maybe he's a scam artist himself. I can't believe Bloomberg would allow this to be posted. I'm contacting their editors as soon as I write this post; they shouldn't publish this stuff.

If 12% yield to lend money to hedge funds gambling on BTC was remotely a good idea, then banks and other institutions would fund the activity.

They don't do it because it's a stupid idea.


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## m3s (Apr 3, 2010)

I recently listened to the SEC commissioner discussing DeFi on podcast and many of the young developers working on it

The intermediaries who normally keep all the profit are replaced by automated market makers. Think self driving cars disruptive

Wait for the aha moment


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## Jimmy (May 19, 2017)

Banks aren't in this space - yet- only because they aren't holders of bitcoin and that could change soon. US banks are starting to adopt digital payments more and more. Digital payment and other companies are accepting bitcoin as payment now too. Think Paypal and Square.

You hold either bitcoin or stablecoins tied to USD in your account. These firms lend to the hedge funds. If the hedge funds make bad bets and lose $ that is their problem. If they fail to repay the lender, he takes some loan losses and that is his problem.

Without all the hysterics, your risk is about as much as the risk of default on a corporate bond. Just do your due diligence and research the lending company first and if you think they are going to go broke, then don't start a savings account w them .


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## Fain (Oct 11, 2009)

james4beach said:


> These are just a modern form of the HYIP forex scams from 10 or 15 years ago. In my anti-fraud work, I used to research these and helped track down some of the scam artists.
> 
> Back then, gamblers (the hedge funds) were doing foreign exchange speculation on currencies. They couldn't get funding from banks, so they collected the money from small investors and called it a high yield program (HYIP) giving juicy yields. Some of the HYIP schemes were outright scams. Others were funding leveraged forex, which was insanely dangerous. It worked out for some investors, but others lost all their money because obviously, as soon as the trade goes against a hedge fund, they blow up.
> 
> ...


I don't know what's hard to understand. You give 2 paragraphs about a forex scam that's completely unrelated and not relevant At all. The article is referring CME futures prices and Spot bitcoin prices. Are you away of the differences between spot and futures?

Counterparties in some cases are New York State Regulated Custodians and the CME(Chicago Merchantile Exchange). Many of them in excess of a billion dollars in equity and insurance fund for depositors. Are these the scammers your referring to?


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## Fain (Oct 11, 2009)

Jimmy said:


> Good article . Interesting. Will do some due diligence into this w Ledn which seems to be the only Cdn savings account provider but wish they had a TFSA savings account.
> Still if you are in a low tax bracket this is still far superior to anything else bonds, Preferreds, GICs etc even in a TFSA.
> 
> A risk is there is no CDIC or insurance like a regular bank.


LEDN, who I don't use but know some of the people behind that company. they just sent me this email. Rates are going down.

"

You may be wondering why we are introducing a lower interest tier for higher Bitcoin balances - and we wanted to provide some context around the decision.

At Ledn our priority is, and will always be, to ensure that our business operates sustainably, for the long-term benefit of our clients, investors, and team. We have operated this way since day one. We also communicate our decisions transparently to our clients.

The recent changes in the bitcoin lending market have led to a significant reduction in rates that high quality institutional bitcoin borrowers are able to pay across the market. There are two main drivers of this dynamic: 1. the abundant and growing supply of bitcoin in search of earning interest, and 2. the increased participation of sophisticated investors in the arbitrage of price-neutral trades in the bitcoin markets, making these opportunities much more competitive (and therefore less profitable). 

​

This translates to Ledn earning a lower interest rate from its bitcoin loans to institutions, and therefore having to adjust the economics that flow through to our Savings clients. 

Since the market can no longer support paying 6% Savings rate for all of our clients, we came to a decision to structure the tier in such a way that it would represent an improvement to the vast majority of our clients who need to save the most (many of whom are in developing economies), while still offering the top rate in the market for our clients with higher balances above 2 BTC.


*We will always look to pass on as much economics as we can to our clients, while ensuring that the rates are sustainable*​
"


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## Fain (Oct 11, 2009)

Jimmy said:


> Banks aren't in this space - yet- only because they aren't holders of bitcoin and that could change soon. US banks are starting to adopt digital payments more and more. Digital payment and other companies are accepting bitcoin as payment now too. Think Paypal and Square.
> 
> You hold either bitcoin or stablecoins tied to USD in your account. These firms lend to the hedge funds. If the hedge funds make bad bets and lose $ that is their problem. If they fail to repay the lender, he takes some loan losses and that is his problem.
> 
> Without all the hysterics, your risk is about as much as the risk of default on a corporate bond. Just do your due diligence and research the lending company first and if you think they are going to go broke, then don't start a savings account w them .


Very astute. and when banks enter the space, alot of the arbitrage goes away and rates will continue to decline as they are now. It will be fun while it lasted.


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## james4beach (Nov 15, 2012)

Fain said:


> Very astute. and when banks enter the space, alot of the arbitrage goes away and rates will continue to decline as they are now. It will be fun while it lasted.


The banks don't do it, because there are hidden risks. The article is misleading and quite dangerous; there's no way that this trade is risk-free, as conveyed in the article.

I've contacted the Bloomberg editors and the author with my feedback. They should not be publishing material like this.


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## m3s (Apr 3, 2010)

Several well known US banks recently published detailed and positive reports on crypto

I liked the conclusion with this quote from Citi financial



> All truth passes through three stages: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident.


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## Bananatron (Jan 18, 2021)

I love crypto. Put money in, get more money out. Beeeeetcoooooooneeeeeeeecccct!

How can you not like that?

Sarcasm aside these valuations don't make sense to me. As far as I understand it so far the only real world use for any coin to date is a digital proxy for a cash transaction. Which there totally is a demand for. But do we need 4700 coins that do the same thing?

Why do my feelings matter on it? Well, for me to invest in something I need the conviction in my investment in order to hold through the lows. If I was a holder I'd get shaken out at the first dump because to me this is a giant house of cards. Not saying my opinions or feelings are right, but that's how I feel. 

"And for those reasons, I'm out"


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## Fain (Oct 11, 2009)

james4beach said:


> The banks don't do it, because there are hidden risks. The article is misleading and quite dangerous; there's no way that this trade is risk-free, as conveyed in the article.
> 
> I've contacted the Bloomberg editors and the author with my feedback. They should not be publishing material like this.


Again, like in the other threads. you don't understand market structure and demand for crypto on the institutional level. . . Talk to execs in the crypto space and they will take you where the demand is coming from and why it makes sense. 

When you pull up Bitcoin futures prices and compare to spot. Do you see the difference in prices?


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## Fain (Oct 11, 2009)

Bananatron said:


> Why do my feelings matter on it? Well, for me to invest in something I need the conviction in my investment in order to hold through the lows. If I was a holder I'd get shaken out at the first dump because to me this is a giant house of cards. Not saying my opinions or feelings are right, but that's how I feel.
> 
> "And for those reasons, I'm out"


True. Invest only in what you understand. it is sound advice.


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## Fain (Oct 11, 2009)

james4beach said:


> I've contacted the Bloomberg editors and the author with my feedback. They should not be publishing material like this.


If you have extra free time. You can contact the editors and authors of Business Insider, Yahoo Finance, and JP Morgan. 

The Bitcoin Futures Contago trade Exists despite your disbelief. and the publically available prices are on Chicago Merchantile Exchange website if you somehow don't have access to them. 









Bitcoin is a headache to store, and that's created an investment opportunity that could theoretically pay determined traders big risk-free returns by December


Enterprising traders can lock in risk-free returns anywhere from 3% to 11% via an arbitrage strategy that exploits the discrepancy in Bitcoin prices.




www.businessinsider.com







https://ca.finance.yahoo.com/news/traders-opting-cash-carry-strategy-193111870.html











JPMorgan Eyeing Bitcoin’s Contango, Releases Bullish Report


JPMorgan has released a report on the futures and derivatives market around bitcoin, providing insight and bullish sentiment.




bitcoinmagazine.com


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## james4beach (Nov 15, 2012)

All the warning signs are there; I'm just pointing them out.

These are pretty classic warning signs. Returns that are too good to be true. Extremely complex descriptions, convoluted schemes that nobody can follow. *Unregulated*. No explanation for why institutions are not willing to fund this or profit from it themselves.

On top of it, constant marketing pitches (which sound shady) from people who are not required to disclose their conflicts of interest, or personal involvement -- because it's unregulated.

Additionally, complete lack of transparency, no idea of who is involved (including large holders or principal firms), companies and people in foreign countries, etc.


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## Fain (Oct 11, 2009)

james4beach said:


> All the warning signs are there; I'm just pointing them out.
> 
> These are pretty classic warning signs. Returns that are too good to be true. Extremely complex descriptions, convoluted schemes that nobody can follow. *Unregulated*. No explanation for why institutions are not willing to fund this or profit from it themselves.
> 
> ...


We're talking about a simple futures contango trade. There's nothing complex and not a convoluted scheme as it's been done for decades. 

if Spot Oil is $50 and futures are $100. they are long the spot oil and short the oil futures till expiration.

I really hope the author of the article/editors can help sort your understanding but I honestly don't think they'd waste their time responding to your questions.


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## hfp75 (Mar 15, 2018)

What a crazy world....

In the last 2 years our world has left me with my mouth hanging open. You just cant dream all this stuff up.


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## MrMatt (Dec 21, 2011)

Bananatron said:


> I love crypto. Put money in, get more money out. Beeeeetcoooooooneeeeeeeecccct!
> 
> How can you not like that?
> 
> ...


We don't need 4700 coins that do the same thing.

Using them as money transfer will work only as long as the shared agreement in their value lasts.

I think the other coins are interesting. I think NFTs are interesting, though I don't like them.
I'm eagerly waiting for someone to sue the holder of an NFT for copyright infringement.


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## sags (May 15, 2010)

Check out sports card prices, and prices of almost everything deemed "vintage".

Of course it is all a giant alternative asset bubble caused by people who believe if they buy something now it will be worth a lot more in the future.

I wish there was a buyer who would pay me the "book value" of my thousands of collectibles. I could buy a new house.

Check out the "black diamond" (1984-1994) Disney VHS tapes for movies like Beauty and the Beast. It is hilarious......$33,000.

Or the prices for Wade Whimsies, Viewmaster reels, or vintage baseball cards.

I looked up the "value" of some of my stuff. It is a lot easier now than the days of printed "price guides".

What a joke. My theory is people are desperate for money and all this bubble gives them hope of becoming rich.

I classify the crypto bubble as the same thing.


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## sags (May 15, 2010)

The SEC commissioner and the Fed Chairman should talk to each other about bitcoins and crypto.

Fed Chairman Jerome Powell said it was nothing but a speculative bubble.

CNBC hypes crypto all day long, and it isn't surprising why they do that. Crypto companies are among their advertisers.


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## sags (May 15, 2010)

I would also caution against ignoring the advice of poster James4Beach.

He is a long time member and in my opinion one of the top financial authorities on CMF as well as an expert in computer security.

From what I can judge from his postings over the years, he is also highly intelligent and mature well beyond his years.

People might want to pay attention to what he says.


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## Fain (Oct 11, 2009)

sags said:


> I would also caution against ignoring the advice of poster James4Beach.
> 
> He is a long time member and in my opinion one of the top financial authorities on CMF as well as an expert in computer security.
> 
> ...


The leg-work is simple to see if the Trade is real. We're talking price on the Chicago Merchantile Exchange & Spot Bitcoin Prices for a Cash and Carry Bitcoin Trade. 

It would be 1 thing to articulate a full opinion. Quite another to baselessly call things a scam. 

I've even shown where the reference prices(CME) are which shouldn't even be needed for someone in markets.

Traders Opting for Cash and Carry Strategy as Bitcoin's 'Contango' Widens - CoinDesk


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## doctrine (Sep 30, 2011)

Why take 40% guaranteed zero risk GIC equivalent over 4-6 months when you can get 66% in 24 hours with the doge?


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## james4beach (Nov 15, 2012)

Fain said:


> The leg-work is simple to see if the Trade is real. We're talking price on the Chicago Merchantile Exchange & Spot Bitcoin Prices for a Cash and Carry Bitcoin Trade.


Sounds like it's time for you to open an Interactive Brokers account and make these futures trades yourself. You're smart, right? You understand the mechanisms. Well use those smarts, leverage up, and trade it yourself. Just think of the luxury cars and wads of cash waiting for you.

Interactive Brokers will give you access to futures. You can also borrow on margin and achieve a highly leveraged trade.

My warning (again) is that there are hidden risks you may not understand, and that the mechanics of futures markets are quite complex. That's my warning, but you already pointed out that I don't have a luxury car, and therefore I'm not as trustworthy. I would never do any of this myself. It's a highly leveraged speculation that's far too dangerous.


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## Bananatron (Jan 18, 2021)

doctrine said:


> Why take 40% guaranteed zero risk GIC equivalent over 4-6 months when you can get 66% in 24 hours with the doge?


If there ever was a canary in the coal mine to gauge the degree of speculation (or degree of trash that a market is), its when a meme coin does 100x its value. Could you imagine a fake company getting listed on an exchange and its value going 100x, just because the market makers could?


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## Fain (Oct 11, 2009)

james4beach said:


> The banks don't do it, because there are hidden risks. The article is misleading and quite dangerous; there's no way that this trade is risk-free, as conveyed in the article.
> 
> I've contacted the Bloomberg editors and the author with my feedback. They should not be publishing material like this.





james4beach said:


> Sounds like it's time for you to open an Interactive Brokers account and make these futures trades yourself. You're smart, right? You understand the mechanisms. Well use those smarts, leverage up, and trade it yourself. Just think of the luxury cars and wads of cash waiting for you.
> 
> Interactive Brokers will give you access to futures. You can also borrow on margin and achieve a highly leveraged trade.
> 
> My warning (again) is that there are hidden risks you may not understand, and that the mechanics of futures markets are quite complex. That's my warning, but you already pointed out that I don't have a luxury car, and therefore I'm not as trustworthy. I would never do any of this myself. It's a highly leveraged speculation that's far too dangerous.


Let me know how your call with the Journalist & editorial team goes. Hopefully Bloomberg issues a public retraction of the article and appoints you head journalist so you can just issue reports labelling the entire crypto industry as a scam with no Due Diligence. 

I got an account at IB already and can trade bitcoin futures and have. Your saying a futures contract is complex but the contract specs are clearly outlined. What are the mechanics of the future market that are unclear or that you don't understand. (https://www.cmegroup.com/trading/equity-index/us-index/bitcoin_contract_specifications.html)


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## doctrine (Sep 30, 2011)

Bananatron said:


> If there ever was a canary in the coal mine to gauge the degree of speculation (or degree of trash that a market is), its when a meme coin does 100x its value. Could you imagine a fake company getting listed on an exchange and its value going 100x, just because the market makers could?


This actually happens on occasion, certainly with shell companies with no operations that get pumped via fraud. There have been a half a dozen or more such companies removed from trading in the US in the last year alone.

Loaning to hedge funds is sketchy. Crypto shadow banking is completely unregulated and almost certainly full of any combination of incompetence, greed, and/or fraud. Need I remind anyone hedge funds can and do go bankrupt, even if "reputable"? One fund lost $20 billion in 2 days and went to zero. This was just 3 weeks ago. It was supported by Goldman Sachs, Morgan Stanley, and Credit Suisse. It is worth stating again that if these hedge funds could get money, they wouldn't pay 12% interest for it. Money is cheap, especially now - insanely cheap. Isn't that why people are buying crypto in the first place? 

Go ahead and do the futures yourself, just make sure you don't get left holding the bag.


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## MrMatt (Dec 21, 2011)

Fain said:


> Let me know how your call with the Journalist & editorial team goes. Hopefully Bloomberg issues a public retraction of the article and appoints you head journalist so you can just issue reports labelling the entire crypto industry as a scam with no Due Diligence.


Follow the money, the money, actual invested dollars, are putting an 8-10% risk premium out there.
Now either the people putting the money behind it are wrong, or the "experts" are wrong.

I'll go with the money.


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## james4beach (Nov 15, 2012)

MrMatt said:


> Follow the money, the money, actual invested dollars, are putting an 8-10% risk premium out there.
> Now either the people putting the money behind it are wrong, or the "experts" are wrong.


The experts (institutions) don't lend them this money because there are hidden risks.

So the people trying to borrow the money, the extremely leveraged hedge funds, are approaching retail investors and making their pitch. So they make their pitch and try to make it sound low risk... as if it's a no-brainer.

Naive retail investors might fall for this and think they are being smart, but it's usually because they don't have a thorough understanding of what's going on.


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## james4beach (Nov 15, 2012)

doctrine said:


> Loaning to hedge funds is sketchy. Crypto shadow banking is completely unregulated and almost certainly full of any combination of incompetence, greed, and/or fraud. Need I remind anyone hedge funds can and do go bankrupt, even if "reputable"? One fund lost $20 billion in 2 days and went to zero.


Also remember that there is no way to be certain that the hedge funds are doing the exact trade they stated. Hedge funds are not transparent at all, so they could be doing something completely different with the money you lend them.

What blows my mind about all this crypto koin stupidity is that the retail investor is being *asked to trust* an entire chain of sketchy people. At the same time we are supposed to do all this because we don't trust the gubmint and don't trust the banks.

So I don't trust the banks (they're all out to get me!!) and instead I'm supposed to trust a group of mostly anonymous, mostly foreign entities with no transparency, and mostly consist of extremely wealthy people and hedge funds -- who have a history of screwing other people. It's possible they are even manipulating and rigging the crypto coin prices (since these markets are unregulated free-for-alls) and it's impossible to bring any of them to justice, even if they do scam me.

These are the people I'm supposed to trust, _instead_ of the banks?


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## MrMatt (Dec 21, 2011)

james4beach said:


> The experts (institutions) don't lend them this money because there are hidden risks.
> 
> So the people trying to borrow the money, the extremely leveraged hedge funds, are approaching retail investors and making their pitch. So they make their pitch and try to make it sound low risk... as if it's a no-brainer.
> 
> Naive retail investors might fall for this and think they are being smart, but it's usually because they don't have a thorough understanding of what's going on.


Sorry, the "experts" I'm referring to are the ones claiming all sorts of wonderful things aren't actually putting their money in there. I'd suggest that the people not investing aren't crypto experts.
It's like people selling get rich quick schemes, if they worked so well, they'd keep it to themselves.


I'm fully okay being Warren Buffet in this situation.
He held out from tech for decades, despite being personal friends with Bill Gates. 
Don't invest in things you don't understand in. 

I've used litecoin to make purchases, I understand how it works. I understand the concepts.
I don't see a valuation case that makes sense.

Just like I understand Tesla, I might even consider buying one. But I don't own Tesla stock, I don't get the valuation case. 

I think today the supercharger network is a big advantage, but the others will get there soon. There is a lot of money to be made here. I just read a review about the Tesla Y vs Mustang, and it seems that they're actually quite close.


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## MrMatt (Dec 21, 2011)

Just an update, my doge position is looking nice today.
I got a bunch of doge a few years ago, from faucets and well it is a "fun" token to play with.
But with the jump of 100x recently, it's enough to buy a nice coffee maker, instead of a nice coffee.

To me the value of Doge is just 541+5 & giggles, so I might sell some off, unfortunately doge isn't widely traded.


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## nathan79 (Feb 21, 2011)

I sold my DOGE in January for a modest 14X return (bought in 2017). I reinvested the proceeds into Cardano (ADA), which has since done a lousy 3X. It's crazy to think that I would have been up 9X since January just by holding DOGE, but you can't win them all.


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## m3s (Apr 3, 2010)

nathan79 said:


> I sold my DOGE in January for a modest 14X return (bought in 2017). I reinvested the proceeds into Cardano (ADA), which has since done a lousy 3X. It's crazy to think that I would have been up 9X since January just by holding DOGE, but you can't win them all.


Cardano is a smart contract network in development, has a maximum supply, pays a 5-6% staking yield, will also let you provide liquidity on DeFi once smart contracts are live and its tokens will provide governance for proposed network changes.

Doge has none of those fundamental features and is basically a meme. There is no limit to the amount of Doge that is arbitrarily minted. Because it's a complete joke Musk can pump it without recourse (was investigated for tweeting about TSLA)

Musk also tweeted about Cardano and referenced it with his profile and pic when it hit $1 but most didn't get the subtle references. And that's a good thing imo. Doge will probably drop as fast as it pumps.


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## james4beach (Nov 15, 2012)

m3s said:


> Musk also tweeted about Cardano and referenced it with his profile and pic when it hit $1 but most didn't get the subtle references. And that's a good thing imo. Doge will probably drop as fast as it pumps.


There needs to be an SEC investigation into Elon Musk for his repeated attempts to manipulate securities. It may be criminal behaviour.

He has publicly pumped multiple stocks and crypto koinz.


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