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Just listened to Warren Buffett's thoughts on Bitcoin and he claims that Bitcoin is a non-producing asset which has no value. Buffet also points out that it is just the hope that others will be excited and Bitcoin's demand will increase in future that is increasing the value. Making this logic, Mr.Buffet concludes that Bitcoin is useless.

However, I think I can correlate the same thing with stocks as well. We do not get any EPS (earnings per share) or preferably dividends in common stocks. We just hope that people will demand that stock in the future and that's why stock price rises and we sell it. So, if stock markets can work like this, can I also assume Bitcoin to last long?

Chris W. Rea
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CREATIVITY Unleashed
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    Does this answer your question? Why aren't non-dividend stocks ponzi assets? – windwally Jan 18 '22 at 14:18
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    Stocks are a claim on the assets of the company. What's the backing asset for cryptocurrency? – D Stanley Jan 18 '22 at 14:30
  • Buffet is right that cryptocurrency is a non-producing asset, but so is cash, which is what it should actually be compared to when talking about "its future". What is USD backed by? The "full faith and credit of the U.S government", whatever that is. Cryptocurrency could be said to be backed by the "full faith and credit of its users" as well. As an investment, cryptocurrency is speculation. As a currency, it could be just as good a store of value as USD once it stabilizes through wide adoption. –  Jan 18 '22 at 16:05
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    @AxiomaticNexus the US government is not similar to "bitcoin users", it's a specific and clearly identifiable entity with known rules about its behavior. Thus when you put faith in it - you have something explicit and tangible you're relying on (an actual physical entity you can hold accountable). – littleadv Jan 18 '22 at 16:24
  • @littleadv A Blockchain is also a "specific and clearly identifiable entity with known rules about its behavior". A distinction without a difference. The only difference is that this entity's rules are much more stringent and predictable, which arguably make it more trustworthy. –  Jan 18 '22 at 21:46
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    @AxiomaticNexus US Government is controlled by individuals nominated and confirmed by elected officials, who need to comply with court decisions and can be removed from office by elected officials. So, who do I sue to enforce behavior with blockchains? Where do I vote for representatives who'd decide how blockchains work? – littleadv Jan 18 '22 at 21:55
  • @littleadv The Blockchain enforces its own behavior through software; no humans involved (read up on Smart Contracts). To change how the Blockchain behaves, there is usually voting involved (yes, in the traditional sense of the word) by the users of the network. This is now getting too technical, but all of your concerns (appointed officials, courts, lawsuits, representatives) stem from a centralized monetary system mindset. Almost none of that applies to decentralized monetary systems because of the very nature of how they work: they remove the human element as much as possible. –  Jan 18 '22 at 23:36
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    @AxiomaticNexus This is meaningless drivel. The fact remains that regardless of the 'backend mechanics', transactions between 2 people in a society with laws, must follow those laws. Circumvention of the law due to 'hands-off this is software' subterfuge does not suddenly make the blockchain 'law', it merely dictates how it operates. An instruction manual to pickpocket someone's wallet through use of a contrived Rube Goldberg machine equally fails to represent the law. – Grade 'Eh' Bacon Jan 19 '22 at 04:29
  • @windwally- stock represents assets of the company and assuming that there are limited shares and if company's assets increase via reinvestment then limited shares will cover up more asset thus increasing stock price ,agreed. But if excessive demand(say 1million blokes crying to buy 1000 shares)causes increase in stock price, then there will be no new generation of asset to be backed by equivalent of stock. So in this scenario, should I conclude that value of assets represented by stock actually got elevated more (courtesy high demand ) than what it should have actually been? – CREATIVITY Unleashed Jan 19 '22 at 13:10
  • @CREATIVITYUnleashed If there is a massive increase in share price with no immediate change in assets owned by the company, there are a few possible explanations, including: (1) Maybe 'the market' undervalued the stock before for some reason, and now many buyers realize the value has always been there; (2) Maybe 'the market' is currently overvaluing it, ie by being too optimistic about how the company will do based on some news; (3) Maybe some news came out that DOES mean the company will earn more than previously expected; or (4) Maybe debt is easier to get and people don't want to hold cash. – Grade 'Eh' Bacon Jan 19 '22 at 16:04
  • @Grade'Eh'Bacon No one is suggesting that a Blockchain trumps the laws of a particular jurisdiction. The Blockchain and the law can both coexist perfectly fine. –  Jan 19 '22 at 19:41
  • @Grade'Eh'Bacon-So what does overvalued stock do? My assumption is that if a company decides to close its shop tomorrow, then it would give us less money compared to what actually overvalued stock is representing. Say your 1000 shares in theory truly represents $1M assets hence actual worth of shares is also $1M.But due to high demand,1000 shares worth now $1.5M.So if company gets closed tomorrow completely, I will be receiving $1M instead of $1.5M,is that right? – CREATIVITY Unleashed Jan 20 '22 at 04:45
  • @AxiomaticNexus you suggested that trusting a legal entity which you can compel through legal action and affect through elections is the same as trusting software that someone (we don't even really know who) wrote, set some rules that it enforces, designed some system where some users through some process may change some attributes, and then let it run wild in the internet. In your mind these are similar and nothing I say will change it, but in reality - they're not even in the same ballpark. – littleadv Jan 20 '22 at 06:00
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    @AxiomaticNexus No one is suggesting that a Blockchain trumps the laws of a particular jurisdiction. - you are in fact suggesting that. Because the rules that define how blockchain works are not dependent on the rules and regulations of local jurisdictions, that's the whole point after all, right? When I have a bunch of USD in my pocket, I have the full force of the US government that promised me that it is legal tender and I can pay any debt with it. Who's guaranteeing I can use the bitcoins to pay my debt? – littleadv Jan 20 '22 at 06:02
  • @littleadv Promises from the U.S government mean nothing; it won't stop USD from being worthless if the people determine that it's worthless. People from Zimbabwe, Venezuela, Turkey, Cuba, Ukraine, and dozens of other countries throughout history can attest to that. Just like with traditional currencies, cryptocurrencies are worth what the people give it worth. Sure, the US government could tomorrow choose to extend their "promises" to cryptocurrencies, but it would also mean nothing, other than making their transition to their wide adoption faster. –  Jan 20 '22 at 15:29
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    @AxiomaticNexus you should read up on the history of hyperinflation; it doesn't work the way you think it does. In particular, all of the notorious episodes of hyperinflation were preceded by severe disruptions in the real economy that would have led to economic collapse no matter what the afflicted government did with its monetary policy. Regarding the US govt's promises, the one that matters is that it promises not to put you in jail if you pay your tax liabilities in US dollars, if you live, work, or are a citizen there. This is the fundamental source of the dollar's value. – Nobody Jan 20 '22 at 15:45
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    @AxiomaticNexus promises mean something as long as the government shows ability to enforce its laws, which the US government shows. – littleadv Jan 20 '22 at 16:31

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Stocks represent legal ownership in companies. Hopefully, those companies are actively creating value (by producing usable goods, or services, etc.). That value creation leads to profits. Those profits legally belong to shareholders.

Shareholders vote for the Board of Directors. BoD appoints the CEO, and ultimately sets a dividend policy. If the BoD [legally acting in good faith to protect the interests of the shareholders] deems it best to reinvest profits in the business, they do that. If they deem it best to pay dividends, they do that. Eventually, dividends get paid [even if a policy is currently 'don't pay dividends', really what that means is 'until more shareholders vote for ultimately a new dividend policy, continue reinvesting for growth].

Therefore, regardless of what a dividend policy says today, shareholders are the beneficial owners of the productive assets of the companies in which they invest. There are various methods of attempting to ascertain the value of 0.0000001% ownership of a company with $x in revenue / assets, and some people decide to sell shares based on their own valuation compared to what the current other best offer is in the market.

Does this mean company stock is always valued 'correctly'? No. Errors in attribution of value can be huge. BUT - that stock ownership legally does mean refer to ownership of productive economic assets.

Owning 1 satoshi is just a password-protected time-stamp that says only you have the right to send that time-stamp to a different address. Do you see the difference?

Grade 'Eh' Bacon
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  • There are stocks without voting power or dividends, GOOG for example... – littleadv Jan 18 '22 at 16:25
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    Voting power doesn't matter. Just because a stack hasn't paid dividends doesn't mean it won't pay dividends ever. – DJClayworth Jan 18 '22 at 17:15
  • I was referring to the second paragraph that seems to allude that the expectation of future dividend comes from being able to vote for BoD which would decide to pay them. – littleadv Jan 18 '22 at 17:35
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    @littleadv Whether your individual stock has a vote or not (and realistically, the voting power of non-institutional shareholders is Nil), legal protections attempt to prevent minority shareholders from having value assigned solely to elite-level voting shares. – Grade 'Eh' Bacon Jan 18 '22 at 18:14
  • Dividends are not the only companies return value to shareholders; they also purchase their own shares, which provides a support for the shares' value. Regarding Google, specifically, it has long history of share repurchases. Interestingly, until recently they only purchased class C (nonvoting) shares, not class A (voting). Because of this, the class C have in the past traded at a premium to the class A. (qv: https://www.barrons.com/articles/alphabets-voting-shares-are-now-in-the-buyback-program-the-stock-is-surging-51627482792 ) – Nobody Jan 20 '22 at 15:37