Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional
davidgerard.co.uk
davidgerard.co.uk
The number is accurate enough for most orders under $10,000,000. Has this person actually traded Bitcoin?
You might not be able to sell a large order to the cent, but with Bitcoin you are certainly able to cash out within less than 1% of the listed price. I move orders around a lot and I see real money, so I know it's not fictional. In addition I frequently use an exchange with about 100 times less volume than the USA exchanges.
Also shares have a spread too.
The Bitcoin order book is not razor thin, unless you are trying to sell $10,000,000 in one go. Then you just need to spread out the sell over about 5 hours.
Also the issue with arbitrage isn't the Bitcoin side of the transactions, it's often the USD or AUD side.
But arbitrage does work and the price is much closer worldwide than it used to be.
These little islands that the author talks about range from $1,000,000 24 hour volume for the smallest exchanges to $200,000,000 24 hour volume for a mid - high size exchange.
TL:DR I can assure you the price is real, cashing out is easy and viable. If you want to cash in $10 million just expect your limit order to execute gradually over about 5 hours.
If you are a trader with deep pockets, you should immediately realize all above established techniques (which is illegal on stock market) can generate you huge profits in no time in crypto market. Big players would literally have all the strings to play the market according to their will. Currently prices are 100X higher and 1% difference seems irrelevant but in mature markets 1% move is news worthy event.
I think its also worth pointing out that less than 1000 entities owns 40% of the bitcoins. I wouldn't be surprised if set of entities are willing to burn short term cash to inflate the prices just to attract other large scale investors in the game. This is like burning tinder to start the fire. The end game usually is massive cash outs as soon as fire has started. Typically this would kill the fire but in some cases it may keep going. In any case, the bad news to small investors is that expect to get killed at any point in time when your big brother decides to cash out. Until then, party on.
Are we sure about this? The two largest USD-exchanges are Coinbase/GDAX and Bitstamp, which operate out of California and London, respectively.
If someone were to reveal that these exchanges were trading against their customers, are we sure that the authorities would be unwilling to press charges?
Based on what ? Because some people might think that is immoral ? Trading in most things is not regulated. So there is no law to be broken, expect very basic ones (you have to deliver if you receive fiat money).
If I have a trading platform in art, then I can still buy and sell for my private collection. Crypto coins are not different.
No because they're actually laws and you can go to jail.
> Based on what ?
Fraud?
This is FUD. 1000 wallets own 40% of BTC. See here https://bitinfocharts.com/top-100-richest-bitcoin-addresses....
The fiat equivalent is saying 10 entities own most of the USD in the world. They are banks with liabilities holding money for others.
Of all the bitcoin conspiracies it's provably false yet people somehow gravitate towards it.
Do worry how easily people and especially journalists fall for this. Go click on the top 10 addresses in a chain explorer, please. They are all exchanges.
* Satoshi Nakamoto's ownership is pegged at 1.5 mln bitcoins
* Chamath Palihapitiya and Social Capital own "about 5% of all bitcoins out there", so 600,000 BTC as of today http://thisweekinstartups.com/chamath-palihapitiya-david-eun...
* Winklevoss twins have disclosed ownership of roughly 200,000 BTC when filing for a Bitcoin ETF https://www.coindesk.com/winklevoss-twins-plan-nasdaq-listin...
As the prime example of this, ethereum and Bitcoin could not be more different. Work done by groups such as 0x mean that these regulations can be enforced by public contacts. Sure, there is more work to be done, but the potential is to create decentralised exchanges that are safer and easier to regulate than existing Fiat exchanges.
Bitcoin's recent price has been crazy even for crypto, but it is short sighted to lump all crypto currencies into the same bucket. This is a fast evolving field, lessons are being learned and better and better implementations are being built.
The prime "decentralised" exchange is EtherDelta, which is completely decentralised except the absolute decentralisation of the website (deployable only as 2MB of minified JavaScript with the original source unavailable). I wrote about how well this approach works: https://davidgerard.co.uk/blockchain/2017/09/28/etherdelta-h...
How decentralised can you make your "decentralised" exchange? There's not much point to "a bit decentralised".
Indeed. Earlier this year, mid-summer, I got curious about all this, so I decided to start an experiment, uploaded $100 to an exchange and started trading and programming against their API. Today, I am running fully automated bots which are winning, got about $25k in exchanges and cashed out about $15 to my bank account (no problem cashing out btw). That's 40000% in 6 month.
So all of this is absolutely crazy. I don't believe this can go on forever. But until then, yes, party on.
(I am using a throwaway for this - not being any careful, moderators should be able to easily track my other account if they want. I just don't want to associate my other account with this post.)
It'll work until it suddenly doesn't.
Over time I noticed these periods of a week or so where the price would then become a bear market. And it was so easy to blame it on Dimon or some other Wal street junkie that said Bitcoin was doomed.
Then these stopped lining up. Then some ICOs got pumped. Ether tanked while Bitcoin blew up. I started to think how unglued it all became from anything that Coindesk was saying. Coindesk always ended their prediction with "But if it ends up less than X then Y will happen" Basically making it so that hey, there's a chance this will happen instead and this is the secret clue. But nothing was lining up, it started to feel like the perfect storm where you know extremely experienced investors could lure the masses into pushing tones of coin after a large drop. Even with 1000 people rushing in after a 15% drop in the price that day, the week before the 15% drop meant the price was going to rocket. Not this week, this time, the price is going to drop another 10% the next day.
Finally 3 days later, an amount of time that didn't coincide with ANY news and the price finally rose. By now most of those 1000 people had already cut their loses, but it was too late, whoever was jacking the price around already took their gains. And who cares about those 1000 people - the price is rocketing again.
So I left when BTC was around 4.5k. I should have listened that you have to be in the long game. But even so, I absolutely agree with this article - the price is being controlled by some group - some secret group of well placed investors that have a set of companies that run bots across all exchanges. They will continue to do this forever because unlike a stock, a government can never control a crypto currency. It would require all governments to coordinate and make the same set of rules. It can all be subverted if one exchange can live outside of those rules.
Most failures of crypto exchanges have resulted in a total or near-total loss for depositors, and triggered rushes to the exit on other exchanges.
Instead, the article seems like FUD that would confuse non-tech users into thinking they couldn't cash out their 0.5 BTC at the price they're seeing on their exchange (they can.)
Yes. But if one thinks Bitcoin, with its distribution of holders, price volatility, and "quality" of trading implementations etc has the same tolerances as the regular stock market (which indeed can crash too), one is beyond deluded.
It's like saying "sure, I can crash on my custom built hot-rod made from a modified jet ski if I go into a wall, but so can someone in their Hammer". The impact, and the implications are not going to be the same...
(Heck, when the market tried to go trashing, it got a 1 trillion bailout to help it out. Who is gonna do that for bitcoin?)
Historically, stock market corrections may be ~50% but they don't hit 95% because of underlying value. Other bubbles can be much harsher.
A much more realistic scenario that could make bitcoin undesirable to hold would be something like all major central banks collectively viewing bitcoin as a threat then working in concert to target the weakest link of the cryptocurrency: exchanges that facilitate conversions to fiat.
Your original comment talked about a scenario where people decide against bitcoin and such a scenario can only play out if there is too much uncertainty to make them a viable investment. Because bitcoin is decentralized, the only way major governments can try to influence it and related activities like exchanges is by acting in concert. Anything short of this will not work against it as has happened repeatedly with past attempts by individual governments like China.
The price crashed from like $1200 to $200 and it took years for it to recover. All those Moms and Dads and Grandmas who bought $10,000 of Bitcoin after Thanksgiving dinner hoping it would turn into $100,000 within a month will certainly get hit if the price falls to $1600 and doesn't recover for 3 years. All it takes is a change in the media narrative that scares away a sizable chunk of the market (say, institutional investors or mom and pops, or Chinese people)
Every article I read in the media has huge negative sentiment already. Can you point to some positive articles about bitcoin? Seems to be very few going around, it's all bubbles, energy consumption, hackers, ransomware and terror funding.
Wondering how the narrative can change for the worse from here.
"Deal with BTC and lose your license. Kay, bye!"
Bitcoin is sea shell currency trading market pretending to be a currency.
I think 99% of people who have decided not to own any cryptocurrencies are basically just waiting for the other shoe to drop. Sooner or later, governments will figure out that cryptos are sucking money away from The System, which, if left unchecked, will drive down stock and bond prices and nullify attempts to control savings/spending rates via monetary policies. I'm betting it won't happen until market cap hits $1T though.
I’ll tell you: they don’t have the capital to pay anyone, so nobody can withdraw. It’s Mt Gox all over again.
How do large Bitcoin traders price that risk? With most modern financial exchanges the accounts are open, audited and they’ve had a long time to generate trust with their members so pricing the counter party risk is straight forward.
Exchange B price is $1250
Makes sense to buy on A and sell on B for a nice profit. So I buy 3 coins on A and send them to Be, sell on B and have a nice $750 profit. Now you need to get fiat from B to A and this is where you hit your bottleneck.
I know I'm missing something because a lot of people a lot smarter than me are in this space. I just don't know what it is I'm missing from the outside.
Sure, the effects may be stronger in Bitcoin due to its higher volatility, lower volume, etc., but that should be the author’s argument, instead of “if you don’t know the basic Finance 101 definitions of some common terms, then you might get confused.”
> PSA: The Bitfinex trade engine ALLOWS for WASH TRADING
> The trade engine on Bitfinex will allow you to buy and sell to your own orders, the procedures to do it are as follows (which will likely be ‘fixed’, or partially fixed after this post…)
Source: Wash Trading Bitcoin: How Bitfinex benefits from fraudulent trading => https://medium.com/@bitfinexed/wash-trading-bitcoin-how-bitf...
> Market cap is extremely commonly cited for stock markets.
Yes.
Spreads usually depend on volume--high-volume securities tend to have a lower spread because there's a lot of market participants.
More established markets often have market makers (entities with simultaneous bids and asks) and arbitrageurs who make money off spreads between different exchanges. I usually look at this spread and arbitrage (which I'll get hit with when I buy or sell) as the price of having a liquid asset. For stocks, it tends to cost relatively little.
Market cap for Bitcoin is complicated because it's not known how many Bitcoins have been lost.
Ever since people stopped storing stock certificates in safe deposit boxes, this hasn't been an issue for equities. Even then, companies kept a ledger with ownership.
It's because there's an established system of trust, liability, responsibility, regulation and oversight in the network, assuming you're using any number of several dozen popular brokers (and that you're a common investor). Microsoft has a vested interest in knowing how many shares it actually has outstanding and who owns them; there's a chain that follows, that includes the CEO, CFO, board, other large powerful investors, regulators, common investors, and so on and so forth.
The scale and solved nature of it is roughly 100x that of Bitcoin in contrast.
You can just admit you don’t know.
http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol...
I suspect it's only a matter of time before something like the DTCC is established for Bitcoin. Yes, from one perspective it would defeat the "trust-less" part of the system, but from another perspective it would enable instantaneous trades both within exchanges and between them. All that's necessary for this scheme to work is for the exchanges and other market participants to trust that the depository company will deliver on any assets it claims to owe them.
I actually consider it seriously unethical to market cryptos as an investment to retail investors - they just do not understand the insane levels of risk, including the actual exchange as a threat. And yes, I know what Bitcoin's pitch is. I still think it's unethical in practice, and this bubble is going to show why.
Market cap makes more sense for a stock, because it's in the range of the value for a company, and a whole company is something that does get bought and sold. This idea doesn't make any sense for a crypto.
Cryptos, on the other hand, are entirely based on investor confidence.
Cryptocurrencies aren't backed by tangible assets, so the price floor is 0.
When I make an investment in a company I'm providing capital that that company can use in various ways.
In return I become an (very small) owner of the company. I get a say in how it's run (voting rights), and I get a share of the profit (in dividends).
If you hold on to a stock like coca cola for 30 years, never looking at the stock price, and never sell, you'll actually make money.
Yes there's risk, coca cola could go out of business. But that's pretty unlikely, and if you're not willing to take that risk, consider using a diversification strategy. Buy some passively managed ETFs.
Even with the crisis, in the long run, you would've made money. Investing is not gambling, it's not a zero sum game and the fundamentals of it have some basis in reality.
Whatever is happening with Bitcoin right now makes no sense. Eventually things like this have to realign with reality.
2. The majority of stocks do not provide (and will never) dividends and the majority of buyers have no voting rights.
but you are right. For practical purposes, the stock market is not pure gambling. There are institutions that make it legitimate. Such as the SEC, pensions, 401ks and brokerage firms. And the fact the government cares so much about it going up (because it funds so many pensions and social security might go away)
But lets not fool ourselves in thinking the stock market is a virtuous piece of infrastructure. The vast majority of stock holders dont know anything about the conpanies they invest nor how stocks even work. They invest blindly in it through mutual funds or 401ks.
Similarly, buying and holding Bitcoin has a range of effects that help the network and generate real wealth. Bitcoin is a services company, a payment network, a bank, and investment vehicle, a reflection of wealth in that economy, a notary, a liberated, sound money and a protest - all disguised as a get rich quick scheme.
Public market performance influences IPO performance. IPO performance directly knocks on future managements’ decisions around going public or raising a private round. The performance of those moves influences early-stage capital availability through multiple channels. Equity markets, broadly, are complicated, but they are an essential component to fuelling firm creation and growth.
It starts with an easily-digestible and shareable argument, like “Bitcoin prices and market cap are a lie.” Then someone points out that, yes, perhaps many people misunderstand basic concepts in finance like spread and market cap, but that applies to any asset or currency or security.
Then someone else joins in with a completely unrelated argument, like “yeah, but Bitcoins don’t actually do or represent anything, whereas stocks do.” Even assuming this is a valid argument, it doesn’t change the invalidity of the first argument. But I fear that all too often people see the entire exchange as if it’s a sequence of related claims, and thus feel inclined to believe and share the initial talking point as if it was somehow corroborated by the later unrelated argument.
Speculating: http://www.macrotrends.net/1333/historical-gold-prices-100-y...
Which one do you think bitcoin is? Well I'll tell you, it's the second.
The vested interest has been very successful in obscuring this basic fact, usually by conflating it with a bunch of other unrelated matters (decentralized infrastructure, fee-less money transfer, easy international trade...etc)
I penned a tongue-in-cheek layman description of bitcoin that alludes to the basic scaminess of it: http://blog.codesolvent.com/2017/12/the-bitcoin-scam-needs-t...
So exchanging fiat Euros for fiat Bitcoin means what, exactly?
The aforementioned currencies are backed by the value of their issuer's economies, those economies are real.
If I can buy an item from Amazon or Overstock.com via Bitcoin or via Yen or via USD, explain how there is an actual difference.
Every American participating in that economy must pay taxes every year on their income. The taxes must be paid in US dollars, even if the economic activity uses a different currency or barter. Therefore Americans must come up with a quantity of USD proportional to the size of the American economy every year (or "go to prison"), and provided that the total amount of USD in existence is bounded (this part is the job of central banks) this places a floor on the value of USD. This story is necessarily simplified but I think essentially true.
There is an old saying that a language is a dialect with an army and a navy. Likewise, a fiat currency is a currency with a taxing authority.
Gold, on the other hand, is just valuable because it is expensive to produce and has a long history of being valuable. So that model can work.
I'm not able to find any reference to such a move, which I would think would be widely reported in English. So I suspect you may have your facts wrong. I read that Japan no longer collects sales tax on digital currency transactions, but that is not at all the same.
If, hypothetically, a major government accepted all tax payments and equivalents in XBT as well as their own currency, and credibly promised to keep doing so no matter what, they wouldn't so much be backing Bitcoin as "unbacking" their own currency. It would leave their citizens free to stop using fiat currency if they wanted, and if enough were eager to do that the value could go to zero. (In principle, that could be fine. In practice, contracts and other nominal rigidities would probably make the transition period... problematic)
If a major government decided to accept tax payments only in Bitcoin, they would be backing it in the sense intended.
(I'm not necessarily taking a bearish position on Bitcoin. Rather, I'm arguing that fiat currencies are not the right model for understanding its economics)
Bitcoins are expensive to produce and if it hangs around very long it will have a long history also. So in the long run bitcoin could be a viable alternative to gold.
Likewise, I own a $100 billion Zimbabwean dollar bill as a curiosity, but that market doesn't put an important floor on fiat currency prices!
Paper money or coins of little or no intrinsic value in themselves and not convertible into gold or silver, but made legal tender by fiat (order) of the government. [1]
Fiat money is an intrinsically worthless object, such as paper money, that is deemed to be money by law.
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I will say that when Japan agreed to accept payment of taxes, with Bitcoin, they deemed it to be money.
Probably I could find examples in the U.S. government prosecutions of criminals who used Bitcoin, that had government lawyers advancing arguments that treated Bitcoin as money, but, I don't have them to hand.
I'm really interested in figuring out if this is true. What source is saying this? From what I can tell some taxes might apply to Bitcoin in Japan but in no way can you actually "pay" taxes in Bitcoin (you can obviously convert it to Yen first though).
> Quoting a number like “$19699.46” to seven significant figures when your data’s got a 5% spread would get your high school physics teacher slapping you upside the head. It’s entirely deceptive. It should say something like “$19,700 plus or minus $500 depending,” and that line graph should be a thick grey bar.
I don't see how it does anything of the sort.
* It's not the amount that was put in to it
* It's not the amount you could get out of it
It's a number that's easy to calculate and gets headlines, but I can't see what else it's good for in practical terms.
Perhaps with a tiny altcoin it would be worth 51%ing it. But for anything larger, or for an ICO token? What does this number actually do?
Say there's a crypto asset that isn't getting headlines. Its market cap is $100 million. Just knowing that, what do you know about the crypto?
If all I know about a crypto asset is that it has a market cap of $100 million, I know it's a very niche asset in comparison to bitcoin or ethereum. It's small enough it's reasonably likely to be a scam. For me personally, it's small enough that I'm not interested in learning any more, which has practical use because my time is finite.
Market cap makes more sense for a stock, because it's in the range of the value for a company, and a whole company is something that does get bought and sold. This idea doesn't make any sense for a crypto.
I'm not a financial wiz kid, but market cap for a currency doesn't make any frigging sense to begin with.
Sure, you can count the amount floating around for a currency on various levelse (ususally expressed in mx) but I never felt that it makes sense to define this as "market cap".
The whole situation really reminds me of the Dutch tulip mania (https://en.wikipedia.org/wiki/Tulip_mania, the first speculative bubble in history).
At least with your "investment" there you were able to plant pretty flowers. Here, I fear, that a lot of small investors will get burned very, very badly.
Where I part ways is in your claim that the price is somehow illusory and it's impossible to cash out. Until recently I worked for a company that was mostly paid in crypto, and had no trouble selling it off, moving the money into a bank, and meeting payroll.
Crypto is new and the market infrastructure is immature; that means there's more risk, and also more return, just like the early days of other new asset classes that have arisen over the past century. William Bernstein wrote about this in his recent Investing for Adults series.
Didn’t one of the major crypto exchanges recently lose all its correspondents for awhile and then picked up a single one again?
Coinbase and Gemini, for example, are U.S. exchanges that strictly follow money transmission regulations and AML/KYC. They're not likely to have banking problems, at least under the current regime. If you go with a sketchy foreign exchange so you can stay anonymous, you're more likely to run into problems.
Unfortunately, this has left them with much lower volumes than the more cowboy exchanges ...
The motivation for this is that I keep hearing from friends asking "help, [relative] thinks bitcoins are a good idea! what do I do?" So instead of abstruse jargon-laden blockchain inside baseball posts, I tried to write something more accessible about the problems.
A random guy that self-taught himself PHP, for example, is not usually found (or even allowed) to build one of the biggest exchanges for developing markets. For Bitcoin though, they do.
Both have a 1000 in circulation.
Both are worth $10 each.
Both have a market cap of $10,000 US Dollars.
But the market for AlphaCoins is "thin" (small changes in supply and demand make for really big price swings).
There's a run on the market and everybody wants to sell off their coins.
After a day's trading:
AlphaCoins price is $3 / coin.
BetaCoins price is $9 / coin.
For goods and services you'd call this the price elasticity of demand (You can change the price of medicine and people will keep paying it b/c without it they'd die - it's inelastic - the same can't be said for a snack bag of cheetos).
To me, this is the article's argument. That while these terms describe the same things across markets there are some big differences not captured in simple "market cap" comparisons.
Maybe a better analogy is two all you can eat restaurants (identical, yadda yadda) but at one you can use your full set of dining implements and at the other you can only use a fragile toothpick to eat your food with - and all anyone can write about is how the quantity of food in both places is the same.
I'd say what the asset is, but I can't because if literally only one other person reading this decided to buy some then I effectively wouldn't have the option to buy more of it.
This is how markets work.
What I find interesting, in addition to your description of the price elasticity being at issue, is precisely _what_ a bitcoin represents.
In fact, what _all_ cryptocurrency represent, to my knowledge...and that is, some increasingly unbreakable cryptographical mechanism by which information may be passed at ever more secret rates.
The question I have is: precisely who is in the market for such things, and are they not, in fact, what is holding these currencies together?
It also begs the question: if the person who can afford to 'buy' the cryptographical information is the one "funding" the market, are we not at the beck and call of the deepest pockets in terms of securing what may ultimately be state-secret level data?
I recall reading some article about how, when mining for bitcoin (for example), what was really being mined are progressively larger prime numbers, or scientific data, or some such data requiring lots of computation.
Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?
Having a large amount of work required is what prevents a malicious actor from tampering with the chain, since doing so requires doing as much work as all the other miners together.
You're most likely thinking about Primecoin[0].
> Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?
"Real value" in a computational sense is difficult to articulate. Making a calculation part of a mining algorithm that ultimately results in _new_ information is challenging because it, by definition, requires a lot of effort to not just calculate, but verify. Folding proteins, searching SETI datasets, etc. presumably require the same amount of effort to verify as they do to solve in the first place. The way that cryptocurrencies that use a "proof of work" ("PoW") are typically set up is to make it very difficult to solve a computation, but very easy for others to verify that the solution is correct. The other component of PoW that makes it beneficial as a verification tool is the ability to increase or decrease the difficulty of solving the calculations required by the network. Without the concept of adjustable "difficulty," a network could not adapt or grow as more (or less) computational power is brought online. This difficulty of computation is a core component of the decentralized, distributed nature of blockchains.
If you'd like to learn more about it, here are a couple of resources to get you started:
- "Proof of Work" (Wikipedia)[1]
- "Is there a way to set up proof-of-work systems so they would be even more useful?" (StackExchange, orig. asked in Sept. 2011, updated Dec. 2017)[2]
- "The Fair Cost of Bitcoin Proof of Work" (Tomaso Aste, University College London, 2016)[3]
- "FoldingCoin" (HN discussion, Jan. 2015)[4]
Bitcoin's hashing scheme's "value" is in its ability to make it computationally difficult (and of significant real cost) to attempt to cheat the network.
Simplifying a very complex discussion, you can consider it, in a limited sense, analogous to the different ways that the World's governments and assorted financial institutions spend untold billions of USD, EUR, RMB, YEN, etc. every year to secure, confirm, compensate, and extend the underlying infrastructures that support global financial exchange.
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[1] https://en.wikipedia.org/wiki/Proof-of-work_system
[2] https://bitcoin.stackexchange.com/questions/331/is-there-a-w...
[3] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801048 (Note: A subscription to Elsevier is not required to view or download this research paper)
This is the same for every stock traded on any stock exchange in the world. The "singular price" is, in most cases, just the mean of the closest bid and offer listed on the exchange and is thus a "made-up number"
On top of this, it obviously doesn't take into account everything from transaction costs to the fact that attempts to purchase substantial volume at this price would not be possible.
And things like gold or oil barrels also have multiple exchanges.
https://en.wikipedia.org/wiki/Unilever#Legal_structure
Unilever plc and Unilever N.V. ...operate as nearly as practicable as a single economic entity, whilst remaining separate legal entities with different shareholders and separate stock exchange listings
Also worth noting that for both stocks and cryptocurrencies, the price that is shown is almost always the last traded price not a quote for a price you could trade at anyway.
[1] in the US, for example: https://www.sec.gov/foia/docs/atslist.htm
While we do live in an age where stocks seem increasingly untethered from reality, that's still not remotely true.
Stocks are, in theory, based on the value of the company. Which is something you can calculate based on its assets and revenue.
Granted the math doesn't add up for a lot of companies right now, but that's an indication we're in a bubble not an invalidation of the concept of stocks.
Really? All your cash is worthless? Well that sucks but tell you what, I'll help hedge your losses by swapping it all for a big mac meal (which I assume I'll have to barter for, but I'll do that for you).
The NYSE sees on the order of a billion trades per day. The high over the past year is about 1.9, the low about 0.46. The dollar trade was $16 - $107 billion/day.
I'm not finding transactional volume for bitcoin, but the dollar vollume has peaked at $2.5 billion, and until September, 2017, was under $500 million.
Before that date, roughly, more money moves through one stock exchange in a single day than all of Bitcoin in a year.
Which gets to an interesting question of just what it is price is, and represents. If you can control and regulate the supply of a good then price is something of a fiction: it's the amount demanded, relative to the supply. But for a fixed asset, the more you can restrict that supply, the higher the price goes.
There's an analogy with electric circuits that I was kicking around with Gerard some months back. Just as R = V/I, the higher the demand (V), and the lower the supply (I), the greater the price. (This ... doesn't entirely hold up, but it's an interesting parallel.)
http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition....
https://blockchain.info/charts/trade-volume?timespan=1year&d...
Most active NYSE stock last Friday was Bank of America, trading about $3.1 billion (http://www.wsj.com/mdc/public/page/2_3021-activnyse-actives....).
I don't understand why you'd compare a single security's trading volume to an entire stock exchange's volume. It is not a meaningful comparison.
Visa International handles 300 million transactions/day, and $3 trillion/year.
Or you could look at total US GDP or GWP (gross world product), which are in very rough numbers, $17 trillion and $70 trillion respectively.
Bitcoin at a $5 billion daily trade is 1/8 the US financial transactions market, and roughly 1/40th that of total global trade.
Honestly, that's higher than I'd have expected, but it's also in vastly greater trade blocks than most daily purchases.
In theory you subtract the former from the total transaction volume ($4.6B over last 24 hours according to https://blockchain.info/stats). Unfortunately that gives me a negative number ($4.6B - $5.4B = negative), which at first suggests the methodology is wrong, but then I remember that not all currency-exchange transactions happen on-chain. Send BTC to GDAX, then buy/sell/buy/sell/buy/sell, then receive $$$... all that could be as little as a single blockchain transaction.
I'm sure someone has tried to determine how much of BTC traffic is closed-loop within the BTC ecosystem. I doubt it's much. Anyway, I'm ratholing.
Calling the NYSE "just" one stock exchange isn't exactly a fair comparison. The NYSE is somewhere in the region of 20% of the total stock exchanges by market cap. It's twice the size of the next-largest stock exchange (NASDAQ), which is itself about twice as large as a "normal" large stock exchange (e.g., London or Tokyo).
Can an arbitrager not simply hold both BTC and cash on multiple exchanges at once? When a price difference swings one way, sell on one exchange and buy on the other, without worrying about transferring anything between exchanges. When the price difference swings the other way, do it the other way round.
If price differences average in both directions over time, you shouldn't run short of either BTC or cash but you will make a profit.
If price difference average in one particular direction, you can notice that trend and transfer across in advance.
An initial investment is required, but that is true of any arbitraging activity.
I had assumed that this is what arbitragers have always done.
People might start taking advantage of the futures market to go short btc, so exchange exposure is only limited to the time it takes to immediately move coin off exchange. Time will tell if that allows enough capital to arb the difference.
How can you short it? CBOE futures only exist for one exchange. What if that exchange’s price stays steady while others crash? Or that exchange goes up while others crash, thereby triggering margin calls while you lose money? Sure, the situation will eventually rectify itself. In the short term, however, you’re broke.
You end up making more by simply hodling
That's just the default limit. You can ask for increases.
Basically, though, it's reasonable to assume that arbitrage is happening as absolutely efficiently as it possibly can, and we still see huge spreads, because the Bitcoin market is structured for inefficiency and volatility.
Bitcoin, clearly, is far from an efficient market. Everybody knows that. A lot of people are profiting from that, although there is a significant risk involved from the shoddy state of most exchanges.
As a nitpick, smart order routing is not something stock and futures exchanges give you, it's a layer you can buy or build on top of the available exchanges.
Operational efficiency in the investment market (trading exchanges) is the issue. Transaction costs, manipulation, spreads, unfairness etc. add cost for doing transactions.
> ...overwhelmingly, bitcoin is traded on bitcoin exchanges... So here's the thing: Each of these markets does not communicate with the others. [That] ... means that buyers/sellers on each exchange are reliant on bids/asks exclusively from other members trading on the very same exchange.
> Now, that doesn't seem all that different from what happens with stocks in countries like the U.S., with all kinds of markets and ECNs, does it? But it really is massively different... because with stocks, a broker can quickly reroute his orders from one exchange to the other. The depositary/custodian of his stockholdings is not the exchange. With bitcoin, it's different. The exchange is also the depositary of one's bitcoin holdings ...[describes the difficulty and delay of moving BTC from one exchange to another, also discussed at length in TFA] ... The result of this highly inefficient market structure is that the same asset (Bitcoin) trades at significantly different prices from exchange to exchange...
So with stocks, if you want to buy or sell shares of AAPL, the price will be essentially the same whether you talk to Schwab or to eTrade, and if it isn't the same to within a penny, a script somewhere will take advantage of the difference to make money by buying from one and selling at the other _in seconds_ -- arbitrage which is not possible with bitcoin exchanges owing to the transaction delay and fee.
TFA also makes the important point that there is no regulation whatever of bitcoin exchanges, and that also makes them very different from the likes of Schwab.
[1] https://seekingalpha.com/article/4130380-bitcoin-series-adde...
Partially true of the most largest and most liquid stocks and those that are electronically traded. Not true for those trading massive blocks of stock or those trading in 'dark pools'. Also not true for stocks, options, bonds and other financial instruments with low liquidity or those that aren't traded electronically (such as OTC stocks). Also not true in times of financial distress (you know, the times when you really want to sell) when everyone is running for the exits.
Anyone who doesn't understand the basics of how markets work (the people this article is aimed at) shouldn't be trading anything.
(author here) I'll second that. Unfortunately, they are ...
I've never personally felt so comfortable with "accredited investor" rules, they feel too much like "only the rich can get richer" - but junk-quality assets like this being marketed to normal people, I can appreciate why this sort of rule exists.
If pyramid scheme is all we want from cryptocurrencies, we could have done it without the invention of the blockchain.
[0]: https://support.gdax.com/customer/en/portal/articles/2689803...
I am also doubting if FDIC insurance is for the full amount, or the 250K that's often cited for banks.
You literally didn't even bother to click on the one link in that comment.
You're enthused about dealing with cryptocurrencies for reasons of being insured by a centralized, third-party, who you've placed your trust in.
1. For all of the things we mistrust the US government for, the FDIC is, as far as anyone can tell, rock-solid. If, by some catastrophe, the FDIC were no longer able to ensure deposits, we would likely all have much bigger problems than trying to get your cash out of GDAX.
2. It spreads risk. GDAX itself is a centralized authority. Instead of putting all my trust in one entity, I now only need one of GDAX or the SEC or the FDIC to be functional.
3. It brings legitimacy. For better or worse, your average person is not a crypto cyber hippie, and neither are executives at most traditional companies. If we are to start seeing crypto currency actually become useful as currency in the USA, rather than just the speculation instrument, we need adoption by both average people and business executives. When they see that one of the top exchanges is based in the USA, and is fully certified and regulated by the US government, it ought to help allay some fears about the safety and usefulness of digital currency.
4. Some things I don't trust the US government for any further than I can throw it. Other things, I trust it pretty thoroughly. This falls in the latter category.
We have seen weird spikes in the past that looked like a speculation bubble and it has taken us a few days or weeks to understand their cause. They usually crash a bit but stay at relatively high levels compared to where they started.
One was caused by Russians discovering they could evade sanctions that way. Another one was caused by people hiding money in Cyprus discovering that it could be seized by the government.
For the current rise, my money is on the anti-corruption operation happening in Saudi Arabia. Whatever you think about the crown prince's true goals, the move is not just theater. Hundreds of billions of dollars are changing hands.
I suspect that what we see is half of the royal family's wealth being shuffled around in a hope to escape being seized.
I am not sure what the author means by "realizable". If their intention is to say, "Ok, let's liquidate every single coin for fiat currency... and we expect to have the market-cap equivalent in that currency" Well, whats going to happen is the price is going to collapse. The same thing would happen with the value of any publicly traded company. The market cap of Apple is $900bn - but you can't just tell every shareholder to sell their stock for cash... you would never be able to realize anywhere near that amount.
Article reads a bit weird. Here are my 2 cents - markets are a voting machine. They are also about perception. If people perceive that there is value - then they will vote with their dollars. If people lose faith in the system, the market collapses. This is true in any market dynamic, including the one that fiat currency operates in.
What would someone pay for all of Apple's stock? Suffice to say, a lot --- because Apple has actual value.
I don't think the answer is nothing. And there's also a very different dynamic you're proposing in your comment. If I were to go in and buy every BTC out there - the price would probably double/quadruple/whatever... in a short time ('cause its bitcoin!).
If all BTC holders collectively decide to sell, however, the price would most probably collapse. The "value" of bitcoin - or any security for that matter - is determined by the marginal buyer or seller. He or she is the last person to set the price.
There is inherent value in bitcoin. Just like Apple sells phones and other things of value, bitcoin was created for some reasons that you can attach a value to ... I think those initial reasons are not what bitcoin stands for today - which is really a store of wealth. So maybe that is why people are incredulous that this thing has any value at all.
Seriously? Think about it. If you could pay, say, $100k to own all the bitcoin in the world, would that be smart or would that be stupid?
Why would anybody buy bitcoin from you if you owned all of it? Everyone will prefer to use a cryptocurrency that either: a) they already own some of; or b) a merchant is requesting; or c) they expect to go up in value more than an alternative. Now, in calculating c), everyone knows that everyone else is looking at a) and b) as well. The expectation of Bitcoin if you're the only holder is really bad.
If you like your chances at 100k, take the experiment out further. How about 1 million? 10 million? The ceiling here is super low relative to the "market cap" people are talking about.
So it's not just the buy/sell dynamics. Bitcoin doesn't have intrinsic value, and that's actually weird --- most other securities do. The most similar security is gold, which is like, 1% intrinsic value and 99% this type of speculative logic. The difference is that gold is unique --- bitcoin isn't.
If I owned all the currency of the country you reside in, you would have no choice but to trade with me. If you don't buy any currency from me, you won't be able to pay your taxes and you'll go to jail.
What these projects are trying to do and the things they've already achieved is just amazing and really exciting. When you actually use this stuff instead of just HODling it, you realize why it has value.
Should these crytpocurrencies actually cost this much at this point? Would bitcoin be any less useful if it was worth $5 instead of $20k? Probably not and definitely not. These things aren't the sort of assets we're used to. It's not like an equity share of the company that makes the car--it is the car. We need to actually start driving for it to be worth anything in the long term.
Arbitrage is the method by which segregated markets are aggregated into a single market with a common price; if that is harder you have segregated markets.
> And the fact that the "price" reflects recent sales rather than future sales seems, well, obvious, and identical to other securities/commodities.
The same issue is raised with commodity/security markets in general, but it's practically more significant when the market(s) for a product have significant liquidity issues.
To reply to your question. The problem is that the bitcoin market is plagued with deep issues. Arbitrage is hard in such an environment, that's the consequence, not a cause.
To make an analogy. Think of a sea, a sea always have fishes. If there are no fishes at all in a sea, the problem is unlikely to be the fishes. Fishes are simple animals living day to day (just like arbitragers). Most likely, the problem is with the sea, maybe it's super polluted and killed all the fishes?
Yup. You can argue about how to apply them in any given situation, but if you want a fair exchange, you will spend lots of time re-creating most of the regulatory environment.
1) The spread is not "plus or minus $500", it's a lot less. See for yourself:
http://bitcoinity.org/markets/bitstamp/USD
At this particular moment the spread is $23 on Bitstamp, zero on GDAX, $11 on Bitfinex, zero on Kraken, zero on it it (where "zero" is something under a dollar, there's not enough precision to display it).
2) Yes, you can cash out, a lot. There are dozens of huge exchanges where the daily volume is in billions.
https://coinmarketcap.com/currencies/bitcoin/#markets
For instance, Bitfinex USD/BTC 24-hr volume is $1.2 billion.
And that's just one currency pair on one exchange.
And sure, you can cash out, and see a number in a balance statement. How hard is it to get that cash out of Bitfinex into a real bank though? (I’m not even going to address the inherent hilarity of citing Bitfinex as proof that things are A-OK in Bitcoinia.)
By definition, if you have multiple exchanges - your liquidity is already fragmented. In the US Equity Market - you're also not obligated to route to dark pools - only exchanges have order protection. And maybe 30%+ of volume trades on the dark pools.
The bitcoin exchanges do publish market data - so its up to arbitrageurs to step in and bring markets in line. We're still in the early stages - and I expect bitcoin futures and wider adoption of new concepts (like continuous swaps) to alleviate some of the price differences.
First, Quoting a number like “$19699.46” to seven significant figures when your data’s got a 5% spread would get your high school physics teacher slapping you upside the head. It’s entirely deceptive. It should say something like “$19,700 plus or minus $500 depending,” and that line graph should be a thick grey bar.
The question is does the 5% spread change my buying price? I need to buy a bitcoin. Will coinbase honor the price when order is placed ie if it shows $19700 then will it let me buy 0.1 BTC at this price? Similarly, will it allow me to sell them back at whatever price they show on screen? If yes, how does it matter?
Sure, if coinbase cannot honor the price and let's in a huge slippage [1], then that is a concern. Though in most cases where they see markets moving too fast for them, they have routinely shut down trading.
Second, in stock markets it is not about smart order routing but NBBO or nation best bid and offer. Brokers need to route orders to best price available else they are liable for damages. There are no such rules in bitcoin. And as the article notes, there are issues in getting the best price available due to transaction times. In which case, coinbase can set whatever price they want. But if they honor it, there is not much to talk about.
No, neither the price at which they actually allow you to buy or sell BTC matches the price they display. They set the price for you, which is different in both operations (and on top they charge a fee). GDAX on the other hand (same company as coinbase, different service) is an actual market where you can place orders at whatever price you want, and somebody will take them if your price matches theirs.
> They set the price for you
>> Will coinbase honor the price they set when order is placed ie if it is set $19700 then will it let me buy 0.1 BTC at this price?
In which case, the spread question is only about whether there is a huge spread between the display (average) price and their set price.
More specifically, price is a function of supply and demand. Bitcoin was created with a very specific bootstrapping plan baked into the design.
What people are missing is that the bootstrapping plan is well known and obvious to investors, and is meant to incentivize a speculative motivation for mining, which it has done successfully.
But think about it this way, the price of a currency is only loosely linked to supply and demand. Nobody really knows how many dollars exist, yet the currency has characteristics that make it trustworthy.
Bitcoin is the same phenomenon. The price is based on the success of the governance model and the appealing characteristics of the ecosystem.
Based on these appealing characteristics, there is the widespread expectation that Bitcoin will win market share from other currencies over the long term.
We know there will be a finite number of Bitcoin mined, what we don't know is how much market share Bitcoin will have in comparison to other currencies.
Market share is not a function of money supply as much as it is a function of the holders of the currency that rely on the currency because of its governance mechanism, fungibility, etc. Many countries hold USD in reserve because they find the governance characteristics of the USD appealing. Bitcoin is just a novel way of doing currency governance.
For all uses of currency other than holding inventory, the governance mechanism matters very little, since there is little risk exposure to price fluctuations or the risks associated with bad governance.
Critiques of Bitcoin get mired in an imprecise understanding of all of the above, but the most notable blind spot is that Bitcoin is a governance mechanism first and a currency second, and investors are pleased because the governance mechanism has been tested a few times and has (thus far) performed admirably.
The article points out very real concerns with exchanges.
But there is such a thing as a "strike price" when converting BTC to fiat, just like there is in the stock market.
When you sell (or buy) your coins on Coinbase, it gives you a strike price that updates periodically. But when you hit the submit button, that transaction is locked in, so you know exactly the amount that will be transferred to (or from) your traditional bank account.
There are very real flaws in the current exchanges, but "price being fictional" isn't any more real than it is on the traditional stock market.
Bitcoins price and hence market capitalization, is entirely based on speculative buying and selling. It has no value if there are no speculative buyers, and that day will come.
What really saddens me is that the noble aspirations of Bitcoin being a decentralized, transparent medium of exchange and store of value, have been so totally crushed in the face of crazy bubble scale speculation.
Bitcoin comes into this world at a fixed supply rate. Demand is currently exceeding supply, so the price goes up. With bitcoin so far, the higher the price, the more press is generated, which increases demand, so we have a feedback loop.
The only difference is, demand can change very quickly, causing drastic swings in price. Which then generates press, which generates demand.
Most every crypto currency will follow the same model. As long as enough demand outpaces supply, the price will rise.
The technical term for this feedback loop is "bubble".
No, once put in motion, a pyramid scheme doesn't require a central actor.
> We don't need to make this general comment on every specific Bitcoin thread.
OK, I'll check with you next time before commenting here.
>it promises insane investment returns
Nothing in the Bitcoin spec promises insane investment returns, internet comments saying "buy bitcoin!" are not part of the Bitcoin spec. This is vastly different than a Ponzi and hard to link to Bitcoin itself, even abstractly.
Again, the author relies on many false truths and abstract concepts:
>turning every victim of the scheme into a new principal as they talk up their books for the purpose of recruiting new investors to subsidize their exits
If 1 person has bought Bitcoin or suggested another buy it for any reason other than driving up the price, this is instantly false.
In pyramid and Ponzi schemes, the scheme is not abstract, it is run by actual people. The endlessly rehashed argument that Bitcoin is a Ponzi scheme relies on these actors being represented by abstract notions, like comments on a message board.
FWIW I saw several large buys on the GDAX history today at the $18.4k price point. One was for 36 bitcoins, and I've never seen a purchase over 5. I shortly after saw another for 18.
1.Why don't we try to find new energy sources. ( If I start to travel at light speed, will you still blame me -us, whoever- to use a lot of energy. ) Or should we stand in a state ,we curve dots on the rock, to keep track of our beloved money.
2.Why can't we find another way to fight with crime -or generally bad ,evil whatever you want to define -. If one of -ancient- way of fight fails.
Does constant observation of the subject, is a scientific method to control environment, that you responsible to keep at a peaceful state.
Will you blame god -or some other exterior source of what you believe to make that happen (luck,... )? If you lose one of your eyes, or ear -which is an interface -tool- to collect information around -what ever you believe exterior, external...) Or continue with other -what you have currently- to continue operating in a healthy state.
You should buy and sell some BTC on a big exchange before you make these nonsense claims.
Some examples are plain false (calling "thin" volume when several exchanges see a billion dollars a day).
If the point was that banks will not let you transfer out of the exchange, the exchange will hose you, or your tethers will prove worthless, then the article should have just made that point. BTW the first two are false, obviously no experience actually dealing with big money crypto. WRT to tethers they look like a fraud but only represent one inferior exchange.
Not sure if the upside is as strong but it’s definitely skyrocketed multiples times in the past few weeks without any of the “hassle” of bitcoin trading.
Do you know what's behind a fiat currency? A country
What is behind bitcoin? Thin air.
Yes, it is working really good for some people, but the logic behind it is flawed.
that's plainly false. i'm not sure what exchange he was checking, but spreads for gdax (the biggest exchange) at the moment is 1 cent. https://i.imgur.com/JCQfmkc.png