Worries Grow That the Price of Bitcoin Is Being Propped Up

EDIT: As I was typing a response, your username seemed familiar. Turns out it's not the first time I see you on HN saying sensible stuff. https://news.ycombinator.com/item?id=16268736

I once read (here, perhaps) that Bitcoin is a long demonstration in how regulation comes to exist.

I think many in the Bitcoin community conflate "regulation" with "monetary policy". They assume if bitcoin is treated like money, with laws that protect people from fraud, that must somehow lead to restrictive monetary policy, which the community tends to abhor.

Thats not bitfinex nor tether. Let people choose. If the SEC had its way, bitfinex would have not existed and millions of people wouldn't have been served.

Which is totally irrelevant to the cryptocurrency.

> 3rd party insures crypto holdings.

Yes, approximately 2% of their crypto holdings, so effectively nothing from the perspective of a customer who loses funds if their cold wallets are attacked.

This is a startup website, where thousands of software engineers get paid in lottery tickets that are not regulated, because they cannot sell the lottery tickets (THAT is regulated).

There has been nominally more money coming in to ICO's which are terrible investments than startups in the bay area. Thats how bad SEC regulations are: all that money could have gone to way more promising ventures, but it cant because it is blocked.

There is no problem if you want that level of protection, but rich people dont have it and profit from not having it. You go pay your poor mans tax and let the people that don't want to pay it roam free.

Or worse, the 2008 bailouts, which were the equivalent of today the US government saying they will buy all the tethers on parity from bitfinex so their insolvency doesnt affect the market. I say let the chips fall where they may. If bitfinex is insolvent it should go down, and the lawsuits on fraud should put the people in charge in jail. Nothing else needed.

You? Or Coinbase?

Wait, would it?

If you were an arb wouldn't you:

1) Buy bitcoin on a different exchange (with a temporarily lower price)

2) Transfer that bitcoin to, say, bitfinex (or another USDT exchange)

3) Sell that bitcoin for, say, ETH

4) Transfer that ETH back to the first exchange

5) Profit

Though I guess that would also flood the market and tank the ETH-BTC price as well (though I guess another arb could take advantage of that discrepancy as well).

Or are you talking about exchanges that only do USDT-BTC?

Wow you've drunk some serious kool-aid there.

You need both. A huge volume of nothing is still nothing.

The "you need volume for stability" argument is what pro-bitcoin people used to say when Bitcoin could actually be used as a currency. Many people would say "Bitcoin isn't a legit currency because it's so volatile", and we would say "No, that's only because there isn't enough Bitcoins out there yet compared to USD for example". This was a valid argument and used to be my go-to-comment for convincing people. But that's only when Bitcoin can be used for something.

Now Bitcoin is like a pet rock, it's scarce, but very risky because the value that comes from the scarcity is based on people's perception only and not based on utility.

My point was that if the value is based only on perception (speculative value), this is very susceptible to manipulation.

I can't believe people actually believe just because something is scarce it's automatically valuable.

No.

There was no "old barter system" the way modern people think of it. The idea that pre-commercial economies operated on a "barter system" in the sense that people are directly exchanging goods of similar value is just a simplifying metaphor early economists made to explain how commercial transactions work.

Pre-commercial economies operate more like gift economies. It's not so much about trading objects based on their valuation, it's about doing favors for people with the expectation that they will do favors back for you. It takes strong bonds of social trust and cohesion for this to work. Everyone has to have a sense of obligation to pitch in for the community.

The bartering only comes in as a form of collateral when dealing with outsiders (people you don't trust as much). This is why the earliest form of exchanges in this way were tied to marriages (e.g. dowries, bride prices) or interactions with other political groups (e.g. treaties, armistice).

Barter doesn't actually work, it's basically just a format for giving collateral to make sure people don't welch on deals. Normal currency already solves that problem way better than trust chains based exchange does because the value is obvious and exchanged up front without having to go through any clearing-house to be validated.

In an ideal world where you drive a solar-powered car with a dozen moving parts built by robots from recycled materials, costs would fall to a fraction of what they are now. With the same automation applied across all industries, prices would fall to the point where the opportunity cost for humans to be in debt/servitude to rent-seeking financial institutions would exceed the benefit of using money in the first place.

This is basically what happened on Star Trek and is likely to happen in coming decades with Tesla, Amazon etc as humans can no longer compete with machine labor. Things will cost less but incomes will be so low that we won't be able to afford them anyway. Personally I would argue that that started happening sometime after the late 1960s and has gotten to the point where the status quo can only be propped up by every-growing absurdities on a global scale.

An oldie but goodie:

http://marshallbrain.com/manna1.htm

On of the most interesting ideas I've read on this is from Debt The First 5000 Years, written by an anthropologist who took the approach of studying how societies actually use money rather than the economists approach of coming up with theories without much looking at real people.

Basically he says the idea that it originated from barter is pretty much never found in the historical record. 'Primitive' societies tend more to tally favours so you give someone food one day, it's remembered and they help you fix your roof another, without any formal currency measure. Formal currencies were often forced on people with threats of violence to get the natives to do stuff. Say you want to raise an army you declare a tax on everyone of so many coins which they can earn by feeding or serving in your army and people who don't come up with the tax are attacked in some manner.

Or you come up with some debt everyone owes and that kind of thing. Eg from the book

>In 1895, for example, France invaded Madagascar...

>...and declared the country a French colony. One of the first things General Gallieni did after “pacification,” as they liked to call it then, was to impose heavy taxes on the Malagasy population, in part so they could reimburse the costs of having been invaded...

leading on to in the modern day:

>But owing to IMF-imposed austerity programs, the government had to cut the [malaria] monitoring program. Ten thousand people died. I met young mothers grieving for lost children...

Edit: See what I mean?

So "hired by GS then left on my terms" is actually a pretty good credential.

The value of bitcoin is its decentralisation. As long as there are people running nodes, the network is alive, regardless of what any government or entity in the planet thinks. Being global also means it’s used by people who do not have a stable money store (countries with unstable currencies), and for transfers between borders that would otherwise be impossible.

Thats the inelastic demand I'm talking about: if bitcion finds a use case where it shines above all else, even if it is something like sending money overseas, the demand will be inelastic and with diminishing supply its price will tend to be infinite.

> Second, Bitcoins can be divided infinitely. Today I pay 1 BTC for a car. Tomorrow I pay 0.5 BTC. It really does not matter how many BTCs is the maximum.

So can money and so can land...this is a Zeno's paradox reasoning.

> Land, on the contrary, loses value proportionnaly as you divide it. 50% of the land means 50% of food, water, shelter, etc.

That's not true for land because the value of land is determined by the difference in fertility between lands which is something bitcoin doesnt have as each is the same as any other. But lets assume that is true for the purpose of argument: BTC does not have immediate transactional capacity, that is the limit of use. So if you want to have your operation happen you need to pay for it to happen. And moving more btc is cheaper than moving less btc. So yes, smaller amounts of btc are less useful than bigger BTC.

> Finally, Bitcoin price will never reach infinity because there is a physical limit to the real value Earth and humans can produce.

Its a theoretical concept, much like saying that if there wer eonly 1 cup of water its value would be infinite.

Also, with Bitcoin becoming 'established' I bet everyone who owns more than $1M in cash is considering Bitcoin as a method of alternate banking and transferring funds internationally.

Bitcoin certainly isn't the safest place to store your money, but there is a decent argument to be made that it can be safer to keep 90% cash and 10% btc instead of just 100% cash for some risk profiles. Criminality is one obvious use case, but people who want a plan for how they could flee their country in the case of disaster, financial meltdown, or social unrest would also see advantages: much easier to get a $100k private key through an airport and customs than the equivalent in physical cash.

- An exchange could lie about the trade ticker. That's easy. I don't know what kind of ticker, if any, Bitfinex publishes or whether the market cares about the ticker.

- An exchange could lie about the market data, especially if the exchange has a separate protocol for actual users and for the public at large. It's easy for an exchange to fail to publish an order that should be on the books, and it's even possible for an exchange to show an order on the books that doesn't actually exist. After all, there is no guarantee even on a fully honest and perfectly implemented exchange that you can actually trade against an order just because you see it on the books.

- An exchange that's willing to live on the edge can act as the counterparty to trades, which is quite similar to just pretending that an order has a counterparty when it doesn't. Depending on how this were done, it could result in an exchange's BTC reserves not matching the amount of BTC on deposit. We've never seen that happen, of course :)

- As mentioned in this article an several others, Bitfinex primarily deals in BTC vs USDT. So the combination of Binfinex and Tether likely has the capability buy an arbitrarily large amount of BTC/USDT on their own account.

Here's a potential scheme that could be happening. Bitfinex, Tether, and/or related entities mint USDT that isn't backed by anything. They use it to buy BTC. This has three effects: it raises the price of BTC, it potentially lowers the price of USDT, and it causes them to own a bunch of BTC. This isn't, by itself, terribly useful -- BTC isn't a great asset to hold on to, especially if you expect the price to crash whenever the gig is up. But the bad guys could sell some fraction of the BTC elsewhere in exchange for real USD. This will depress the price of BTC, but, if the fraction sold elsewhere is small enough, the net effect on the real BTC/USD price should be upward.

The interesting bits are the effect of the fraud on USDT/USD and on the price difference between BTC on Bitfinex and the price of BTC elsewhere. The former is a major problem, but, as long as enough people are confused as to what USDT is or believe it to be save, USDT/USD will remain near 1. As for BTC spreads, it seems to me that the effect, if any, would be to push BTC up on Bitfinex. After all, if Bitfinex were engaging in such a fraud, they would probably be buying up more BTC on their own exchange than elsewhere, and BTC is notoriously awkward to arbitrage between exchanges.

If Bitfinex (hypothetically) decided to try to depress the apparent BTC price on their own exchange, I think they could do it in a few ways. One way would be to wait for someone to submit a sell limit order for, say, 1 BTC in exchange for 11k USDT. Then, in the market data, they lie and say that the user is willing to sell 1.05 BTC in exchange for 11k USDT. When someone matches the order and tries to buy that 1.05 BTC, Bitfinex uses their excess of BTC to make up the difference. (Remember, in this scenario, they're selling less BTC for USD than their buying with their freshly minted USDT.)

This is all pure speculation, of course. It's not advice, and it's not an accusation.

(2) They already had BTC and a belief in its future. Making it worth more, easier to exchange for cash and having more of it looks like a win all round if you don't mind committing fraud.

(3) Leverage, provided the BTC price holds up for long enough to cash out. Even if you're printing fake money, you can only print as much of it as people believe you actually have.

(4) BTC price rise income looks like it might be a legitimate income stream when auditors ask about it. Income from selling stuff that's supposed to be backed by a dollar for a dollar is obviously the proceeds of fraud.

(5) BTC holdings can likely continue to be bought and sold even if nobody wants USDT, bank accounts connected to Bitfinex and Tether end up frozen and a rapid change of address and identity is required

Money laundering is often very convoluted and usually costs money, but it's big business.

On the other hand, I would sign up for an ISP knowing full well that their advertised bandwidth is "best effort". I would not sign up with an exchange knowing that their intention to give my money back was "best effort".