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> they could literally behind the scenes be betting against you on any single trade using knowledge you don't have.

There are huge suspicions they are doing it. Those big sudden changes in prices are a good way for them to steal leveraged traders

Large sportsbooks balance their risk by tracking whales and sharps and doing this in secret on other sportsbooks

> In such a market the price of any coin may not even be set by a plurality of participants.

Since you can take/give physical delivery of the coin that is not entirely true. Meaning that if you force the price to an unsustainable level (either too high or too low), other smart people will definitely take the other side of the trade.

Not when the buyer and seller are one and the same person.

There's extensive evidence to suggest wash trading, as it's known, is endemic in the crypto space.

It's worth remembering Ben Graham's 1949 parable on Mr. Market:

https://www.fs.blog/2013/11/mr-market/

Basically, every market is basically an insane, irrational, manic-depressive, uncaring business partner who gives you the option to buy his share or sell yours every day, as long as market hours are open (in the age of cryptocurrency, this is 24/7). You are under no obligation to take the transaction, though. If you believe the price is too high, sell. If you believe the price is too low, buy. If you don't believe anything, hold.

Crypto and the stock market are no different in this regard. The short-term price is equally irrational in both. (There's pretty good evidence that wash trading is endemic in the stock market as well - wasn't Goldman Sachs caught taking both sides of a transaction in the 2009 financial crisis? And many derivative strategies explicitly rely upon being both long and short at the same time.)

The difference is that stock market investors have mostly figured out how to value stocks on fundamentals: the intrinsic value of a stock is all the discounted value of all future cash flows accruing to the equity investors. The intrinsic value of crypto is zero, unless, of course, it manages to replace the dollar as the world's reserve currency, in which case its intrinsic value is infinite, or more accurately the dollar's value is zero. Your estimate of the fundamental value of a cryptocurrency should be based on your assessment of the likelihood that it will replace the dollar as currency.

If cryptocurrency replaces the dollar, there's no reason it can't replace the Euro, so maybe a valuation should be extended to the likelihood it replaces all global currency.

A cryptocurrency could replace the dollar; if the Fed decided that it should. My guess would be that this would be called The Dollar, but that some of The Dollar would be issued via the banking system and some of The Dollar as crypto. For this to happen the Fed would need to see that there was a non bank system use case that was economically positive. I see no usecase right now but someone else might think of one.

The same for The Euro - they won't be the same crypto just as they aren't the same fiat now.

Whatever, the chances of Ripple, Ether or Bitcoin being the new dollar or euro are 0, regulators and governments would be literally insane to attempt this, and would be nearly immediately replaced, imprisoned and executed if they did try. So you are correct the valuation for these based on them being the new dollar or new euro or both is the same.

I think it is possible for the fed to make a crypto for a couple reasons. 1) hyperinflation in the regular dollar and they need a method of escape 2) to combat cryptos if they really take off, they would make bitcoin illegal and provide their alternative

Not sure how a new crypto would help in scenario 1, unless is was a "limited tokens" deal like bitcoin, but if cryptos really did go mainstream 2 is likely for me - and a strong reason to be very bearish about the current crop.

I'm not sure the Fed needs to decide if Bitcoin can replace the dollar. Did someone 'decide' that html, http and smtp would become a worldwide standard for citizens interacting with governments and business, covering ~95% of those usecases?

> wasn't Goldman Sachs caught taking both sides of a transaction in the 2009 financial crisis?

Um, no? What are you talking about?

Correct me if I'm wrong, but towards the end of the bubble (2008) GS had insured (bet against) the CDOs that it had previously been propping up.

[1] https://www.huffingtonpost.com/david-fiderer/the-cdos-that-d...

They had insurance on assets they held, sure. They bought the CDOs from some parties and sold (CDS on) them to other parties, like any middleman in any industry. A wash trade is something quite different: buying something from yourself, with no other parties involved in either transaction, to show a trade that manipulates the price.

There's nothing wrong with being in the middle of a line of trades. The crime is when that line becomes a loop and nothing is actually changing hands at either end.

Well, the whole "muppet case" is about GS screwing its customers.

Sure, it's not "taking both sides of the transaction" but it's still screwing investors as a regulated(!!!) banking entity.

https://www.theguardian.com/business/2012/oct/22/goldman-sac...

There is no "muppet case"? The article just seems to be unsubstantiated allegations from someone who didn't get a promotion he wanted and is now trying to sell his book?

The only substantiated thing in that article is the Abacus case which is quite different: the counterparty there was IKB, who are a sophisticated investment bank, a million miles away from "one of these philanthropies or endowments or teachers' retirement pension funds in Alabama or Virginia or Oregon". They didn't get screwed, they bet on the US housing market and lost.

Oh, you're correct.

I read some sarcastic financial blogs and let's just say the "muppet" theme there is recurring when it comes to the "squid" :)

> Your estimate of the fundamental value of a cryptocurrency should be based on your assessment of the likelihood that it will replace the dollar as currency.

Which, for the most part, is impossible. The various blockchain currencies aren't scalable enough to do that.

IMO, most people investing in cryptocurrency don't understand distributed systems programming and money. The rest of the people are just running pump and dump schemes.

Or, what I like to tell people, "if you're investing in cryptocurrency you're either running a pump and dump scheme or you're the sucker."

Are you referring specifically to certain Chinese exchanges where this could be done without a commission? Have there ever been any accusations that U.S. exchanges like Coinbase and Gemini engaged in wash trading?

Are you claiming that in an unregulated market, because of wash trading, it can become generally known that an asset is mispriced such that the mispricing is arbitrarily high?

It seems to me that the market efficiency of unregulated markets depends on many things and your claim is too strong.

This doesn't apply in exchanges really either. They maintain their own ledger so what comes in and out of the blockchains publicly can be whatever they decide. You would need an accurate ledger from inside the operation.

It applies to all these transactions:

https://coin.dance/volume/localbitcoins

There's no way to verify those transactions are actually real, or any indication that multiple people are participating or buying.

Many sting operations have targeted traders on localbitcoin as illegal money transmitters and money launderers.

I think "not entirely true" is an understatement. Bitcoin has a 115 Billion dollar market cap and is traded all around the world in arms length transactions for local currencies and is treated as fungible. Like to gold market people loudly insist that its manipulated but I don't understand how it could be to any large degree when I can go to a pawn shop and buy or sell it anywhere in the world. I'm not sure what central regulatory body would give any greater confidence than that fact.

What's the point of market cap here? It's just (current price)*(number of bitcoins), so if some speculators drive the price up, even if there are low volumes on the exchanges, the market cap will rise by a corresponding percentage.

Hypothetical example: If there is a single trade at say twice the current price, the market cap will double.

It absolutely does not represent how much adoption Bitcoin has.

I would like to see how much "actual" usage there is to Bitcoin as a currency (i.e., sending bitcoin to another person in exchange for goods or services). You seem to believe it's a lot; I don't believe that.

My point only is that the total value is relatively very high and its price would be as difficult for one individual to move around as a large cap stock.

Your hypothetical 1 trade a day isn't reality. Click this link and look at the depth chart. You would need millions of dollars to move the price from 6925 to 6950. https://www.gdax.com/trade/BTC-USD

I don't think its used a lot as a currency now. I think there is a lot of investment in it based on the belief that it will be used as a currency in the future or that it can act as a store of wealth.

  You would need millions of dollars to move the price from 6925 to 6950.

That's not entirely true, the operators of Bitfinex, tether, or any of the early adopters who control a major percentage of BTC could push the market with the amount of influence on the ecosystem they control.

Traders and bots will attempt to arbitrage other exchanges which have unverifiable volume and possibly large amounts of counterfeit capital.

That's not how it works. Most of that liquidity it's anchored at a specific distance away from the price. When the price moves up/down, that liquidity will move with it.

Thus you need much less to move the market, because the liquidity will get out of your way.

regulation, wash trading and whales aside, there's no way to really gauge the 'fair market value' of cryptocurrencies like Bitcoin. Sure, you can take the store of value and gold argument and say that Bitcoin's market cap should be at least that of gold, but with it's volatility it's nowhere close to being a safe store of value. Ask the people who bought Bitcoin as a store of value at $20k

The innovations and tech in the crypto space however has its merits. Regardless of what Bitcoin's price is, there is definitely value in the technology and the r&d that has come after it. People are so focused on the price and the speculation that it's ballooned into a classic bubble burst which is playing itself out right now.

I'd actually argue that people trading the crypto space are actually less crazy than people 'investing' and 'hodling' their cryptocurrencies. Sure, there are degenerate gamblers who overleverage and get wiped out in a single trade, but the true traders are the smart ones. IMO it's crazy to invest in something where it's nearly impossible to ascertain a fair value or quantifiable fundamentals.

> regulation, wash trading and whales aside, there's no way to really gauge the 'fair market value' of cryptocurrencies like Bitcoin

I think you mean "intrinsic value".

"Fair market value" is the value determined by the market, and thus is easily available for Bitcoin (especially if you exclude regulation and wash trading, although the latter has little to no effect on pricing). The fair market value is determined by the real world market, not by any sort of technical analysis of what the price "should" be.

If you did mean "intrinsic value", it's worth noting that this is very much an unsolved problem for almost anything. One of the most interesting market phenomenon out there are "close-ended funds" -- mutual funds that no longer issue new shares, but trade on the open market, much like ETFs. They have a value, the "net asset value" that represents the combined value of their holdings, which are fixed. Where things get strange is that they do not trade at their NAV -- they almost always trade at a discount or premium to that value. If you bought all the shares, then you could liquidiate the company for exactly the value of the NAV, so they should be worth that much, but for some reason, they are not.

Find a person that understands how close-ended funds are priced, and you will find the next Nobel prize winner in economics.

> IMO it's crazy to invest in something where it's nearly impossible to ascertain a fair value or quantifiable fundamentals.

I'd say this fairly accurately described early Facebook

So you are saying that no one knows what is going on but you are making a statement that tells us that you know what it is going on?

Unless you are holding a leveraged position on an exchange, there is no way the exchange can pressure you into a particular trade.

If you have been trading crypto professionally, you'll know that there is around $1bn worth of derivatives market that is hedged against spot exchanges.

Any exchange trying to manipulate the market is at risk of implosion. As these guys are hedged by other trades it has no knowledge and control of.