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Comment by joe_the_user | Hacker News Reader

Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation.

Creating money by printing is not a new thing. Making people believe that the money you've created with whatever hocus-pocus is real and that investment X will just spew money indefinitely is not at all a new thing. It is one very standard old thing.

That by itself doesn't prove bitcoin is this. But in analyzing investment that's rocketing up in value, one should remember that what Hyman Minsky called "speculative finance", ie, bubbles, should not be excluded or treated as "something really weird". "Are X many people really that foolish?" Well, how often has this happened before? There is an answer to that question.

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> Making people believe that the money you've created with whatever hocus-pocus is real and that investment X will just spew money indefinitely is not at all a new thing.

Across so many people, and at BTC's market cap though? I think that's unprecedented. Penny stocks or pyramid schemes, sure, but they never affect this many people or hit 12-digit valuations.

(By the way, fiat money doesn't count as an example because it is backed by a variety of government support structures (which are very much not hocus-pocus) and it does not appreciate in value indefinitely relative to the cost of goods.)

Almost everything that happens today is unprecedented in 'affecting this many people'. It's probably more informative to ask whether it is affecting a larger percentage of people exposed to it than previous examples- and I don't know the answer to that, but I suspect it isn't.

That's an interesting question. Bernie Madoff’s Ponzi scheme is estimated to have lost clients $65 billion. The Bitcoin market cap is nearly double at $107 billion.

But Bernie Madoff's $65 billion is all real dollars paid into the scheme. Bitcoin market cap doesn't track the amount of the money that has been paid into the current Bitcoin market. It simply estimates the current market price, then multiplies that number by the total of number of Bitcoins.

So the amount currently paid into the current Bitcoin market is going to be much, much lower. Experts estimate that nearly 30% of current bitcoins are 'lost' forever in non-recoverable wallets. Also, the gal who bought 1000 bitcoin at 5 dollars hasn't re-paid another $6 million into the system. But, if Bitcoin crashed to zero today, would you also need to account for dollars lost by investors who built mining stations and gear?

I guess we will never know. But, I think it is fair to say that the Madoff scheme is in the same ballpark of Bitcoin.

The apples:apples comparison would be a total of amount of currency converted into Bitcoin.

24h trading volume for BTC/USD (excluding BTC/USDT and all non-USD fiat currencies) is over $500M [1], and has been at that rate or higher since last December. That's over $90B in real money that has exchanged hands for Bitcoin.

It's not quite the same as the Madoff Ponzi scheme, because in that, all the money went into Madoff's firm, and relatively little came out as redemptions. In a trading market, every dollar that comes in from a buyer goes out to a seller (minus exchange fees, which reportedly have netted Coinbase close to $1B this year, again supporting a >$100B trade volume). They can then be used to purchase more crypto later, and show up in the volume statistics again.

But this alone indicates that Bitcoin may be a bit more resilient than Madoff's ponzi scheme; when multiple people get rich off it, there's much less of a single point of failure for the scheme to collapse.

[1] https://coinmarketcap.com/currencies/bitcoin/#markets

That would assume that it is 'different' money changing hands would it not?

I.e. that %500M and $90B is unique dollars being transacted and not just promises being passed back and forth.

It does, and that's an assumption that probably doesn't hold.

Most things in the economy work that way though - the total supply of hard currency in the economy is only $3.6T, so when you speak of the $18T US GDP or the $20T US national debt or the $524T value of the derivatives market, it necessarily accounts for the same dollar changing hands multiple times. That's what makes it a currency, that it can circulate and change hands while holding its value.

Saying the 'value' of the derivatives market is $524T is disingenuous. The notional value - sure, but that's like saying the value of the lottery 'market' is the jackpot times all the outstanding tickets - http://www.newsweek.com/600-trillion-derivatives-market-9227...

That's my point though - that there are a lot of things in the economy where the total dollar value may be high but it's largely the same participants trading amongst themselves, and the contracts net out to some much smaller value. Bitcoin volume and Bitcoin market cap are not unique in this regard.

No exchanges are collapsing so its about as real as you can get. You might ask 'What if everyone withdraws to fiat at once?' I think if you posit that of any stock market the answer would be the same. Cryptos are a pretty pure free market, if it didnt have real utility or value for people the markets would collapse.

Thank you. More people need to realize that market cap is meaningless in the context of crypto. It is just a multiplier of two numbers which makes it sound like a big number and thus interesting (which it is not). You explained it perfectly.

This horse has been beaten, but it trivializes the amount of money that entered late last year. I don't think it's all late money, but the money in BTC is not all "early" either.

It's not meaningless. It's still the only way to roughly compare the size of assets with different supplies.

"Market capitalization is just a fancy name for a straightforward concept: it is the market value of a company's outstanding shares. This figure is found by taking the stock price and multiplying it by the total number of shares outstanding."

At least with bitcoin, there is no company. So, all it is is price * shares outstanding (held shares).

Given that there is some portion of btc that is 'lost' as well as the fact that we don't know what people paid for what is held, I don't see how anyone can come to a conclusion about the "the size of assets with different supplies."

In fact, the definition of market cap says nothing about that conclusion. The description says that it was just a way of grouping companies of various sizes. So, we are back at square zero, bitcoin is not a company.

Maybe I'm totally wrong in my feelings about MC, but at the end of the day, this is not an indicator I would use for TA or popularity of a cryptocurrency. For example, Volume is a much more interesting high level number.

> But, I think it is fair to say that the Madoff scheme is in the same ballpark of Bitcoin.

I was going to comment on this, but I was blocked by my time manager. :(

Current market cap of BTC, at $111M, puts Madoff's scheme at about half of BTC. Compared to BTC's peak in 2017, Madoff's $$ is about a quarter. (supply * rough BTC price of $20,000).

Additionally, Madoff's scheme affected 4800 clients. [0] The amount of users on Coinbase as of late 2017 is about 2400x that amount [1]. So while amount "paid in" is lower, market cap is much higher. The affected userbase is also many multiples higher than Madoff's clientele.

So, my point: the difference in $$ is higher, and the difference in userbase is far higher.

More practically, note: we are comparing BTC to the largest grift in history. That's a lot of money.

[0] https://en.wikipedia.org/wiki/Bernard_Madoff

[1] https://www.cnbc.com/2017/11/27/bitcoin-exchange-coinbase-ha...

As others have pointed out Madoff might not be a solid example as it was a single firm committing fraud vs the possibility of multiple actors abusing a bubble (and possibly committing fraud as well).

It might be closer to the abuse of sub-prime mortgages and mortgage-backed securities. Is feeding a bubble the same as pumping and dumping? Sure can be.

usdt is a usd peg system with no fake money. did you ever read the technical details?

But it's claimed that it's not really a peg system at all - that Tether were fraudulently created while claiming they were pegged.

yes and because someone wrote about it then it's true right? I can't think of anybody wanting to spread FUD to profit from shorting...for the life of me, really. Who is the manipulator in this case?

Except Tether hasn't actually proved they have the cash they claim. So why should we take their word that they're a peg system when they haven't proved it?

The problem is they have never demonstrated they actually have the money. It's very simple really to ask your bank to provide a certified and digitally signed account statement. This routinely happens in audits. Tether has never showed this. So the accusation is that its operation is basically fraud.

> unprecedented

Mortgage crisis?

Sure, Bitcoin is different. But it's kinda the same...

I am not a bitcoin maximalist. But Bitcoin is a new kind of money that no one can take from you. Better than gold, cash or anything that came before in certain circumstances.

That said other tokens have similar characteristics..

Indeed, a cynic would say Bitfinex were just copying the Fed's QE.

Creating tether out of nothing to buy bitcoin is similar to the Fed creating dollars by QE to prop up asset prices.

Indeed, though states have boots and guns on the ground to a last resort backup the value of their currency (including protecting against competition).

So I'd pick "Fed-coin" as the last one to go down.

I've been reading up lately on how fiat money systems work, and it doesn't seem to me that boots and guns really help. Certainly there have been countries with plenty of soldiers who failed to maintain the value of their currency.

You have to pay taxes in the local currency, but if the currency crashes you just have to pay a higher nominal amount of taxes.

You can outlaw competing currencies, but you can only do that in your own country, and it doesn't necessarily keep your official currency from going down the toilet.

It can help. I'd argue that the US-Saudi deal [1] was in part facilitated by the US being able to offer the Saudi regime military supplies and protection. The military is arguably not the dominant factor, but that is a very debatable point. It is certainly a factor.

[1] https://www.bloomberg.com/news/features/2016-05-30/the-untol...

The US' military might is the only reason why all oil is traded in USD and the main reason why the USD holds value.

Ok but what about all the other fiat currencies of the world?

Fiat currency is essentially the government's IOUs denominated in themselves e.g. holding a dollar note entitles you to one dollar from the government.

It only has value because a government can ask others to settle part of this debt or take their property otherwise. Naturally, the amount of debt a government can issue this way is limited by the value of property it can threaten.

Zimbabwe, for example, cannot reach much of valuable property despite having some guns and boots. But the USA is a very different matter.

> Creating tether out of nothing to buy bitcoin is similar to the Fed creating dollars by QE to prop up asset prices.

Sure... if the Fed claimed some secret mega-investor was bankrolling it all, and that of course there are audits but uh they're not finished yet and we fired the auditor but this random guy says he saw our bank account balance so it's all OK...

Actually thats pretty much exactly how the Fed works.

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