To the moon: defining and detecting cryptocurrency pump-and-dumps (2018)

I am not going to defend Tether, I truly wish they disappeared into a ball of fire and took every crook with them.

However, you could avoid the hyperbole. There are ~14 billion USDT minted, and BTC alone is going for a market cap of 500bi. The top 3 "serious" exchanges are all averaging $1bi+ in daily volume (and if you believe they are doing wash trading, Uniswap alone is in the same ballpark and wash trading there would be very costly). Tether is bad, but to think they are able to prop BTC (and crypto in general) to this bubble is delusional.

Also, it's interesting how you downplay the fact that the Fed printed 22% of the dollars in circulation in 2020 alone with the majority of it destined to bail out banks and surely to end up under control of Wall Street. Also interesting how you seem to be so bothered by the lack of KYC/AML of some exchanges and pull the "enabling terrorism" card, yet you see no problem in the Stimulus Bill having 10 million dollars for Pakistan. Perhaps if the crypto projects start saying that the funds are going to gender studies your worries will be eased?

Point being that the scarcity argument of bitcoin is on its own not persuasive.

I used the cheeky example of dog poop because I though it was cute but I guess it was"too cute" and obscured the point.

Incidentally, I hear that there are all these forks and clones of BTC, many of which have strictly limited supply. So, they are also valuable long term investments, I assume?

Personally I am not invested in BTC at all because I have a pretty thorough "short thesis" on it (you can see a bit of it in my comments in this thread.)

I wouldn't be opposed to betting some play amounts on it (I'd bet short, however) - same as money that I had "invested" in prediction markets - not investments in the "I am building my wealth this way" kind of sense.

Also a thought occurs. Many people reading this will think “but these cynics are mistaken. Those who invested in bitcoin have seen massive returns”.

Not so. The paper value of bitcoin is up, but unlike a stock, you don’t own anything. You need someone to actually buy the bitcoin in order to gain value.

Whereas as long as a company has profits, there’s a floor on things. The shares will have real use value so the price can’t fall too low.

Meaning buy bitcoin at $200, own now at $41,000. Only has value if you sell. If everyone tries to sell and no one is buying there’s no floor, none.

Whereas bought Apple at $20, own at $132. The price could fall, but there’s some kind of floor below which it could not fall based on current profits and dividends, and that floor is almost certainly above $32.

So, question: All the other coins, which are also strictly limited mathematically, they are also good long term investments, since they won't inflate too bad? They do all have "an overall growth trend that results from the mathematical scarcity", do they?

Just for fun, I want to share what I conceive as an easy disaster scenario for crypto.

Let's be clear on one thing - the dollar price of BTC is driven by supply and demand. To the extent that more and more people want to buy it, while the available supply for sale is limited, the price goes up.

Let's be soberly clear that the there's another side of the coin - IF there was a case where there were relatively few buyers compared to the supply for sale, the price tumbles.

Then to conceive a disaster scenario we just need to imagine a situation where this happens: where people are selling and there's nobody to buy.

I can easily conceive such a scenario.

Let's first think about who's driving the buying. I guess there are now institutional players but there's also a lot of "wow I heard people made money in BTC so I am going to convince my wife to let me buy some instead of fixing our roof" people. To the extent that such people enter the market, they drive the price up.

At some point, such people will be tapped out of dollars, and the world will be tapped out of such people. In other words, every dollar that someone was going to aggressively/recklessly (from their own position) put into BTC, is already in BTC.

Let's imagine an idealized scenario where no new dollars are going into BTC because of the above, and no dollars are being taken out (because people are HODLing) and ignore mining for this. In this scenario, the price gets "stuck" at whatever level the last trade happened.

Now the thing about people who invest money they can't afford, they very quickly need it. The guy's wife says "the roof has been leaking for 3 months now and you aren't making money in BTC, sell it and fix the roof."

So the guy goes to sell - but there's nobody to sell it to. There's no people sitting on the sidelines because as mentioned above, everyone's already in. So he has to drop the price lower and lower until someone buys it.

Now other people see that the price has moved down. So the prior "greater fool" things "wait, I cashed out my 401k because BTC is going up, but it just sat flat for 3 months and now moved down and I am losing money, OH SH*T, BAIL (or, his wife makes him have this "realization"). So that drops the price even more.

Now there are other people who are looking at this downward movement and going "wait a minute, 3 months ago I felt like I was going to be able to buy an island with my BTC holdings, but now it's starting to look like I can only buy a condo. I better cash some out just in case it slides more because my loss aversion is kicking in and I was bullish before, but now I am experiencing the feeling of "not as rich as I once felt" and it's messing with me.

But this guy doesn't have that many willing people to sell to either, so it keeps sliding and snowballing down.

This is obviously an idealized scenario but you can hopefully see the forces that would cause any bubble to unravel. Once the supply of naive inbound dollars dries out (as it inevitably must), the people who invested last because they were sure it was going to be easy money, get nervous, sell, price slides, that unravels more people who now have something to lose whereas before they felt invulnerable, etc etc all the way down.

I don’t mean that in a “collapse of western civilisation”-sense - I mean it more that Biden may normalise relations with countries where Bitcoin is used for-real because of sanctions or concerns over economic disenfranchisement: if people (and oligarchs) in Russia, Iran and Venezuela can participate in the normative financial systems (SWIFT, Visa, Mastercard, etc) then BTC has far less real utility and thus less value.

Heck, I think if more US states and other countries legalise drugs that would also deal a blow (no pun intended) to BTC’s price.

But to me, a birdseye view of bitcoin is a currency that's created by design to be deflationary, that found a niche as a value store. Sure, there are ups and downs, and also considerable risks long term (regulatory first of all), but it should be noted that pretty much anybody that ever bought btc has lived to see a higher price, regardless of ups and downs. That's what makes it very good for what it does (long term value store).